Shale gas, time for traditional risk assessment, part II

If there is ever a question of whether fossil fuels will survive the rise of renewable energy, we only need to look at the decimation of whales to understand resource depletion. The industrial harvesting of blubbery wales resulted in their near extinction from the sea in the mid-1900s (podcast). It is a stark and exaggerated comparison, but it serves the point to demonstrate the industrial drive that occurs for extracting the earths resources. It is now time to see that renewable energy, energy efficiency and even the concept of peak oil will not stop the resource drive for oil and gas. Just as the green energy movement is riding on technological advances, so is oil and gas.

Part one of this article on shale gas laid the foundation for a risk assessment. Do the laws of gravity actually apply to the high-flying shale gas industry and all the media hype? Yes, laws, regulations and even social support constrain and direct shale gas investment. In part two, of this article I will now address two types of risks that I had not expected to apply to the shale gas industry, technological lock-in and institutional lock-in. The risks on environmental compliance and regulatory risk, are the ones that jump out the most. But it is better to go deeper into these less addressed risks to understand the more obvious.

Technological advances for ‘unconventional,’ ‘tight gas,’ or ‘shale gas’ stem from (the obvious) movement from ‘conventional gas’. Technology keeps advancing. The price of oil is only on an upward trajectory. Gas is now the alternative fossil fuel; but security of supply concerns must be addressed at reasonable market prices. This can be done by using more advanced technologies to extract gas. In this review of emerging oil and gas technologies, gas to liquid technology can fuel cars, or in this review of shale technology, extraction of gas and oil from ‘super fracking’ becomes even more efficient. Both demand and supply sides of fossil fuels are now adjusting to market and technological conditions and potential.

If there are advances in technology, then why would technological risk even be an important factor to consider? My previously developed definition of technological lock-in (altered from Gregory Unruh’s, 2000 & 2002) is, “Perpetuation of a dominant design that is inferior to newer technology. Industries that have a significant systemic-technological relationship are most susceptible, due to buffered market forces.”  

Technological lock-in can also emerge through ‘institutional lock-in‘ which understands that regulatory (or other state) institutions only change slowly to protect past investments in the energy sector. Due to social and political considerations state institutions may prevent the roll-out of newer technology.  Older approved technologies will need to be used, even if output declines due to resource depletion. In this consideration, owners of other types of technologies may want to prevent the deployment of newer technology.

There is strong social and political resistance to shale gas extraction technologies, as seen in France and Bulgaria that have bans on the technology. The recent report on the legal framework  in Member States highlights the nascent industry of shale gas in Europe. With only Poland moving ahead strongly, but currently with very small production levels. The report demonstrates that there is scope for improving environmental and public review of shale gas projects (despite media reports that currently not much needs to be done).

The supporters or geopolitical energy realist, may have been caught off-guard and the quick introduction of shale gas bans. But there is now public and private push back against these bans, and no doubt there will be a reconsideration of the role that shale gas (and oil) play in national energy strategies. In France it is possible there will be a re-examination. In Bulgaria a group of energy experts see the current energy policy short sighted, with shale gas as a potential booster to the country’s energy security issues – with now almost total dependency on Russian gas. Just as Poland sees the drive for greater energy security lying in shale gas, so may Bulgaria.

Lock-in or lock-out of gas technologies?

Improvement through the technological process of fracking and shifts in state institutions, through greater environmental reviews and a broader understanding of the benefits and drawbacks of shale gas technologies all influence deployment. As the technology of fracking improves, the industry becomes more knowledgeable about the local geology and political/public landscape, and as state institutions introduce regulatory safeguards – responding to public concerns, shale technology will become more widely deployed. Mitigation of the more obvious regulatory and environmental risks emerge from addressing the technological and institutional risks.

This debate and discussion is set on the background of the geopolitical landscape of energy independence. Technological advances are not only for solar and wind power, the dominant position the fossil fuel industry and its ability to innovate and evolve, reflecting market and political-social realities, this should not be underestimated. The future energy mix – realistically, continues to rely on fossil fuels, resource depletion is the end-game, but improved innovation and technology will ensure it continues to compete and (hopefully) contributes to a cleaner and low-carbon energy future.

 

Citations:

Unruh, Gregory C., 2000. Understanding carbon lock-in. Energy Policy 28 (12),
817–830.
Unruh, Gregory C., 2002. Escaping carbon lock-in. Energy Policy 30 (4), 317–325

I have to thank the Atlantic Council’s Emerging Leaders in Environmental and Energy Policy (ELEEP) online group for some of the articles cited here – and also a source of inspiration for exploring this topic more.