Aligning Conditions Below and Above Ground for Unconventional Oil and Gas Development within a Governance and Sustainability Framework
The Shale Revolution Phenomenon Below Ground
Hydraulic fracturing or “fracking,” the process of injecting sand, water, and chemicals into shale rocks to crack them open and release the hydrocarbons trapped inside, is already a big topic of conversation in South America because the promises of fracked energy are so great. These include job creation, lower carbon emissions, achieving energy independency and efficiency, and industry development. At the same time, this projected bonanza does not come concern free. Critics in the United States and elsewhere challenge this new phenomenon by claiming that “fracking” pollutes the water, ground, and air and holds the potential for seismic movements, all leading them to affirm that these costs outweigh the benefits. Alex Prud’homme, Hydrofracking: What Everyone Needs to Know (2014).
The development of hydrocarbons trapped within underground shale formations generated the so-called shale revolution phenomenon that led many to affirm that shale may be the most transformational technology advancement in the twenty-first century. It has transformed the Western Hemisphere into the new center for oil and gas production while lowering both gas prices and greenhouse gas emissions (Robert A. Manning, The Shale Revolution and the New Geopolitics of Energy (2014). This paramount development is challenging geopolitics worldwide and within the Western Hemisphere in particular with respect to regulatory frameworks, public-private partnerships, multi-stakeholder engagement, environmental concerns, and matters of diplomacy and national security.
In practical terms, the shale gas and oil phenomenon, driven by the impressive size of proven reserves, is revolutionizing the global energy landscape, positioning the Western Hemisphere in a unique situation for resources exploration and development. Americas Society/Council of the Americas, Shale Gas Development in Latin America, (2014), A close look at the 2013 United States Energy Administration report maps the presence of 137 shale formations in 41 countries outside the United States and across regions. According to the report, two-thirds of the assessed, technically recoverable shale gas resource is concentrated in six countries: the United States, China, Argentina, Algeria, Canada, and Mexico, and the top 10 countries from this list account for over 80 percent of the currently assessed, technically recoverable shale gas resources of the world. U.S. Energy Administration, Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States (2013).
This report shows that Argentina ranks fourth after Russia, the United States, and China in terms of the top 10 countries with technically recoverable shale resources. Moreover, Argentina has world-class shale gas and shale oil potential, and the report affirms that, besides the United States, it is possibly this South American country that has the greatest prospects, given its large and potentially high quality shale gas and oil resources in four main sedimentary basins: the Neuquen Basin, the Golfo San Jorge Basin, the Austral Basin, and the Paraná Basin.
Brazil’s most prolific petroleum basin lies offshore, while the country has 18 mostly underdeveloped and lightly explored sedimentary basins onshore. Three of these basins—the Paraná in the south and the Salimões and the Amazonas in the north, produce significant amounts of conventional oil and gas, although these three basins also have geological data indicating that assessment of shale gas and oil potential is warranted.
In a closer look at South America, the report shows that northern South America has prospective shale gas and shale oil potential within marine deposited cretaceous shale formations in three main basins: the Middle Magdalena Valley and Llanos basins of Colombia, and the Maracaibo/Catatumbo basins of Venezuela and Colombia. Bolivia, Chile, Paraguay, and Uruguay have prospective shale gas and shale oil potential in three large sedimentary basins with organic rich and marine-deposited black shales: the Paraná Basin of Paraguay and Uruguay, the Chaco Basin of Bolivia and Paraguay, and the Magallanes Basin of Chile.
Exploring and Understanding Conditions Above and Below Ground
The paramount latent opportunities that exist below ground for the unconventional development of oil and gas resources cannot be explored in isolation from the conditions that exist above ground. Shale Gas Development in Latin America, supra. Fracking is an activity that is also associated with high levels of risks and challenges, particularly with respect to the environmental and social impact of the activity below ground, which, in turn, has a direct impact above ground.
The impact does not go unnoticed by different stakeholders because it has a subsequent direct influence on the value proposition of this activity, and therefore calls for a different kind of business approach. Such an approach welcomes a broad concept of corporate sustainability that focuses on long-term value creation as opposed to philanthropic activities embedded as part of corporate social-responsibility practices. This approach also requires the type of government regulation that creates conditions for the private sector to operate and create long-term value with clear rules that will operate within a fully functioning governance and rule-of- law system.
The term “fracking wars” represents the “polarized debate between those in favor of this development and those opposed or highly skeptical of it.” Beyond the Fracking Wars, at xxxiii (Erica Levine Powers & Beth E. Kinne, eds., 2013). Fracking “possesses potential environmental risks, such as the draining or polluting of underground aquifers, the spurring of seismic activity (earthquakes) and the spilling of waste products during their aboveground transport.” Edward L. Morse, Welcome to the Revolution: Why Shale Is the Next Shale, 93 Foreign Aff. 3 (2014) (addressing the theme, “Big Fracking Deal: Shale and the Future of Energy”). Confronted with these latent challenges, communities have already begun mobilizing across the Western Hemisphere to impose moratoriums and bans on this activity. In other words, they are denying public consent and thereby canceling their social license to operate. For instance, “from Pennsylvania to North Dakota, more and more people are expressing concern about the environmental problems associated with this production, including local air pollution from drilling sites known as ‘well pads,’ the contamination of drinking water from spills or leaky wells, and noise and dust from trucks serving drilling sites.” Fred Krupp, Don’t Just Drill, Baby—Drill Carefully: How to Make Fracking Safe for the Environment, 93 Foreign Aff. 3 (2014).
Two very important cases from Argentina and the United States are good illustrations of how communities are beginning to take a stand on the shale boom while also canceling a company’s social license to operate. By using the jurisdictional venues, these communities have sought jurisdictional redress to confirm a ban or restriction on this type of extractive operation through the issuing of local zoning laws. Inre Wallach v. Town of Dryden, 16 N.E.3d 1188 (N.Y. 2014) (local municipality exercising its local policy legislative powers to completely ban this activity); Provincia de Rio Negro c/ Municipalidad de Allen s/ Conflicto de poderes, (case of the municipality of Allen in the province of Rio Negro in Argentina). Both cases, regardless of their outcomes, reflect serious concern over the quality of life of towns and their citizens and demand careful consideration of the development and sustainability framework that regulators should follow if they set out to try to fulfill the remarkable economic development promises brought about by the shale gas boom.
In 2013, the municipality of Allen in the province of Rio Negro in Argentina did not succeed with its claim due to the fact that the regulatory authority over hydrocarbons rests in the province of Rio Negro according to the National Constitution. The municipality of Allen ended up exceeding its local policing authority to exercise legislative power over the provincial government’s authority. By contrast, the towns of Dryden and Middlefield in New York State ended up succeeding with their claim when the New York Court of Appeals affirmed a lower court ruling in 2014 and found that the towns did have the authority to ban fracking through zoning laws that foster “the health, safety, morals, or the general welfare of the community . . . [and that] are directed at regulating land use generally and do not attempt to govern the details, procedures or operations of the oil and gas industries.” Town of Dryden , 16 N.E.3d at 1194, 1197.
These concerns are not going away; they are projected to increase as the exploration and development take root in the South American region.
This is the first installment of a two-part series that was originally published by the International Law News, Volume 44, Number 2, 2015. © 2015 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion 35 thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.