Hydraulic Fracturing – Does Fracking have a Place in Australia’s Energy Future?

9 November 2017 Matthew Meagher, Research Assistant, Northern Australia and Landcare Research Programme Download PDF

Key Points

  • Hydraulic fracturing (colloquially fracking) is the process of pumping a fluid mixture into the earth to fracture impermeable rock, to access unconventional gas resources.
  • Fracking can provide an abundant source of natural gas, along with the associated economic benefits, but it faces strong opposition over environmental and social concerns.
  • Australia’s unconventional gas resources total 21.5 trillion cubic metres but fracking in the country is relatively minor.
  • With current gas prices in Australia soaring, fracking has the potential to relieve the burden, but implementing it will be challenging due to strong opposition, a lack of popularity and state government bans on the process.

Summary

Hydraulic fracturing (more commonly known as “fracking”) is a controversial process used to extract natural gas from unconventional resources. It has been applied commercially since the 1950s but has recently become a subject of intense debate. This is due to the massive increase in gas produced via fracking since the start of the millennium, particularly in the United States. In 2000, hydraulically fractured wells produced 7 per cent of the nation’s gas supply, while in 2015 they produced 67 per cent. The country has experienced widespread economic benefits from the growth in natural gas production: energy is cheaper, the sector provides over 150 000 jobs and it has reduced the reliance on other countries for energy imports. Nevertheless, there is significant controversy surrounding fracking due to its potential environmental and social impact.

Fracking has been proposed as a solution to Australia’s current energy crisis, with advocates arguing that the removal of state bans to allow the production of unconventional resources will end the shortage and lower electricity prices. Those opposing the notion have voiced environmental concerns and pointed to the fact that there is an abundance of conventionally sourced gas leaving the country as a lucrative export. There are valid arguments supporting both sides of the debate. The dilemma for policy makers is whether to risk long-term environmental and social sustainability to provide a reliable supply of energy now to the domestic household and industrial market, at a low cost.

Analysis

The Process of Fracking

The fracking process is more expensive than conventional drilling and has only recently become commercially sustainable. It involves targeting gas trapped within layers of impermeable sedimentary rock, such as shale or coal. A well is drilled down to the target layer and then rotated horizontally, increasing exposure to the target formation, which allows for the use of fewer wells and therefore decreasing surface disruption. Upon completion, a large mixture containing water (84-96 per cent), sand (3-15 per cent) and chemical additives (1 per cent) is pumped down the well. Millions of litres are pumped at high pressures, increasing the pressure gradient of the target rock to exceed its fracture gradient, causing the rock to break apart. These fractures provide the natural gas a pathway to travel back to the well, ready to be extracted and processed.

There are three main categories of unconventional gas reserves; coal-seam gas (CSG), shale gas and tight gas. CSG is natural gas which has been trapped in coal formations, tight gas is found within reservoir rocks such as sandstones with low porosity and permeability and shale gas accumulates within impermeable shale formations. As can be seen in Figure 1, CSG extraction typically occurs at shallow depths, while tight and shale gas can accumulate at greater depths and require more complex drilling.

Nat Gas SchematicFigure 1: A simplified diagram showing the three main types of unconventional gas. Note that tight gas and shale gas occur at greater depths and often require horizontal drilling, making the process more complex and less commercially viable.

Impacts of Fracking

While the controversy surrounding fracking is often overstate and misinformed, at its core, the concerns have foundation. Fracking has the potential to cause a wide range of negative environmental impacts. Each step of the process holds a number of issues that need to be reviewed before fracking can be performed safely. It requires millions of litres of water, meaning the impact of activity on local water supplies needs to be evaluated, especially in remote, arid regions. Transport also needs to be considered, with emissions and noise pollution from large trucks containing water and other materials having an environmental impact. While the chemical additives only make up around one per cent of the fracture fluid, it is on a scale of millions of litres. Leaks, surface spills, structural faults in the wells, poorly contained waste pits and human error all have the potential to introduce these fluids into the environment, which can have a variety of impacts based on the chemicals used. Fluid may return to the surface through the well necessitating storage and treatment for re-use or disposal. This flow back may also leach materials from rock formations along the way, potentially bringing heavy metals, radioactive elements and organic materials that can make treatment more complex. Hydraulic fracturing and related wastewater injection has also been found to greatly intensify seismic activity within an area, leading to an increased occurrence of earthquakes. An injection site in Oklahoma has caused the number of earthquakes over magnitude 3.0 to rise from 1.6 per year in 2009 to 140 in 2014. Leaks at each stage can also lead to the release of ‘fugitive emissions’ of methane (a greenhouse gas that is up to 80 times more potent than carbon dioxide) into the atmosphere. Emissions of over 3 per cent can make the environmental benefits of gas compared to coal negligible – while comprehensive studies haven’t been done in Australia, in the US, CSG fields have been found to release emissions of two per cent to 17 per cent.

The environmental effects of fracking can result in a range of health and societal impacts. Areas correlated with a high level of unconventional natural gas development have been found to experience several adverse health effects, including reduced birth weight and increased rate of pre-term births; an increase in the occurrence of asthma-related hospitalisations and usage of asthma medication; and an increased incidence of migraines, headaches, nasal and sinus issues and fatigue symptoms in adjacent populations. Workers at drill sites are also exposed to a variety of health risks: exposure to silica (fine particles of quartz sand used in the fracking process) without proper protection can lead to lung diseases such as silicosis; and exposure to toxic chemical spills and potentially toxic or even radioactive flowback can lead to a wide range of short and long-term health issues. The social impact of fracking is highly variable between communities and hard to accurately quantify, and what may be positive for one community may be negative for another. Fracking is more likely to occur adjacent to poorer communities, where people are less equipped to deal with the negative health and environmental impacts. It can lead to concerns about environmental sustainability and angst over water safety concerns. A sudden increase in the local workforce can also put pressure on infrastructure and may affect quality of life by increasing noise and light pollution.

Despite the possible negative effects, fracking still has the potential for positive economic and even environmental outcomes. By 2020 fracking has been forecasted to have provided up to 250 000 jobs and $150 billion to the US economy. The increase in the supply of natural gas in the market has led to a drop in its price, which has a positive effect on consumers in the form of cheaper gas and electricity bills. It has also provided the US with increased energy independence, relying less on foreign imports for its electricity needs. Fracking can also provide people in poorer, rural areas with the work and increased worker population can revitalise destitute regions. Natural gas is less environmentally intensive than coal – electricity produced from releases between 50-70 per cent less greenhouse gases compared to coal, although fugitive emissions can eliminate these benefits.

Fracking in Australia

Despite identified and prospective unconventional gas resources totalling a staggering 21.5 trillion cubic metres, fracking is not widespread in Australia. No large scale shale or tight gas projects have been implemented and although CSG production is occurring in the Eastern States, only 10 per cent of wells are hydraulically fractured. This is the result of several factors, mainly strong public resistance due to environmental concerns, which has translated into political action, resulting in moratoriums and bans of fracking in several states. Australia also has large conventional reserves which are more commercially viable.

In 2015-16, Australia produced approximately 87 billion cubic metres of natural gas, with close to 28 per cent of that amount provided via CSG. As it can be seen in Figure 2 and Figure 3, while identified conventional and CSG resources are relatively abundant across the country, prospective unconventional reserves have the potential to match and even exceed that amount.

Aust Identified Gas ResourcesFigure 2: A map of all identified conventional and coal seam gas resources in Australia.

Aust Prospective Gas ResourcesFigure 3: A map of the location of prospective conventional, shale and tight gas resources in Australia.

Guaranteeing Australia’s Energy Supply

Despite record exports of LNG, Australia faces a domestic shortage of natural gas, with prices for consumers higher than those for overseas buyers. The challenge faced by the Federal Government is to ensure domestic energy demand is fulfilled while keeping prices down. They have several long-term options open to them now. They can impose regulations on producers that require them to provide a certain amount of gas for the domestic market before they can export, begin exploiting unconventional resources, or increase the use of other energy sources to increase supply. Each of these alternatives faces several challenges, which leaves the government in a tough position of choosing the least-worst option.

Capping natural gas exports to ensure domestic supply will be met by strong opposition by the industry, has the potential to cause market distortions and goes against the current governments underlying ethos of economic liberalism. Producing unconventional gas reserves via fracking is also a tough sell, with moratoriums or bans on fracking in Western Australia, South Australia, the Northern Territory, Victoria and Tasmania. These policies are fairly popular and are backed by 56 per cent of Australians. Pushing fracking may cost the government political capital they don’t have, as they are trailing the opposition 46-54 in the latest two-party preferred Newspoll – so going against states’ policies to implement fracking could make an unpopular government even more unpopular.

Apart from natural gas, the main energy sources for Australia are coal and a mix of renewable energy technologies. Both alternatives face a wide range of issues to be considered. The current cost of electricity from a coal-fired power plant is less than $40/MWh, which is lower than the lowest renewable energy cost of wind power for $60/MWh. The issue is that of the country’s 12 largest coal power plants, 9 are over 30 years of age and will soon require significant refurbishment if they are to continue operating.  The Liddell plant is set to close in 2022 but the government is attempting to keep it open past this date. The estimated cost to extend its lifespan another decade is around $600m. This is a short to medium-term solution, and if implemented, the government will have to either commit to building new coal fired plants or investing heavily in renewable energy. The forecast price for electricity supplied from a new supercritical coal-fired plant comes to $75/MWh, which is higher than the price for wind power plants. With advances in technology driving down costs and the advent of battery technology improving reliability, renewable energy has the potential to become a viable source of energy. Unfortunately, with the announcement of the National Energy Guarantee which removes subsidies for renewables, technology development is likely to slow.

The cost of energy generation often stated is generally not it’s “true cost”. A 2009 report by the Australian Academy of Technology and Engineering found that the externality costs (the costs to health and the environment that aren’t factored into the price) for brown and black coal are $52/MWh and $42/MWh, for natural gas they are $19/MWh and for Solar and wind they are $5/MWh and $1.5MWh. When the high external costs of coal and gas are considered, renewable energy may be viable for widespread implementation sooner rather than later.

Conclusion

In the short-term, fracking may be a realistic way to bring down domestic energy prices and meet domestic demand. As with all policy considerations, however, opportunity cost must be considered – can the government’s time and money be spent elsewhere for a more favourable and sustainable outcome? Fracking is cheaper than current renewable technologies and refurbishing old coal-fired plants and while it does have some serious environmental concerns, they are possibly minor compared to coal emissions. While cheap, reliable, renewable energy is the most environmentally friendly option, it is unlikely to be a genuine alternative for the near future. Renewable energy is much more competitive when true costs are considered. Carbon pricing or a carbon tax also makes renewables more competitive, but this has a low probability of being implemented considering the political issues surrounding a carbon tax in Australia. Fracking may provide a pragmatic solution to reduce Australia’s reliance on coal until renewable energy becomes cost efficient. To succeed, the perception of fracking will need to be changed and state government bans repealed. This can be achieved by committing to reducing coal-fired power generation, educating communities that gas is less emissions intensive than coal and implementing strict regulations which are designed to protect the local environment, prevent the release of fugitive emissions and to protect soil and groundwater resources.

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

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