WTI Crude


Brent Crude


Natural Gas




Heating Oil


Rotate device for more commodity prices

The Arguments for and Against Shale Oil and Gas Developments

The Arguments for and Against Shale Oil and Gas Developments

The energy debate is full of controversy. Whether it is about the pros and cons of renewable energy, nuclear power or fossil fuels (FF) there are a range of arguments made on either side. If it was clear cut which arguments were best, there would be no controversy to discuss. And so it is the case with shale developments, some strongly in favour, some violently opposed. How are we going to solve our energy crisis?

The concept of energy crisis has entered the psyche of many in the developed world. Do we understand the origins of this crisis? In fact, is there an energy crisis at all? You only need to read the introduction to David MacKay’s gold plated book, “Sustainable Energy Without the Hot Air” to learn that there are in fact two flavours of energy crisis at large. The first is the one that is in the press and in the minds of many politicians and that is the legal imperative for many countries to reduce their carbon dioxide (CO2) emissions relative to the value of 1990. The second is peak oil, where a version of that reality sent oil prices sky rocketing from $20 to $150 / barrel in the period 2002 to 2008, settling back to about $110 / barrel (Brent) in the post financial crash recovery. The rise in oil prices dragged the price of most other major energy sources up with it, and it is this real world rise in energy prices that concerns the “man on the street” in most OECD countries, while the authorities are pre-occupied with cutting emissions.

Overlaid upon this real world rise in energy prices, the result of demand rising more rapidly than supply, has been the bizarre behavior of OECD governments seeking to implement strategies to curtail the use of FF when naturally high prices were already doing the job. The two strands of strategy – CO2 emissions reduction and peak oil (which has morphed into the euphemism called energy security) have become complexly intertwined. And it is against this sketch of the global energy system that we must measure the pros and cons of shale oil and gas developments.

The shale oil and gas “miracle” of the USA was not inspired by the Green movement’s desire to reduce global CO2 emissions. It was inspired by the ‘drill baby drill’ mantra designed to reduce US dependence on imported FF, mainly oil. And boy, has this strategy worked (Figure 1). But at what cost? And is it a robust long term solution? Shale sceptics point to the high decline rates of shale wells and the fact that much of the shale industry has been financed by mounting levels of debt. Indeed, until the extreme cold winter of 2013/14 pushed demand for gas higher and prices with it, much of the shale gas produced in the USA was produced at a loss [1, 2]. Over supply of course does not undermine the viability of shale gas, in fact, over supply is more a sign of abundance.

U.S. Oil production by source

Figure 1 The chart produced by James Hamilton [3] shows crude oil production in the USA according to area and type in millions of barrels per day. The long-term decline following the 1970 peak was interrupted by the addition of Alaska in the 1980s. More recently the addition of tight oil (shale oil) has had a spectacular impact. Tight oil production will peak one day; the question is at what production level and when? When US tight oil production does peak US production will most probably carry on down although onshore production from the lower 48 states has stabilised in response to high oil prices. Note that BP report US crude+condensate+NGL production at 10.0 million bpd in 2013. This chart based on EIA data is showing crude oil only.

Time lags between drilling shale wells and fracking them and further time lags to hooking production to a pipeline makes it difficult to analyse the US drilling statistics. But post 2008 crash there has been a huge migration of rigs away from drilling shale gas to drilling shale liquids in the Bakken and Eagle Ford plays (Figure 2). Since 2012, US gas production has been maintained with 400 drilling units, down from a pre-crash peak of 1600 units. It still remains to be seen if 400 drilling units are sufficient to maintain production long-term.

USA rig count and natural gas production

Figure 2 In 2008 the USA had roughly 1600 rigs drilling for gas and 400 rigs drilling for oil. Following the 2008 financial crash there has been a major adjustment with about 1400 rigs drilling for oil and 400 drilling for gas. Gas production is on a plateau since there is currently nowhere for additional production to go. Presumably the 400 rigs drilling shale gas are sufficient to maintain the 2.6 TCF per month plateau for the time being. For comparison, in 2013 there were around 135 rigs operational in Europe and 246 rigs in the Asia Pacific region. A large part of the shale success in the USA is down to the application of American muscle.

The USA achieved self-sufficiency in gas and is perhaps marching towards self-sufficiency in oil (Figure 1) with relative ease, although massive drilling resources were brought to bear (Figure 2). This is the key argument in favour of shale gas developments. Shale can provide energy security and jobs and create individual wealth, in the USA at least, where land owners also own the mineral rights. This latter point is fundamental to the success of the US industry. Land owners want companies to drill for and discover resources on their land, it may make them rich. In a country like the UK, those living on the land see only potential risks from drilling shale with few, if any personal benefits and individuals are therefore inclined to object to drilling.

Fracking Concerns

So what are these public concerns in Europe?  And where does a country like Australia stand? Concerns come under five main headings:

1. Seismic activity associated with fracking appears to be a reality and actually halted activity on one of the UK’s first wells before it could be completed. I believe that individuals who live above and perhaps own property on land above fracking operations have a right to be concerned if the fracking sets off minor earth tremors. To what extent tremors represent a real risk to life and property is hard to judge. I suspect that minor tremors will turn out to be harmless. Equally, it is difficult to judge if tremors should be allowed to halt shale exploration activity. This is really an issue that requires objective judgement from professionals working in the Geological Surveys of the countries in question.

2. Ground water contamination is another legitimate concern that again needs to be evaluated on a case by case basis. Contamination concerns arise from drilling operations and from “fugitive gas” that is mobilised by fracking operations. In the Marcellus Shale play in Pennsylvania, one study has shown higher methane concentrations in drinking water wells that lie close to fracked wells [4].  Ground water contamination first and foremost needs to be assessed on the basis of whether or not a well penetrates drinking water aquifers and if it does that the appropriate arrangements are made to ensure that contamination does not occur during drilling. Protecting aquifers from fugitive methane is a different issue that is more difficult to control if it takes place. But the risk needs to be properly assessed. A small but measurable rise in methane, whilst undesirable, does not necessarily represent a hazard.

3. Disposal of drilling and fracking fluids that may contain a range of chemical substances is a further source of environmental concern. Dealing with this issue has become routine in the USA and can be dealt with appropriately in other countries, so long as an appropriate regulatory regime is in place.

4. Disruption during drilling and pipe laying activities is a further source of concern. In large parts of the USA, that are sparsely populated wide open spaces, this concern has tended to be less relevant but in more densely populated areas like Pennsylvania and rural England larger numbers of people become impacted by hundreds of truckloads of materials and the influx of workers. Some will view this increased economic activity as a benefit, for example the local pub owner, while others may view it as a scourge, for example the couple newly retired to a cottage in the country.

5. Fugitive methane from fracking operations adding to atmospheric greenhouse gasses. Fracking is designed to release methane or liquid hydrocarbons from tight rock. The idea is oil or gas may flow through fractures into the wells drilled to produce them. But they may also be released into natural fault zones that connect to the surface and be released to the atmosphere instead.

How does an individual or a community weigh all of these risks? On the one hand we need energy supplies to power industry and to keep us warm and comfortable and on the other a range of potentially negative outcomes that may affect some more than others. One way to look at the negative outcomes is to appreciate that the production of conventional oil and gas may lead to seismic activity (for example in northern Holland [5]); drilling conventional oil and gas wells has the potential to contaminate ground water supplies; drilling fluids from conventional wells need to be disposed of in an environmentally benign way; conventional drilling may lead to disruption; and, oil and gas are continually leaking naturally from the surface of the Earth into the oceans and atmosphere without our assistance and without our noticing.

The discussion around shale developments, therefore, boils down to the scale and intensity of that activity. Shale wells tend to require significantly more men, machines and materials to drill than conventional wells and well productivity is normally much lower compared with wells drilled into a newly discovered conventional oil and gas province. The trouble that the OECD is facing is that targets for profitable conventional drilling are getting fewer and further between and oil and gas field declines have been taking production ever downwards for many years. Shale developments, even though they are less productive, have offered a way of increasing production, but it has meant drilling thousands and thousands of wells. Thus, individually, each of the negative outcomes with shale drilling may apply equally to conventional drilling; it is the greatly increased intensity of drilling activity associated with shale developments that is the legitimate cause for concern of populations living in shale development areas. In the USA, the flow of wealth into these areas has tempered the concerns of the incumbent populations and there must surely be lessons to be learned there.

No such thing as a free lunch in energy

A popular theme of mine is that there is no such thing as a free lunch in the energy world. OECD societies and economies, and increasingly developing economies, owe their existence and prosperity to the energy derived from fossil fuels and to a lesser extent nuclear and hydroelectric power [6]. The citizens and governments of these countries need to learn and understand the basic fact that it is affordable energy and not money that provides succour for commerce and citizens alike and that no matter what we do there will be a price to pay for the benefits of harvesting energy from Earth. If it is not going to be shale developments then it will have to be something else.

The super concentrated, super giant FF resources of 100 years ago are depleted and, as time has marched on, Man has been forced to use progressively less concentrated, lower grade resources than in the past with the inevitable consequence that the foot print of that exploitation has increased. First the tar sands and now shale are the latest manifestation of this march towards less and less concentrated energy.

It is against this backdrop that individual countries or states need to make a decision about whether or not they wish exploit the possible shale resources that may lie deeply buried beneath the surface. Herein lies the crux of the debate for society. It is often the case that it is of strategic importance that a country may need to secure affordable supplies of energy for its people whilst it may be a small minority of those people that may object to and obstruct the development of a resource to the detriment of the whole society. Governments and citizens must realise that if it is not to be shale then it will have to be something else. At present nuclear power offers the only viable alternative way of providing electricity, heat and light in countries faced with growing competition for FF supplies.

CO2 Emissions

The account given above of the localised negative aspects of shale development does not take into account the global perspective of CO2 emissions and potential impact upon Earth’s climate. And it is here that the shale debate meets a great climate change paradox. The warming community, be they climate scientists or government agencies have somehow reached the conclusion that burning natural gas, albeit shale gas, is good by which they actually mean it is preferable in their analysis than burning coal. This is because the C-H bonds of methane liberate much less (about 50% of) CO2 per TWh of electricity produced than burning the C-C bonds of coal.

This boils down to the rate of CO2 emissions production. Burning gas slows the rate but not the ultimate amount of emissions. To meet politically set emissions reduction targets burning methane is preferable to coal. But to reduce the ultimate amount of total emissions, burning shale gas is absolutely the last thing any government proclaiming climate concern should contemplate since this introduces to the global FF budget a whole new slab of fossil carbon to burn. This sends one clear message. Climate science and the energy policies based upon it are totally confused because they are based upon flawed science.


And so to conclude I want to try and place some of the foregoing complex web of considerations into an Australian context. Australia is one of the world’s big energy producers and exporters. According to BP 2014 the Australian energy balance sheet was as follows:

Australia Million tonnes of oil equivalent

Figure 3 In 2013 Australia exported the equivalent of 217 million tonnes of oil. Shale gas developments in a country like Australia, that have a perceived negative impact upon some of the country’s population, would in my opinion be difficult to justify, since Australia has no burning need for more gas. Shale oil developments should perhaps be viewed differently since an argument can be made that increasing oil production may enhance Australia’s energy security.

In 2013, Australia had net exports of 217 Mtoe. There is a complex set of arguments to be made around CO2 emissions accountability linked to the production and export of FF that I do not wish to go into in this article. It suffices to say that Australia exports large quantities of CO2 and has set in motion legislation to abolish the 2011 Clean Energy Act and associated carbon tax [7].
It is worth noting that Australia has significant oil imports whilst exporting significant volumes of gas and this I believe should have bearing on the shale debate in Australia. Liquids developments are arguably more important for national security than gas and should accordingly be viewed more favourably by the population and by government.


1). The technological development of the human population of 7 billion is derived almost entirely from the fact that we harvest energy from the Earth which will inevitably carry costs.  The future course of our energy system must weigh the benefits of having access to sufficient supplies of affordable energy against these costs.

2) Shale oil and gas developments in populated rural and urban areas may lead to legitimate concerns among those populations that should not be ignored or over ruled. There are ways to negotiate an acceptance for vital resource exploitation.

3) There is no universal answer to the shale development and fracking question.

[1] Breaking Energy: Ken Medlock, Senior Director of Rice University’s Baker Institute Center for Energy Studies
[2] Energy Matters: What is the real cost of shale gas?
[3] James Hamilton on EconoMonitor: Keeping Oil Production From Falling
[4] Increased stray gas abundance in a subset of drinking water wells near Marcellus shale gas extraction
[5] Earthquakes Force NAM to Reduce Gas Production from Groningen Field
[6] Energy Matters: Energy and Mankind part 3
[7] Promise check: Abolish the carbon tax

By Euan Mearns

(Source: Energy Matters)

Back to homepage

Leave a comment
  • fred clark on September 09 2014 said:
    Excellent article. Thanks to the author for clarifying the areas of contention and the reason for the disagreements.
  • Gavin on September 09 2014 said:

    you make no mention of the open-cut, ex-situ type of shale development?

    I understand that this is only a small component of the energy mix, but may have a higher degree of public acceptance, being that no fracking is involved and a cleaner fuel is produced.

    Any thoughts on this in the Australian context?



Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News