Shale gas: Friend or foe?

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24.02.14 13:46 | Interview | Responsible investment | Our work | Introductions

Nordea’s Head of Responsible Investments Sasja Beslik was interviewed by the news magazine Forbes about the booming shale gas industry and the continuously polarized debate around the use of fracking, you can read the article “The Politics of Fracking” here.

As the shale gas revolution has continued to gain momentum, the industry is facing a rather mixed group of opponents on the subject of fracking as a method of extraction. The opposing parties encompass local communities, various organizations and society at large (though we also see a blended picture here, as several local communities also benefit tremendously from the booming shale gas industry).

The discussion on whether shale gas by the use of fracking is either a friend of foe is really a story of both. Shale gas has -and is –in the US, where the shale gas is most prevalent, providing tremendous of upside and growth when it comes to ensuring energy security, economic growth in several states spurred by job creation and increased tax revenues, and even emission reductions. Even though GDP grew by 3% in the period, the US for example reduced their overall emissions with close to 4% from 2011 to 2012, whereof shale gas was a large contributing factor to the decline*.

However, the use of fracking as a means of extraction is highly debated as the method comes with high environmental and social risks, such as the potential for contaminating ground water.  Some communities have previously experienced fracking gone bad, fostering a less than positive attitude towards fracking amongst many stakeholders. Investors are also increasingly worried about the potential environmental, safety and social risks that could be the consequence of an insufficiently managed fracking process.  Remember also that though the technique of fracking has been known since the 1950s), it was not until recently that we scaled up the use of it (it was first in the early 2000 that the extraction of unconventional gas became economic viable). Hence, due to insufficient historic data there is still a lack of knowledge around its actual implications.

Shale gas is not necessarily a foe for this reason alone, however. The energy source has the opportunity to deliver significant contributions towards a path where more sustainable, low-emission energy sources gain ground, and will thus be of key importance in a transition period towards a low- carbon economy.

Safe fracking practices do also already exist today.

The problem however, as the article also highlights, has been the varying quality and safety of practices among companies involved in fracking (resulting in incidents), as well as the lack of transparency on companies’ operations.

As a result, it is difficult for communities, stakeholders and investors to distinguish which players are operating in a responsible, safe manner and which are not, and consequently the whole industry is scrutinized. As Sasja also points out in the article, we need a set of common standards so that stakeholders know what level of practices to demand from companies, separating the good from the bad, and so that we as investors can assess the actual risks associated with individual companies. Conversely, a clear set of standards for companies is also necessary so that is very clear what practices are demanded for them to ensure a social license to operate, ensuring confidence and trust from all stakeholders. Here, governments have work to do. Such common practices are a minimum for the debate to progress beyond its current deadlock.

Nordea is working to address this. Together with 41 other investors with 5.3 trillion of AuM, we are engaging more than 50 O&G companies on predominantly two issues: increased transparency and improving operations towards investors’ expectations of best-in-class. In other words, we request operational transparency. We also want to see superior practices when it comes to governance and risk management practices including emissions, water quality and use and their community relations. As of now, most companies lag on both fronts. The industry still has a long way to go.

We know for a fact that the global demand for energy will increase greatly over the coming decades. Shale gas has the potential to continue its important contribution as a low emission energy source. It is imperative however, that the industry ensures the investment community and society at large of the safety of the extraction method to received continued support and funding, and in order to ensure the sustainability of the industry itself.

You find the Forbes article “The Politics of Fracking”, where Head of Responsible Investments in Nordea, Sasja Beslik was interviewed here.

See more about fracking in this video: