European Union: Commission Issues A Communication And Recommendations On Shale Gas Exploration And Production

On 22 January 2014, the European Commission has issued a Communication on the exploration and production of hydrocarbons using high-volume hydraulic fracturing in the EU (the Communication) and Recommendations on minimum principles for the exploration and production of such hydrocarbons (the Recommendations).

1. Background

Both documents have a non-binding effect and follow the European Parliament and Council resolutions of 2012 and 2013. According to the EU Treaty, Member States have the right to determine their own energy mix and to opt out of developing any type of natural resources.

The Communication recognizes that moving ahead towards a low carbon economy in the current context of rising energy prices, increasing global competition for natural resources, and instability of security of supply requires addressing these challenges, especially since the import dependency of Europe is forecasted to continue growing beyond the 67% mark reached in 2011. As some regions of Europe are considered to have substantial reserves of unconventional gas (especially shale gas), some member states have already been actively pursuing shale gas exploration.

As a result of a public consultation organized by the Commission last year, the majority of the respondents considered that the Commission should take additional actions related to the development of shale gas in Europe. In addition, the European Council of May 2013 called for the development of indigenous energy resources to reduce Europe's external dependency and stimulate economic growth.

According to the Communication, although the EU will not become self-sufficient in natural gas (as has been the case with the US) in a best-case scenario, shale gas could contribute almost half of EU's total gas production and meet 10% of its gas demand by 2035. In the same scenario, shale gas would hold approximately 3% of the energy mix in Europe by 2030, but the direct effect on the European regional gas market is likely to remain moderate.

So far, there is no experience with commercial production of shale gas in Europe and only limited experience with exploration.

2. The minimum principles

The scope of the Recommendations is to present minimum principles to support those Member States who wish to pursue the exploration and production of hydrocarbons using high-volume hydraulic fracturingi (commonly referred to as "fracking"). The Recommendations are not limited to shale gas and apply to all types of hydrocarbons that require high-volume hydraulic fracturing for extraction and production.

The principles are not binding, but the Commission encourages Member States to adapt their legislation and implement these principles prior to any exploration activities.

2.1 Strategic planning environmental impact assessment

  • prepare a strategic environmental assessment to prevent, manage and reduce the impacts and risks for human health and for the environment, following the requirements of Directive 2001/42/EC.
  • provide the public with the opportunity to participate in developing the strategy and the impact assessment.

2.2 Exploration and production permits

  • ensure coordinated conditions and procedures for obtaining the exploration and production permits.

2.3 Selection of the exploration and production site

  • set in place measures to assess and ensure that the geological formation of a site is suitable for fracking.
  • operators should perform a risk assessment of the effects of fracking on a potential side, as well as the surrounding surface and the underground area. The risk assessment should identify all potential exposures, including any risk of leakage or migration of the drilling fluids, fracking fluids, naturally occurring materials, hydrocarbons and gases from the well, target formations, and the seismic risk. The risk assessment should be based on the best techniques available throughout the EU.
  • a site should only be selected if the risk assessment shows that fracking will not result in a direct discharge of pollutants into groundwater, and that no damage is caused to other activities around the installation.

2.4 Baseline study

  • The operators should determine and present to the national regulatory authority a baseline study of the installation site, the surrounding surface area, as well as underground area potentially affected by the activities. The study should address issues such as: quality and flow of the surface and ground water, quality of the drinking water, air and soil conditions, land use and seismicity, biodiversity, status of infrastructure and buildings, existing wells and abandoned structures.

2.5 Installations design and construction

  • the installations should be constructed so that surface leakages and spills to soil, water and air are avoided.

2.6 The infrastructure of a production area

  • adequate infrastructure requirements are to be set in place before the production phase.
  • for the oil wells, the operator should set in place a specific infrastructure that captures and transports associated natural gas.

2.7 Operational requirements. These obligations should be imposed on the operators:

  • develop project-specific water management plans, and ensure the traceability of the water flows. Water sources under stress should be avoided.
  • develop transport management plans to minimise air emissions, and the impact on local communities and biodiversity.
  • capture gases for subsequent use and minimise flaring and avoid venting. Venting of methane and other air pollutants should be limited to the most exceptional operational circumstances.
  • perform fracking in a controlled manner with the objective to contain fractures within the reservoir and to avoid induced seismicity.
  • ensure well integrity through design, construction and tests. The results of the test should be reviewed by an independent and qualified third party.
  • develop risk management plans.
  • cease operations and take any necessary remedial actions in case of loss of well integrity or if pollutants are discharged into groundwater.
  • immediately report to the competent authority in the event of any incident or accident affecting public health and the environment.
  • Member States should promote the responsible use of water resources.

2.8 Use of chemical substances and water

  • manufacturers, importers and downstream users of chemical substances used in fracking should refer to hydraulic fracturing when complying with their obligations under the REACH.
  • the use of chemical substances is to be kept to a minimum.
  • treating fluids that emerge at the surface after fracking has to be considered and addressed as part of the process of selecting the chemical substances.

2.9 Monitoring requirements

  • operators should regularly monitor the installation and the surrounding surface and underground area potentially affected by the operations during the exploration and production phase and, in particular, all along the fracking process.
  • the baseline study should be used as a reference for subsequent monitoring.
  • the operator should also monitor: the composition of the fracking fluid for each well, the volume of water used for fracking and the pressure applied at each well, the fluids that emerge at the surface, air emissions of methane and other volatile compounds.

2.10 Environmental liability and financial guarantee

  • all activities taking place at the installation fall under the regime of environmental liability (Directive 2004/35/EC).
  • the operators should provide a financial guarantee covering the permit provisions and potential liabilities prior to any fracking operations.

2.11 Administrative capacity

  • the regulatory authorities should have the adequate human, technical and financial resources to carry out their duties.
  • prevent any conflict of interest between the regulatory authorities' duties and those of the Member State in what concerns the development of natural resources.

2.12 Closure obligations

  • a survey should be carried out after each installation has been closed to compare the environmental status both before and after fracking.

2.13 Dissemination of information

  • the operator should make available to the public information on the chemical substances and volumes of water that are intended to be used and the ones that are actually used. The information should list the name and the Chemical Abstract Service number of all substances included.
  • the national regulatory authorities should publish the information on a publicly accessible internet site within six months of the publication of the Recommendations.
  • any incidents, as well as the results of the inspections, should also be made public by the regulators.

3. What's next?

The Recommendations have already faced criticism from notable environmental NGOs on account of their being non-binding.

The Commission invites those Member States that wish to allow exploration and production of shale gas to effectively apply these minimum principles in a recommended time frame of six months as of the publication of the Recommendations, and to send an annual report to the Commission on the measures set in place. The first reports should be sent by December 2014.

The Commission will monitor the application of the Recommendations by the Member States and make available a scoreboard for comparison.

The Commission is expected to review their effectiveness 18 months after publication, and decide whether it is necessary to put forward legislation on exploration and production of unconventional hydrocarbons.

The Communication and the Recommendations can be accessed here.

Footnote

1 Injecting 1,000 m3 or more of water per fracturing stage or 10,000 m3 or more of water during the entire fracturing process into a well.

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