Can the energy needs of future generations be met in ways that promote environmental sustainability, economic growth, political stability and social development? Or will energy and energy inequality continue to be a source of conflict and unrest? This will be one of the great challenges of the twenty-first century. It is a complex problem that requires the engagement, goodwill and coordinated efforts of governments, corporations, institutions and communities. Perhaps a utopian future awaits in which abundant energy for all is produced by low cost “renewables”. But in the meantime, how will we manage the transition to a cleaner, fairer and more sustainable energy system?
The so-called “shale gas revolution” offers one possible solution. It promises to unlock vast reserves of previously inaccessible natural gas through the use of “unconventional” drilling methods, including horizontal wells and hydraulic fracturing. Yet the production of natural gas using “unconventional” techniques potentially comes at a significant cost. Critics note that the development of shale gas reserves requires larger numbers of wells to maintain production and more intensive resource mobilisation to each well site. That entails greater surface footprints, fragmentation of landscapes, use and contamination of fresh water, greenhouse gas emissions and more frequent fracking-induced earthquakes.
The competition between the various policy options and interests to be considered is causing controversy and splits within societies and between nations. Some jurisdictions are actively pursuing the development of shale gas reserves while others have imposed moratoria. The publication of Risks, Rewards and Regulation is an important contribution to the debate about whether and how unconventional gas can safely deliver on its promise. The editors have collected 23 essays with a view to examining two main issues from a global perspective: “how unconventional gas production has grown over the last decade” and “how regulations have evolved to balance the demands of a new and valuable industry with pressing social and environmental issues”.
The essays fall into three categories. The first contains essays describing the general circumstances of the rise in “unconventional” gas production – the history of the industry, the effects of technological change and the geopolitical implications. The second category addresses specific issues and problems – best practices for community engagement, the management of water extraction and fugitive emissions, and the rights of indigenous peoples. Most of the essays fall into a third category: reports on the state of the industry in selected countries: Argentina, Australia, Canada, China, Columbia, India, Poland, the UK and the US.
The essays tend to focus on non-legal topics in geology, engineering and energy policy. The discussion of specific statutes and regulations is mostly secondary and descriptive only. What use is this for practising or academic lawyers? It is tempting to say “not much”. But, the law operates in context and it is important for lawyers to be aware of the scientific, economic and social policy issues at play. In that respect, Risk, Rewards and Regulation will be useful for neophytes wanting an introduction to issues that arise in connection with the development of unconventional gas and for veterans wanting a primer on a particular problem or country addressed in the collection.
The national reports from countries whose unconventional gas industry is in the early stages of the development – Argentina, China, Colombia, India and Poland – are one of the most interesting features of the book. These follow a common format: first, an overview of the country's geology and resource potentials; second, a description of the in-country exploration work undertaken to date; third, discussion of the steps taken to develop a regulatory framework. All of these country reports emphasise the need for measures that promote exploration and development, including subsidies, royalty and tax discounts and other “investor-friendly” fiscal measures that “incentivize investment”.
An example of how new entrant countries might choose to proceed is set out in “Regulation of Unconventional Gas in Colombia”, by Ana Cristina Sánchez-Thorin and Orlando Cabrales. They describe the steps that Columbia took in developing its new regulatory framework, including: establishing qualifying criteria for companies wishing to bid on exploration opportunities, a “knowledge management programme” to acquire the best available technical information, multiple workshops with US experts, site visits in Texas and Canada, and collaboration between domestic energy and environment agencies. Those efforts produced a list of principles to inform proposed new regulations. The resulting regulations could represent state-of-the-art best practices, including proactive environmental measures not yet required in other jurisdictions.
The book is not a work of comparative law, but there are interesting and useful comparisons to be made between the regulations mentioned in the various country-specific reports. A concluding chapter collating the data on national regulations and offering comparative analysis would have been welcome; readers will have to dig into the primary materials and do most of that work themselves. In addition, despite its subtitle, the book would have been nearer to “global” if it addressed other regions with large unconventional gas reserves. Only five of the top 12 countries ranked by estimated recoverable shale gas resources are covered. Not covered are Algeria, Brazil, Mexico, Russia, South Africa, United Arab Emirates and Venezuela. The book also excludes Qatar and Saudi Arabia – two major natural gas producers with significant shale gas reserves and plans to develop them: World Energy Council, Unconventional Gas: A Global Phenomenon (2016).
That said, in his essay, “Unconventional Gas Development in Asia-Pacific: Looking for Common Ground”, Juan Roberto Lozano-Maya reports on the transnational work of the Asia Pacific Energy Research Centre. The Centre has produced a model regulatory framework which, when applied to a given country, can be converted into a “radar graph” illustrating how open and facilitative is that country's regulatory system. The graphs for Australia, Chile, China, Indonesia and Mexico are fascinating. Together they present an at-a-glance comparison of the potential for the development of unconventional gas reserves in each of those countries. This technique, however, is somewhat subjective and must be used with caution. Lozano-Maya also notes that “[a]bsent from this framework is any explicit consideration of environmental issues, even though the environmental footprint of shale gas, and especially its water footprint, is perhaps the most controversial and significant block to shale gas development globally”.
Indeed, the need to facilitate investment while also managing the environmental footprint of shale gas development is a major theme of the book. Yet the book is unbalanced in its treatment of that theme. Expressly or impliedly, most of the essays are based on the view that the full development of unconventional gas reserves is always in the public interest. The book presents a rather narrow perspective on regulation; one in which the main or only purpose is to facilitate access, exploration, drilling and production. Few doubts or dissenting views are offered. The regulatory frameworks described are not critically reviewed. There is comparatively little discussion of enforcement tools, reclamation standards and other regulatory measures that might be applied to safeguard the environment.
A typical example of that blinkered approach is the essay, “Regulation of Natural Gas Development in British Columbia”, by Paul Jeakins. It outlines the roles and objectives of the BC Oil and Gas Commission (BCOGC), which was established to be a “single window” agency with delegated authority to manage the whole of the regulatory cycle from initial planning to reclamation. Jeakins presents a rosy picture but does not confront the fact that in practice the BCOGC is notoriously industry-friendly; it measures its success by how quickly it approves the applications submitted by companies, and it tends to read down any prescriptive requirements, focusing instead on a “results-based” approach that relies on self-reporting by the companies. Nor does Jeakins mention that the Auditor General of BC recently found that the BCOGC lacks the regulatory tools and resources it needs to compel companies to reclaim and restore contaminated well sites.
Indeed, fast-paced development, a lack of reclamation requirements, and rampant corporate self-interest have combined to create a very significant problem in both British Columbia and in Alberta. The public is now facing the prospect of a multi-billion dollar liability for the decommissioning of so-called “orphan” well sites developed but later abandoned by corporations either through bankruptcy or clever asset sales, swaps or reorganisations – for example, Alberta Energy Regulator v Grant Thornton Limited, 2017 ABCA 278; leave to appeal granted, 2017 CanLII 75023 (SCC).
Not all of the essays are so one-eyed. Michael Bradshaw's “Unconventional Gas in the United Kingdom” is well balanced. He provides a detailed overview of the pro-industry and industry-sceptic arguments raised in the debate about shale gas in the UK. Bradshaw notes that once the public are alerted to the risks, it is inevitable that questions will arise about the wisdom of investor-friendly policies and regulatory measures. For example, public concerns were aroused in the UK in 2011 after two fracking-induced seismic events at Blackpool. The national Government responded with studies purporting to show the economic benefits of shale gas. It was noted, however, that the Government had selectively quoted only the higher estimates presented in the most optimistic of those studies. Other government claims were also debunked, leading the Government to become more restrained in its pronouncements. Bradshaw is equally critical of some of the claims made by industry-sceptics. Thus he nicely outlines the contours and evolution of the debate in the UK, leaving the reader with the impression that the truth is likely to lie somewhere in the middle. If there is a deficiency in Bradshaw's approach it is that, as in other essays in this collection, he provides only a general description of the regulatory framework and institutions involved. He does not analyse the governing legislation or opine on its efficacy.
Notwithstanding the criticisms made in this review, Risks, Rewards and Regulation is a useful and thought-provoking book. It provides a foundation for further research and analysis. A complete reading brings to the surface two general issues that might otherwise lay hidden in the deeper strata of law and policy. First, what is the role of higher-order rules in the development of unconventional gas? The book's narrow focus on operational regulations invites consideration of non-operational measures, such as host government agreements, rules on foreign investment, royalty and tax regimes, regulations governing greenhouse gas emissions and agreements with local communities and indigenous peoples. Such higher-order measures have at least as much to say as operational regulations about whether and how “unconventional” gas reserves could be developed.
Second, the book also raises (by the vacuum of omission) the most interesting and important question in natural resources law today: to what degree are governments and institutions victims of “regulatory capture”? Are public agencies giving priority to the private interests of energy companies? There is some evidence that energy companies wield disproportionate influence over regulation and policy. A recent study showed that the top 10 energy companies operating in British Columbia accounted for 78% of all political donations made between 2008 and 2015, and that the same companies reported 19,517 lobbying contacts with public office holders between 2010 and 2016 – an average of 14 lobby contacts per day over that period: Graham, Daub and Carroll, Mapping Political Influence: Political Donations and Lobbying by the Fossil Fuel Industry in BC (2017).
Is the full development of “unconventional” gas the right policy choice for our global energy future? The editors and contributors to Risks, Rewards and Regulation seem convinced. The vigour of the ongoing debate, however, indicates that the industry has yet to obtain the “social licence” it needs to fully develop. Whether that licence is granted will depend on the willingness of policy-makers to ask and answer some of the difficult but fundamental questions underlying the regulation of the unconventional gas industry: what other policy options are feasible, who should decide what is in the public interest and on what criteria, how prescriptive should be the rules and regulations governing operations and reclamation, when is it appropriate for the powers of the executive branch of government to be delegated to an administrative agency, and, how will decision-makers be insulated from regulatory capture and be made accountable to the public?
