Interview: Mel Ydreos
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
IBR: What is hydraulic fracturing?
Mel: Hydraulic fracturing is a process to extract rich hydrocarbons from deep and impervious shale formations. Shale formations are typically 1-3 km below the surface, and are relatively thin compared to the depth drilled. This requires wells to be first drilled vertically and then drilled horizontally through the shale layer to ensure sufficient yield. However, due to the impervious nature of the formation, microcracks and fissures must be created to access the resource in greater quantities. These microcracks are created by sending pressurized hydraulic fluid into the well. Sand is included in the mixture to act as a proppant that holds the microcracks open, allowing the hydrocarbons to be released to the carrier pipes and then to come to the surface.
IBR: Hydraulic fracturing has been practiced since 1949. Why is it only recently that it has harboured so much negative media attention?
Mel: The process has changed significantly since 1949; there is a difference between traditional fracturing and modern-day hydraulic fracturing. Although we have been fracturing for a long time, the process of using water to act as the medium to fracture the formation only started in the mid 90s. Drilling the vertical part of a well is something we have done for over 100 years. It’s the amount of water, the additives in the water, and the way that we treat the backflow that has created the controversy.
IBR: Given that the concerns are largely environmental, is the banning of hydraulic fracturing in countries like France vindicated?
Mel: A moratorium or a ban is the worst way for governments and policy-makers to assess their options in respect to extraction, because it immediately sets up winners and losers. In jurisdictions where there haven’t been many experiences in the extraction of hydrocarbons, studies need to be undertaken and regulatory constructs need to be developed regarding fracking. I firmly believe that the extraction of shale gas can be done safely and with the utmost respect to the environment. However, the infrastructure needs to be there, with the right policy and oversight, and only then can the resource be extracted efficiently.
IBR: Are the horror stories in which homeowners blame fracking for flammable water and poisoned livestock merited?
Mel: There has been a lot of sensationalism raised by the opposition, which has been largely debunked. For example, many claims made in the documentary ‘Gasland’ have been proven false by EnergyInDepth; a research, education, and public outreach campaign created by the Independent Petroleum Association of America. Regardless, these perfidious claims have created public unease surrounding the safety of fracking. I can tell you there are no documented cases where there has been aquifer contamination from hydraulic fracturing.However, even though there are no documented cases where there has been acquifer contamination from the hydraulic fracturing process, in some very rare cases, methane from poorly constructed well casings has migrated to nearby water wells. With the innovations in technology, those extreme circumstances can be quickly rectified.
There are much better practices now that confirms the lack of adverse environmental impact. This includes the testing of water wells before the hydraulic fracturing begins, during the process, and after it has been completed. This provides projects with a baseline to monitor against and allows us to clearly ascertain the validity of environmental impact claims, or if there were preconditions that existed before hydraulic fracturing started in the area.
IBR: How do you think fracking can better communicate the reality of its operations and rehabilitate its public image?
Mel: As an industry, we need to take responsibility and accountability of public communication. Transparency is very important, which has not been done properly in the past. One such example is the disclosure of the ingredients of the hydraulic fracturing fluid. There are both voluntary and mandatory disclosure requirements in many places that are conducting hydraulic fracturing, where a resident can go online, select a specific well, and download a PDF of the composition of the hydraulic fracturing fluid. The industry needs to do a better job at proactively educating citizens and demonstrating transparency, which should improve public image.
IBR: Many of the chemicals in fracking fluids are known carcinogens, and other chemicals of which people are agnostic to their familiar applications. Would disclosing ingredients actually help in all cases or potentially create more fear due to ignorance of the process?
Mel: Transparency is still the first step to improving social acceptance, as many people are unaware that the chemicals used in the hydraulic fracturing fluid (typically 8-12) are in very small concentrations. Standards exist that define the levels of concentration that are acceptable and safe for use. For example, where I reside, a lot of the older water service lines in Toronto are made of lead, and the city has established safe levels of lead concentration in its drinking water, which is continually monitored. Despite all of this, the industry continues to innovate and move towards green completion methods, thereby reducing the environmental footprint of the extraction process.
IBR: What are the standard practices for the disposal of fracking fluid, specifically regarding safety and reducing environmental impact?
Mel: One of the greatest untold stories with respect to hydraulic fracturing and the procedure is the tremendous technological innovation that has occurred and continues to occur. There has been significant innovation in the area of how we handle the backflow in terms of recycling. Backflow released from one well is recycled for use in the next fracturing project, which is becoming a standard practice. Continued focus on innovation in recycling and treating of the fluid will ensure ensure less impact on water sources.
IBR: While water recycling requires less fresh water to be used in future projects, is there a long term environmental concern that the water will be permanently removed from the ecosystem?
Mel: While that is correct, it needs to be contextualized. The amount of water being used on an energy extraction equivalency basis is very small. Also, in the Marcellus, the industry is treating water from contaminated coalmine sites that is technically not considered water in the ecosystem. Piping this water for use in hydraulic fracturing further reduces the impact on an ecosystem’s water supply. In another example, in Northern BC, city waste water is treated and piped to the hydraulic fracturing sites.
IBR: Is potential environmental impact the cost of doing business in natural gas fracking? Is there any way the government can step up to decrease the impact?
Mel: I disagree that there is potential for extensive environmental impact. However, incidents will occur. Gas and oil fracturing is an industrial process, and just like in any industrial process, we attempt by design to mitigate risk. However, with all risk mitigation, there could be things that we didn’t think of, and both human error and material defects can create issues. In terms of shale gas extraction, I am comforted by the fact that we are able to rapidly respond in the event of an incident.
Governments need to impose regulations that address the way that we design and construct well casings. This is one of the most critical issues, because if there is any contamination, it will likely be through the well casing and nowhere else. Regulations that force companies to innovate materials, cementing procedures, and well logging to ensure the integrity of the casing is very important.
IBR: Canada has the 5th largest technically recoverable shale gas reserve in the world. What role do you see Canada playing in the global natural gas market?
Mel: We are blessed with great formations and plentiful resources. However, we are challenged with a very small population, so our resources are way beyond what we need or can consume. Therefore, Canada needs to find markets to export to. The US Shale Revolution further exasperates this problem. The US used to be our only market, but is now less in need of our resources. Canada will be forced to expand to new markets.
Asia is the most lucrative market due to the pricing regime of the resource. To access this market, we need to build the infrastructure, including liquefaction facilities, pipelines, and overseas transportation. These large expenditures require long-term financial commitments, especially considering much of the infrastructure is still greenfield or undeveloped. The federal government and the provincial governments are very supportive of this development. However, in order for development to be sustainable, we need indexed prices that are commensurate to the high investment costs and risk undertaken.
IBR: Do you you see Natural Gas pipelines having less or similar opposition compared to oil pipelines in Canada?
Mel: The pipelines that carry gas to LNG liquefaction facilities transport the gas in a gaseous state and not liquid, which is the major difference between piped gas and piped oil. Therefore, damage to the pipe results in the natural gas venting to the atmosphere versus leaking the liquid to the ground. This is one of the reasons they have more support, as they have less ability to create immediate local impacts on the environment.
IBR: Do you think that the lower oil price, as well as the lower natural gas price, played a role in the development of shale gas internationally?
Mel: The current oil price situation has certainly affected the energy industry, regardless of if it’s oil, oil extraction, or gas. Companies globally are reducing CapEx by at least 20%, in many cases 40%, of their intended CapEx. In addition, weak demand due economic uncertainties around the world is limiting development.
This dip may last longer than many expect, but considering population growth and future energy demands, there is no doubt that prices will rebound. We will need more resources, and the price will rise to the point where we will be able to once again make the significant capital investments that are needed to ensure that we have adequate supplies for the future.
