Will Foreign Fracking Flourish or Fizzle?
Apr 17th 2012 1:29PM
Updated Apr 17th 2012 4:52PM
Last week I discussed the progressively more contentious world of hydraulic fracturing in the U.S., with its level of disagreements likely to escalate even more as the overzealous EPA unloads a new set of regulations on the oil and gas industry and its fracking efforts.
What you may not have known, however, is that there's a second three-ring fracking circus being operated. It involves countries outside the U.S. that are interested in duplicating our success in blasting our natural-gas reserves to the stratosphere. On the other side of the coin are the likes of France, Germany, and Bulgaria, all of which have posted "No fracking" signs, based on the real or imagined dangers of the technique. Beyond that, all three international circus rings currently appear to be occupied by Poland, England, and China.
Doing the Polish frack
In the place the locals call Polska, Donald Tusk, the nation's pro-business prime minister, is pushing mightily for an all-out effort to drill and frack, with an eye on escaping the frequently bullying tactics of Russia's Gazprom, which supplies about two-thirds of his nation's gas. Among the U.S. majors, ExxonMobil (NYS: XOM) has obtained several of the 100-plus drilling permits issued by the country. Thus far, however, Exxon has met with little success in its early efforts to coax natural gas from its hiding place in Polish shale.
Indeed, ExxonMobil CEO Rex Tillerson noted last month that the U.S.-proven approaches to fracking may have to be altered for success in Poland or even in China. "Some of the shales don't respond well to hydraulic fracturing," Tillerson said. "It's going to take research and time in the lab to understand that." Beyond that, with an outcry from environmentalists reaching a crescendo in many parts of Europe, Exxon has called for those involved in fracking to openly disclose the makeup of the chemicals used in their processes, as has become de rigueur in the U.S.
Tillerson's clarion call obviously results from the contentiousness across Europe regarding fracking's perceived potential for groundwater contamination. Just last week a report released by Boguslaw Sonik, a Polish member of the European Parliament, or MEP, concluded that existing laws regulating shale gas extraction are adequate and the European Union need not add to them. Sonik may have precipitated something of a sonic boom, as he was quickly challenged by Reinhard Butikofer, a German Green MEP. According to Butikofer, Parliament's industry committee will soon produce another report with considerably different conclusions.
An Austin-Warsaw agreement
Perhaps it's my Texas roots, but I'm inclined to lend credence to a still-recent study by the Energy Institute at the University of Texas, which found that contamination of drinking water from shale operations wasn't tied to fracking. Instead, the Austin researchers pointed to poor well construction and inept maintenance as the culprits. The Texas study's results also conform to those of another analysis conducted by the Polish Geological Institute in Warsaw with assistance from oil-field services kingpin Schlumberger (NYS: SLB) .
Shakeup in the U.K.
The situation in the U.K. is also at least semi-chaotic. Last year Cuadrilla Resources, a small British independent, chalked up a big natural-gas find in the Bowland Shale, near the northern seaside town of Blackpool. Early estimates indicated that the little company had adeptly fracked itself into a discovery that could total a whopping 200 trillion cubic feet of natural gas.
But as has been the case in other venues (Arkansas and North Texas, for instance), Cuadrilla's operations apparently set off a pair of minor earth tremors nearby. Partly as a result, shale-gas drilling in the U.K. continues to be buffeted by activist groups like Frack Off, which a couple of weeks ago issued a statement that, as The Wall Street Journal has noted, said that the industry's "estimates of the recoverable shale-gas resources are inflated and their exploitation doesn't justify the 'extremely negative consequences for the communities and the environment.'"
For its part, Cuadrilla is combining community outreach with the local citizenry -- a sort of fracking relations program -- with the application of hundreds of sensors that will immediately halt drilling when they detect abnormal seismic activity. Especially in the face of Cuadrilla's initial success, responses to its two-part effort will speak volumes about fracking's future with the Brits.
So will the technique expand successfully across Europe? "Don't hold your breath," says Ben van Beurden, who runs Royal Dutch Shell's (NYS: RDS.B) chemicals unit.
Playing China's more positive picture
The outlook is more positive in China, where the powers that be are gearing up to frack their way into unconventional gas deposits that appear to equal about half of our own ample cache. Shell and PetroChina (NYS: PTR) announced positive operating results in Sichuan province in December. And more recently, Total (NYS: TOT) has disclosed a pact with the Chinese wherein it will exchange 2% of its ownership for an opportunity to work with the Sinopec Group in shale-gas development and refining operations in China.
Clearly, environmental sniping among its citizenry is not in the cards for China. As such, if the country doesn't present geological surprises, both Shell and Total could have a figurative field day in developing portions of the 25 trillion cubic meters of potential recoverable shale-gas reserves thought to exist in the country -- an amount that exceeds that of any other nation.
So while the rest of the world attempts to determine its fracking future, I urge Fools to watch Shell and Total do their thing in China. You can keep close tabs on them both by simply clicking the links below.
At the time this article was published Fool contributor David Lee Smith doesn't own shares in any of the companies named in this article. Motley Fool newsletter services have recommended buying shares of ExxonMobil, Total, and Schlumberger. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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