oversight

Oil and Gas: Information on Shale Resources, Development, and Environmental and Public Health Risks

Published by the Government Accountability Office on 2012-09-05.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States Government Accountability Office

GAO              Report to Congressional Requesters




September 2012
                 OIL AND GAS

                 Information on Shale
                 Resources,
                 Development, and
                 Environmental and
                 Public Health Risks




GAO-12-732
                                            September 2012

                                            OIL AND GAS
                                            Information on Shale Resources, Development, and
                                            Environmental and Public Health Risks
Highlights of GAO-12-732, a report to
congressional requesters




Why GAO Did This Study                      What GAO Found
New applications of horizontal drilling     Estimates of the size of shale oil and gas resources in the United States by the
techniques and hydraulic fracturing—in      Energy Information Administration (EIA), U.S. Geological Survey (USGS), and
which water, sand, and chemical             the Potential Gas Committee––three organizations that estimate the size of these
additives are injected under high           resources—have increased over the last 5 years, which could mean an increase
pressure to create and maintain             in the nation’s energy portfolio. For example, in 2012, EIA estimated that the
fractures in underground formations—        amount of technically recoverable shale gas in the United States was 482 trillion
allow oil and natural gas from shale        cubic feet—an increase of 280 percent from EIA’s 2008 estimate. However,
formations (known as “shale oil” and        according to EIA and USGS officials, estimates of the size of shale oil and gas
“shale gas”) to be developed. As            resources in the United States are highly dependent on the data, methodologies,
exploration and development of shale        model structures, and assumptions used to develop them. In addition, less is
oil and gas have increased––including       known about the amount of technically recoverable shale oil than shale gas, in
                                            part because large-scale production of shale oil has been under way for only the
in areas of the country without a history
                                            past few years. Estimates are based on data available at a given point in time
of oil and natural gas development––
                                            and will change as additional information becomes available. In addition,
questions have been raised about the        domestic shale oil and gas production has experienced substantial growth; shale
estimates of the size of these              oil production increased more than fivefold from 2007 to 2011, and shale gas
resources, as well as the processes         production increased more than fourfold from 2007 to 2011.
used to extract them.
                                            Oil and gas development, whether conventional or shale oil and gas, pose
GAO was asked to determine what is          inherent environmental and public health risks, but the extent of these risks
known about the (1) size of shale oil       associated with shale oil and gas development is unknown, in part, because the
and gas resources and the amount            studies GAO reviewed do not generally take into account the potential long-term,
produced from 2007 through 2011 and         cumulative effects. For example, according to a number of studies and
(2) environmental and public health         publications GAO reviewed, shale oil and gas development poses risks to air
risks associated with the development       quality, generally as the result of (1) engine exhaust from increased truck traffic,
of shale oil and gas. GAO reviewed          (2) emissions from diesel-powered pumps used to power equipment, (3) gas that
estimates and data from federal and         is flared (burned) or vented (released directly into the atmosphere) for
nongovernmental organizations on the        operational reasons, and (4) unintentional emissions of pollutants from faulty
size and production of shale oil and        equipment or impoundments—temporary storage areas. Similarly, a number of
gas resources. GAO also interviewed         studies and publications GAO reviewed indicate that shale oil and gas
federal and state regulatory officials,     development poses risks to water quality from contamination of surface water
representatives from industry and           and groundwater as a result of erosion from ground disturbances, spills and
environmental organizations, oil and        releases of chemicals and other fluids, or underground migration of gases and
gas operators, and researchers from         chemicals. For example, tanks storing toxic chemicals or hoses and pipes used
academic institutions.                      to convey wastes to the tanks could leak, or impoundments containing wastes
                                            could overflow as a result of extensive rainfall. According to the New York
GAO is not making any                       Department of Environmental Conservation’s 2011 Supplemental Generic
recommendations in this report. We          Environmental Impact Statement, spilled, leaked, or released chemicals or
provided a draft of this report to the      wastes could flow to a surface water body or infiltrate the ground, reaching and
Department of Energy, the Department        contaminating subsurface soils and aquifers. In addition, shale oil and gas
of the Interior, and the Environmental      development poses a risk to land resources and wildlife habitat as a result of
Protection Agency for review. The           constructing, operating, and maintaining the infrastructure necessary to develop
Department of the Interior and the          oil and gas; using toxic chemicals; and injecting fluids underground. However,
Environmental Protection Agency             the extent of these risks is unknown. For example, the studies and publications
provided technical comments, which          GAO reviewed on air quality conditions provide information for a specific site at a
we incorporated as appropriate. The         specific time but do not provide the information needed to determine the overall
Department of Energy did not provide        cumulative effects that shale oil and gas activities may have on air quality.
comments.                                   Further, the extent and severity of environmental and public health risks identified
                                            in the studies and publications GAO reviewed may vary significantly across shale
View GAO-12-732. For more information,      basins and also within basins because of location- and process-specific factors,
contact Frank Rusco at (202) 512-3841 or    including the location and rate of development; geological characteristics, such
ruscof@gao.gov.                             as permeability, thickness, and porosity of the formations; climatic conditions;
                                            business practices; and regulatory and enforcement activities.
                                                                                     United States Government Accountability Office
Contents


Letter                                                                                      1
               Background                                                                  5
               Domestic Shale Oil and Gas Estimates and Production                        19
               Shale Oil and Gas Development Pose Environmental and Public
                 Health Risks, but the Extent is Unknown and Depends on Many
                 Factors                                                                  32
               Agency Comments                                                            55

Appendix I     Scope and Methodology                                                      58



Appendix II    List of Agencies and Organizations Contacted                               61



Appendix III   Additional Information on USGS Estimates                                   63



Appendix IV    GAO Contact and Staff Acknowledgments                                      65



Tables
               Table 1: USGS and EIA Estimates of Total Remaining Technically
                        Recoverable U.S. Oil Resources                                    20
               Table 2: Estimated Technically Recoverable Shale Gas Resources,
                        by Play                                                           24
               Table 3: Average Freshwater Use per Well for Drilling and
                        Hydraulic Fracturing                                              37
               Table 4: Shale Formation and Treatable Water Depth                         48
               Table 5: USGS Estimates                                                    63


Figures
               Figure 1: History of Horizontal Drilling and Hydraulic Fracturing           7
               Figure 2: Perforating Tool                                                 11
               Figure 3: Examples of Common Ingredients Found in Fracturing
                        Fluid                                                             12
               Figure 4: Shale Plays and Basins in the Contiguous 48 States               15




               Page i                                 GAO-12-732 Shale Oil and Gas Development
Figure 5: Common Terminology to Describe the Size and Scope of
         Shale Oil and Gas                                                                18
Figure 6: Estimates of Technically Recoverable Shale Gas from
         EIA, USGS, and the Potential Gas Committee (2006
         through 2012)                                                                    22
Figure 7: Estimated Production of Shale Oil from 2007 through
         2011 (in millions of barrels of oil)                                             26
Figure 8: Shale Oil Production, by Shale Play (from 2007 through
         2011)                                                                            28
Figure 9: Estimated Production of Shale Gas from 2007 through
         2011 (in trillions of cubic feet)                                                29
Figure 10: Shale Gas Production, by Shale Play (from 2007 through
         2011)                                                                            31
Figure 11: Silica Sand Proppant                                                           34
Figure 12: Storage Tank for Produced Water in the Barnett Shale                           43




Abbreviations

BLM               Bureau of Land Management
Btu               British thermal unit
DOE               Department of Energy
EIA               Energy Information Administration
EPA               Environmental Protection Agency
NORM              naturally occurring radioactive materials
Tcf               technically recoverable gas
USGS              U.S. Geological Survey




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Page ii                                         GAO-12-732 Shale Oil and Gas Development
United States Government Accountability Office
Washington, DC 20548




                                   September 5, 2012

                                   Congressional Requesters

                                   For decades, the United States has relied on imports of oil and natural
                                   gas to meet domestic needs. As recently as 2007, the expectation was
                                   that the nation would increasingly rely on imports of natural gas to meet
                                   its growing demand. However, recent improvements in technology have
                                   allowed companies that develop petroleum resources to extract oil and
                                   natural gas from shale formations, 1 known as “shale oil” and “shale gas,”
                                   respectively, which were previously inaccessible because traditional
                                   techniques did not yield sufficient amounts for economically viable
                                   production. In particular, as we reported in January 2012, new
                                   applications of horizontal drilling techniques and hydraulic fracturing—a
                                   process that injects a combination of water, sand, and chemical additives
                                   under high pressure to create and maintain fractures in underground rock
                                   formations that allow oil and natural gas to flow—have prompted a boom
                                   in shale oil and gas production. 2 According to the Department of Energy
                                   (DOE), America’s shale gas resource base is abundant, and development
                                   of this resource could have beneficial effects for the nation, such as job
                                   creation. 3 According to a report by the Baker Institute, domestic shale gas
                                   development could limit the need for expensive imports of these
                                   resources—helping to reduce the U.S. trade deficit. 4 In addition, replacing
                                   older coal burning power generation with new natural gas-fired generators
                                   could reduce greenhouse gas emissions and result in fewer air pollutants



                                   1
                                    Shale oil differs from “oil shale.” Shale is a sedimentary rock that is predominantly
                                   composed of consolidated clay-sized particles. Oil shale requires a different process to
                                   extract. Specifically, to extract the oil from oil shale, the rock needs to be heated to very
                                   high temperatures—ranging from about 650 to 1,000 degrees Fahrenheit—in a process
                                   known as retorting. Oil shale is not currently economically viable to produce. For additional
                                   information on oil shale, see GAO, Energy-Water Nexus: A Better and Coordinated
                                   Understanding of Water Resources Could Help Mitigate the Impacts of Potential Oil Shale
                                   Development, GAO-11-35 (Washington, D.C.: Oct. 29, 2010).
                                   2
                                    GAO, Energy-Water Nexus: Information on the Quantity, Quality, and Management of
                                   Water Produced during Oil and Gas Production, GAO-12-156 (Washington, D.C.: Jan. 9,
                                   2012).
                                   3
                                    EIA is a statistical agency within DOE that provides independent data, forecasts, and
                                   analyses.
                                   4
                                    The Baker Institute is a public policy think tank located on the Rice University campus.




                                   Page 1                                          GAO-12-732 Shale Oil and Gas Development
for the same amount of electric power generated. 5 Early drilling activity in
shale formations was centered primarily on natural gas, but with the
falling price of natural gas companies switched their focus to oil and
natural gas liquids, which are a more valuable product. 6

As exploration and development of shale oil and gas have increased in
recent years––including in areas of the country without a history of oil and
natural gas activities––questions have been raised about the estimates of
the size of domestic shale oil and gas resources, as well as the
processes used to extract them. 7 For example, some organizations have
questioned the accuracy of the estimates of the shale gas supply. In
particular, some news organizations have reported concerns that such
estimates may be inflated. In addition, concerns about environmental and
public health effects of the increased use of horizontal drilling and
hydraulic fracturing, particularly on air quality and water resources, have
garnered extensive public attention. According to the International Energy
Agency, some questions also exist about whether switching from coal to
natural gas will lead to a reduction in greenhouse gas emissions—based,
in part, on uncertainty about additional emissions from the development
of shale gas. These concerns and other considerations have led some
communities and certain states to impose restrictions or moratoriums on
drilling operations to allow time to study and better understand the
potential risks associated with these practices.

In this context, you asked us to provide information on shale oil and gas.
This report describes what is known about (1) the size of shale oil and
gas resources in the United States and the amount produced from 2007
through 2011—the years for which data were available—and (2) the
environmental and public health risks associated with development of
shale oil and gas. 8



5
 EIA reported that using natural gas over coal would lower emissions in the United States,
but some researchers have reported that greater reliance on natural gas would fail to
significantly slow climate change.
6
 The natural gas liquids include propane, butane, and ethane, and are separated from the
produced gas at the surface in lease separators, field facilities, or gas processing plants.
7
 For the purposes of this report, resources represent all oil or natural gas contained within
a formation and can be divided into resources and reserves.
8
 For the purposes of this report, we refer to risk as a threat or vulnerability that has
potential to cause harm.




Page 2                                            GAO-12-732 Shale Oil and Gas Development
To determine what is known about the size of shale oil and gas resources
and the amount of shale oil and gas produced, we collected data from
federal agencies, state agencies, private industry, and academic
organizations. Specifically, to determine what is known about the size of
these resources, we obtained information for technically recoverable and
proved reserves estimates for shale oil and gas from the EIA, the U.S.
Geological Survey (USGS), and the Potential Gas Committee––a
nongovernmental organization composed of academics and industry
representatives. We interviewed key officials from these agencies and the
committee about the assumptions and methodologies used to estimate
the resource size. Estimates of proved reserves of shale oil and gas are
based on data provided to EIA by operators—companies that develop
petroleum resources to extract oil and natural gas. 9 To determine what is
known about the amount of shale oil and gas produced from 2007
through 2011, we obtained data from EIA—which is responsible for
estimating and reporting this and other energy information. To assess the
reliability of these data, we examined EIA’s published methodology for
collecting this information and interviewed key EIA officials regarding the
agency’s data collection efforts. We also met with officials from states,
representatives from private industry, and researchers from academic
institutions who are familiar with these data and EIA’s methodology. We
discussed the sources and reliability of the data with these officials and
found the data sufficiently reliable for the purposes of this report. For all
estimates we report, we reviewed the methodologies used to derive them
and also found them sufficiently reliable for the purposes of this report.

To determine what is known about the environmental and public health
risks associated with the development of shale oil and gas, 10 we reviewed
studies and other publications from federal agencies and laboratories,
state agencies, local governments, the petroleum industry, academic
institutions, environmental and public health groups, and other
nongovernmental associations. We identified these studies by conducting



9
 Proved reserves refer to the amount of oil and gas that have been discovered and
defined.
10
  Operators may use hydraulic fracturing to develop oil and natural gas from formations
other than shale, but for the purposes of this report we focused on development of shale
formations. Specifically, coalbed methane and tight sandstone formations may rely on
these practices and some studies and publications we reviewed identified risks that can
apply to these formations. However, many of the studies and publications we identified
and reviewed focused primarily on shale formations.




Page 3                                         GAO-12-732 Shale Oil and Gas Development
a literature search, and by asking for recommendations during interviews
with federal, state, and tribal officials; representatives from industry, trade
organizations, environmental, and other nongovernmental groups; and
researchers from academic institutions. For a number of studies, we
interviewed the author or authors to discuss the study’s findings and
limitations, if any. We believe we have identified the key studies through
our literature review and interviews, and that the studies included in our
review have accurately identified currently known potential risks for shale
oil and gas development. However, it is possible that we may not have
identified all of the studies with findings relevant to our objectives, and the
risks we present may not be the only issues of concern.

The risks identified in the studies and publications we reviewed cannot, at
present, be quantified, and the magnitude of potential adverse affects or
likelihood of occurrence cannot be determined for several reasons. First,
it is difficult to predict how many or where shale oil and gas wells may be
constructed. Second, the extent to which operators use effective best
management practices to mitigate risk may vary. Third, based on the
studies we reviewed, there are relatively few studies that are based on
comparing predevelopment conditions to postdevelopment conditions—
making it difficult to detect or attribute adverse conditions to shale oil and
gas development. In addition, changes to the federal, state, and local
regulatory environments and the effectiveness of implementing and
enforcing regulations will affect operators’ future activities and, therefore,
the level of risk associated with future development of oil and gas
resources. Moreover, risks of adverse events, such as spills or accidents,
may vary according to business practices which, in turn, may vary across
oil and gas companies, making it difficult to distinguish between risks
associated with the process to develop shale oil and gas from risks that
are specific to particular business practices. To obtain additional
perspectives on issues related to environmental and public health risks,
we interviewed federal officials from DOE’s National Energy Technical
Laboratory, the Department of the Interior’s Bureau of Land Management
(BLM) and Bureau of Indian Affairs, and the Environmental Protection
Agency (EPA); state regulatory officials from Arkansas, Colorado,
Louisiana, North Dakota, Ohio, Oklahoma, Pennsylvania, and Texas; 11
tribal officials from the Osage Nation; shale oil and gas operators;



11
  We selected these states because they are involved with shale oil and gas
development.




Page 4                                        GAO-12-732 Shale Oil and Gas Development
             representatives from environmental and public health organizations; and
             other knowledgeable parties with experience related to shale oil and gas
             development, such as researchers from the Colorado School of Mines,
             the University of Texas, Oklahoma University, and Stanford University.
             Appendix I provides additional information on our scope and
             methodology.

             We conducted this performance audit from November 2011 to September
             2012 in accordance with generally accepted government auditing
             standards. Those standards require that we plan and perform the audit to
             obtain sufficient, appropriate evidence to provide a reasonable basis for
             our findings and conclusions based on our audit objectives. We believe
             that the evidence obtained provides a reasonable basis for our findings
             and conclusions based on our audit objectives.


             This section includes (1) an overview of oil and natural gas, (2) the shale
Background   oil and gas development process, (3) the regulatory framework, (4) the
             location of shale oil and gas in the United States, and (5) information on
             estimating the size of these resources.


Overview     Oil and natural gas are found in a variety of geologic formations.
             Conventional oil and natural gas are found in deep, porous rock or
             reservoirs and can flow under natural pressure to the surface after drilling.
             In contrast to the free-flowing resources found in conventional formations,
             the low permeability of some formations, including shale, means that oil
             and gas trapped in the formation cannot move easily within the rock. On
             one extreme—oil shale, for example—the hydrocarbon trapped in the
             shale will not reach a liquid form without first being heated to very high
             temperatures—ranging from about 650 to 1,000 degrees Fahrenheit—in a
             process known as retorting. In contrast, to extract shale oil and gas from
             the rock, fluids and proppants (usually sand or ceramic beads used to
             hold fractures open in the formation) are injected under high pressure to
             create and maintain fractures to increase permeability, thus allowing oil or
             gas to be extracted. Other formations, such as coalbed methane




             Page 5                                  GAO-12-732 Shale Oil and Gas Development
                        formations and tight sandstone formations, 12 may also require stimulation
                        to allow oil or gas to be extracted. 13

                        Most of the energy used in the United States comes from fossil fuels such
                        as oil and natural gas. Oil supplies more than 35 percent of all the energy
                        the country consumes, and almost the entire U.S. transportation fleet—
                        cars, trucks, trains, and airplanes—depends on fuels made from oil.
                        Natural gas is an important energy source to heat buildings, power the
                        industrial sector, and generate electricity. Natural gas provides more than
                        20 percent of the energy used in the United States, 14 supplying nearly half
                        of all the energy used for cooking, heating, and powering other home
                        appliances, and generating almost one-quarter of U.S. electricity supplies.


The Shale Oil and Gas   The process to develop shale oil and gas is similar to the process for
Development Process     conventional onshore oil and gas, but shale formations may rely on the
                        use of horizontal drilling and hydraulic fracturing—which may or may not
                        be used on conventional wells. Horizontal drilling and hydraulic fracturing
                        are not new technologies, as seen in figure 1, but advancements,
                        refinements, and new uses of these technologies have greatly expanded
                        oil and gas operators’ abilities to use these processes to economically
                        develop shale oil and gas resources. For example, the use of multistage
                        hydraulic fracturing within a horizontal well has only been widely used in
                        the last decade. 15




                        12
                          Conventional sandstone has well-connected pores, but tight sandstone has irregularly
                        distributed and poorly connected pores. Due to this low connectivity or permeability, gas
                        trapped within tight sandstone is not easily produced.
                        13
                          For coalbed methane formations, the reduction in pressure needed to extract gas is
                        achieved through dewatering. As water is pumped out of the coal seams, reservoir
                        pressure decreases, allowing the natural gas to release (desorb) from the surface of the
                        coal and flow through natural fracture networks into the well.
                        14
                          Ground Water Protection Council and ALL Consulting, Modern Shale Gas Development
                        in the United States: A Primer, a special report prepared at the request of the Department
                        of Energy (Washington, D.C.: April 2009).
                        15
                          Hydraulic fracturing is often conducted in stages. Each stage focuses on a limited linear
                        section and may be repeated numerous times.




                        Page 6                                          GAO-12-732 Shale Oil and Gas Development
Figure 1: History of Horizontal Drilling and Hydraulic Fracturing




                                          First, operators locate suitable shale oil and gas targets using seismic
                                          methods of exploration, 16 negotiate contracts or leases that allow mineral
                                          development, identify a specific location for drilling, and obtain necessary
                                          permits; then, they undertake a number of activities to develop shale oil
                                          and gas. The specific activities and steps taken to extract shale oil and
                                          gas vary based on the characteristics of the formation, but the
                                          development phase generally involves the following stages: (1) well pad



                                          16
                                            The seismic method of exploration introduces energy into the subsurface through
                                          explosions in shallow “shot holes” by striking the ground forcefully (with a truck-mounted
                                          thumper), or by vibration methods. A portion of the energy returns to the surface after
                                          being reflected from the subsurface strata. This energy is detected by surface instruments,
                                          called geophones, and the information carried by the energy is processed by computers to
                                          interpret subsurface conditions.




                                          Page 7                                         GAO-12-732 Shale Oil and Gas Development
                                 preparation and construction, (2) drilling and well construction, and (3)
                                 hydraulic fracturing. 17

Well Pad Preparation and         The first stage in the development process is to prepare and construct the
Construction                     well pad site. Typically, operators must clear and level surface vegetation
                                 to make room for numerous vehicles and heavy equipment—such as the
                                 drilling rig—and to build infrastructure—such as roads—needed to access
                                 the site. 18 Then operators must transport the equipment that mixes the
                                 additives, water, and sand needed for hydraulic fracturing to the site—
                                 tanks, water pumps, and blender pumps, as well as water and sand
                                 storage tanks, monitoring equipment, and additive storage containers .
                                 Based on the geological characteristics of the formation and climatic
                                 conditions, operators may (1) excavate a pit or impoundment to store
                                 freshwater, drilling fluids, or drill cuttings—rock cuttings generated during
                                 drilling; (2) use tanks to store materials; or (3) build temporary transfer
                                 pipes to transport materials to and from an off-site location.

Drilling and Well Construction   The next stage in the development process is drilling and well
                                 construction. Operators drill a hole (referred to as the wellbore) into the
                                 earth through a combination of vertical and horizontal drilling techniques.
                                 At several points in the drilling process, the drill string and bit are
                                 removed from the wellbore so that casing and cement may be inserted.
                                 Casing is a metal pipe that is inserted inside the wellbore to prevent high-
                                 pressure fluids outside the formation from entering the well and to prevent
                                 drilling mud inside the well from fracturing fragile sections of the wellbore.
                                 As drilling progresses with depth, casings that are of a smaller diameter
                                 than the hole created by the drill bit are inserted into the wellbore and
                                 bonded in place with cement, sealing the wellbore from the surrounding
                                 formation.

                                 Drilling mud (a lubricant also known as drilling fluid) is pumped through
                                 the wellbore at different densities to balance the pressure inside the
                                 wellbore and bring rock particles and other matter cut from the formation
                                 back to the rig. A blowout preventer is installed over the well as a safety
                                 measure to prevent any uncontrolled release of oil or gas and help



                                 17
                                  The specific order of activities and steps may vary.
                                 18
                                   According to the New York Department of Environmental Conservation’s 2011
                                 Supplemental Generic Environmental Impact Statement, the average size of a well pad is
                                 3.5 acres.




                                 Page 8                                         GAO-12-732 Shale Oil and Gas Development
                       maintain control over pressures in the well. Drill cuttings, which are made
                       up of ground rock coated with a layer of drilling mud or fluid, are brought
                       to the surface. Mud pits provide a reservoir for mixing and holding the
                       drilling mud. At the completion of drilling, the drilling mud may be recycled
                       for use at another drilling operation.

                       Instruments guide drilling operators to the “kickoff point”—the point that
                       drilling starts to turn at a slight angle and continues turning until it nears
                       the shale formation and extends horizontally. Production casing and
                       cement are then inserted to extend the length of the borehole to maintain
                       wellbore integrity and prevent any communication between the formation
                       fluids and the wellbore. After the casing is set and cemented, the drilling
                       operator may run a cement evaluation log by lowering an electric probe
                       into the well to measure the quality and placement of the cement. The
                       purpose of the cement evaluation log is to confirm that the cement has
                       the proper strength to function as designed—preventing well fluids from
                       migrating outside the casing and infiltrating overlying formations. After
                       vertical drilling is complete, horizontal drilling is conducted by slowly
                       angling the drill bit until it is drilling horizontally. Horizontal stretches of the
                       well typically range from 2,000 to 6,000 feet long but can be as long as
                       12,000 feet long, in some cases.

                       Throughout the drilling process, operators may vent or flare some natural
                       gas, often intermittently, in response to maintenance needs or equipment
                       failures. This natural gas is either released directly into the atmosphere
                       (vented) or burned (flared). In October 2010, we reported on venting and
                       flaring of natural gas on public lands. 19 We reported that vented and
                       flared gas on public lands represents potential lost royalties for the federal
                       government and contributes to greenhouse gas emissions. Specifically,
                       venting releases methane and volatile organic compounds, and flaring
                       emits carbon dioxide, both greenhouse gases that contribute to global
                       climate change. Methane is a particular concern since it is a more potent
                       greenhouse gas than carbon dioxide.

Hydraulic Fracturing   The next stage in the development process is stimulation of the shale
                       formation using hydraulic fracturing. Before operators or service
                       companies perform a hydraulic fracture treatment of a well, a series of


                       19
                         GAO, Federal Oil and Gas Leases: Opportunities Exist to Capture Vented and Flared
                       Natural Gas, Which Would Increase Royalty Payments and Reduce Greenhouse Gases,
                       GAO-11-34 (Washington, D.C.: Oct. 29, 2010).




                       Page 9                                      GAO-12-732 Shale Oil and Gas Development
tests may be conducted to ensure that the well, wellhead equipment, and
fracturing equipment can safely withstand the high pressures associated
with the fracturing process. Minimum requirements for equipment
pressure testing can be determined by state regulatory agencies for
operations on state or private lands. In addition, fracturing is conducted
below the surface of the earth, sometimes several thousand feet below,
and can only be indirectly observed. Therefore, operators may collect
subsurface data—such as information on rock stresses 20 and natural fault
structures—needed to develop models that predict fracture height, length,
and orientation prior to drilling a well. The purpose of modeling is to
design a fracturing treatment that optimizes the location and size of
induced fractures and maximizes oil or gas production.

To prepare a well to be hydraulically fractured, a perforating tool may be
inserted into the casing and used to create holes in the casing and
cement. Through these holes, fracturing fluid—that is injected under high
pressures—can flow into the shale (fig. 2 shows a used perforating tool).




20
  Stresses in the formation generally define a maximum and minimum stress direction that
influence the direction a fracture will grow.




Page 10                                       GAO-12-732 Shale Oil and Gas Development
Figure 2: Perforating Tool




Fracturing fluids are tailored to site specific conditions, such as shale
thickness, stress, compressibility, and rigidity. As such, the chemical
additives used in a fracture treatment vary. Operators may use computer
models that consider local conditions to design site‐specific hydraulic
fluids. The water, chemicals, and proppant used in fracturing fluid are
typically stored on-site in separate tanks and blended just before they are
injected into the well. Figure 3 provides greater detail about some
chemicals commonly used in fracturing.




Page 11                                GAO-12-732 Shale Oil and Gas Development
Figure 3: Examples of Common Ingredients Found in Fracturing Fluid




                                       The operator pumps the fracturing fluid into the wellbore at pressures
                                       high enough to force the fluid through the perforations into the
                                       surrounding formation—which can be shale, coalbeds, or tight
                                       sandstone—expanding existing fractures and creating new ones in the
                                       process. After the fractures are created, the operator reduces the
                                       pressure. The proppant stays in the formation to hold open the fractures
                                       and allow the release of oil and gas. Some of the fracturing fluid that was
                                       injected into the well will return to the surface (commonly referred to as
                                       flowback) along with water that occurs naturally in the oil- or gas-bearing
                                       formation—collectively referred to as produced water. The produced
                                       water is brought to the surface and collected by the operator, where it can
                                       be stored on-site in impoundments, injected into underground wells,
                                       transported to a wastewater treatment plant, or reused by the operator in




                                       Page 12                                GAO-12-732 Shale Oil and Gas Development
                       other ways. 21 Given the length of horizontal wells, hydraulic fracturing is
                       often conducted in stages, where each stage focuses on a limited linear
                       section and may be repeated numerous times.

                       Once a well is producing oil or natural gas, equipment and temporary
                       infrastructure associated with drilling and hydraulic fracturing operations
                       is no longer needed and may be removed, leaving only the parts of the
                       infrastructure required to collect and process the oil or gas and ongoing
                       produced water. Operators may begin to reclaim the part of the site that
                       will not be used by restoring the area to predevelopment conditions.
                       Throughout the producing life of an oil or gas well, the operator may find it
                       necessary to periodically restimulate the flow of oil or gas by repeating
                       the hydraulic fracturing process. The frequency of such activity depends
                       on the characteristics of the geologic formation and the economics of the
                       individual well. If the hydraulic fracturing process is repeated, the site and
                       surrounding area will be further affected by the required infrastructure,
                       truck transport, and other activity associated with this process.


Regulatory Framework   Shale oil and gas development, like conventional onshore oil and gas
                       production, is governed by a framework of federal, state, and local laws
                       and regulations. Most shale development in the near future is expected to
                       occur on nonfederal lands and, therefore, states will typically take the
                       lead in regulatory activities. However, in some cases, federal agencies
                       oversee shale oil and gas development. For example, BLM oversees
                       shale oil and gas development on federal lands. In large part, the federal
                       laws, regulations, and permit requirements that apply to conventional
                       onshore oil and gas exploration and production activities also apply to
                       shale oil and gas development.

                       •    Federal. A number of federal agencies administer laws and
                            regulations that apply to various phases of shale oil and gas
                            development. For example, BLM manages federal lands and
                            approximately 700 million acres of federal subsurface minerals, also
                            known as the federal mineral estate. EPA administers and enforces
                            key federal laws, such as the Safe Drinking Water Act, to protect


                       21
                          Underground injection is the predominant practice for disposing of produced water. In
                       addition to underground injection, a limited amount of produced water is managed by
                       discharging it to surface water, storing it in surface impoundments, and reusing it for
                       irrigation or hydraulic fracturing.




                       Page 13                                        GAO-12-732 Shale Oil and Gas Development
                                human health and the environment. Other federal land management
                                agencies, such as the U.S. Department of Agriculture’s Forest Service
                                and the Department of the Interior’s Fish and Wildlife Service, also
                                manage federal lands, including shale oil and gas development on
                                those lands.

                            •   State. State agencies implement and enforce many of the federal
                                environmental regulations and may also have their own set of state
                                laws covering shale oil and gas development.

                            •   Other. Additional requirements regarding shale oil and gas operations
                                may be imposed by various levels of government for specific
                                locations. Entities such as cities, counties, tribes, and regional water
                                authorities may set additional requirements that affect the location and
                                operation of wells.

                            GAO is conducting a separate and more detailed review of the federal
                            and state laws and regulations that apply to unconventional oil and gas
                            development, including shale oil and gas.


Location of Shale Oil and   Shale oil and gas are found in shale plays—a set of discovered or
Gas in the United States    undiscovered oil and natural gas accumulations or prospects that exhibit
                            similar geological characteristics—on private, state-owned, and federal
                            lands across the United States. Shale plays are located within basins,
                            which are large-scale geological depressions, often hundreds of miles
                            across, that also may contain other oil and gas resources. Figure 4 shows
                            the location of shale plays and basins in the contiguous 48 states.




                            Page 14                                 GAO-12-732 Shale Oil and Gas Development
Figure 4: Shale Plays and Basins in the Contiguous 48 States




                                         A shale play can be developed for oil, natural gas, or both. In addition, a
                                         shale gas play may contain “dry” or “wet” natural gas. Dry natural gas is a
                                         mixture of hydrocarbon compounds that exists as a gas both underground
                                         in the reservoir and during production under standard temperature and
                                         pressure conditions. Wet natural gas contains natural gas liquids, or the
                                         portion of the hydrocarbon resource that exists as a gas when in natural
                                         underground reservoir conditions but that is liquid at surface conditions.
                                         The natural gas liquids are typically propane, butane, and ethane and are
                                         separated from the produced gas at the surface in lease separators, field
                                         facilities, or gas processing plants. Operators may then sell the natural
                                         gas liquids, which may give wet shale gas plays an economic advantage
                                         over dry gas plays. Another advantage of liquid petroleum and natural



                                         Page 15                                GAO-12-732 Shale Oil and Gas Development
                         gas liquids is that they can be transported more easily than natural gas.
                         This is because, to bring natural gas to markets and consumers,
                         companies must build an extensive network of gas pipelines. In areas
                         where gas pipelines are not extensive, natural gas produced along with
                         liquids is often vented or flared.


Estimating the Size of   Estimating the size of shale oil and gas resources serves a variety of
Shale Oil and Gas        needs for consumers, policymakers, land and resource managers,
Resources                investors, regulators, industry planners, and others. For example, federal
                         and state governments may use resource estimates to estimate future
                         revenues and establish energy, fiscal, and national security policies. The
                         petroleum industry and the financial community use resource estimates to
                         establish corporate strategies and make investment decisions.

                         A clear understanding of some common terms used to generally describe
                         the size and scope of oil and gas resources is needed to determine the
                         relevance of a given estimate. For an illustration of how such terms
                         describe the size and scope of shale oil and gas, see figure 5.

                         The most inclusive term is in-place resource. The in-place resource
                         represents all oil or natural gas contained in a formation without regard to
                         technical or economic recoverability. In-place resource estimates are
                         sometimes very large numbers, but often only a small proportion of the
                         total amount of oil or natural gas in a formation may ever be recovered.
                         Oil and gas resources that are in-place, but not technically recoverable at
                         this time may, in the future, become technically recoverable.

                         Technically recoverable resources are a subset of in-place resources that
                         include oil or gas, including shale oil and gas that is producible given
                         available technology. Technically recoverable resources include those
                         that are economically producible and those that are not. Estimates of
                         technically recoverable resources are dynamic, changing to reflect the
                         potential of extraction technology and knowledge about the geology and
                         composition of geologic formations. According to the National Petroleum
                         Council, 22 technically recoverable resource estimates usually increase



                         22
                           The National Petroleum Council is a federally chartered and privately funded advisory
                         committee that advises, informs, and makes recommendations to the Secretary of Energy
                         on oil and natural gas matters.




                         Page 16                                       GAO-12-732 Shale Oil and Gas Development
over time because of the availability of more and better data, or
knowledge of how to develop a new play type (such as shale formations).

Proved reserve estimates are more precise than technically recoverable
resources and represent the amount of oil and gas that have been
discovered and defined, typically by drilling wells or other exploratory
measures, and which can be economically recovered within a relatively
short time frame. Proved reserves may be thought of as the “inventory”
that operators hold and define the quantity of oil and gas that operators
estimate can be recovered under current economic conditions, operating
methods, and government regulations. Estimates of proved reserves
increase as oil and gas companies make new discoveries and report
them to the government; oil and gas companies can increase their
reserves as they develop already-discovered fields and improve
production technology. Reserves decline as oil and gas reserves are
produced and sold. In addition, reserves can change as prices and
technologies change. For example, technology improvements that enable
operators to extract more oil or gas from existing fields can increase
proved reserves. Likewise, higher prices for oil and gas may increase the
amount of proved reserves because more resources become financially
viable to extract. 23 Conversely, lower prices may diminish the amount of
resources likely to be produced, reducing proved reserves.

Historical production refers to the total amount of oil and gas that has
been produced up to the present. Because these volumes of oil and gas
have been measured historically, this is the most precise information
available as it represents actual production amounts.




23
  For example, secondary recovery operations can be costly (such as using a well to
inject water into an oil reservoir and push any remaining oil to operating wells), but the
costs may be justified if prices are high enough.




Page 17                                          GAO-12-732 Shale Oil and Gas Development
Figure 5: Common Terminology to Describe the Size and Scope of Shale Oil and
Gas




Note: This illustration is not necessarily to scale because all volumes, except historical production,
are subject to significant uncertainty.


Certain federal agencies have statutory responsibility for collecting and
publishing authoritative statistical information on various types of energy
sources in the United States. EIA collects, analyzes, and disseminates
independent and impartial energy information, including data on shale oil
and gas resources. Under the Energy Policy and Conservation Act of
2000, as amended, USGS estimates onshore undiscovered technically
recoverable oil and gas resources in the United States. 24 USGS has
conducted a number of national estimates of undiscovered technically
recoverable oil and natural gas resources over several decades. USGS
geologists and other experts estimate undiscovered oil and gas—that is,
oil and gas that has not been proven to be present by oil and gas
companies—based on geological survey data and other information about



24
 Pub. L. No. 106-469 § 604 (2000), 114 Stat. 2029, 2041-42, codified, as amended, at 42
U.S.C. § 6217.




Page 18                                                GAO-12-732 Shale Oil and Gas Development
                            the location and size of different geological formations across the United
                            States. In addition to EIA and USGS, experts from industry, academia,
                            federal advisory committees, private consulting firms, and professional
                            societies also estimate the size of the resource.


                            Estimates of the size of shale oil and gas resources in the United States
Domestic Shale Oil          have increased over time as has the amount of such resources produced
and Gas Estimates           from 2007 through 2011. Specifically, over the last 5 years, estimates of
                            (1) technically recoverable shale oil and gas and (2) proved reserves of
and Production              shale oil and gas have increased, as technology has advanced and more
                            shale has been drilled. In addition, domestic shale oil and gas production
                            has experienced substantial growth in recent years.


Estimates of Technically    EIA, USGS, and the Potential Gas Committee have increased their
Recoverable Shale Oil and   estimates of the amount of technically recoverable shale oil and gas over
Gas Resources               the last 5 years, which could mean an increase in the nation’s energy
                            portfolio; however, less is known about the amount of technically
                            recoverable shale oil than shale gas, in part because large-scale
                            production of shale oil has been under way for only the past few years.
                            The estimates are from different organizations and vary somewhat
                            because they were developed at different times and using different data,
                            methods, and assumptions, but estimates from all of these organizations
                            have increased over time, indicating that the nation’s shale oil and gas
                            resources may be substantial. For example, according to estimates and
                            reports we reviewed, assuming current consumption levels without
                            consideration of a specific market price for future gas supplies, the
                            amount of domestic technically recoverable shale gas could provide
                            enough natural gas to supply the nation for the next 14 to 100 years. The
                            increases in estimates can largely be attributed to improved geological
                            information about the resources, greater understanding of production
                            levels, and technological advancements.




                            Page 19                                GAO-12-732 Shale Oil and Gas Development
Estimates of Technically   In the last 2 years, EIA and USGS provided estimates of technically
Recoverable Shale Oil      recoverable shale oil. 25 Each of these estimates increased in recent years
Resources                  as follows:

                           •     In 2012, EIA estimated that the United States possesses 33 billion
                                 barrels of technically recoverable shale oil, 26 mostly located in four
                                 shale formations—the Bakken in Montana and North Dakota; Eagle
                                 Ford in Texas; Niobrara in Colorado, Kansas, Nebraska, and
                                 Wyoming; and the Monterey in California.

                           •     In 2011, USGS estimated that the United States possesses just over
                                 7 billion barrels of technically recoverable oil in shale and tight
                                 sandstone formations. The estimate represents a more than threefold
                                 increase from the agency’s estimate in 2006. However, there are
                                 several shale plays that USGS has not evaluated for shale oil
                                 because interest in these plays is relatively new. According to USGS
                                 officials, these shale plays have shown potential for production in
                                 recent years and may contain additional shale oil resources. Table 1
                                 shows USGS’ 2006 and 2011 estimates and EIA’s 2011 and 2012
                                 estimates.

                           Table 1: USGS and EIA Estimates of Total Remaining Technically Recoverable
                           U.S. Oil Resources

                            Barrels of oil in billions
                                                                                      USGS                   EIA
                                                                                     2006    2011         2011     2012
                            Estimated technically recoverable shale oil                  2       7           32      33
                            and tight sandstone resources
                            Estimated technically recoverable oil                     142     133           187     201
                                                      a
                            resources other than shale
                           Source: GAO analysis of EIA and USGS data.




                           25
                              As noted previously, for the purposes of this report, we use the term “shale oil” to refer
                           to oil from shale and other tight formations, which is recoverable by hydraulic fracturing
                           and horizontal drilling techniques and is described by others as “tight oil.” Shale oil and
                           tight oil are extracted in the same way, but differ from “oil shale.” Oil shale is a
                           sedimentary rock containing solid organic material that converts into a type of crude oil
                           only when heated.
                           26
                             Comparatively, the United States currently consumes about 7 billion barrels of oil per
                           year, about half of which are imported from foreign sources.




                           Page 20                                           GAO-12-732 Shale Oil and Gas Development
                           a
                            Includes estimates for conventional offshore oil and gas, as well as natural gas liquids. In addition,
                           the USGS estimates for 2006 and 2011 include a 2006 estimate of technically recoverable offshore
                           conventional oil resources totaling 86 billion barrels of oil and natural gas liquids from the former
                           Minerals Management Service, which has since been reorganized into the Bureau of Ocean Energy
                           Management and the Bureau of Safety and Environmental Enforcement.


                           Overall, estimates of the size of technically recoverable shale oil
                           resources in the United States are imperfect and highly dependent on the
                           data, methodologies, model structures, and assumptions used. As these
                           estimates are based on data available at a given point in time, they may
                           change as additional information becomes available. Also these
                           estimates depend on historical production data as a key component for
                           modeling future supply. Because large-scale production of oil in shale
                           formations is a relatively recent activity, their long-term productivity is
                           largely unknown. For example, EIA estimated that the Monterey Shale in
                           California may possess about 15.4 billion barrels of technically
                           recoverable oil. However, without a longer history of production, the
                           estimate has greater uncertainty than estimates based on more historical
                           production data. At this time, USGS has not yet evaluated the Monterey
                           Shale play.

Estimates of Technically   The amount of technically recoverable shale gas resources in the United
Recoverable Shale Gas      States has been estimated by a number of organizations, including EIA,
Resources                  USGS, and the Potential Gas Committee (see fig. 6). Their estimates
                           were as follows:

                           •    In 2012, EIA estimated the amount of technically recoverable shale
                                gas in the United States at 482 trillion cubic feet. 27 This represents an
                                increase of 280 percent from EIA’s 2008 estimate.

                           •    In 2011, USGS reported that the total of its estimates for the shale
                                formations the agency evaluated in all previous years 28 shows the



                           27
                             EIA estimates are based on natural gas production data from 2 years prior to the
                           reporting year; for example, EIA’s 2012 estimate is based on 2010 data; the date cited
                           here reflects the fact that EIA reported this latest estimate in 2012.
                           28
                             USGS estimates are based on updated data in a few—but not all—individual geological
                           areas, combined with data from other areas from all previous years. Each year USGS
                           estimates new information for a few individual geological areas. For example, the 2011
                           USGS estimate includes updated 2011 data for the Appalachian Basin, the Anadarko
                           Basin, and the Gulf Coast, combined with estimates for all other areas developed before
                           2011. See appendix III for additional information on USGS estimates. The date cited here
                           reflects the fact that USGS reported this latest estimate in 2011.




                           Page 21                                                GAO-12-732 Shale Oil and Gas Development
                                             amount of technically recoverable shale gas in the United States at
                                             about 336 trillion cubic feet. This represents an increase of about 600
                                             percent from the agency’s 2006 estimate.

                                        •    In 2011, the Potential Gas Committee estimated the amount of
                                             technically recoverable shale gas in the United States at about 687
                                             trillion cubic feet. 29 This represents an increase of 240 percent from
                                             the committee’s 2007 estimate.


Figure 6: Estimates of Technically Recoverable Shale Gas from EIA, USGS, and the Potential Gas Committee (2006 through
2012)




                                        Notes: Natural gas is generally priced and sold in thousand cubic feet (abbreviated Mcf, using the
                                        Roman numeral for 1,000). Units of a trillion cubic feet (Tcf) are often used to measure large
                                        quantities, as in resources or reserves in the ground, or annual national energy consumption. One Tcf
                                        is enough natural gas to heat 15 million homes for 1 year or fuel 12 million natural gas-fired vehicles
                                        for 1 year. In 2012, EIA reduced its estimate of technically recoverable shale gas in the Marcellus
                                        Shale by about 67 percent. According to EIA officials, the decision to revise the estimate was based
                                        primarily on the availability of new production data, which was highlighted by the release of the USGS



                                        29
                                          Potential Gas Committee estimates are based on natural gas production data from the
                                        previous year; for example, committee’s 2011 estimate is based on 2010 data. The date
                                        cited here reflects the fact that the Potential Gas Committee reported this latest estimate
                                        in 2011.




                                        Page 22                                               GAO-12-732 Shale Oil and Gas Development
estimate. In 2011, EIA used data from a contractor to estimate that the Marcellus Shale possessed
about 410 trillion cubic feet of technically recoverable gas. After EIA released its estimates
in 2011, USGS released its first estimate of technically recoverable gas in the Marcellus in almost 10
years. USGS estimated that there were 84 trillion cubic feet of natural gas in the Marcellus—which
was 40 times more than its previous estimate reported in 2002 but significantly less than EIA’s
estimate. In 2012, EIA announced that it was revising its estimate of the technically recoverable gas
in the Marcellus Shale from 410 to 141 trillion cubic feet. EIA reported additional details about its
methodology and data in June 2012. See U.S. Department of Energy, Energy Information
Administration, Annual Energy Outlook 2012, With Projections to 2035 (DOE/EIA-0383 [2012],
Washington, D.C., June 25, 2012).

a
 The 2006 USGS estimate of about 54 trillion cubic feet represents those assessments that had been
done up to the end of 2006. As such, the estimate is partially dependent on how the agency
scheduled basin studies and assessments from 2000 through 2006, rather than purely on changes in
USGS views of resource potential since 2006.

b
 The Potential Gas Committee did not report separate estimates of shale gas until 2007 and has
updated this estimate every 2 years since then.

In addition to the estimates from the three organizations we reviewed,
operators and energy forecasting consultants prepare their own estimates
of technically recoverable shale gas to plan operations or for future
investment. In September 2011, the National Petroleum Council
aggregated data on shale gas resources from over 130 industry,
government, and academic groups and estimated that approximately
1,000 trillion cubic feet of shale gas is available for production
domestically. In addition, private firms that supply information to the oil
and gas industry conduct assessments of the total amount of technically
recoverable natural gas. For example, ICF International, a consulting firm
that provides information to public- and private-sector clients, estimated in
March 2012 that the United States possesses about 1,960 trillion cubic
feet of technically recoverable shale gas.

Based on estimates from EIA, USGS, and the Potential Gas Committee,
five shale plays—the Barnett, Haynesville, Fayetteville, Marcellus, and
Woodford—are estimated to possess about two-thirds of the total
estimated technically recoverable gas in the United States (see table 2).




Page 23                                               GAO-12-732 Shale Oil and Gas Development
Table 2: Estimated Technically Recoverable Shale Gas Resources, by Play

                                                                            Technically recoverable gas,
    Shale play                          Location                               in trillion cubic feet (Tcf)
    Barnett                             North Texas                                                  43-53
    Fayetteville                        Arkansas                                                   13-110
    Haynesville                         Louisiana and East Texas                                   66-110
                                                                                                          a
    Marcellus                           Northeast United States                                    84-227
    Woodford                            Oklahoma                                                     11-27
Sources: GAO analysis of EIA, USGS, and Potential Gas Committee data.


Note: The estimated technically recoverable gas shown here represents the range of estimates for
these plays determined by EIA, USGS, and the Potential Gas Committee.

a
 This estimate of the Marcellus also includes estimated shale gas from other nearby lands in the
Appalachian area; but, according to an official for the estimating organization, the Marcellus Shale is
the predominant source of gas in the basin.


As with estimates for technically recoverable shale oil, estimates of the
size of technically recoverable shale gas resources in the United States
are also highly dependent on the data, methodologies, model structures,
and assumptions used and may change as additional information
becomes available. These estimates also depend on historical production
data as a key component for modeling future supply. Because most shale
gas wells generally were not in place until the last few years, their long-
term productivity is untested. According to a February 2012 report
released by the Sustainable Investments Institute and the Investor
Responsibility Research Center Institute, production in emerging shale
plays has been concentrated in areas with the highest known gas
production rates, and many shale plays are so large that most of the play
has not been extensively tested. 30 As a result, production rates achieved
to date may not be representative of future production rates across the
formation. EIA reports that experience to date shows production rates
from neighboring shale gas wells can vary by as much as a factor of 3
and that production rates for different wells in the same formation can
vary by as much as a factor of 10. Most gas companies estimate that
production in a given well will drop sharply after the first few years and



30
  The Sustainable Investments Institute (Si2) is a nonprofit membership organization
founded in 2010 to conduct research and publish reports on organized efforts to influence
corporate behavior. The Investor Responsibility Research Center Institute is a nonprofit
organization established in 2006 that provides information to investors.




Page 24                                                           GAO-12-732 Shale Oil and Gas Development
                            then level off, continuing to produce gas for decades, according to the
                            Sustainable Investments Institute and the Investor Responsibility
                            Research Center Institute.


Estimates of Proved         Estimates of proved reserves of shale oil and gas increased from 2007 to
Reserves of Shale Oil and   2009. Operators determine the size of proved reserves based on
Gas                         information collected from drilling, geological and geophysical tests, and
                            historical production trends. These are also the resources operators
                            believe they will develop in the short term—generally within the next 5
                            years—and assume technological and economic conditions will remain
                            unchanged.

                            Estimates of proved reserves of shale oil. EIA does not report proved
                            reserves of shale oil separately from other oil reserves; however, EIA and
                            others have noted an increase in the proved reserves of oil in the nation,
                            and federal officials attribute the increase, in part, to oil from shale and
                            tight sandstone formations. For example, EIA reported in 2009 that the
                            Bakken Shale in North Dakota and Montana drove increases in oil
                            reserves, noting that North Dakota proved reserves increased over 80
                            percent from 2008 through 2009.

                            Estimates of proved reserves of shale gas. According to data EIA collects
                            from about 1,200 operators, proved reserves of shale gas have grown
                            from 23 trillion cubic feet in 2007 to 61 trillion cubic feet in 2009, or an
                            increase of 160 percent. 31 More than 75 percent of the proved shale gas
                            reserves are located in three shale plays—the Barnett, Fayetteville, and
                            the Haynesville.


Shale Oil and Gas           From 2007 through 2011, annual production of shale oil and gas has
Production                  experienced significant growth. Specifically, shale oil production
                            increased more than fivefold, from 39 to about 217 million barrels over
                            this 5-year period, and shale gas production increased approximately
                            fourfold, from 1.6 to about 7.2 trillion cubic feet, over the same period. To



                            31
                              Reserves are key information for assessing the net worth of an operator. Oil and gas
                            companies traded on the U.S. stock exchange are required to report their reserves to the
                            Securities and Exchange Commission. According to an EIA official, EIA reports a more
                            complete measure of oil and gas reserves because it receives reports of proved reserves
                            from both private and publically held companies.




                            Page 25                                       GAO-12-732 Shale Oil and Gas Development
                       put this shale production into context, the annual domestic consumption
                       of oil in 2011 was about 6,875 million barrels of oil, and the annual
                       consumption of natural gas was about 24 trillion cubic feet. The increased
                       shale oil and gas production was driven primarily by technological
                       advances in horizontal drilling and hydraulic fracturing that made more
                       shale oil and gas development economically viable.

Shale Oil Production   Annual shale oil production in the United States increased more than
                       fivefold, from about 39 million barrels in 2007 to about 217 million barrels
                       in 2011, according to data from EIA (see fig. 7). 32 This is because new
                       technologies allowed more oil to be produced economically, and because
                       of recent increases in the price for liquid petroleum that have led to
                       increased investment in shale oil development.

                       Figure 7: Estimated Production of Shale Oil from 2007 through 2011 (in millions of
                       barrels of oil)




                       32
                         As noted previously, for the purposes of this report, we use the term “shale oil” to refer
                       to oil from shale and other tight formations, which is recovered by hydraulic fracturing and
                       horizontal drilling and is described by others as “tight oil.” Shale oil and tight oil are
                       extracted in the same way, but differ from “oil shale.” Oil shale is a sedimentary rock
                       containing solid organic material that converts into a type of crude oil only when heated.




                       Page 26                                         GAO-12-732 Shale Oil and Gas Development
In total, during this period, about 533 million barrels of shale oil was
produced. More than 65 percent of the oil was produced in the Bakken
Shale (368 million barrels; see fig. 8). 33 The remainder was produced in
the Niobrara (62 million barrels), Eagle Ford (68 million barrels), Monterey
(18 million barrels), and the Woodford (9 million barrels). To put this in
context, shale oil production from these plays in 2011 constituted about 8
percent of U.S. domestic oil consumption, according to EIA data. 34




33
  EIA provided us with estimated shale oil production data from a contractor, HPDI LLC.,
for 2007 through 2011. EIA uses these data for the purposes of estimating recent shale oil
production. EIA has not routinely reported shale oil production data separately from oil
production.
34
   In addition to production from these shale oil plays, EIA officials told us that oil was
produced from “tight oil” plays such as the Austin Chalk. The technology for producing
tight oil is the same as for shale oil, and EIA uses the term “tight oil” to encompass both
shale oil and tight oil that are developed with the same type of technology. In addition, EIA
officials added that the shale oil data presented here is approximate because the data
comes from a sample of similar plays. Overtime, this production data will become more
precise as more data becomes available to EIA.




Page 27                                          GAO-12-732 Shale Oil and Gas Development
Figure 8: Shale Oil Production, by Shale Play (from 2007 through 2011)




                                         Page 28                         GAO-12-732 Shale Oil and Gas Development
Shale Gas Production   Shale gas production in the United States increased more than fourfold,
                       from about 1.6 trillion cubic feet in 2007 to about 7.2 trillion cubic feet in
                       2011, according to estimated data from EIA (see fig. 9). 35

                       Figure 9: Estimated Production of Shale Gas from 2007 through 2011 (in trillions of
                       cubic feet)




                       In total, during this period, about 20 trillion cubic feet of shale gas was
                       produced—representing about 300 days of U.S. consumption, based on
                       2011 consumption rates. More than 75 percent of the gas was produced
                       in four shale plays—the Barnett, Marcellus, Fayetteville, and Haynesville
                       (see fig.10). From 2007 through 2011, shale gas’ contribution to the
                       nation’s total natural gas supply grew from about 6 percent in 2007 to
                       approximately 25 percent in 2011 and is projected, under certain
                       assumptions, to increase to 49 percent by 2035, according to an EIA
                       report. Overall production of shale gas increased from calendar years
                       2007 through 2011, but production of natural gas on federal and tribal


                       35
                         EIA provided us with estimated shale gas production data from a contractor, Lippman
                       Consulting, Inc., for 2007 through 2011. EIA uses these data for the purposes of
                       estimating recent shale gas production. EIA has separately reported shale gas production
                       data using reports from states for the years 2008 and 2009.




                       Page 29                                       GAO-12-732 Shale Oil and Gas Development
lands—including shale gas and natural gas from all other sources—
decreased by about 17 percent, according to an EIA report. EIA attributes
this decrease to several factors, including the location of shale
formations—which, according to an EIA official, appear to be
predominately on nonfederal lands.




Page 30                               GAO-12-732 Shale Oil and Gas Development
Figure 10: Shale Gas Production, by Shale Play (from 2007 through 2011)




                                        The growth in production of shale gas has increased the overall supply of
                                        natural gas in the U.S. energy market. Since 2007, increased shale gas




                                        Page 31                               GAO-12-732 Shale Oil and Gas Development
                       production has contributed to lower prices for consumers, according to
                       EIA and others. 36 These lower prices create incentives for wider use of
                       natural gas in other industries. For example, several reports by
                       government, industry, and others have observed that if natural gas prices
                       remain low, natural gas is more likely to be used to power cars and trucks
                       in the future. In addition, electric utilities may build additional natural gas-
                       fired generating plants as older coal plants are retired. At the same time,
                       some groups have expressed concern that greater reliance on natural
                       gas may reduce interest in developing renewable energy.

                       The greater availability of domestic shale gas has also decreased the
                       need for natural gas imports. For example, EIA has noted that volumes of
                       natural gas imported into the United States have fallen in recent years—in
                       2007, the nation imported 16 percent of the natural gas consumed and in
                       2010, the nation imported 11 percent—as domestic shale gas production
                       has increased. This trend is also illustrated by an increase in applications
                       for exporting liquefied natural gas to other countries. In its 2012 annual
                       energy outlook, EIA predicted that, under certain scenarios, the United
                       States will become a net exporter of natural gas by about 2022. 37


                       Developing oil and gas resources—whether conventional or from shale
Shale Oil and Gas      formations—poses inherent environmental and public health risks, but the
Development Pose       extent of risks associated with shale oil and gas development is unknown,
                       in part, because the studies we reviewed do not generally take into
Environmental and      account potential long-term, cumulative effects. In addition, the severity of
Public Health Risks,   adverse effects depend on various location- and process-specific factors,
but the Extent is      including the location of future shale oil and gas development and the rate
                       at which it occurs, geology, climate, business practices, and regulatory
Unknown and            and enforcement activities.
Depends on Many
Factors



                       36
                         According to a 2012 report from the Bipartisan Policy Center, natural gas prices declined
                       roughly 37 percent from February 2008 to January 2010.
                       37
                        Department of Energy, Energy Information Administration, Annual Energy Outlook 2012,
                       With Projections to 2035, DOE/EIA-0383 (Washington, D.C.: June 25, 2012).




                       Page 32                                        GAO-12-732 Shale Oil and Gas Development
Shale Oil and Gas         Oil and gas development, which includes development from shale
Development Pose Risks    formations, poses inherent risks to air quality, water quantity, water
to Air, Water, Land and   quality, and land and wildlife.
Wildlife
Air Quality               According to a number of studies and publications we reviewed, shale oil
                          and gas development pose risks to air quality. These risks are generally
                          the result of engine exhaust from increased truck traffic, emissions from
                          diesel-powered pumps used to power equipment, intentional flaring or
                          venting of gas for operational reasons, and unintentional emissions of
                          pollutants from faulty equipment or impoundments.

                          Construction of the well pad, access road, and other drilling facilities
                          requires substantial truck traffic, which degrades air quality. According to
                          a 2008 National Park Service report, an average well, with multistage
                          fracturing, can require 320 to 1,365 truck loads to transport the water,
                          chemicals, sand, and other equipment—including heavy machinery like
                          bulldozers and graders—needed for drilling and fracturing. The increased
                          traffic creates a risk to air quality as engine exhaust that contains air
                          pollutants such as nitrogen oxides and particulate matter that affect public
                          health and the environment are released into the atmosphere. 38 Air
                          quality may also be degraded as fleets of trucks traveling on newly
                          graded or unpaved roads increase the amount of dust released into the
                          air—which can contribute to the formation of regional haze. 39 In addition
                          to the dust, silica sand (see fig. 11)—commonly used as proppant in the
                          hydraulic fracturing process—may pose a risk to human health, if not
                          properly handled. According to a federal researcher from the Department
                          of Health and Human Services, uncontained sand particles and dust pose
                          threats to workers at hydraulic fracturing well sites. The official stated that
                          particles from the sand, if not properly contained by dust control
                          mechanisms, can lodge in the lungs and potentially cause silicosis. 40


                          38
                            Nitrogen oxides are regulated pollutants commonly known as NOx that, among other
                          things, contribute to the formation of ozone and have been linked to respiratory illness,
                          decreased lung function, and premature death. Particulate matter is a ubiquitous form of
                          air pollution commonly referred to as soot. GAO, Diesel Pollution: Fragmented Federal
                          Programs That Reduce Mobile Source Emissions Could Be Improved, GAO-12-261
                          (Washington, D.C.: Feb. 7, 2012).
                          39
                            T. Colborn, C. Kwiatkowski, K. Schultz, and M. Bachran, “Natural Gas Operations From
                          a Public Health Perspective,” International Journal of Human & Ecological Risk
                          Assessment 17, no. 5 (2011).
                          40
                           Silicosis is an incurable lung disease caused by inhaling fine dusts of silica sand.




                          Page 33                                         GAO-12-732 Shale Oil and Gas Development
The researcher expects to publish the results of research on public health
risks from proppant later in 2012.

Figure 11: Silica Sand Proppant




Use of diesel engines to supply power to drilling sites also degrades air
quality. Shale oil and gas drilling rigs require substantial power to drill and
case wellbores to the depths of shale formations. This power is typically
provided by transportable diesel engines, which generate exhaust from
the burning of diesel fuel. After the wellbore is drilled to the target
formation, additional power is needed to operate the pumps that move
large quantities of water, sand, or chemicals into the target formation at
high pressure to hydraulically fracture the shale—generating additional
exhaust. In addition, other equipment used during operations—including
pneumatic valves and dehydrators—contribute to air emissions. For
example, natural gas powers switches that turn valves on and off in the
production system. Each time a valve turns on or off, it “bleeds” a small
amount of gas into the air. Some of these pneumatic valves vent gas



Page 34                                  GAO-12-732 Shale Oil and Gas Development
continuously. A dehydrator circulates the chemical glycol to absorb
moisture in the gas but also absorbs small volumes of gas. The absorbed
gas vents to the atmosphere when the water vapor is released from the
glycol. 41

Releases of natural gas during the development process also degrade air
quality. As part of the process to develop shale oil and gas resources,
operators flare or vent natural gas for a number of operational reasons,
including lowering the pressure to ensure safety or when operators purge
water or hydrocarbon liquids that collect in wellbores to maintain proper
well function. Flaring emits carbon dioxide, and venting releases methane
and volatile organic compounds. Venting and flaring are often a
necessary part of the development process but contribute to greenhouse
gas emissions. 42 According to EPA analysis, natural gas well completions
involving hydraulic fracturing vent approximately 230 times more natural
gas and volatile organic compounds than natural gas well completions
that do not involve hydraulic fracturing. 43 As we reported in July 2004, in
addition to the operational reasons for flaring and venting, in areas where
the primary purpose of drilling is to produce oil, operators flare or vent
associated natural gas because no local market exists for the gas and
transporting to a market may not be economically feasible. 44 For example,
according to EIA, in 2011, approximately 30 percent of North Dakota’s
natural gas production from the Bakken Shale was flared by operators
due to insufficient natural gas gathering pipelines, processing plants, and
transporting pipelines. The percentage of flared gas in North Dakota is
considerably higher than the national average; EIA reported that, in 2009,



41
 GAO-11-34.
42
  Methane and other chemical compounds found in the earth’s atmosphere create a
greenhouse effect. Under normal conditions, when sunlight strikes the earth’s surface,
some of it is reflected back toward space as infrared radiation or heat. Greenhouse gases
such as carbon dioxide and methane impede this reflection by trapping heat in the
atmosphere. While these gases occur naturally on earth and are emitted into the
atmosphere, the expanded industrialization of the world over the last 150 years has
increased the amount of emissions from human activity (known as anthropogenic
emissions) beyond the level that the earth’s natural processes can handle.
43
  EPA, Regulatory Impact Analysis: Final New Source Performance Standards and
Amendments to the National Emissions Standards for Hazardous Air Pollutants for the Oil
and Natural Gas industry (Research Triangle Park, NC: April 2012).
44
  GAO, Natural Gas Flaring and Venting: Opportunities to Improve Data and Reduce
Emissions, GAO-04-809 (Washington, D.C.: July 14, 2004).




Page 35                                        GAO-12-732 Shale Oil and Gas Development
less than 1 percent of natural gas produced in the United States was
vented or flared.

Storing fracturing fluid and produced water in impoundments may also
pose a risk to air quality as evaporation of the fluids have the potential to
release contaminants into the atmosphere. According to the New York
Department of Environmental Conservation’s 2011 Supplemental Generic
Environmental Impact Statement, analysis of air emission rates of some
of the compounds used in the fracturing fluids in the Marcellus Shale
reveals the potential for emissions of hazardous air pollutants, in
particular methanol, from the fluids stored in impoundments.

As with conventional oil and gas development, emissions can also occur
as faulty equipment or accidents, such as leaks or blowouts, release
concentrations of methane and other gases into the atmosphere. For
example, corrosion in pipelines or improperly tightened valves or seals
can be sources of emissions. In addition, according to EPA officials,
storage vessels for crude oil, condensate, or produced water are
significant sources of methane, volatile organic compounds and
hazardous air pollutant emissions.

A number of studies we reviewed evaluated air quality at shale gas
development sites. However, these studies are generally anecdotal,
short-term, and focused on a particular site or geographic location. For
example, in 2010, the Pennsylvania Department of Environmental
Protection conducted short-term sampling of ambient air concentrations in
north central Pennsylvania. The sampling detected concentrations of
natural gas constituents including methane, ethane, propane, and butane
in the air near Marcellus Shale drilling operations, but according to this
state agency, the concentration levels were not considered significant
enough to cause adverse health effects. 45

The studies and publications we reviewed provide information on air
quality conditions at a specific site at a specific time but do not provide
the information needed to determine the overall cumulative effect that




45
  Methane emissions represent a waste of resources and a fractional contribution to
greenhouse gas levels.




Page 36                                       GAO-12-732 Shale Oil and Gas Development
                 shale oil and gas activities have on air quality. 46 The cumulative effect
                 shale oil and gas activities have on air quality will be largely determined
                 by the amount of development and the rate at which it occurs, and the
                 ability to measure this will depend on the availability of accurate
                 information on emission levels. However, the number of wells that will
                 ultimately be drilled cannot be known in advance—in part because the
                 productivity of any particular formation at any given location and depth is
                 not known until drilling occurs. In addition, as we reported in 2010, data
                 on the severity or amount of pollutants released by oil and gas
                 development, including the amount of fugitive emissions, are limited.

Water Quantity   According to a number of studies and publications we reviewed, shale oil
                 and gas development poses a risk to surface water and groundwater
                 because withdrawing water from streams, lakes, and aquifers for drilling
                 and hydraulic fracturing could adversely affect water sources. 47 Operators
                 use water for drilling, where a mixture of clay and water (drilling mud) is
                 used to carry rock cuttings to the surface, as well as to cool and lubricate
                 the drill bit. Water is also the primary component of fracturing fluid. Table
                 3 shows the average amount of freshwater used to drill and fracture a
                 shale oil or gas well.

                 Table 3: Average Freshwater Use per Well for Drilling and Hydraulic Fracturing

                                                                       Average freshwater used (in gallons)
                  Shale play                                                    For drilling        For hydraulic fracturing
                  Barnett                                                            250,000                      4,600,000
                  Eagle Ford                                                         125,000                      5,000,000
                  Haynesville                                                        600,000                      5,000,000
                  Marcellus                                                            85,000                     5,600,000
                  Niobrara                                                           300,000                      3,000,000
                 Source: GAO analysis of data reported by George King, Apache Corporation (2011).

                 Note: The amount of water required to hydraulically fracture a single well varies considerably as
                 fracturing of shale oil and gas becomes dominated by more complex, multistaged fracturing activities.




                 46
                   According to a 2008 National Park Service report, on a site-by-site basis, emissions may
                 not be significant but on a regional basis may prove significant as states and parks
                 manage regional ozone transport.
                 47
                   An aquifer is an underground layer of rock or unconsolidated sand, gravel, or silt that will
                 yield groundwater to a well or spring.




                 Page 37                                                            GAO-12-732 Shale Oil and Gas Development
According to a 2012 University of Texas study, 48 water for these activities
is likely to come from surface water (rivers, lakes, ponds), groundwater
aquifers, municipal supplies, reused wastewater from industry or water
treatment plants, and recycling water from earlier fracturing operations. 49
As we reported in October 2010, withdrawing water from nearby streams
and rivers could decrease flows downstream, making the streams and
rivers more susceptible to temperature changes—increases in the
summer and decreases in the winter. Elevated temperatures could
adversely affect aquatic life because many fish and invertebrates need
specific temperatures for reproduction and proper development. Further,
decreased flows could damage or destroy riparian vegetation. Similarly,
withdrawing water from shallow aquifers—an alternative water source—
could temporarily affect groundwater resources. Withdrawals could lower
water levels within these shallow aquifers and the nearby streams and
springs to which they are connected. Extensive withdrawals could reduce
groundwater discharge to connected streams and springs, which in turn
could damage or remove riparian vegetation and aquatic life. Withdrawing
water from deeper aquifers could have longer-term effects on
groundwater and connected streams and springs because replenishing
deeper aquifers with precipitation generally takes longer. 50 Further,
groundwater withdrawal could affect the amount of water available for
other uses, including public and private water supplies.

Freshwater is a limited resource in some arid and semiarid regions of the
country where an expanding population is placing additional demands on
water. The potential demand for water is further complicated by years of
drought in some parts of the country and projections of a warming
climate. According to a 2011 Massachusetts Institute of Technology
study, 51 the amount of water used for shale gas development is small in



48
 Charles G. Groat, Ph.D. and Thomas W. Grimshaw, Ph.D., Fact-Based Regulation for
Environmental Protection in Shale Gas Development (Austin, Texas: The Energy Institute,
The University of Texas at Austin, February, 2012).
49
  Operators are pursuing a variety of techniques and technologies to reduce freshwater
demand, such as recycling their own produced water and hydraulic fracturing fluids. We
recently reported that some shale gas operators have begun reusing produced water for
hydraulic fracturing of additional wells (see GAO-12-156).
50
 GAO-11-35.
51
 Massachusetts Institute of Technology, The Future of Natural Gas: An Interdisciplinary
MIT Study (2011) (web.mit.edu/mitei/research/studies/report-natural-gas.pdf).




Page 38                                       GAO-12-732 Shale Oil and Gas Development
                comparison to other water uses, such as agriculture and other industrial
                purposes. However, the cumulative effects of using surface water or
                groundwater at multiple oil and gas development sites can be significant
                at the local level, particularly in areas experiencing drought conditions.

                Similar to shale oil and gas development, development of gas from
                coalbed methane formations poses a risk of aquifer depletion. To develop
                natural gas from such formations, water from the coal bed is withdrawn to
                lower the reservoir pressure and allow the methane to desorb from the
                coal. According to a 2001 USGS report, dewatering coalbed methane
                formations in the Powder River Basin in Wyoming can lower the
                groundwater table and reduce water available for other uses, such as
                livestock and irrigation. 52

                The key issue for water quantity is whether the total amount of water
                consumed for the development of shale oil and gas will result in a
                significant long-term loss of water resources within a region, according to
                a 2012 University of Texas study. This is because water used in shale oil
                and gas development is largely a consumptive use and can be
                permanently removed from the hydrologic cycle, according to EPA and
                Interior officials. However, it is difficult to determine the long-term effect
                on water resources because the scale and location of future shale oil and
                gas development operations remains largely uncertain. Similarly, the total
                volume that operators will withdraw from surface water and aquifers for
                drilling and hydraulic fracturing is not known until operators submit
                applications to the appropriate regulatory agency. As a result, the
                cumulative amount of water consumed over the lifetime of the activity—
                key information needed to assess the effects of water withdrawals—
                remains largely unknown.

Water Quality   According to a number of studies and publications we reviewed, shale oil
                and gas development pose risks to water quality from contamination of
                surface water and groundwater as a result of spills and releases of
                produced water, chemicals, and drill cuttings; erosion from ground
                disturbances; or underground migration of gases and chemicals.




                52
                 USGS, A Field Conference On Impacts of Coalbed Methane Development in the
                Powder River Basin, Wyoming, Open-File Report 01-126 (Denver, CO: 2001).




                Page 39                                   GAO-12-732 Shale Oil and Gas Development
Spills and Releases

Shale oil and gas development poses a risk to water quality from spills or
releases of toxic chemicals and waste that can occur as a result of tank
ruptures, blowouts, equipment or impoundment failures, overfills,
vandalism, accidents (including vehicle collisions), ground fires, or
operational errors. For example, tanks storing toxic chemicals or hoses
and pipes used to convey wastes to the tanks could leak, or
impoundments containing wastes could overflow as a result of extensive
rainfall. According to New York Department of Environmental
Conservation’s 2011 Supplemental Generic Environmental Impact
Statement, spilled, leaked, or released chemicals or wastes could flow to
a surface water body or infiltrate the ground, reaching and contaminating
subsurface soils and aquifers. In August 2003, we reported that damage
from oil and gas related spills on National Wildlife Refuges varied widely
in severity, ranging from infrequent small spills with no known effect on
wildlife to large spills causing wildlife death and long-term water and soil
contamination. 53

Drill cuttings, if improperly managed, also pose a risk to water quality. Drill
cuttings brought to the surface during oil and gas development may
contain naturally occurring radioactive materials (NORM), 54 along with
other decay elements (radium-226 and radium-228), according to an
industry report presented at the Society of Petroleum Engineers Annual
Technical Conference and Exhibition. 55 According to the report, drill
cuttings are stored and transported through steel pipes and tanks—which
the radiation cannot penetrate. However, improper transport and handling
of drill cuttings could result in water contamination. For example, NORM


53
  GAO, National Wildlife Refuges: Opportunities to Improve the Management and
Oversight of Oil and Gas Activities on Federal Lands, GAO-03-517 (Washington, D.C.:
Aug. 28, 2003).
54
  Naturally occurring radioactive materials (NORM) are present at varying degrees in
virtually all environmental media, including rocks and soils. According to a DOE report,
human exposure to radiation comes from a variety of sources, including naturally
occurring radiation from space, medical sources, consumer products, and industrial
sources. Normal disturbances of NORM-bearing rock formations by activities such as
drilling do not generally pose a threat to workers, the general public or the environment,
according to studies and publications we reviewed.
55
 J. Daniel Arthur, Brian Bohm, David Cornue. “Environmental Considerations of Modern
Shale Gas Development” (presented at the Society of Petroleum Engineers Annual
Technical Conference and Exhibition, New Orleans, Louisiana, October 2009).




Page 40                                         GAO-12-732 Shale Oil and Gas Development
concentrations can build up in pipes and tanks, if not properly disposed,
and the general public or water could come into contact with them,
according to an EPA fact sheet. 56

The chemical additives in fracturing fluid, if not properly handled, also
poses a risk to water quality if they come into contact with surface water
or groundwater. Some additives used in fracturing fluid are known to be
toxic, but data are limited for other additives. For example, according to
reports we reviewed, operators may include diesel fuel—a refinery
product that consists of several components, possibly including some
toxic impurities such as benzene and other aromatics—as a solvent and
dispersant in fracturing fluid. While some additives are known to be toxic,
less is known about potential adverse effects on human health in the
event that a drinking water aquifer was contaminated as a result of a spill
or release of fracturing fluid, according to the 2011 New York Department
of Environmental Conservation’s Supplemental Generic Environmental
Impact Statement. This is largely because the overall risk of human
health effects occurring from hydraulic fracturing fluid would depend on
whether human exposure occurs, the specific chemical additives being
used, and site-specific information about exposure pathways and
environmental contaminant levels.

The produced water and fracturing fluids returned during the flowback
process contain a wide range of contaminants and pose a risk to water
quality, if not properly managed. 57 Most of the contaminants occur
naturally, but some are added through the process of drilling and
hydraulic fracturing. In January 2012, we reported that the range of
contaminants found in produced water can include, 58 but is not limited to

•     salts, which include chlorides, bromides, and sulfides of calcium,
      magnesium, and sodium;




56
 EPA, Radioactive Waste from Oil and Gas Drilling, EPA 402-F-06-038 (Washington,
D.C.: April 2006).
57
  A 2009 report from DOE and the Groundwater Protection Council—a nonprofit
organization whose members consist of state ground water regulatory agencies—
estimates that from 30 percent to 70 percent of the original fluid injected returns to the
surface.
58
    GAO-12-156.




Page 41                                          GAO-12-732 Shale Oil and Gas Development
•     metals, which include barium, manganese, iron, and strontium, among
      others;

•     oil, grease, and dissolved organics, which include benzene and
      toluene, among others;

•     NORM; and

•     production chemicals, which may include friction reducers to help with
      water flow, biocides to prevent growth of microorganisms, and
      additives to prevent corrosion, among others.

At high levels, exposure to some of the contaminants in produced water
could adversely affect human health and the environment. For example,
in January 2012, we reported that, according to EPA, a potential human
health risk from exposure to high levels of barium is increased blood
pressure. 59 From an environmental standpoint, research indicates that
elevated levels of salts can inhibit crop growth by hindering a plant’s
ability to absorb water from the soil. Additionally, exposure to elevated
levels of metals and production chemicals, such as biocides, can
contribute to increased mortality among livestock and wildlife.

Operators must transport or store produced water prior to disposal.
According to a 2012 University of Texas report, produced water
temporarily stored in tanks (see fig. 12) or impoundments prior to
treatment or disposal may be a source of leaks or spills, if not properly
managed. The risk of a leak or spill is particularly a concern for surface
impoundments as improper liners can tear, and impoundments can
overflow. 60 For example, according to state regulators in North Dakota, in
2010 and 2011, impoundments overflowed during the spring melt season
because operators did not move fluids from the impoundments—which




59
    GAO-12-156.
60
  The composition of pit lining depends on regulatory requirements, which vary from state
to state.




Page 42                                        GAO-12-732 Shale Oil and Gas Development
were to be used for temporary storage—to a proper disposal site before
the spring thaw. 61

Figure 12: Storage Tank for Produced Water in the Barnett Shale




Unlike shale oil and gas formations, water permeates coalbed methane
formations, and its pressure traps natural gas within the coal. To produce
natural gas from coalbed methane formations, water must be extracted to
lower the pressure in the formation so the natural gas can flow out of the
coal and to the wellbore. In 2000, USGS reported that water extracted
from coalbed methane formations is commonly saline and, if not treated



61
  In response, the state passed a new law that will significantly reduce the number of pits.
Under the new law, operators can use pits for temporary storage of fluid from the flowback
process but must drain and reclaim the pits no more than 72 hours after hydraulic
fracturing is complete.




Page 43                                         GAO-12-732 Shale Oil and Gas Development
and disposed of properly, could adversely affect streams and threaten
fish and aquatic resources.

According to several reports, handling and transporting toxic fluids or
contaminants poses a risk of environmental contamination for all
industries, not just oil and gas development; however, the large volume of
fluids and contaminants—fracturing fluid, drill cuttings, and produced
water—that is associated with the development of shale oil and gas
poses an increased risk for a release to the environment and the potential
for greater effects should a release occur in areas that might not
otherwise be exposed to these chemicals.

Erosion

Oil and gas development, whether conventional or shale oil and gas, can
contribute to erosion, which could carry sediments and pollutants into
surface waters. Shale oil and gas development require operators to
undertake a number of earth-disturbing activities, such as clearing,
grading, and excavating land to create a pad to support the drilling
equipment. If necessary, operators may also construct access roads to
transport equipment and other materials to the site. As we reported in
February 2005, as with other construction activities, if sufficient erosion
controls to contain or divert sediment away from surface water are not
established then surfaces are exposed to precipitation and runoff could
carry sediment and other harmful pollutants into nearby rivers, lakes, and
streams. 62 For example, in 2012, the Pennsylvania Department of
Environmental Protection concluded that an operator in the Marcellus
Shale did not provide sufficient erosion controls when heavy rainfall in the
area caused significant erosion and contamination of a nearby stream
from large amounts of sediment. 63 As we reported in February 2005,
sediment clouds water, decreases photosynthetic activity, and destroys
organisms and their habitat.




62
  GAO, Storm Water Pollution: Information Needed on the Implications of Permitting Oil
and Gas Construction Activities, GAO-05-240 (Washington, D.C.: Feb. 9, 2005).
63
  In response, the state required the operator to install silt fences, silt socks, gravel
surfacing of the access road, and a storm water capture ditch.




Page 44                                            GAO-12-732 Shale Oil and Gas Development
Underground Migration

According to a number of studies and publications we reviewed,
underground migration of gases and chemicals poses a risk of
contamination to water quality. 64 Underground migration can occur as a
result of improper casing and cementing of the wellbore as well as the
intersection of induced fractures with natural fractures, faults, or
improperly plugged dry or abandoned wells. Moreover, there are
concerns that induced fractures can grow over time and intersect with
drinking water aquifers. Specifically:

Improper casing and cementing. A well that is not properly isolated
through proper casing and cementing could allow gas or other fluids to
contaminate aquifers as a result of inadequate depth of casing, 65
inadequate cement in the annular space around the surface casing, and
ineffective cement that cracks or breaks down under the stress of high
pressures. For example, according to a 2008 report by the Ohio
Department of Natural Resources, a gas well in Bainbridge, Ohio, was not
properly isolated because of faulty sealing, allowing natural gas to build
up in the space around the production casing and migrate upward over
about 30 days into the local aquifer and infiltrating drinking water wells. 66
The risk of contamination from improper casing and cementing is not
unique to the development of shale formations. Casing and cementing
practices also apply to conventional oil and gas development. However,
wells that are hydraulically fractured have some unique aspects. For
example, hydraulically fractured wells are commonly exposed to higher
pressures than wells that are not hydraulically fractured. In addition,
hydraulically fractured wells are exposed to high pressures over a longer
period of time as fracturing is conducted in multiple stages, and wells may
be refractured multiple times—primarily to extend the economic life of the
well when production declines significantly or falls below the estimated
reservoir potential.


64
  Methane can occur naturally in shallow bedrock and unconsolidated sediments and has
been known to naturally seep to the surface and contaminate water supplies, including
water wells. Methane is a colorless, odorless gas and is generally considered nontoxic,
but there could be an explosive hazard if gas is present in significant volumes and the
water well is not properly vented.
65
 The depth for casing and cementing may be determined by state regulations.
66
  Ohio Department of Natural Resources, Report on the Investigation of the Natural Gas
Invasion of Aquifers in Bainbridge Township of Geauga County, Ohio (September 2008).




Page 45                                       GAO-12-732 Shale Oil and Gas Development
Natural fractures, faults, and abandoned wells. If shale oil and gas
development activities result in connections being established with natural
fractures, faults, or improperly plugged dry or abandoned wells, a
pathway for gas or contaminants to migrate underground could be
created—posing a risk to water quality. These connections could be
established through either induced fractures intersecting directly with
natural fractures, faults, or improperly plugged dry or abandoned wells or
as a result of improper casing and cementing that allow gas or other
contaminants to make such connections. In 2011, the New York State
Department of Environmental Conservation reported that operators
generally avoid development around known faults because natural faults
could allow gas to escape, which reduces the optimal recovery of gas and
the economic viability of a well. However, data on subsurface conditions
in some areas are limited. Several studies we reviewed report that some
states are unaware of the location or condition of many old wells. As a
result, operators may not be fully aware of the location of abandoned
wells and natural fractures or faults.

Fracture growth. A number of such studies and publications we reviewed
report that the risk of induced fractures extending out of the target
formation into an aquifer—allowing gas or other fluids to contaminate
water—may depend, in part, on the depth separating the fractured
formation and the aquifer. For example, according to a 2012 Bipartisan
Policy Center report, 67 the fracturing process itself is unlikely to directly
affect freshwater aquifers because fracturing typically takes place at a
depth of 6,000 to 10,000 feet, while drinking water tables are typically less
than 1,000 feet deep. 68 Fractures created during the hydraulic fracturing
process are generally unable to span the distance between the targeted
shale formation and freshwater bearing zones. According to a 2011
industry report, fracture growth is stopped by natural subsurface barriers




67
 Bipartisan Policy Center, Shale Gas: New Opportunities, New Challenges (Washington,
D.C.: January 2012).
68
  Some coalbed methane formations are much closer to drinking water aquifers than are
shale formations. In 2004, EPA reviewed incidents of drinking water well contamination
believed to be associated with hydraulic fracturing in coalbed methane formations. EPA
found no confirmed cases linked to the injection of fracturing fluid or subsequent
underground movement of fracturing fluids. The report states that, although thousands of
coalbed methane formations are fractured annually, EPA did not find confirmed evidence
that drinking water wells had been contaminated by the hydraulic fracturing process.




Page 46                                        GAO-12-732 Shale Oil and Gas Development
and the loss of hydraulic fracturing fluid. 69 When a fracture grows, it
conforms to a general direction set by the stresses in the rock, following
what is called fracture direction or orientation. The fractures are most
commonly vertical and may extend laterally several hundred feet away
from the well, usually growing upward until they intersect with a rock of
different structure, texture, or strength. These are referred to as seals or
barriers and stop the fracture’s upward or downward growth. In addition,
as the fracturing fluid contacts the formation or invades natural fractures,
part of the fluid is lost to the formation. The loss of fluids will eventually
stop fracture growth according to this industry report.

From 2001 through 2010, an industry consulting firm monitored the upper
and lower limits of hydraulically induced fractures relative to the position
of drinking water aquifers in the Barnett and Eagle Ford Shale, the
Marcellus Shale, and the Woodford Shale. 70 In 2011, the firm reported
that the results of the monitoring show that even the highest fracture point
is several thousand feet below the depth of the deepest drinking water
aquifer. For example, for over 200 fractures in the Woodford Shale, the
typical distance between the drinking water aquifer and the top of the
fracture was 7,500 feet, with the highest fracture recorded at 4,000 feet
from the aquifer. In another example, for the 3,000 fractures performed in
the Barnett Shale, the typical distance from the drinking water aquifer and
the top of the fracture was 4,800 feet, and the fracture with the closest
distance to the aquifer was still separated by 2,800 feet of rock. Table 4
shows the relationship between shale formations and the depth of
treatable water in five shale gas plays currently being developed.




69
  George E. King, Apache Corporation, “Explaining and Estimating Fracture Risk:
Improving Fracture Performance in Unconventional Gas and Oil Wells” (presented at the
Society of Petroleum Engineers Hydraulic Fracturing Conference, The Woodlands, Texas,
February 2012).
70
  Kevin Fisher, Norm Warpinski, Pinnacle—A Haliburton Service, “Hydraulic Fracture-
Height Growth: Real Data” (presented at the Society of Petroleum Engineers Technical
Conference and Exhibition, Denver, Colorado, October 2011).




Page 47                                      GAO-12-732 Shale Oil and Gas Development
Table 4: Shale Formation and Treatable Water Depth

Distance in feet
                                                                  Depth to base of treatable                     Distance between shale and base of
Shale play                           Depth to shale                                   water                                         treatable water
Barnett                                6,500- 8,500                                               1,200                                5,300- 7,300
Fayetteville                           1,000- 7,000                                                  500                                 500- 6,500
Haynesville                          10,500- 13,500                                                  400                             10,100- 13,100
Marcellus                              4,000- 8,500                                                  850                               2,125- 7,650
Woodford                              6,000- 11,000                                                  400                              5,600- 10,600
                                        Source: GAO analysis of data presented in a report prepared at the request of the DOE.


                                        Note: Depths to base of treatable water are approximate. According to the report, the depth to base of
                                        treatable water was based on data from state oil and gas agencies and state geological survey data.


                                        Several government, academic, and nonprofit organizations evaluated
                                        water quality conditions or groundwater contamination incidents in areas
                                        experiencing shale oil and gas development. Among the studies and
                                        publications we reviewed that discuss the potential contamination of
                                        drinking water from the hydraulic fracturing process in shale formations
                                        are the following:

                                        •     In 2011, the Center for Rural Pennsylvania analyzed water samples
                                              taken from 48 private water wells located within about 2,500 feet of a
                                              shale gas well in the Marcellus Shale. 71 The analysis compared
                                              predrilling samples to postdrilling samples to identify any changes to
                                              water quality. The analysis showed that there were no statistically
                                              significant increases in pollutants prominent in drilling waste fluids—
                                              such as total dissolved solids, chloride, sodium, sulfate, barium, and
                                              strontium—and no statistically significant increases in methane. The
                                              study concluded that gas well drilling had not had a significant effect
                                              on the water quality of nearby drinking water wells.

                                        •     In 2011, researchers from Duke University studied shale gas drilling
                                              and hydraulic fracturing and the potential effects on shallow
                                              groundwater systems near the Marcellus Shale in Pennsylvania and
                                              the Utica Shale in New York. Sixty drinking water samples were
                                              collected in Pennsylvania and New York from bedrock aquifers that



                                        71
                                         The Center for Rural Pennsylvania, The Impact of Marcellus Gas Drilling on Rural
                                        Drinking Water Supplies (Harrisburg, Pennsylvania: October 2011).




                                        Page 48                                                              GAO-12-732 Shale Oil and Gas Development
     overlie the Marcellus or Utica Shale formations—some from areas
     with shale gas development and some from areas with no shale gas
     development. 72 The study found that methane concentrations were
     detected generally in 51 drinking water wells across the region—
     regardless of whether shale gas drilling occurred in the area—but that
     concentrations of methane were substantially higher closer to shale
     gas wells. However, the researchers reported that a source of the
     contamination could not be determined. Further, the researchers
     reported that they found no evidence of fracturing fluid in any of the
     samples.

•    In 2011, the Ground Water Protection Council evaluated state agency
     groundwater investigation findings in Texas and categorized the
     determinations regarding causes of groundwater contamination
     resulting from the oil and gas industry. 73 During the study period—
     from 1993 through 2008—multistaged hydraulic fracturing stimulations
     were performed in over 16,000 horizontal shale gas wells. The
     evaluation of the state investigations found that there were no
     incidents of groundwater contamination caused by hydraulic
     fracturing.

In addition, regulatory officials we met with from eight states—Arkansas,
Colorado, Louisiana, North Dakota, Ohio, Oklahoma, Pennsylvania, and
Texas—told us that, based on state investigations, the hydraulic
fracturing process has not been identified as a cause of groundwater
contamination within their states.

A number of studies discuss the potential contamination of water from the
hydraulic fracturing process in shale formations. However, according to
several studies we reviewed, there are insufficient data for
predevelopment (or baseline) conditions for groundwater. Without data to
compare predrilling conditions to postdrilling conditions, it is difficult to
determine if adverse effects were the result of oil and gas development,
natural occurrences, or other activities. In addition, while researchers



72
  Stephen G. Osborn, Avner Vengosh, Nathaniel R. Warner, and Robert B. Jackson,
“Methane Contamination of Drinking Water Accompanying Gas-well Drilling and Hydraulic
Fracturing,” Proceedings of the National Academy of Science 108, no. 20 (2011).
73
  Ground Water Protection Council, State Oil and Gas Agency Groundwater
Investigations And Their Role in Advancing Regulatory Reforms: A Two-State Review:
Ohio and Texas (Oklahoma City, Oklahoma: August 2011).




Page 49                                      GAO-12-732 Shale Oil and Gas Development
                             have evaluated fracture growth, the widespread development of shale oil
                             and gas is relatively new. As such, little data exist on (1) fracture growth
                             in shale formations following multistage hydraulic fracturing over an
                             extended time period, (2) the frequency with which refracturing of
                             horizontal wells may occur, (3) the effect of refracturing on fracture growth
                             over time, 74 and (4) the likelihood of adverse effects on drinking water
                             aquifers from a large number of hydraulically fractured wells in close
                             proximity to each other.

Ongoing Studies Related to   Ongoing studies by federal agencies, industry groups, and academic
Water Quality                institutions are evaluating the effects of hydraulic fracturing on water
                             resources so that, over time, better data and information about these
                             effects should become available to policymakers and the public. For
                             example, EPA’s Office of Research and Development initiated a study in
                             January 2010 to examine the potential effects of hydraulic fracturing on
                             drinking water resources. According to agency officials, the agency
                             anticipates issuing a progress report in 2012 and a final report in 2014.
                             EPA is also conducting an investigation to determine the presence of
                             groundwater contamination within a tight sandstone formation being
                             developed for natural gas near Pavillion, Wyoming, and, to the extent
                             possible, identify the source of the contamination. In December 2011,
                             EPA released a draft report outlining findings from the investigation. The
                             report is not finalized, but the agency indicated that it had identified
                             certain constituents in groundwater above the production zone of the
                             Pavillion natural gas wells that are consistent with some of the
                             constituents used in natural gas well operations, including the process of
                             hydraulic fracturing. DOE researchers are also testing the vertical growth
                             of fractures during hydraulic fracturing to determine whether fluids can
                             travel thousands of feet through geologic faults into water aquifers close
                             to the surface.

Land and Wildlife            Oil and gas development, whether conventional or shale oil and gas,
                             poses a risk to land resources and wildlife habitat as a result of
                             constructing, operating, and maintaining the infrastructure necessary to
                             develop oil and gas; using toxic chemicals; and injecting waste products
                             underground.


                             74
                               According to research presented in the New York Department of Environmental
                             Conservation’s Supplemental Generic Environmental Impact Statement, refracturing can
                             restore the original fracture height and length, and can often extend the fracture length
                             beyond the original fracture dimensions.




                             Page 50                                        GAO-12-732 Shale Oil and Gas Development
Habitat Degradation

According to studies and publications we reviewed, development of oil
and gas, whether conventional or shale oil and gas, poses a risk to
habitat from construction activities. Specifically, clearing land of
vegetation and leveling the site to allow access to the resource, as well as
construction of roads, pipelines, storage tanks, and other infrastructure
needed to extract and transport the resource can fragment habitats. 75 In
August 2003, we reported that oil and gas infrastructure on federal wildlife
refuges can reduce the quality of habitat by fragmenting it. 76
Fragmentation increases disturbances from human activities, provides
pathways for predators, and helps spread nonnative plant species.

In addition, spills of oil, gas, or other toxic chemicals have harmed wildlife
and habitat. Oil and gas can injure or kill wildlife by destroying the
insulating capacity of feathers and fur, depleting oxygen available in
water, or exposing wildlife to toxic substances. Long-term effects of oil
and gas contamination on wildlife are difficult to determine, but studies
suggest that effects of exposure include reduced fertility, kidney and liver
damage, immune suppression, and cancer. In August 2003, we reported
that even small spills may contaminate soil and sediments if they occur
frequently. 77 Further, noise and the presence of new infrastructure
associated with shale gas development may also affect wildlife. A study
by the Houston Advanced Research Center and the Nature Conservancy
investigated the effects of noise associated with gas development on the
Attwater’s Prairie Chicken—an endangered species. The study explored
how surface disruptions, particularly construction of a rig and noise from
diesel generators would affect the animal’s movement and habitat. 78 The
results of the study found that the chickens were not adversely affected
by the diesel engine generator’s noise but that the presence of the rig
caused the animals to temporarily disperse and avoid the area.



75
  Habitat fragmentation occurs when a network of roads and other infrastructure is
constructed in previously undeveloped areas.
76
 GAO-03-517.
77
 GAO-03-517.
78
  James F. Bergan, Richard Haut, Jared Judy, and Liz Price. “Living In Harmony—Gas
Production and the Attwater’s Prairie Chicken” (presented at the Society of Professional
Engineers Annual Technical Conference, Florence, Italy, September 2010).




Page 51                                        GAO-12-732 Shale Oil and Gas Development
                         A number of studies we reviewed identified risks to habitat and wildlife as
                         a result of shale oil and gas activities. However, because shale oil and
                         gas development is relatively new in some areas, the long-term effects—
                         after operators are to have restored portions of the land to
                         predevelopment conditions—have not been evaluated. Without these
                         data, the cumulative effects of shale oil and gas development on habitat
                         and wildlife are largely unknown.

                         Induced Seismicity

                         According to several studies and publications we reviewed, the hydraulic
                         fracturing process releases energy deep beneath the surface to break
                         rock but the energy released is not large enough to trigger a seismic
                         event that could be felt on the surface. However, a process commonly
                         used by operators to dispose of waste fluids—underground injection—has
                         been associated with earthquakes in some locations. For example, a
                         2011 Oklahoma Geological Survey study reported that underground
                         injection can induce seismicity. In March 2012, the Ohio Department of
                         Natural Resources reported that “there is a compelling argument” that the
                         injection of produced water into underground injection wells was the
                         cause of the 2011 earthquakes near Youngstown, Ohio. In addition, the
                         National Academy of Sciences released a study in June 2012 that
                         concluded that underground injection of wastes poses some risk for
                         induced seismicity, but that very few events have been documented over
                         the past several decades relative to the large number of disposal wells in
                         operation.

                         The available research does not identify a direct link between hydraulic
                         fracturing and increased seismicity, but there could be an indirect effect to
                         the extent that increased use of hydraulic fracturing produces increased
                         amounts of water that is disposed of through underground injection. In
                         addition, according to the National Academy of Science’s 2012 report,
                         accurately predicting magnitude or occurrence of seismic events is
                         generally not possible, in part, because of a lack of comprehensive data
                         on the complex natural rock systems at energy development sites.


Extent of Risks Is       The extent and severity of environmental and public health risks identified
Unknown and Depends on   in the studies and publications we reviewed may vary significantly across
Many Factors             shale basins and also within basins because of location- and process-
                         specific factors, including the location and rate of development; geological
                         characteristics, such as permeability, thickness, and porosity of the




                         Page 52                                 GAO-12-732 Shale Oil and Gas Development
formations in the basin; climatic conditions; business practices; and
regulatory and enforcement activities.

Location and rate of development. The location of oil and gas operations
and the rate of development can affect the extent and severity of
environmental and public health risks. For example, as we reported in
October 2010, while much of the natural gas that is vented and flared is
considered to be unavoidably lost, certain technologies and practices can
be applied throughout the production process to capture some of this gas,
according to the oil and gas industry and EPA. The technologies’
technical and economic feasibility varies and sometimes depends on the
location of operations. For example, some technologies require a
substantial amount of electricity, which may be less feasible for remote
production sites that are not on the electrical grid. In addition, the extent
and severity of environmental risks may vary based on the location of oil
and gas wells. For example, in areas with high population density that are
already experiencing challenges adhering to federal air quality limits,
increases in ozone levels because of emissions from oil and gas
development may compound the problem.

Geological characteristics. Geological characteristics can affect the extent
and severity of environmental and public health risks associated with
shale oil and gas development. For example, geological differences
between tight sandstone and shale formations are important because,
unlike shale, tight sandstone has enough permeability to transmit
groundwater to water wells in the region. In a sense, the tight sandstone
formation acts as a reservoir for both natural gas and for groundwater. In
contrast, shale formations are typically not permeable enough to transmit
water and are not reservoirs for groundwater. According to EPA officials,
hydraulic fracturing in a tight sandstone formation that is a reservoir for
both natural gas and groundwater poses a greater risk of contamination
than the same activity in a deep shale formation.

Climatic conditions. Climatic factors, such as annual rainfall and surface
temperatures, can also affect the environmental risks for a specific region
or area. For example, according to a 2007 study funded by DOE, average
rainfall amounts can be directly related to soil erosion. 79 Specifically,


79
  ALL Consulting and the Interstate Oil and Gas Compact Commission, Improving Access
to Onshore Oil and Gas Resources on Federal Lands (a special report prepared at the
request of the U.S. Department of Energy National Energy and Technology Laboratory,
March 2007).




Page 53                                     GAO-12-732 Shale Oil and Gas Development
areas with higher precipitation levels may be more susceptible to soil
compaction and rutting during the well pad construction phase. In another
example, risk of adverse effects from exposures to toxic air contaminants
can vary substantially between drilling sites, in part, because of the
specific mix of emissions and climatic conditions that affect the transport
and dispersion of emissions. Specifically, wind speed and direction,
temperature, as well as other climatic conditions, can influence exposure
levels of toxic air contaminants. For example, according to a 2012 study
from the Sustainable Investments Institute and the Investor Responsibility
Research Center Institute, the combination of air emissions from gas
operations, snow on the ground, bright sunshine, and temperature
inversions during winter months have contributed to ozone creation in
Sublette County, Wyoming. 80

Business practices. A number of studies we reviewed indicate that some
adverse effects from shale oil and gas development can be mitigated
through the use of technologies and best practices. For example,
according to standards and guidelines issued jointly by the Departments
of the Interior and Agriculture, mitigation techniques, such as fencing and
covers, should be used around impoundments to prevent livestock or
wildlife from accessing fluids stored in the impoundments. 81 In another
example, EPA’s Natural Gas STAR program has identified over 80
technologies and practices that can cost effectively reduce methane
emissions, a potent greenhouse gas, during oil and gas development.
However, the use of these technologies and business practices are
typically voluntary and rely on responsible operators to ensure that
necessary actions are taken to prevent environmental contamination.
Further, the extent to which operators use these mitigating practices is
unknown and could be particularly challenging to identify given the
significant increase in recent years in the development of shale oil and
gas by a variety of operators, both large and small.

Regulatory and enforcement activities. Potential changes to the federal,
state, and local regulatory environment will affect operators’ future


80
  Susan Williams, “Discovering Shale Gas: An Investor Guide to Hydraulic Fracturing,”
Sustainable Investments Institute and Investor Responsibility Research Center Institute
(New York, NY: February 2012).
81
 United States Department of the Interior and United States Department of Agriculture.
Surface Operating Standards and Guidelines for Oil and Gas Exploration and
Development. BLM/WO/ST-06/021+3071/REV 07 (Denver, CO: 2007).




Page 54                                        GAO-12-732 Shale Oil and Gas Development
                  activities and can therefore affect the risks or level of risks associated
                  with shale oil and gas development. Shale oil and gas development is
                  regulated by multiple levels of government—including federal, state, and
                  local. Many of the laws and regulations applicable to shale oil and gas
                  development were put in place before the increase in operations that has
                  occurred in the last few years, and various levels of government are
                  evaluating and, in some cases, revising laws and regulations to respond
                  to the increase in shale oil and gas development. For example, in April
                  2012, EPA promulgated New Source Performance Standards for the oil
                  and gas industry that, when fully phased-in by 2015, will require
                  emissions reductions at new or modified oil and gas well sites, including
                  wells using hydraulic fracturing. Specifically, these new standards, in part,
                  focus on reducing the venting of natural gas and volatile organic
                  compounds during the flowback process. In addition, areas without prior
                  experience with oil and gas development are just now developing new
                  regulations. These governments’ effectiveness in implementing and
                  enforcing this framework will affect future activities and the level of
                  associated risk.


                  We provided a draft of this report to the Department of Energy, the
Agency Comments   Department of the Interior, and the Environmental Protection Agency for
                  review and comment. We received technical comments from Interior’s
                  Assistant Secretary, Policy, Management, and Budget, and from
                  Environmental Protection Agency officials, which we have incorporated as
                  appropriate. In an e-mail received August 27, 2012, the Department of
                  Energy liaison stated the agency had no comments on the report.


                  As agreed with your offices, unless you publicly announce the contents of
                  this report earlier, we plan no further distribution until 30 days from the
                  report date. At that time, we will send copies of this report to the
                  appropriate congressional committees, the Secretary of Energy, the
                  Secretary of the Interior, the EPA Administrator, and other interested
                  parties. In addition, the report will be available at no charge on the GAO
                  website at http://www.gao.gov.




                  Page 55                                 GAO-12-732 Shale Oil and Gas Development
If you or your staff members have any questions about this report, please
contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to this
report are listed in appendix IV.




Frank Rusco
Director, Natural Resources and Environment




Page 56                                GAO-12-732 Shale Oil and Gas Development
List of Requesters

The Honorable Barbara Boxer
Chairman
Committee on Environment and Public Works
United States Senate

The Honorable Sheldon Whitehouse
Chairman
Subcommittee on Oversight
Committee on Environment and Public Works
United States Senate

The Honorable Benjamin L. Cardin
Chairman
Subcommittee on Water and Wildlife
Committee on Environment and Public Works
United States Senate

The Honorable Henry A. Waxman
Ranking Member
Committee on Energy and Commerce
House of Representatives

The Honorable Edward J. Markey
Ranking Member
Committee on Natural Resources
House of Representatives

The Honorable Diana DeGette
Ranking Member
Subcommittee on Oversight and Investigations
Committee on Energy and Commerce
House of Representatives

The Honorable Robert P. Casey, Jr.
United States Senate




Page 57                              GAO-12-732 Shale Oil and Gas Development
Appendix I: Scope and Methodology
             Appendix I: Scope and Methodology




             Our objectives for this review were to determine what is known about (1)
             the size of shale oil and gas resources in the United States and the
             amount produced from 2007 through 2011—the years for which data
             were available—and (2) the environmental and public health risks
             associated with development of shale oil and gas.

             To determine what is known about the size of shale oil and gas
             resources, we collected data from federal agencies, state agencies,
             private industry, and academic organizations. Specifically, to determine
             what is known about the size of these resources, we obtained information
             for technically recoverable and proved reserves estimates for shale oil
             and gas from the Energy Information Administration (EIA), the U.S.
             Geological Survey (USGS), and the Potential Gas Committee––a
             nongovernmental organization composed of academic and industry
             officials. We interviewed key officials about the assumptions and
             methodologies used to estimate the resource size. Estimates of proved
             reserves of shale oil and gas are based on data provided to EIA by
             operators. In addition to the estimates provided by these three
             organizations, we also obtained and presented technically recoverable
             shale oil and gas estimates from two private organizations—IHS Inc., and
             ICF International—and one national advisory committee representing the
             views of the oil and gas industry and other stakeholders—the National
             Petroleum Council. For all estimates we report, we conducted a review of
             the methodologies used in these estimates for fatal flaws; we did not find
             any fatal flaws in these methodologies.

             To determine what is known about the amount of produced shale oil and
             gas from 2007 through 2011, we obtained data from EIA—the federal
             agency responsible for estimating and reporting this and other energy
             information. EIA officials provided us with estimated oil and gas
             production data, including data estimating shale oil and gas estimates
             from states and two private firms—HPDI, LLC and Lippman Consulting,
             Inc. To assess the reliability of these data, we examined EIA’s published
             methodology for collecting this information and interviewed key EIA
             officials regarding the agency’s data collection and validation efforts. We
             also interviewed officials from three state agencies, representatives from
             five private companies, and researchers from three academic institutions
             who are familiar with these data and EIA’s methodology and discussed
             the sources and reliability of the data. We determined that these data
             were sufficiently reliable for the purposes of this report.




             Page 58                                 GAO-12-732 Shale Oil and Gas Development
Appendix I: Scope and Methodology




To determine what is known about the environmental and public health
risks associated with the development of shale oil and gas 1, we identified
and reviewed more than 90 studies and other publications from federal
agencies and laboratories, state agencies, local governments, the
petroleum industry, academic institutions, environmental and public
health groups, and other nongovernmental associations. The studies and
publications we reviewed included scientific and industry periodicals,
government-sponsored research, reports or other publications from
nongovernmental organizations, and presentation materials. We identified
these studies by conducting a literature search and by asking for
recommendations during our interviews with stakeholders. For a number
of studies, we interviewed the author or authors to discuss the study’s
findings and limitations, if any. We believe we have identified the key
studies through our literature review and interviews, and that the studies
included in our review have accurately identified potential risks for shale
oil and gas development. However, given our methodology, it is possible
that we may not have identified all of the studies with findings relevant to
our objectives, and the risks we present may not be the only issues of
concern. The widespread use of horizontal drilling and hydraulic fracturing
to develop shale oil and gas is relatively new. Studying the effects of an
activity and completing a formal peer-review process can take numerous
months or years. Because of the relative short time frame for operations
and the lengthy time frame for studying effects, we did not limit the review
to peer-reviewed publications.

The risks identified in the studies and publications we reviewed cannot, at
present, be quantified, and the magnitude of potential adverse affects or
likelihood of occurrence cannot be determined for several reasons. First,
it is difficult to predict how many or where shale oil and gas drilling
operations may be constructed. Second, operators’ use of effective best
practices to mitigate risk may vary. Third, based on the studies we
reviewed, there are relatively few that are based on evaluating
predevelopment conditions to postdevelopment conditions—making it
difficult to detect or attribute adverse changes to shale oil and gas
development. In addition, changes to the federal, state, and local



1
 Operators may use hydraulic fracturing to develop oil and natural gas from formations
other than shale. Specifically, coalbed and tight sand formations may rely on these
practices, and some studies and publications we reviewed identified risks that can apply to
these formations. However, many of the studies and publications we identified and
reviewed focused primarily on the development of shale formations.




Page 59                                        GAO-12-732 Shale Oil and Gas Development
Appendix I: Scope and Methodology




regulatory environment and the effectiveness in implementation and
enforcement will affect operators’ future activities. Moreover, risks of
adverse events, such as spills or accidents, may vary according to
business practices, which in turn, may vary across oil and gas companies
making it difficult to distinguish between risks that are inherent to the
development of shale oil and gas from risks that are specific to particular
business practices.

To obtain additional perspectives on issues related to environmental and
public health risks, we interviewed a nonprobability sample of
stakeholders representing numerous agencies and organizations. (See
app. II for a list of agencies and organizations contacted.) We selected
these agencies and organizations to be broadly representative of differing
perspectives regarding environmental and public health risks. In
particular, we obtained views and information from federal officials from
the Department of Energy’s National Energy Technical Laboratory, the
Department of the Interior’s Bureau of Land Management and Bureau of
Indian Affairs, and the Environmental Protection Agency; state regulatory
officials from Arkansas, Colorado, Louisiana, North Dakota, Ohio,
Oklahoma, Pennsylvania, and Texas; tribal officials from the Osage
Nation; shale oil and gas operators; representatives from environmental
and public health organizations; and other knowledgeable parties with
experience related to shale oil and gas development, such as researchers
from the Colorado School of Mines, the University of Texas, Oklahoma
University, and Stanford University. The findings from our interviews with
stakeholders and officials cannot be generalized to those we did not
speak with.

We conducted this performance audit from November 2011 to September
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




Page 60                                GAO-12-732 Shale Oil and Gas Development
Appendix II: List of Agencies and
                        Appendix II: List of Agencies and
                        Organizations Contacted



Organizations Contacted

Federal Agencies        Congressional Research Service
                        Department of Energy’s National Energy Technology Laboratory
                        Department of Health and Human Services
                        Department of the Interior’s Bureau of Indian Affairs
                        Department of the Interior’s Bureau of Land Management
                        Department of the Interior’s U.S. Geological Survey
                        Environmental Protection Agency


State Agencies          Arkansas Department of Environmental Quality
                        Arkansas Oil and Gas Commission
                        Colorado Oil and Gas Conservation Commission
                        Louisiana Department of Natural Resources
                        North Dakota Industrial Commission
                        Ohio Department of Natural Resources
                        Ohio Environmental Protection Agency
                        Oklahoma Geological Survey
                        Oklahoma Corporation Commission
                        Texas Railroad Commission


Academic Institutions   Colorado School of Mines
                        Oklahoma University
                        Stanford University
                        University of Texas at Arlington
                        University of Texas Energy Center and Bureau of Economic Geology


Environmental           Clean Water Action Pennsylvania
Organizations           Earthworks Oil and Gas Accountability Project
                        Environmental Defense Fund
                        Subra Consulting
                        Western Resource Advocates


Public Health           The Endocrine Disruption Exchange
Organizations           National Association of County and City Health Officials
                        Southwest Pennsylvania Environmental Health Project

Industry                ALL Consulting
                        American Exploration and Production Council
                        American Petroleum Institute
                        Apache Corporation


                        Page 61                                GAO-12-732 Shale Oil and Gas Development
         Appendix II: List of Agencies and
         Organizations Contacted




         Chesapeake Energy
         Colorado Oil and Gas Association
         Devon Energy
         Powell Shale Digest


Others   Ground Water Protection Council
         Martin Consulting
         Red River Watershed Management Institute
         Osage Tribal Nation




         Page 62                             GAO-12-732 Shale Oil and Gas Development
Appendix III: Additional Information on
              Appendix III: Additional Information on USGS
              Estimates



USGS Estimates

              The USGS estimates potential oil and gas resources in about 60
              geological areas (called “provinces”) in the United States. Since 1995,
              USGS has conducted oil and gas estimates at least once in all of these
              provinces; about half of these estimates have been updated since the
              year 2000 (see table 5). USGS estimates for an area are updated once
              every 5 years or more, depending on factors such as the importance of
              an area.

              Table 5: USGS Estimates

                                                                                       Most recent
               Name of USGS province                                               assessment year
               Northern Alaska                                                                 2006
               Central Alaska                                                                  2004
               Southern Alaska                                                                 2011
               Western Oregon-Wash.                                                            2009
               Eastern Oregon-Wash.                                                            2006
               Northern Coastal                                                                1995
               Sonoma-Livermore                                                                1995
               Sacramento Basin                                                                2006
               San Joaquin Basin                                                               2004
               Central Coastal                                                                 1995
               Santa Maria Basin                                                               1995
               Ventura Basin                                                                   1995
               Los Angeles Basin                                                               1995
               Idaho-Snake River Downwarp                                                      1995
               Western Great Basin                                                             1995
               Eastern Great Basin                                                             2004
               Uinta-Piceance Basin                                                            2002
               Paradox Basin                                                                   1995
               San Juan Basin                                                                  2002
               Albuquerque-Sante Fe Rift                                                       1995
               Northern Arizona                                                                1995
               S. Ariz.-S.W. New Mexico                                                        1995
               South-Central New Mexico                                                        1995
               Montana Thrust Belt                                                             2002
               Central Montana                                                                 2001
               Southwest Montana                                                               1995
               Hanna, Laramie, Shirley                                                         2005




              Page 63                                        GAO-12-732 Shale Oil and Gas Development
Appendix III: Additional Information on USGS
Estimates




                                                                          Most recent
 Name of USGS province                                                assessment year
 Williston Basin (includes Bakken Shale Formation)                                2008
 Powder River Basin                                                               2006
 Big Horn Basin                                                                   2008
 Wind River Basin                                                                 2005
 Wyoming Thrust Belt                                                              2004
 Southwestern Wyoming                                                             2002
 Park Basins                                                                      1995
 Denver Basin                                                                     2003
 Las Animas Arch                                                                  1995
 Raton Basin-Sierra Grande Uplift                                                 2005
 Palo Duro Basin                                                                  1995
 Permian Basin (includes Barnett Shale)                                           2007
 Bend Arch-Ft. Worth Basin                                                        2004
 Marathon Thrust Belt                                                             1995
 Western Gulf Coast (includes Eagle Ford Shale)                                   2011
 East Texas Basin Province                                                        2011
 Louisiana-Mississippi Salt Basins Province                                       2011
 Florida Peninsula                                                                2000
 Superior                                                                         1995
 Cambridge Arch-Central Kansas                                                    1995
 Nemaha Uplift                                                                    1995
 Forest City Basin                                                                1995
 Anadarko Basin                                                                   2011
 Sedgwick Basin/Salina Basin                                                      1995
 Cherokee Platform                                                                1995
 Southern Oklahoma                                                                1995
 Arkoma Basin                                                                     2010
 Michigan Basin                                                                   2005
 Illinois Basin                                                                   2007
 Black Warrior Basin                                                              2002
 Cincinnati Arch                                                                  1995
 Appalachian Basin (includes Marcellus Shale)                                     2011
 Blue Ridge Thrust Belt                                                           1995
 Piedmont                                                                         1995
Source: USGS.




Page 64                                         GAO-12-732 Shale Oil and Gas Development
Appendix IV: GAO Contact and Staff
                  Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Frank Rusco, (202) 512-3841 or ruscof@gao.gov
GAO Contact
                  In addition to the contact named above, Christine Kehr, Assistant
Staff             Director; Lee Carroll; Nirmal Chaudhary; Cindy Gilbert; Alison O’Neill;
Acknowledgments   Marietta Revesz, Dan C. Royer; Jay Spaan; Kiki Theodoropoulos; and
                  Barbara Timmerman made key contributions to this report.




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                  Page 65                                GAO-12-732 Shale Oil and Gas Development
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