Scramble underway to tap shale formations


Seated at the foot of the Colombia’s eastern mountain range, the town of Acacias lies in one of country’s most fertile breadbaskets, rich in plantains, yucca and fruit. Here on what are known as the eastern plains, tributaries of the Orinoco River cut through a vast expanse of cultivated acreage and grasslands dotted with cattle. Fishermen ply the rivers in rowboats for catfish (Pseudoplatystoma fasciatum) and bocachico (Prochilodus sp.), and oil rigs are never far away.

The oil industry has dominated Acacias for the last half-dozen years, providing hundreds of jobs. María Elena Gutiérrez, a 57-year-old mother of two from a cattle farming family, wishes it had never arrived in the way that it has. “Oil rigs have meant chemicals seeping into the soil during drilling and drilling residues dumped into local waters,” she says. “Crops have been affected and fishing resources diminished.”

Gutiérrez is especially worried about a new development on the energy scene. In 2013, the U.S. Energy Information Administration (EIA) published its latest World Shale Oil and Gas Resources report, estimating that Colombia’s shale deposits could produce 6.8 billion barrels of oil and 55 trillion cubic feet (Tcf) of natural gas. That is enough to satisfy decades of domestic demand for natural gas and oil.

Eager to push ahead, Colombia’s Ministry of Mines and Energy began to hunt for foreign partners to develop resources in different areas of the country, including the eastern plains. In March, it also emitted regulations that govern—and effectively legalize—hydraulic fracturing or fracking, the controversial technology used to extract hydrocarbons from shale deposits. The regulations require, among other things, that companies protect aquifers and disclose the chemicals they use in drilling.

Colombian officials who back the method argue fracking can be safe as well as beneficial.

“The country is prepared for sustainable and responsible activity in non-conventional deposits,” Mines and Energy Minister Amylkar Acosta told the press as he signed the new shale regulations into law. “This will allow ... for a greater contribution by the [hydrocarbons] sector to economic and social development.”

Fracking involves injecting huge quantities of water, chemicals and sand at high pressures into deep shale formations, often below 1,000 meters, in order to fracture the underground rock and release the formations’ natural gas and oil. Some of the chemicals used contain toxins such as lead and the carcinogen benzene, which critics say can contaminate ground water through subterranean passages.

Surface water, meanwhile, can be fouled by toxic drilling waste known as produced water, opponents of fracking contend. While a percentage of that waste can be reinjected underground, a recent study led by a scientist at Cornell University links reinjection to an increase in earthquakes in Arkansas, Ohio, Texas, and Oklahoma, with a 40-fold increase in seismic activity in Oklahoma between 2008-2013.

Critics say Colombia’s government deliberately underplays those risks for economic reasons. Until last year, Colombia had been enjoying a fossil-fuel production boom that saw exports of oil, natural gas and related products surge from $3.38 billion in 2003 to $32.5 billion in 2013. It nonetheless faces the possibility of exhausting its oil reserves in six years and natural gas supplies in seven. Critics charge that in its haste to forestall that eventuality, the government has pushed through lax shale regulations intended to satisfy both the national oil industry and its foreign partners, while downplaying the dangers of fracking.

“The government’s regulations were drawn up after a two-year consultation process that mostly involved specialists from the U.S., some of whom are closely linked to the oil industry and know little about conditions in Colombia,” says Julio Fierro, a professor of geology at the National University of Colombia in Bogotá. “They were issued at a moment when we know little about the location and functioning of aquifers and the activity of geological faults, which could help us avoid earthquakes and the contamination of underground and surface waters.”

Such concerns are widely heard in Latin America, where nine countries have significant shale reserves, and two of them, Argentina and Mexico, rank among the top 10 countries worldwide in terms of technically recoverable shale gas and oil deposits, according to the 2013 EIA report. Many of those governments, like that of Colombia, hope to reap billions of dollars in taxes and royalties from fracking and guarantee their countries’ energy security into the future. But to do so, they will have to attract foreign partners with the necessary technology, capital and management experience. Critics fear that in the process, governments will be too willing to ease regulations and enforcement to please the multinationals.

“There is a pattern in which countries determined to exploit their shale resources ease their environmental regulations to please foreign investors,” says Antoine Simon, an expert on shale deposits at Friends of the Earth-Europe. “That is of particular concern in Latin America, where environmental standards can be lower [than in the United States or Europe] and supervisory agencies are often deprived of both the staff and the authority to enforce the regulations that do exist.”

Some industry experts counter that irrespective of how local regulations are drawn or enforced, the big multinationals have become their own policemen, especially after a string of high-profile accidents in recent years. “Big oil companies today know it’s good business to be as green as they can,” says Jorge Piñón, a former Amoco and British Petroleum executive who now directs an energy program at the University of Texas at Austin. “They know that maintaining a high level of ethics and environmental compliance affects their brand and their bottom line.”

The Neuquén basin, stretching across the southern Argentine provinces of Neuquén, Río Negro and Mendoza, lies at the heart of fracking activity in Latin America. In that region, where the potential for shale resources is greater than in any other area outside North America, according to the EIA report, fracking began in 2010. In once pastoral settings, where apple, pear and peach orchards carpet fertile valleys, and goats and cattle trundle across windy plateaus, trucks hauling drilling equipment and chemicals now clog the roads. Oil platforms and pump stations are everywhere to be seen.

The fracking boom in the Neuquén basin, with more than 200 exploratory and producing wells already drilled, has been good for many people. It has created jobs, given rise to luxury restaurants and shopping centers and stoked economic development. But some of the rural population is in revolt. Farmers say their lands have been expropriated for the construction of pipelines and tailings ponds, and complain about the contamination of water supplies. Environmentalists are outraged at the introduction of fracking facilities by the French company Total in the immediate vicinity of the 77,000-hectare (190,000-acre) Auca Mahuida Provincial Reserve, home to guanacos (Lama guanicoe), pumas (Puma concolor) and Andean condors (Vultur gryphus).

Protests have been fierce. On Aug. 28, 2013, after YPF and Chevron signed an agreement to spend up to US$16 billion to jointly exploit the Loma Campana field in Neuquén Province, students, members of the teachers’ and public workers’ unions and environmentalists took to the streets of Neuquén city. So did Mapuche Indians who said they had not been consulted about the use of their lands.

Demonstrators hurled rocks; police fired tear gas and rubber bullets. Twenty people were injured. Today, more than 40 municipalities nationwide have passed ordinances banning fracking, though the courts have not yet determined whether the measures are legal.

The 2013 EIA report ranks Argentina fourth behind Russia, the U.S. and China in technically recoverable shale oil reserves with 27 billion barrels and second after China in potentially recoverable shale gas reserves with 802 trillion cubic feet. Those reserves could make a big difference. The country has been suffering from dwindling oil and natural gas production, with its fuel imports rising to around $14 billion in 2013. Its economy, meanwhile, has been stagnating.

A shale boom could change that, experts assert. Argentina, they say, could become a major energy exporter and earn billions of dollars in income that would serve as potent medicine to its economic woes.

Fracking challenges

But there have been hurdles, starting with the government’s efforts to find foreign partners, including major players like France’s Total, Chevron and Shell. In order to get Chevron to sign the $16 billion deal with YPF, for example, the province of Neuquén and the nation’s attorney general successfully pressured the Supreme Court to overturn a lower court ruling that would have made Chevron’s local assets available for payment of a $9.5 billion dollar verdict against the company in Ecuador for pollution of the Amazon. The government also has implemented price hikes for both natural gas and gasoline to satisfy foreign companies that sell on the national market. Provincial governments, the critics say, have been no less eager. Their understaffed environmental agencies, the critics say, have been less than rigorous in their oversight of fracking projects.

“There is tendency by both the national and provincial governments to bet on unconventional resources, and to cede both in the financial and environmental arenas to attract the enormous investments that such endeavors require,” says Hernán Scandizzo, co-founder of Oil Monitor of the South, a Buenos Aires-based nonprofit that tracks the oil industry. “There has been a euphoria around shale resources as if they were some kind of salvation.”

Mexico also has laid out the welcome mat. Last March, Emilio Lozoya, the chief executive officer of Pemex, Mexico’s state oil company, invited the world’s biggest oil companies to help develop its shale resources. Pemex’s production of crude had been slipping steadily since 2004 to just over 2.5 million barrels a day, a 27% decline. To reverse the trend, Mexico’s Congress amended the constitution in 2013, effectively opening up Mexico’s reserves to exploration, extraction and sales by private local and foreign companies. Now Lozoya was telling the world’s energy titans that he hoped to bring $1 trillion in new energy investment over the next decade and fast-track drilling in shale formations.

“Capital from all over the world is welcome in Mexico,” Pemex’s chief told an energy conference in Houston sponsored by the consulting firm Cambridge Energy Research Associates. “We hope to have hundreds of companies operating in any type of rock formation, be it shale ... or deep water projects.”

Shale bounty

Mexico has 13 billion barrels of technically recoverable oil and 545 trillion cubic feet of gas in shale deposits lying in states in the center and south of the country and in Tamaulipas, Nuevo León, Coahuila and Chihuahua states near the northern border with the U.S. Regulations have not yet been issued to put the energy reform in motion, and Pemex itself has drilled no more than around 30 exploratory wells in shale formations.

Still, industry experts believe big multinationals will take a keen interest in Mexico’s shale, despite the lack of pipelines and other infrastructure in key shale areas and the violence of its northern border region, which is rife with organized crime and drug gangs.

Mexico’s challenges will be many, analysts say. Fracking’s immense water demands—up to 8 million gallons per well—could tax bone-dry regions in the Eagle Ford Shale Formation of northern Mexico, where over-pumping of underground aquifers already has stressed water supplies and led to increased salinity.

Weak environmental regulation and enforcement are also cited.

“We don’t have either the institutional or enforcement capacity to safeguard against environmental disasters in shale deposits,” says Nathalie Séguin, executive director of the non-governmental Freshwater Action Network in Mexico City. “Fracking requires precautionary policies that we simply don’t have.”

- Steven Ambrus

Julio Fierro
Professor of Geology
National University of Colombia
Bogotá, Colombia
Tel: +(571) 340-2462
María Elena Gutiérrez
Acacias, Colombia
Tel: +(57 321) 344-6846
Jorge Piñón
Latin America and Caribbean Energy Program
University of Texas
Austin, TX, United States
Tel: +(512) 232-4988
Hernán Scandizzo
Co-founder and Researcher
Oil Monitor of the South
Buenos Aires, Argentina
Tel: +(54 11) 4373-6304
Nathalie Séguin
Executive Director
Freshwater Action Network - Mexico
Mexico City, Mexico
Tel: +(52 739) 395-7504
Antoine Simon
Shale Gas Campaigner
Friends of the Earth
Brussels, Belgium
Tel: +(32 2) 893-1018