Hydraulic fracturing, or fracking, has hardly been the darling of the environmental movement. Plagued with such ominous-sounding concerns as fugitive emissions, induced seismicity, and groundwater contamination, fracking has emerged as something of a dirty word in many quarters. Yesterday, a new coalition of environmental groups and fracking companies opened for business, and it may be about to change things.
A kinder, gentler drilling
The Center for Sustainable Shale Development, or CSSD, aims to foster continuous improvement and innovative practices in fracking operations by way of voluntary performance standards and third-party certification. The CSSD's first corporate partners are Chevron (NYSE:CVX), Royal Dutch Shell (NYSE:RDS-A), Consol Energy (NYSE:CNX), and EQT (NYSE:EQT).
These companies have agreed to a set of 15 voluntary standards in their fracking operations in the Marcellus Shale. While Marcellus is the nation's largest shale play, located in the Appalachian Basin, it's still just one among many. Nevertheless, if this is the beginning of a movement, it has to start somewhere.
The 15 standards are highly detailed and take into account such factors as topography, geology, varying technologies, and more. If you want to get into the nitty-gritty, check out the full document. If we sum up the main points, the standards initially address two broad categories. To protect the air and climate, companies agree to:
- Limitations on flaring, the practice of burning off excess gas during oil extraction, which releases methane -- a potent greenhouse gas -- into the atmosphere.
- Use of "green completions," which allow the capture of natural gas at the wellhead as an alternative to flaring.
- Reduced engine emissions.
- Emissions controls on storage tanks.
To protect the surface and ground water, companies agree to:
- Maximized water recycling.
- Development of groundwater protection plans.
- Closed-loop drilling, which eliminates the common practice of storing waste fluids in open pits, thus greatly reducing the risk of toxic leaks and emissions.
- Well-casing design, also aimed at preventing leaks.
- Groundwater monitoring.
- Wastewater disposal.
- Reduced-toxicity fracturing fluid -- in addition to water, various chemicals are used in the fracking process.
What's in it for the companies?
Why would a for-profit company sign on to something like this, which surely must carry additional cost? Well, some think they shouldn't. Chesapeake Energy (NYSE:CHK) has suggested there's no reason to go beyond existing regulatory requirements. Chesapeake has publicly stated it won't join or support the CSSD. Given Chesapeake's status as the largest leaseholder in the Marcellus, that's a big chunk of the region that won't be on board with this initiative.
Chesapeake is being shortsighted. Consider the statements from some of the pioneering companies. Nicholas J. DeIuliis, president of Consol Energy, said, "[T]he aim is for these standards to represent excellence in performance." Bruce Niemeyer, president of Chevron Appalachia, said, "Raising the bar on performance and committing to public, rigorous, and verifiable standards demonstrates our companies' determination to develop this resource safely and responsibly."
Behind those polished statements is a legitimate fear on the part of industry majors that fracking has become something of a free-for-all. They see smaller, less accountable operators engaging in questionable practices that could lead to the kind of catastrophic event that would condemn fracking in the court of public opinion forever. Given this, companies can create a competitive advantage in environmental protection, which would only be strengthened in the likely event of increased regulation.
Paradigm shift or greenwash?
The environmental community has had a mixed reaction to the CSSD. Richard Liroff, executive director of the Investor Environmental Health Network, or IEHN, told me that the standards align closely with the best practices for which his group advocates. Liroff also observes that IEHN found very little industry disclosure on these practices in a recent analysis. While he points out some weak spots -- for instance, the standard on less toxic fracking fluids has no provision for reporting progress -- he doesn't see this as a deal-breaker.
It's not difficult to imagine more robust standards potentially covering issues of community concern such as traffic management practices, but we shouldn't let the perfect be the enemy of the good, even though for understandable reasons, environmental and community health activists would like to see enhanced stringency and greater scope.
The Sierra Club dismisses the initiative, saying that voluntary standards are no substitute for tough regulation.
By contrast, the Environmental Defense Fund -- one of the CSSD partner organizations -- acknowledges this concern, but still sees the CSSD as a crucial step forward. "CSSD isn't a substitute for effective regulation. Strong rules and robust oversight is a nonnegotiable bottom line," said EDF's Matt Watson in a press release. That said, Watson sees the potential for the CSSD to do for the natural gas industry what U.S. Green Building Council's LEED program did for the building industry. LEED's building-certification system continues to drive a transformation in the efficiency and sustainability of buildings in the U.S. and beyond.
Let's hope Watson's optimism is well placed. Natural gas is already helping to improve the United States' energy independence, and it could play a role in constraining climate change, but only if it proves safe. Companies like Chevron, Shell, EQT, and Consol Energy are demonstrating important leadership in securing natural gas' future, which will benefit them in the long run. Chesapeake may just get left behind.
More to the natural gas story
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Sara Murphy has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.