Fracking frenzy

REPORT / DECEMBER 2014

FrackingFrenzy

HOW THE FRACKING INDUSTRYIS THREATENING THE PLANET

REPORT

2 / Fracking Frenzy How the fracking industry is threatening the planet

Main researcher: Andy Gheorghiu. Authors: Andy Gheorghiu, Antoine Simon, Helen Burley. Editors: Helen Burley, Paul de Clerck, Paul Hallows. Design: www.onehemisphere.se Cover image: Drilling equipment in Argentina on the Loma Campana concession owned by YPF and Chevron. Observatorio Petrolero Sur. www.foeeurope.org

Friends of the Earth Europe is the largest grassroots environmentalnetwork in Europe, uniting more than 30 national organisations withthousands of local groups.

We are the European arm of Friends of the Earth International whichunites 74 national member organisations, some 5,000 local activistgroups, and over two million supporters around the world.

We campaign on todays most urgent environmental and social issues.We challenge the current model of economic and corporateglobalization, and promote solutions that will help to createenvironmentally sustainable and socially just societies. We promoteenvironmentally sustainable societies on the local, national, regional andglobal levels. We seek to increase public participation and democraticdecision-making. Greater democracy is both an end in itself and is vitalto the protection of the environment and the sound management ofnatural resources. We work towards environmental, social, economicand political justice and equal access to resources and opportunities onthe local, national, regional and international levels.

This report has been produced with the financial assistance of the European Union and the Dutch development Ministry. The content of this report are the sole responsibility of Friendsof the Earth Europe and can under no circumastances be regarded as reflecting the position of the European Union.

contents

FrackingFrenzy

HOW THE FRACKING INDUSTRYIS THREATENING THE PLANET

REPORT / NOVEMBER 2014

contents

Fracking Frenzy How the fracking industry is threatening the planet /3

THE AMERICAS 121 MEXICO 12

MAP 2: SHALE GAS RESERVES & WATER-STRESSED REGIONS

122 BRAZIL 18

MAP 3: SHALE GAS & DRINKING GROUND WATER RESERVES 183 ARGENTINA 24

MAP 4: SHALE GAS & WATER-STRESSED REGIONS 24

AFRICA 324 MAGHREB COUNTRIES (ALGERIA, MOROCCO, TUNISIA) 32

MAP 5: SHALE GAS & DRINKING GROUND WATER RESERVES 32FIGURE 1: CROSS SECTION OF SASS & DRILLING 40

5 SOUTH AFRICA 42MAP 6: SHALE GAS RESERVES & LICENCES 42

ASIA 506 INDIA 50

MAP 7: SHALE GAS RESERVES & WATER-STRESSED REGIONS 507 INDONESIA 56

MAP 8: SHALE GAS RESERVES, SEISMICITY & ORANGUTAN DISTRIBUTION 568 CHINA 62

MAP 9: SHALE GAS RESERVES & WATER-STRESSED REGIONS 62

RUSSIA 689 RUSSIA 68

MAP 10: SHALE GAS & DRINKING GROUND WATER RESERVES 68

EXECUTIVE SUMMARY 4

FRACKING HOW THE TECHNOLOGY WORKS 6KEY FINDINGS 7CONCLUSION 9MAP 1: GLOBAL SHALE GAS & DRINKING GROUND WATER RESERVES

& EARTHQUAKE REGIONS 10

CLIMATE CHANGE & THE NEED FOR AN ENERGY TRANSITION 74

CONCLUSION 76

ABBREVIATIONS 78

countries & regions in focus 12

REPORT

FRACKING

FRENZY


executive summary

1 http://www.eia.gov/analysis/studies/worldshalegas/

YPF waste treatment site, Argentina. Ike Teuling

Executive Summary

The global development of unconventional fossil fuels (UFF) such as shale gas has provoked much debate involving scientists,industry, political decision-makers, environmental groups and civil society. More than a decade of large-scale development in NorthAmerica has left a legacy of environmental damage, primarily resulting from the use of high-volume horizontal hydraulic-fracturing(also known as fracking) to extract the unconventional oil and gas. Despite the controversy surrounding this technique, thenumerous unknowns and uncertainties concerning its impacts and the growing number of questions about the economic benefitsof this industry, oil and gas operators are eager to identify new opportunities and so are engaged in a battle to make frackingpublicly and socially acceptable worldwide.


The United States Energy Information Administrations (EIA)World Shale Gas and Shale Oil Resource Assessment report,published in June 2013, analyses the potential shale resourcesin 42 countries and 95 shale basins worldwide,1 providing aglobal overview of the potential scale of the industry. It suggeststhat outside the EU, US, Canada & Australia, there areconsiderable potential shale resources (gas and/or oil) on allcontinents, with the most significant resources available in:

The former Soviet Union: Russia, Ukraine

Asia and Pacific: China, India, Indonesia, Mongolia, Pakistan, Thailand

Middle East and North Africa: Morocco, Algeria, Tunisia,Libya, Egypt, Jordan, Turkey

Sub-Saharan Africa: Mauritania, South Africa

Central & South America, and the Caribbean: Argentina,Bolivia, Brazil, Chile, Colombia, Mexico, Paraguay, Uruguay, Venezuela

According to the EIA, the overall estimated technicallyrecoverable resources (including the US) are between 7,299trillion cubic feet/tcf (206,685 billion cubic metres/bcm) and7,795 tcf (220,730 bcm) for shale gas and 345 billion barrels forshale oil. Not including the US, the global estimates are 6,634 tcf(187,854 bcm) for shale gas and 287 billion barrels for shale oil.2

These estimates are however little more than guess work, andprevious assessments have been shown to be highlymisleading in several cases as more accurate data about thegeology of different shale areas emerges. In some cases,investments made on the back of such estimates have failed todeliver. For example, in the case of South Africa, the EIAestimated in 2011 that the country was home to significanttechnically recoverable shale gas resources,3 but theseestimates have now been reduced by 20% from 485 tcf (13,734bcm) to 390 tcf (11,043 bcm) after a re-assessment made in2013. The Petroleum Agency of South Africa even believes thatpotential shale gas reserves are not higher than 30 tcf (850bcm).4 Estimates for the shale oil potential for the Montereybasin in California were also reduced by 96 per cent in May2014.5 Estimates have also been reduced in Mexico and China,suggesting that with potential further exploration the currentfigures could be similarly reduced in the future.

Overestimateshave raiseddoubts thetrue levelofrecoverableresources and questionsabout theeconomicviab il ity ofthis industry

2 http://www.eia.gov/todayinenergy/detail.cfm?id=144313 http://www.eia.gov/analysis/studies/worldshalegas/pdf/fullreport.pdf4 http://www.saoga.org.za/oil-gas-hubs/upstream-oil-gas-south-africa 5 http://www.reuters.com/article/2014/05/21/eia-monterey-shale-idUSL1N0O713N20140521

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High-volume horizontal hydraulic fracturing (fracking) is anextraction process resulting from recent technologicalimprovements that have made it technically possible to extractunconventional sources of fossil fuels in many regions of theworld. It is only in the last 20 years that new technologies havemade it possible to fracture deep shale rock or clay formations 1to 5 kilometres underground. Four specific developments havebeen key:

Directional drilling (wells that go down 1-5 km and thenextend horizontally for another kilometre)

High-volume hydraulic fracturing (the use of millions oflitres of fracturing fluids including sand, water and toxicchemicals, injected at high pressure into deep impermeablegeological formations)

Slick water (the use of gels and high fluid volumes at 100barrels a minute)

Multi-well pad and cluster drilling (the drilling of six totwelve wells from one industrial platform)

The first horizontal shale gas well was drilled in 1991, the firstslick water fracture took place in 1996, and the use of clusterdrilling was introduced in 2007.7 What we today call fracking isthe result of the aggregation of these new technologies.Industry claims that fracking has been in use since the 1940sare therefore misleading.8

executive summary

Fracking how the technology works

6 The US EIA lists the top ten countries with technically recoverable shale gas resources as China,Argentina, Algeria, US, Canada, Mexico, Australia, South Africa, Russia and Brazil. Seehttp://www.eia.gov/analysis/studies/worldshalegas/

7 http://thetyee.ca/News/2013/01/07/Shale-Gas-Realities/ 8 http://grist.org/climate-energy/stand-back-im-going-to-try-science-inside-the-brain-of-

exxonmobils-ceo/

Such overestimates have led to considerable speculation as tothe quantities of oil and gas available, and have raised doubtsabout the true level of resources that are technically recoverableand questions about the economic viability of this industry.

While much has been written about fracking in North Americaand in the EU, this report seeks to provide a global overview ofshale gas development in the rest of the world, focusing on aselection of the 42 countries identified by the EIA as havingshale oil and gas potential. It concentrates specifically on 11 ofthese countries: Mexico, Brazil, Argentina, Morocco, Algeria,Tunisia, South Africa, China, India, Indonesia and Russia. Thesecountries include seven of the EIAs top ten countries fortechnically recoverable shale gas resources,6 and are among theleaders in shale development on their respective continents.These countries also reveal the variety and specificity of thedangers associated with the expansion of the fracking industry,including environmental, social and health consequences whichextend beyond the borders of individual countries.

Country Other estimates

Polish Geological Institute

Pemex (Mexican oil and gas company)

South African Petroleum Agency

Chinese Ministry of Land and Resources

EIA estimate 2013

148 tcf (4,191 bcm)

545 tcf (15,433 bcm)

390 tcf (11,043 bcm)

1,115 tcf (31,573 bcm)

27.1 tcf (768 bcm)

141.5 tcf (4,007 bcm)

30 tcf (850 bcm)

885 tcf (20,060 bcm)

EIA estimate 2011

Poland

Mexico

South Africa

China

187 tcf (5,295 bcm)

681 tcf (19,284 bcm)

485 tcf (13,734 bcm)

1,275 tcf (36,104 bcm)

Controversies on estimated shale gas resources


A shaky industry in earthquake-prone regions: The geologyof the shale basins can vary significantly, sometimes oververy short distances. In some regions, such as theearthquake-prone Sichuan basin in China, the Karoo basin inSouth Africa, the Himalayas or the Sumatran basin inIndonesia, operators face very complex undergroundgeologies, which can vastly inflate the costs and thereforethe viability of shale gas extraction. This is on top of theincalculable environmental impacts and risks.

In Mexico for example, seismic activity has considerablyincreased in the area targeted by fracking operations. InChina, devastating earthquakes have been documented inthe Sichuan region in the last six years, an area targeted bythe shale oil and gas operators. Though the links have notbeen scientifically proven, the major and deadly seismicevents that have occurred here may have been linked to oiland gas activities in this high-risk earthquake region.

Considering that the fracking industry has already managedto trigger several earthquakes measuring more thanmagnitude 5 on the Richter scale in US regions previouslyconsidered to be seismically inactive, there are questions asto what may happen in the case of a large-scaledevelopment in these earthquake-prone countries.

Sensitive areas already targeted: Shale basins are also oftenburied beneath important and sensitive areas includingprotected natural areas, indigenous territories and primaryforests. This has not, however, stopped the fracking industryfrom developing their activities within the boundaries ofthese areas, jeopardizing the protection of threatenedspecies, cultural patrimonies and fragile ecosystems.

In Neuqun, Argentina, Total and Shell are already bothoperating within or just outside the limits of the AucaMahuida natural protected area, where a wildlife sanctuaryis at risk.

Indigenous communities are also at risk, with drillingactivities on indigenous lands in Brazil, Russia, South Africaand Argentina leading to conflicts with the localcommunities, who were not consulted or even informedbefore exploration activities began.

In the Brazilian Amazon where many areas are classified asconservation areas and also in the Sumatran forest, whichhas been already badly affected by deforestation for palm oilproduction and other harmful mining projects, drilling planshave been revealed that would further affect forest areas.

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Evidence from North America, with anecdotal reports backed upby countless peer-reviewed scientific studies,9 shows thatfracking can lead to air pollution, ground and surface watercontamination, radioactive releases, noise and light pollution,induced earthquakes, climate emissions, occupational healthand safety hazards and competition for access to water. Thisreport looks at these threats in the context of 11 countries inthe rest of the world (Mexico, Brazil, Argentina, Morocco, Algeria,Tunisia, South Africa, China, India, Indonesia and Russia. It finds:

Heavy water demand in water-scarce countries: The reporthighlights the crucial importance of water for the future ofshale gas and oil development across the globe. Withoutwater, shale gas and oil development cannot happen. Theindustry needs guaranteed access to millions of litres of(preferably fresh) water (up to 26 million litres of water perfracking operation).10 According to some analystscompanies will want to secure water rights at reasonableagreed costs stabilised for the entire project life,11 meaningcompanies will seek to secure the rights to access water(from lakes and rivers or from groundwater) for theprojected lifetime of a project. This could give the industryan important influence over decisions about the future offresh water resources in targeted states.

Many shale basins are found in areas where water scarcity isalready a serious problem or has reached critical levels. In theMaghreb countries where fresh water availability isexpected to drop by 50 percent by the year 205012 waterscarcity is already affecting food prices,13 while in Mexico,water shortages have already led to violent confrontations.These longstanding issues over access to water can only beexacerbated by the expansion of the thirsty fracking industry.

Transboundary aquifers under threat: Several shale oil andgas basins have been identified underneath importanttransboundary aquifers such as the Continental IntercalaireAquifer in the Maghreb, the Karoo Aquifer in Southern Africaand the Guarani Aquifer in South America, creatingcompetition and increasing pressure on their valuable watersupplies, which for, in some cases, are non-renewable.Companies will have to drill close to or through theseaquifers in order to reach the shale layers. There is a risk ofcontamination from methane and heavy pollutants,affecting the water supplies used by millions of people,farmers and other business for daily use, with potentialsevere health and social consequences at a regional level.

Key F indings

9 The Concerned Health Professionals of New York released in July 2014 an exhaustiveCompendium of Scientific, Medical, and Media Findings Demonstrating Risks and Harms ofFracking (Unconventional Gas and Oil Extraction) - http://concernedhealthny.org/wp-content/uploads/2014/07/CHPNY-Fracking-Compendium.pdfhttp://www.eia.gov/analysis/studies/worldshalegas/

10 http://fwap.org/shale-drilling-destroys-regional-water-resources/ 11 http://f.datasrvr.com/fr1/314/48797/Shale_Gas,_an_International_Guide_v3.pdf 12 http://www.fao.org/news/story/en/item/214224/icode/ 13 http://www.ifpri.org/sites/default/files/publications/ifpridp00985.pdf

http://www.wri.org/sites/default/files/wri14_report_shalegas.pdf


Worldwide Shale Development Made in America: Thedevelopment of the global shale gas story is in almost all ofthe countries covered in this report found to be closely linkedto the activities of the US Unconventional Gas TechnicalEngagement Programme (UGTEP), a US administration-funded scheme which aims to increase global energy securityand meet environmental objectives through responsible andsafe unconventional natural gas development.21

UGTEP uses official government channels and US taxpayersmoney to promote high-volume horizontal hydraulicfracturing worldwide, opening doors for the main globalplayers in the oil and gas industry. Through UGTEP, the US isalso actively engaged in re-shaping existing foreign legalregulations to create the desired legal framework for thedevelopment of shale oil and gas in the targeted countries.

executive summary

Petit levage AguadaSan Roque. Carolina Garca

Many of the countries in this report are listed as partners ofthe Unconventional Gas Technical Engagement Program(UGTEP), formerly known as the Global Shale Gas Initiative(GSGI), which was launched by the US Department of State inApril 2010.

UGTEP involves at least nine major US government agencies,14

and was set-up in order to help countries seeking to utilizetheir unconventional natural gas resources shale gas, tightgas and coal bed methane to identify and develop themsafely and economically. [] Bilateral and multilateral UGTEPengagement has included Mexico, Colombia, Chile, Poland,Ukraine, Bulgaria, Romania, Lithuania, Jordan, Kazakhstan,

Morocco, India, China, Indonesia, Vietnam, South Africa,Botswana and number of other countries, including under IEA,APEC and ASEAN umbrellas.15

According to the US Department of the Interior, UGTEP usesgovernment-to-government policy engagement to bring the USfederal and state governments technical expertise, regulatoryexperience and diplomatic capabilities to help selectedcountries understand their shale gas potential.16

According to the 2015 US Congressional Budget Justificationfor Foreign Operations (Appendix 2) UGTEP will share abudget of US$ 5.9 million with the Department of StatesBureau of Energy Resources.17

The UGTEP network

New industry-friendly legal frameworks: While Brazilrecently introduced a regulatory framework whichstrengthens the regulations governing the development offracking projects in unconventional fossil fuel reservoirs, itappears to be the exception to the general rule among the11 countries analysed in this report. Under pressure fromthe fossil fuel industry which has deep pockets andpromises employment and investment severalgovernments have already started to weaken theirenvironmental legislation, alter their tax regimes and put inplace industry-friendly mining licensing and productionprocesses, in order to attract foreign investors and expertise.This is often at the expense of the public interest.

Shale development requires long production periods of 30-50 years in order to recoup the initial investment. Companiesneed long-term sales contracts and a guaranteed gas price orother forms of attractive financial enticement to makeprojects economically viable. In the case of Argentina, forexample, this need has led to a change in the legalframework to guarantee a minimum price of US$7.50 perunit (MMBTU) for all additional sales to the Argentinianmarket (above a quarterly adjusted base supply). This iscompared to the previous market valuation of US$2.80 perunit, an increase of more than 250%.18 In Russia, no taxes willbe paid on oil produced from the Bazhenov basin and threeother major shale fields for the next 15 years,19 while inMorocco, oil and gas producers are exempt from corporationtax for the first 10-year of operation.20

14 hUS government agencies that participate in the UGTEP include: the US Department ofEnergys Office of Fossil Energy (DOE/FE); the US Agency for International Development(USAID); the US Department of Interiors US Geological Survey (USGS); the US Department ofInteriors Bureau of Ocean Energy Management (BOEM); the US Department of CommercesCommercial Law Development Program (CLDP); the US Environmental Protection Agency (EPA)as well as the US Department of the Interiors (DOI) including its International TechnicalAssistance Program (ITAP) and the US Trade and Development Agency (USTDA) -http://www.state.gov/r/pa/prs/ps/2013/06/211017.htm,http://www.gastechnology.org/Training/Pages/USTDA-China-Shale-Gas-Training-Workshops.aspx http://www.eia.gov/analysis/studies/worldshalegas/#3, Footnote 3.

15 http://www.state.gov/s/ciea/ugtep/ 16 ttp://www.doi.gov/intl/itap/ugtep.cfm 17 http://www.state.gov/documents/organization/224069.pdf

18 http://www.pagbam.com.ar/newsletters/OilGas/Energy_Newsletter_-_April_2013_n_55 19 http://www.platts.com/news-feature/2013/oil/russia-shale-oil/index

http://www.washingtontimes.com/news/2014/feb/18/siberian-shale-find-fuels-russias-fracking-future/?page=all

20 http://www.nortonrosefulbright.com/knowledge/publications/102343/morocco-ten-things-to-know-about-oil-and-gas%204

21 http://www.securityassistance.org/sites/default/files/FY2015_CBJ.pdf


FRACKING

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Growing worldwide opposition: The report finds that eventhough fracking is only just starting to get underway inmost of the countries analysed, public opposition to thisindustry is already growing and becoming more organised,bringing together a wide range of different actors such asenvironmentalists, trade unions, political parties, womensorganisations and indigenous community representatives.

In some countries, notably in Brazil and Argentina, localauthorities have also started to adopt anti-frackingresolutions, triggering a domino effect as others follow suit,as already witnessed in North America and Europe. TheSouth African government also stopped the development ofshale gas in the Karoo region for some time, in order to getmore clarity about potential impacts.

Fracking and climate change: Energy demand is growingworldwide, creating a major challenge for political decision-makers and civil society alike. The countries analysed in thisreport are no different. The dangers of climate change arecreating pressure to curb coal production, and this pressureis given added weight in countries such as China, where airpollution has reached critical levels.

At the same time, countries which have a long history of oiland gas development (such as Algeria and Argentina) haveseen their production levels peak, and are now facing adecline. These countries are now looking for ways tostimulate their remaining fossil fuel resources. Theopportunity to extract shale oil and gas by fracking is seenas a way to extend production and benefit the economy.

Such a strategy, however, raises serious questions in termsof sustainability, at a time when experts state that no morethan one-third of proven fossil fuel reserves can beconsumed if we want globally to avoid reaching the 2Ctemperature rise tipping point.22 While gas is oftenpromoted as an ideal source of energy for the transition todecarbonising our energy systems, the most recent sciencehas shown that gas production and transportation are farfrom clean23 and that unconventional gas could even becomparable to coal in terms of climate impact.24 TheIPCC25and the International Energy Agency26, among others,have warned that the widespread development of shale gasat the global level would have a negative climate impact.

The emerging planned expansion of the shale gas industryoutside the EU and North America raises serious concernsbecause of the almost unavoidable environmental, social andhealth impacts already seen at existing fracking sites. Giventhat these problems have proved difficult to avoid in countrieswith relatively strong regulations to protect the environment,how can this industry be properly monitored in countries whereenvironmental standards are often lower (and sometimes non-existent), and/or where enforcement capacities are frequentlylimited and where corruption can be an everyday reality?

The short-sighted approach of promoting the development ofshale oil and gas in the rest of the world not only ignores thesignificant and almost inevitable environmental, social andclimate impacts, but also overlooks the opportunity for longerterm, more sustainable solutions. The urgent need to shift to alow carbon development path requires investment in energyefficiency and renewable energy sources. For the EU, this createsa responsibility as well as an opportunity to support thesecountries in moving towards a post-fossil fuel future, which isnow not only necessary but also feasible.

Conclusion

22 http://www.iea.org/publications/freepublications/publication/english.pdf 23 http://www.pnas.org/content/early/2014/06/25/1323422111 24 http://www.nature.com/nature/journal/vaop/ncurrent/full/nature13837.html 25 http://www.climatechange2013.org/ f 26 http://www.worldenergyoutlook.org/media/weowebsite/2012/goldenrules/weo2012_

goldenrulesreport.pdfhttp://www.worldenergyoutlook.org/publications/weo-2014/

Residents of the town of Prins Albert in the Great Karoo, South Africa, protestagainst the proposed hydraulic fracturing or fracking of underground gasreservoirs in the Karoo. This form of drilling may cause leaking of chemicals intothe Karoos sensitive and scarce underground water resources. Sproetniek/Istockphoto


executive summary

I N FOCUS

B R A Z I L

A R G E N T I N A

A L G E R I A

T U N I S I

W E S T E R N S A H A R A( O C C U P I E D B Y M O R O C C O )

M O R O C C O

M E X I C O

M E X I C OS H A L E G A S R E S E R V E S & W A T E R - S T R E S S E D R E G I O N S

P A G E

12 A R G E N T I N AS H A L E G A S R E S E R V E S & W A T E R - S T R E S S E D R E G I O N S

P A G E

24 B R A Z I LS H A L E G A S R E S E R V E S & D R I N K I N G G R O U N D W A T E R R E S E R V E S

P A G E

18 M A G H R E B R E G I O NS H A L E G A S R E S E R V E S & W A T E R - S T R E S S E D R E G I O N S

P A G E

32

S O U T H A F R I C A

I

N O R T H P A C I F I C O C E A N

N O R T H A T L A N T I CO C E A N

S O U T HA T L A N T I CO C E A N

A R C T I C O C E A N

S O U T H P A C I F I C O C E A N

gloBal shale gas & Drinking ground water reserves & earthquake regions

Sources: WVGISTC, WVU, WRI, UNESCO, USGS, NASA.

EARTHQUAKE R EGION

PLATE BOU N DARY

LEGEN D

SHALE GAS RESERVES

DR I N KI NG GROU N D WATER R ESERVES


FRACKING

FRENZY

I A

S O U T H A F R I C AS H A L E G A S R E S E R V E S & L I C E N C E S

P A G E

42 I N D I AS H A L E G A S R E S E R V E S & W A T E R - S T R E S S E D R E G I O N S

P A G E

50 C H I N AS H A L E G A S R E S E R V E S & W A T E R - S T R E S S E D R E G I O N S

P A G E

62 I N D O N E S I AS H A L E G A S R E S E R V E S ,S E I S M I C I T Y & O R A N G U T A N D I S T R I B U T I O N

P A G E

56 R U S S I AS H A L E G A S R E S E R V E S & D R I N K I N G G R O U N D W A T E R R E S E R V E S

P A G E

68

C H I N A

I N D I A

S H A C A

I N D O N E S I A

R U S S I A

N

I N D I A NO C E A N

A R C T I C O C E A N




the americas

Mexico is one of the worlds largest oil producers,1 and has beenidentified as having significant shale oil and gas potential. Thecountry recently voted to end a 75-year history of state control ofthe energy sector, with wide-ranging energy reforms designed tofacilitate foreign investment. Oil production has fallensignificantly in the last decade and the government appears keento develop its shale resources. Many of Mexicos shale resourcesare in areas where water is in short supply, and there are alsoconcerns about the impact of fracking on seismic activity.

mexico

1

U N ITED STATES OF AMERICA

GUATEMAL A

BELIZE


G U L F O F M E X I C O

5

1

2

4

3

8

6

7

9

10

1111

13

14

15

17

16

18

12

SALTI LLO

MONTER R EY

C I U DAD VICTOR IA

SAN LU IS POTOS

XALAPA DE EN RQU EZ

VI LLAH ERMOSA

MEXICO CITY

2

M E X I C O

2 EL BU R RO U PLI FT1

PEYOTES-PICAC HOS ARC H ES3 COAH U I LA PLATFORM4

BU RGOS BASI N5 VALLES SAN LU IS POTOSI PLATFORM8

TAMAU LI PAS ARC H6 SANTA ANA MASSI F11

MAGISCATIZI N BASI N7 COR DOBA PLATFORM12

TAMPICO BASI N9 ISTHMUS SALI N E BASI N14

TUXPAN PLATFORM10 COMALCALCO BASI N15

VERAC RUZ BASI N13 VI LLAH ERMOSA U PLI FT16

MACUSPANA BASI N17

C H IAPAS MASSI F18

SHALE GAS RESERVES

PROSPECTIVE BASI NS

SAB I NAS BASI N

OTH ER BASI NS

MEDI UM TO H IGH 8%

H IGH 19%

EXTR EMELY H IGH 31%

AR I D & LOW WATER USE 11%

WATER-STRESSED REGIONS

LOW 12%

LOW TO MEDI UM 4%

mexico shale gas reserves & water-stressed REGIONS

Sources: World Resource Institute, 2014 & US EIA, 2013.


1 http://www.eia.gov/countries/analysisbriefs/Mexico/mexico.pdf2 http://www.eia.gov/analysis/studies/worldshalegas/pdf/fullreport.pdf3 http://www.eia.gov/analysis/studies/worldshalegas/fracking-future/?page=all 4 http://www.state.gov/s/ciea/ugtep/

http://www.doi.gov/intl/itap/ugtep.cfmhttp://www.eia.gov/analysis/studies/worldshalegas/#3Other US government agencies that participate in the UGTEP include: the US Departmentof Energys Office of Fossil Energy (DOE/FE); the US Agency for International Development(USAID); the US Department of Interiors US Geological Survey (USGS); US Department of

Interiors Bureau of Ocean Energy Management (BOEM); the US Department of CommercesCommercial Law Development Program (CLDP); and the US Environmental ProtectionAgency (EPA). The US Department of the Interiors (DOI) International Technical AssistanceProgram (ITAP) is also involved in SGD across the globe and helps to organize workshops.

5 http://fas.org/sgp/crs/row/R43313.pdf 6 http://petroleum.mines.edu/Documents/Mines%20Newsletter%202013.pdf 7 http://www.bloomberg.com/news/2013-12-12/mexico-lower-house-passes-oil-overhaul-

to-break-state-monopoly.html 8 http://www.mexicoshalesummit.com/

Technically recoverableresources2

Shale oil(billion barrel)

US EIA

13

Pemex

31.9

(bcm)

US EIA

15,433

Pemex

4,007

Shale gas(tcf)

US EIA

545

Pemex

141.5

World ranking3 Shale oil

US EIA

8

Pemex

3

Pemex

13

Shale gas

US EIA

6

Technically recoveraBle resources

Technically recoverable resources & world ranking

Mexico is estimated to have the sixth largest quantity ofrecoverable shale gas globally, according to EIA figures. Howeverthis estimate reflects a substantial reduction from 681 tcf(19,284 bcm) in 2011, to 545 tcf (15,433 bcm) in 2013. Theamount of shale gas estimated to be in the Burgos basin, whichis the most promising and best documented shale formation,was reduced from 454 tcf (12,856 bcm) to 343 tcf (9,713 bcm).EIA figures suggest the country also has an estimated 13 billionbarrels of shale oil, the 8th highest worldwide. The Burgos basinis estimated to contain around 6.3 billion barrels of shale oil.

As an illustration of the large uncertainties surrounding theseestimates, Mexicos national oil and gas company, Pemex, madetheir own parallel assessment of the countrys resources andcame out with significantly different figures, which it thendowngraded, reducing its initial estimate for the amount oftechnically recoverable shale gas from a median 297 tcf (8,410bcm) to 141.5 tcf (4,007 bcm) in 2012.

This would place Mexico 13th in the global ranking for shalegas. As for shale oil, Pemex estimates technically recoverableresources at 31.9 billion barrels. These estimates would placeMexico 3rd in the global ranking for shale oil resources.

Targeted by UGTEP

Mexico is one of the countries that has participated in the USUnconventional Gas Technical Engagement Program (UGTEP). TheUS has an open interest in Mexico, which it considers crucial for its

own energy security. According to the US Congressional ResearchService, the future of oil and natural gas production in Mexico is ofimportance for both Mexicos economic growth, as well as for USenergy security. The issue is considered a key congressional interestand the US has provided Mexico with technical assistance in resourceassessment, environmental protection, and regulatory policies.5

At the end of 2013, the US Department of State together withthe Mexican government organised UGTEP regulatoryworkshops in Mexico City.6 The December 2013 vote to end thestates 75-year control over the energy sector has been keenlywatched by observers in the US with an interest in the openingup the countrys energy sector. According to one legal advisor:Theres potential to attract additional investment into shale andultra-deep waters so that those resources can be exploited in away thats ultimately good for the country.7

A Mexico Shale Summit has been scheduled to take place in SanAntonio, Texas in 2015, reflecting the interest of the US shaleindustry in Mexico.8

Targeted by / Listed as partner of the US Unconventional Gas TechnicalEngagement Programme (UGTEP)4

Yes

UGTEP - Targeted By / L isted as Partner

FRACKING

FRENZY


However some uncertainty remains as Cuauhtemoc Cardenas,son of the former Mexican president Lazaro Cardenas (the manwho nationalised the Mexican oil industry in 1938), hasannounced that the PRD party will call for a public consultationin 2015 in order to challenge the current reforms. He told mediathe oil industry should be defended because it should serve theMexican people and not benefit foreign interest.14

New legislation and legal framework

Pemex is expected to retain its dominant position in the market,with priority over other oil and gas companies, and is expectedto maintain roughly 83% of Mexicos proven and probablehydrocarbon reserves as well as around 30% of the countryspotential oil and gas resources.16 The Mexican governmentplans to open the first bidding procedures for private companiesto participate in the exploration and exploitation of oil and gasblocks from 2015.17

the americas

Resource ownership

According to Article 27 of the Mexican Constitution, allhydrocarbon resources in Mexico belong to the Mexican nation,and oil and gas exploration has been the exclusive preserve ofthe state company for the last 75 years. The Mexican EnergyReform introduced in 2013 is designed to change this.11

The new legislation will introduce three new contract types,which will allow foreign companies to play an active role in theMexican market. Through profit-sharing contracts, companieswill receive a percentage of the profits from oil and gasdevelopment. Production-sharing contracts will allow them toown a percentage of the extracted hydrocarbons and privatecompanies can be paid with extracted hydrocarbons throughlicence agreements.12 The state is initially expected to giveprivate investors the option of carrying out exploration andproduction activities on behalf of the state through explorationand production services contracts. These will be subject to acompetitive bidding procedure.13

9 http://www.forbes.com/sites/greatspeculations/2014/08/13/schlumberger-and-halliburton-can-benefit-as-mexico-overhauls-its-energy-sector/http://www.mexicoshalesummit.com/#!mexico-shale-summit-speakers/c1c9fhttp://oilpro.com/post/6235/pemex-supports-mexico-shale-summit-san-antonio-associated-partnerhttp://www.desmogblog.com/2014/05/12/no-turning-back-mexico-looming-fracking-and-offshore-oil-and-gas-bonanza

10 http://uk.practicallaw.com/6-524-0285?q=*&qp=&qo=&qe=#a540341 11 http://www.nytimes.com/2014/08/06/business/international/mexican-congress-

approves-new-rules-for-oil-industry.html?_r=0 12 http://www.eia.gov/todayinenergy/detail.cfm?id=17691 13 http://uk.practicallaw.com/cs/Satellite?blobcol=urldata&blobheader=application%

2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1247812498077&ssbinary=true

14 http://www.telesurtv.net/english/opinion/Mexicos-Lazaro-Cardenas-The-Perfect-Politician--20141018-0035.html

15 http://zedillo.presidencia.gob.mx/welcome/PAGES/culture/note_5feb.html http://www.latinamericanstudies.org/mexico/1917-Constitution.htm http://www.ri.pemex.com/files/content/Law%20of%20Petroleos%20Mexicanos%20_version%20ingles_.pdf http://latinlawyer.com/reference/topics/47/jurisdictions/16/mexico/http://uk.practicallaw.com/6-524-0285?q=*&qp=&qo=&qe=#a540341

16 http://www.forbes.com/sites/greatspeculations/2014/08/13/schlumberger-and-halliburton-can-benefit-as-mexico-overhauls-its-energy-sector/

17 http://www.nytimes.com/2014/08/06/business/international/mexican-congress-approves-new-rules-for-oil-industry.html?_r=0

IOC (International Oil/Gas Companies)

Halliburton, SchlumbergerPetroRock Energy LLC,Chevron, BP and Shell

NOC (National Oil/Gas Companies)

Pemex

Main companies involved9

License required Bidding procedure

Yes

(X)

No Yes

(X)

No

State Private

X

Resource ownership 10

Date Relevant legislation

1917

7 June 1938

20 December 2013

Article 27 of Mexican Constitution andRegulations for Petroleum Branch

Law of Petrleos Mexicanos (Pemex Law)

Energy Reform

New legislation / legal framework orrecent changes of existing legalframework with regard to theexploration and/or exploitation ofshale gas/oil or fossil fuels in general

NoYes

X

New legislation / legal framework15


FRACKING

FRENZY

The Mexican state may now enter into contracts with statecompanies or private entities for the exploration and productionof oil, hydrocarbons, and gas. As there are no statutory rules forexploration and production services contracts, each project hasto be negotiated individually, with the current Pemexprocurement mechanisms suggesting a likely agreement for upto 35 years.18

Status of development

As one of the largest oil producers in the world, oil revenues playan important part in Mexicos economy. Since 2004 Mexicos oilproduction has steadily declined,20 while its energyconsumption, especially gas, has increased. The recent energyreforms provide an opportunity to satisfy this growing demandby not only increasing foreign investment in conventionalsupplies of oil and gas, but also by opening up the market forshale development.

Mexico has recently also approved the US - MexicanTransboundary Hydrocarbons Agreement which gives MexicosPemex and US companies (such as ExxonMobil and Chevron)opportunities to jointly develop oil and gas reserves whichstraddle the countries marine borders.21 These transboundaryresources include possible shale resources, such as the Eagle FordBasin in Texas which stretches across the border into Mexico. Fiveareas have been identified as having shale gas potential: theChihuahua, Sabinas-Burro-Pichachos, Burgos, Tampico-Misantlaand Veracruz basins, with165 exploration wells drilled so far.According to an official Pemex list, 20 wells (all in the Burgos inSabinas basin) were completed between September 13, 2010and January 30, 2014.22 According to the June 2013 EIAassessment, Pemex initially announced that it was planning todrill up to 80 wells by 2015 in the Tampico Basin and up to 10wells by 2016 in the Veracruz basin, but no exploration has asyet taken place in these areas. Reuters has reported that thestate-owned company will only drill 10 wells in 2014.23

There are concerns that the viability of Mexicos shale resourcesmay be limited. According to the EIA, many of Mexicos shalebasins are too deep in their center for shale gas and shale oildevelopment (>5 km). They are also considered expensive witha cost of $20-$25 million per well, while producing only modestgas flow. Production at the first well drilled (Emergente) hasfallen by 70% after just two years of test production.24

Nonetheless, Pemex intends to start commercial shale gasproduction in 2015. With an investment of $1 billion, 750 wellsare planned by 2025, with 75 shale exploration wells in theBurgos Basin in 2015 alone, developed in partnership with UScompanies including Halliburton25 and Schlumberger.26

According to Gustavo Hernandez, interim head of Pemexsexploration and exploitation division, 60,000 wells will berequired in order to exploit the estimated shale gas resources inMexico,27 with some estimates suggesting that $100 billion ininvestment is needed to develop the resource.28

23 http://www.reuters.com/article/2014/02/27/mexico-shale-idUSL1N0LV2QO20140227 24 http://www.doi.gov/intl/itap/upload/Session-02-02-JakartaShale_Lozano_Final_Def.pdf 25 http://www.rigzone.com/news/oil_gas/a/119049/Halliburton_Pemex_Tout_Technology

_Success_in_Mexico 26 http://mexicoshalegas.com/schlumbergers-take-on-mexico-shale-exploration-

unconventional-drilling/ 27 http://www.reuters.com/article/2014/02/27/mexico-shale-idUSL1N0LV2QO20140227 28 http://www.mexicoshalesummit.com/

18 http://uk.practicallaw.com/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1247812498077&ssbinary=true

19 http://www.eia.gov/analysis/studies/worldshalegas/pdf/fullreport.pdf https://www.tamiu.edu/binationalcenter/documents/GCDVLAREDOPRESENTACIONCOMITEBINACIONALENERO282013vf.pdf

20 http://www.eoearth.org/files/229101_229200/229128/oil-production-consumption.png 21 http://fas.org/sgp/crs/row/R43313.pdf22 https://www.foeeurope.org/sites/default/files/pemex-20-wells_1857500102714.pdf

Exploration phase Exploitation / Production phase

X -

Status of development19

Burning gas as part of an oil well in the mexican state of Veracruz. Jess Eloy Ramos Lara/Dreamstime


The fracking industry argues that it can overcome problemswith water supply by recycling the waste water from fracking.However, a significant proportion of fracking fluid cannottechnically be pumped back at the end of the process. Accordingto the US Geological Survey only 10% of all water used isrecovered from the drilled and fractured formation in north-eastern Pennsylvania.35 Another study found that over 90% ofthe water used for fracking operations remains undergroundand is therefore permanently removed from the water cycle.36

The same study also noted that 80% of fracking water comesfrom rivers and streams.

Conflict with natural protected areas

The development of the oil and gas industry in the targetedshale gas basins is also considered a threat to natural areaswhich are protected because of their importance forbiodiversity. These include sites protected under the RamsarConvention,37 nature protection zones such as the LagunaMadre y Delta del Rio Bravo on the Gulf of Mexico, nationalparks including the Cumbres de Monterey and biospherereserves such as Los Tuxtlas and Tehuacan-Cuicatland.38

Wells operating without necessary environmental impact assessments

There is also evidence that some wells in Mexico are operatingwithout the legally-required Environmental ImpactAssessment, as highlighted by a state Advisory Council forSustainable Development in Coahuila. In a letter to the FederalDelegation of Semarnat, Coahuila, the body raised concernsabout six wells, some of which appeared to have been drilled atdifferent sites from those cited in the permits. According to theletter, the Environmental Impact Assessment for the 3,214 wellsplanned stated that only conventional drilling techniqueswould be used. Permission had not therefore been given for theuse of fracking.39

According to the Mexican Center for Analysis and Research,Fundar, all hydrocarbon projects must be approved by theMexican Environmental Ministry. The wells in Coahuila,40 whichare managed by Pemex, were operating without the requiredEnvironmental Impact Assessment. The Alliance AgainstFracking, in collaboration with an organisation specialized inenvironmental litigation (CEMDA), is taking legal action tochallenge whether permission should have been granted fordrilling at these sites.41

the americas

Environmental, ecological and social impacts

Water stress and scarcity

The majority of Mexicos shale basins overlap with areas thatare already plagued with high levels of water stress. Accordingto the World Resources Institute almost two thirds of Mexicostechnically recoverable shale resources are located in areas thatare arid or under high water stress.29 The Burgos basin30 overlapsparts of the transboundary Gulf Coastal Plain Aquifer,31 which isalready considered to be overexploited. Access to water is animportant issue in a country where 9% of the population lacksaccess to tap water and where tap water quality is recognized aspoor, forcing people to rely on bottled water. Thirteen per cent ofthe population lack access to sanitation.32

There have even been media reports of water wars, with streetfights between riot officers and residents in a town on theoutskirts of Mexico City over access to the local spring watersupply.33 Demand for water in Mexico is predicted to rise from 78.4billion m per year to 91.2 billion m per year by 2030, creating anestimated gap between supply and demand of 23 billion m.34

35 http://pubs.usgs.gov/of/2013/1137/pdf/ofr2013-1137.pdf36 http://www.downstreamstrategies.com/documents/reports_publication/marcellus_

wv_pa.pdf37 http://www.conanp.gob.mx/sig/imgmapoteca/map_grales/map_ramsar.jpg 38 http://www.conanp.gob.mx/sig/imgmapoteca/map_grales/ANP_Abril_2011.pdf 39 https://www.foeeurope.org/sites/default/files/no_hay_mias_dg-6845-13-2_no-eia.pdf 40 http://fundar.org.mx/english/#.VB0-LBYfK6l41 E-mail correspondence with Aroa de la Fuente of Fundar

29 http://www.wri.org/sites/default/files/wri14_report_shalegas.pdf 30 http://www.eia.gov/countries/analysisbriefs/Mexico/images/shale_gas_basins_map.png 31 http://www.whymap.org/whymap/EN/Downloads/Continental_maps/gwrm_

namerica_pdf.pdf?__blob=publicationFile&v=2 32 http://www.forbes.com/sites/ivancastano/2012/02/22/mexicos-water-war/33 https://news.vice.com/article/a-bloody-war-for-water-in-mexico 34 http://www3.weforum.org/docs/WEF/WRG_Background_Impact_and_Way_Forward.pdf

Environmental, ecological and social impacts / conflicts very likely or already existing

Yes


Source(s) of existingconflicts / occurredincidents:

Source(s) of likelynew/further conflicts

Water scarcity, water and land useconflicts / Projects may affect sensitiveareas (Ramsar & nature protectionzones) / Induced earthquakes.

Possible water contamination leading tofurther water scarcity as well as waterand land use conflict / Risk of triggeringfurther seismic activity / Negativeimpacts on sensitive areas (Ramsar &nature protection zones) Contribution toair pollution and global warmingthrough methane leakages.

source(s) of conflicts


FRACKING

FRENZY

Earthquakes

In 2014 media reported that seismic experts had identified aphenomenon described as a swarm of earthquakes in thenorthern states of Tamaulipas and Nuevo Len, close to thefracking operations in the Burgos basin.42 Between October2013 and March 2014, Mexicos National Seismological Servicerecorded more than 100 earthquakes in northern Mexico withan intensity of between 2.8 and 4.5 on the Richter scale.43 Thescientists say that the seismic activity cannot be attributed to asingle cause,44 but the earthquakes are all in a region wherefracking operations are underway.45

One expert who mapped the seismic activities warned:

Earthquakes will increase as a result of the higher-scale shale gas production. The government is misguided. Fracking should be banned.46

Opposition to the development of shale gas / oil

A 2012 report on the Global Anti-Fracking Movement foundevidence of moderate anti-fracking activism in Mexico, as wellas minor or moderate political opposition.47 The report, carriedout by the Control Risks Group Ltd, finds that there is however ahigh security risk in the regions of Coahuila, Nuevo Len andTamaulipas, all of which are considered to have shale potential.Drug violence in northern Mexico is considered a threat tofrackings potential, with media reports that development isunlikely to go ahead unless the security situation is improved.48

In August 2014, a 5,000 member Gendarmerie Division waslaunched in order to guard agriculture, mining, and oil and gasproduction against criminal groups.49

While the global report finds only moderate opposition tofracking, there is evidence that this is growing. The MexicanAlliance against Fracking (Alianza Mexicana contra el Fracking)was created in August 2013 bringing together a broad range oforganisations fighting fracking in Mexico and elsewhere.50 Otherorganizations have also sprung up, including Chihuahua vsFracking. This group, launched in June 2014, has gained thesupport of elected officials such as Senator Javier Corral.51 This is aclear sign that the anti-fracking movement is growing in Mexico.

Opposition to the developmentof shale gas / oil

Yes

Opposit ion to the development

42 http://www.ipsnews.net/2014/04/fracking-seismic-activity-grow-hand-hand-mexico/ 43 http://www.ssn.unam.mx/jsp/reportesEspeciales/NuevoLeon.03.2014.pdf 44 http://www.ssn.unam.mx/jsp/reportesEspeciales/NuevoLeon.03.2014.pdf 45 https://www.foeeurope.org/sites/default/files/pemex-20-wells_1857500102714.pdf 46 http://www.ipsnews.net/2014/04/fracking-seismic-activity-grow-hand-hand-mexico/ 47 http://www.controlrisks.com/~/media/Public%20Site/Files/Oversized%20Assets/shale_

gas_whitepaper.pdf 48 http://www.ibtimes.com/violent-drug-cartels-northern-mexico-threaten-forestall-

countrys-fracking-boom-1609202 49 http://www.reuters.com/article/2014/08/22/us-mexico-security-

idUSKBN0GM20620140822 50 http://nofrackingmexico.org/quienes-somos/ 51 http://javiercorral.org/prensa/comunicados.php?id=8344

Demonstration against fracking in Mexico. Alianza Mexicana Contra El Fracking


1 http://www.washingtonpost.com/world/brazils-oil-euphoria-hits-reality-hard/2014/01/05/0d213790-4d4b-11e3-bf60-c1ca136ae14a_story.html

the americas

Thanks to the recent discovery of off-shore oil reserves,1 theBrazilian government hopes for a booming energy sector whichwill boost its economy. The country is also thought to havesignificant reserves of shale oil and gas. While the country hasheld an initial bidding round, allowing foreign companies topartner with Brazilian entities to bid for concessions, development

of the industry faces uncertainty, with proposals for a moratoriumon all fracking activities for a five-year period currently beingconsidered by the parliament. There are concerns that frackingcould threaten the regionally-important transboundary GuaraniAquifer, while exploration in the Amazon basin threatensindigenous rights and would involve deforestation.

Brazil

2

Brazil & argentina shale gas & Drinking ground water reserves

Sources: US EIA, 2013, Swedish Water House, Advanced Resources International, International Groundwater Resources Assessment Centre.

18

20

19

22

21

17

16 15

12

13

14

11

45

1

2

3

6

87

9

10

A T L A N T I C O C E A N

P A C I F I CO C E A N

PERU

BOLIVIA

CH I LE

PARAGUAY

U RUGUAY

COLOMBIA

EQUADOR

TRI N I DAD & TOBAGOPANAMA

COSTA RICA

N ICARAGUA

VEN EZU EL A

GUYANA

SU RI NAMEGUYAN E

PORTO ALEGR E

CU R ITI BA

SO PAU LO

CAMPO GRAN DE

CU IAB

PORTO VELHOR IO BRANCO

MANAUS

MACAP

BELM

PALMAS

SO LUS

TER ESI NA

FORTALEZA

SALVADOR DA BAH IA

ARACJ U

MAC EI

R EC I FE

NATALJOO PESSOA

BOA VISTA

GOIN IA

BRASI LIA

BU ENOS AI RES

R IO DE JAN EI RO

VITR IA

BELO HOR IZONTE

FLOR IANPOLIS

B R A Z I L

A R G E N T I N A

1 PAR NAI BA11

AMAZONAS2 POTIGUAR12

PARANA3 SERGI PE ALAGOAS13

R ECONCAVO14

SAO FRANC ISCO15

PAR EC IS16

C HACO PARANAENSE4

NOROESTE5

CUYANA6

N EQU ENA7

C LAROMEC8

GOLFO DE SAN JORGE9

AUSTRAL10

SHALE GAS RESERVES

PROSPECTIVE BASI NS

SOLIMOES

OTH ER BASI NS

DRI N KI NG GROU N D WATER RESERVES

BOA VISTA-SER RA DE TUCANO17

AMAZON18

COSTI ERO19

PANTANAL20

GUARAN I21

LITERAN EO-C H UY22

DRI N KI NG GROU N D WATER RESERVES


2 http://www.eia.gov/analysis/studies/worldshalegas/pdf/fullreport.pdf3 http://www.eia.gov/analysis/studies/worldshalegas/ 4 http://www.state.gov/s/ciea/ugtep/

http://www.doi.gov/intl/itap/ugtep.cfmhttp://www.eia.gov/analysis/studies/worldshalegas/#3Other U.S. government agencies that participate in the UGTEP include: the U.S.Department of Energys Office of Fossil Energy (DOE/FE); the U.S. Agency for InternationalDevelopment (USAID); the U.S. Department of Interiors U.S. Geological Survey (USGS); U.S.Department of Interiors Bureau of Ocean Energy Management (BOEM); the U.S.

Department of Commerces Commercial Law Development Program (CLDP); and the U.S.Environmental Protection Agency (EPA). The U.S. Department of the Interiors (DOI)International Technical Assistance Program (ITAP) is also involved in SGD across the globeand helps to organize workshops.

5 http://www.securityassistance.org/sites/default/files/FY2015_CBJ.pdf6 http://energy.gov/sites/prod/files/BrazilUSA%20-

%20Strategic%20Energy%20Dalogue%2003.19.2013_0.pdf 7 http://www.brazilcouncil.org/events/partner-event-3rd-us-brazil-technical-workshop-

unconventional-oil-and-gas-development

Technically recoverable resources2


5.3

(bcm)

6,938

(tcf)Shale gas

245

Worldranking3

Shale oil

14

Shale gas

6



According to the EIAs World Shale Gas Assessment, the Paranbasin, which extends from Brazil into Argentina, has anestimated 80 tcf (2.265 bcm) of shale gas and some 4.3 billionbarrels of shale oil on the Brazilian side. In northern Brazil, theSolimoes Basin has an estimated 65 tcf (1.841 bcm) of shale gasand 0.3 billion barrels of shale oil. The Amazonas basin, which isnearby, is estimated to have some 100 tcf (2.832 bcm) of shalegas and some 0.8 billion barrels of shale oil. Overall, Brazil isestimated to have 245 tcf (6.938 bcm) of recoverable shale gasresources, placing it 10th in the world rankings. The estimateshale oil resources total 5.3 billion barrels, the 14th largest shaleoil resource globally.

Targeted by UGTEP

Brazil is not officially listed as a UGTEP partner, but the country isconsidered eligible for UGTEP funding for bilateral and regionalengagement, including government workshops,5 and there isevidence of US engagement with the Brazilian government overthe development of the countrys shale resources.

For example, in 2012, officials from the US Department ofEnergy and Brazils Ministry of Mines and Energy met inHouston, Texas, in order to discuss regulatory and technologicalaspects of shale gas. Discussions included the organisation of aworkshop in Brazil to support the process for the next round ofbidding for shale concessions in Brazil.6

In 2013, the 3rd US-Brazil technical workshop onunconventional oil and gas development took place in Rio deJaneiro, Brazil, with sessions on US unconventional oil and gasimprovements, the Brazilian regulatory situation, and supporton how to attract private investment.7

Targeted by / Listed as partner of the USUnconventional Gas Technical EngagementProgramme (UGTEP)4

Yes

UGTEP - Targeted By / L isted as Partner

Deployment of pipelines to transport natural gas on a stretch of rising hill, using tube settlers, hydraulic excavators and other heavy equipment. ValterCunha/Istockphoto

FRACKING

FRENZY


New legislation & legal framework

Uncertainty currently hangs over the future of fracking in Brazil,with a bill introduced in August 2014 seeking to introduce afive-year-ban on hydraulic fracturing in the country. Thislegislative move follows a recent round to establish concessioncontracts for five onshore oil and gas basins with national andinternational bidders.

Brazils legal framework, including the constitution, has beenamended a number of times in recent years to allow thecommercial development of the countrys oil and gas resources.Article 177 of the Constitution was amended in 1995 to allowthe Federal Republic to contract with state-owned and privatecompanies for the exploration and exploitation of oil and gasresources. In 1997, ANP was created and the concession systemput in place through the Petroleum Law.

A new regulatory framework has also been introduced for thedevelopment of fracking projects in unconventional fossil fuelreservoirs, (Resolution No. 21/2014), following a publicconsultation in November 2013. Under the new resolution,operators will have to disclose all chemical products used,transported and stored for the hydraulic fracturing operations.10

Details regarding the source, treatment and disposal of thewater used throughout the fracking process must also bedisclosed. Companies also must submit (1) a mandatoryenvironmental impact assessment; (2) water use licenses; (3) areport regarding all superficial water bodies and undergroundwater wells within 1,000 meters of the well head; (4) astatement by the technician responsible for the project statingthat it complies with legal requirements and all tests have beenperformed; and (5) an assessment concerning natural andinducted seismic occurrences.11 ANP is responsible for givingfinal approval, dependent on the necessary environmentalpermits being in place, including specific permission for frackingactivities in unconventional reservoirs.12

the americas

Resource ownership

According to Article 176 of the Brazilian Federal Constitution,oilfields and other mineral resources belong to the state. Article3 of Law No. 9.478 (the Petroleum Law) guarantees ownershipof oil deposits, natural gas and other fluid hydrocarbons to theFederal Republic of Brazil while Article 21 states that the FederalRepublic owns exploration and production rights on Brazilianterritory. Concession holders are however granted ownership ofextracted oil and gas (Article 26, Petroleum Law), with theproviso that they must pay an equivalent share of 0.5 - 1 % ofthe production to the landowner (Article 52, Petroleum Law).

Under the Petroleum Law concession contracts allow bothexploration and exploitation (Article 24, Petroleum Law). Duringthe exploration phase, the company can evaluate and conducttest drilling in order to assess the economic value of thehydrocarbons (Article 24, Petroleum Law). Once the productionphase has started, further development can take place (Article24 Paragraph 2 Petroleum Law).

Concession contracts are awarded by the Brazilian NationalAgency of Petroleum, Natural Gas and Biofuels (ANP) vialicensing rounds. Companies can participate in the biddingprocedure as operators or non-operators. Multinationalcompanies must form a partnership with a companyregistered/based in Brazil to sign a concession contract.

8 http://www.eia.gov/analysis/studies/worldshalegas/pdf/fullreport.pdfhttp://photos.state.gov/libraries/brazil/165950/unconventional-gas-development/Unconventional-Hydrocarbon-Potnential-in-Brazil.pdf http://www.globalpost.com/dispatch/news/agencia-efe/131128/colombias-trayectoria-oil-gas-wins-4-concessions-brazilhttp://www.bnamericas.com/company-profile/en/petra-energia-sa-petra-energiahttp://www.timesofoman.com/News/Article-24313.aspx

9 http://www.eisourcebook.org/cms/Brazil,%20Exploration%20and%20Production%20of%20Oil%20&%20Gas%20Legislation.pdf http://www.nortonrosefulbright.com/files/norton-rose-fulbright-shale-gas-handbook-108992.pdf http://www.panoramaofbrazilianlaw.com/index.php/%20BrLaw/article/download/7/12

10 http://www.mattosfilho.com.br/pagina.php?item=Memos&pag=5710&lang=en 11 http://www.mattosfilho.com.br/pagina.php?item=Memos&pag=5710&lang=en 12 http://www.mayerbrown.com/de/Unconventional-Reservoirs-ANP-Approves-New-

Resolution-for-Hydraulic-Fracturing-04-25-2014/


GDF Suez, Trayectoria Oil & Gas,Shell, Frac Tech (FTSI)


Petrleo Brasisileiro S.A.(Petrobras), Pr-Sal Petrleo S.A. (PPSA),Petra Energia S.A.



Yes

X

No Yes

X

No

State Private

X

Resource ownership9


FRACKING

FRENZY

The country also has significant conventional oil resources, withan important discovery made off the coast of Brazil by aconsortium of Brazils Petrobras, the UKs BG Group, andPortugals Petrogal in 2007. It is estimated that this fieldcontains some 8 -12 billion barrels of recoverable oil,14 and someanalysts estimate that there is even more.15

The move to introduce a temporary moratorium on fracking inBrazil would allow time to carry out further studies on thepotential environmental impacts of the technique. A nationalvote is expected on the legislation in 2015.16

17 http://photos.state.gov/libraries/brazil/165950/unconventional-gas-development/Unconventional-Hydrocarbon-Potnential-in-Brazil.pdfhttp://www.rigzone.com/news/oil_gas/a/130783/Brazil_Advances_in_the_Shale_Game/?all=HG2

18 http://www.eisourcebook.org/cms/Brazil,%20Exploration%20and%20Production%20of%20Oil%20&%20Gas%20Legislation.pdf

19 http://www.rigzone.com/news/oil_gas/a/130783/Brazil_Advances_in_the_Shale_Game 20 http://www.upstreamonline.com/hardcopy/news/article1320234.ece 21 http://www.reuters.com/article/2012/11/20/column-kemp-fracking-international-

idUSL5E8MK9U020121120

13 http://www.eisourcebook.org/cms/Brazil,%20Exploration%20and%20Production%20of%20Oil%20&%20Gas%20Legislation.pdf http://www.nortonrosefulbright.com/files/norton-rose-fulbright-shale-gas-handbook-108992.pdfhttp://www.panoramaofbrazilianlaw.com/index.php/%20BrLaw/article/download/7/12

14 http://www.eia.gov/todayinenergy/detail.cfm?id=13771 15 http://www.eia.gov/countries/cab.cfm?fips=br 16 http://www.sidley.com/09-02-14-The-Sidley-Shale-and-Hydraulic-Fracutirng-Report/

http://www.omm.com/current-developments-affecting-hydraulic-fracturing-operations-09-02-2014/


1988

1995

August 06, 1997

August 02, 2010

December 22, 2010

April 11, 2014

August, 2014

Article 176 Brazilian Constitution(ownership of hydrocarbons)

Amendment of Article 177(co-operation contracts allowed)

Law No. 9,478 (the Petroleum Law)

Law No. 12,304 (Pr-Sal Petrleo/PPSA Law)

Law No. 12,351 (the Pre-Salt Law)Resolution No. 21/2014

(Regulation of Hydraulic Fracturing inUnconventional Reservoirs)

Bill on Five-Year-Moratorium


NoYes

X


Shipyard with the manufacture of Petroleum Ferry in Manaus - Amazonas Brazil. guentermanaus/shutterstock



Guarani Aquifer

The Parna shale basin25 overlaps a large section of the GuaraniAquifer, one of the worlds largest aquifers. This naturalresource, which extends into Argentina, Paraguay and Uruguayis governed by the unique Guarani Aquifer Agreement (GAS),signed by the four countries in August 2010, with all four partiesundertaking to protect its sustainable common use and respectthe obligation of not causing significant harm to the otherParties or the environment.26

The So Paulo Declaration on the Management of the GuaraniAquifer System highlights the potential threats posed to theaquifer due to changes in land use, increase in population, andclimate effects.27 Furthermore, the Group of Experts encouragesthe governments of the four countries to follow up theratification process of the Guarani Aquifer Agreement,highlighting the relevance of its Article 4: The Parties shallpromote the conservation and environmental protection of theGuarani Aquifer System so as to ensure multiple, reasonable,sustainable, and equitable use of its water resources.28

Environmental groups have raised concerns that fracking couldlead to the risk of groundwater contamination in the vicinity ofthe Guarani Aquifer.29

the americas

Status of development

Under the 12th Licensing Bid Round in 2013, 240 concessions,including unconventional reservoirs, were made available for oiland gas exploration and exploitation. Of the 240 blocks madeavailable, 72 blocks were auctioned off. Of these, 49 werepurchased by Petrobras, the state-owned oil company.18 The Frenchcompany GDF Suez now owns six blocks, through two consortiawith the Brazilian companies Petrobras and Cowan Petroleo e Gas.19

Shell is hoping to drill in the state of Minas Gerais, working inpartnership with Brazils Petra Energia, and has said its ambitionis to lead way for fracking in the So Francisco basin.20 PetroEnergia had discovered gas in tight sandstones and carbonates in12 of the 14 wells drilled. It has teamed up with the internationalcompany Frac Tech (FTSI), a leading supplier of frackingequipment, to access services to develop the So Francisco andRecncavo basins. These shale resources were not included in theEIA assessment of Brazils estimated shale potential.21

The involvement of foreign companies in bids to exploit Brazilsoff-shore oil fields have fuelled street protests.22 Petrobras hasformed a consortium with Shell, Total, and the Chinesecompanies CNOOC and CNPC to develop the concession. Thesize of the off-shore findings has made it a government priority,putting shale gas developments on the backburner.23

Some states have even introduced fracking bans. In Paranstate, a fracking ban was upheld by a court decision in June2014, which might affect concessions held by Petrobras andPetra Energia24 and potentially slow the overall pace of shale gasand oil development in Brazil.

25 http://www.eia.gov/countries/analysisbriefs/cabs/Argentina/images/Shale%20Gas%20Basins%20of%20Southern%20South%20America.gif

26 http://www.globalwaterforum.org/wp-content/uploads/2013/09/The-Agreement-on-the-Guarani-Aquifer_Cooperation-without-conflict_GWF1334.pdf

27 http://webworld.unesco.org/water/wwap/news/pdf/SAG_eng_30April_USP.pdf 28 http://www.cepas.net.br/images/eventos/cisag2011/cigsag_carta_sao_paulo_en.pdf 29 http://www.omm.com/current-developments-affecting-hydraulic-fracturing-operations-

09-02-2014/

22 http://m.aljazeera.com/story/2013102244618284582 .pdf 23 http://f.datasrvr.com/fr1/314/48797/Shale_Gas,_an_International_Guide_v3.pdf 24 http://www.guardian.co.tt/business/2014-08-28/brazil%E2%80%99s-lower-house-

considers-fracking-banhttp://www.shalemarkets.com/brazils-lower-house-considers-fracking-ban-brazil-south-america-201408234276/

Environmental, ecological and social impacts / conflicts very likely or already existing

Yes


Source(s) of existingconflicts / occurredincidents:

Source(s) of likelynew/further conflicts

Concessions overlapping sensitive areas(territory of indigenous people,rainforests, transboundary aquifers).

Water contamination and unsustainableuse (also of transboundary aquifers) /Further loss of rainforests throughindustrialization of the targeted areas / Further endangerment ofindigenous people.

source(s) of conflicts

Exploration phase Exploitation / Production phase

X -

Status of development17


FRACKING

FRENZY

The risks are considerable. Scientific studies have consistentlyshown what seems to be an inherent tendency for shale oil andgas wells to fail, generating a significant risk of methane andfracking chemicals leaking into ground and surface water. Onaverage, 6.2% of unconventional wells in Pennsylvania werefound leaking.30 The cumulative consequences of similar levelsof leakage in wells near the Guarani Aquifer would bedevastating for the water resources of the entire region iffracking was allowed.

Concessions overlapping indigenous territory

The concessions awarded for the development ofunconventional fossil fuels in Acre in the Amazon basin aresituated in the middle of indigenous lands. Large parts of theAmazon basin are classified as a conservation area,31 includingareas adjacent to the areas licensed for shale development.32

Shale exploration in the Amazon will add to existing pressureson the forests, in an area that has already suffered from highlevels of deforestation as a result of ever-growing demand forland.33 The geology of the Amazon basin is complex, but isconsidered to have significant oil and gas resources.34 The finaldeclaration of the World Indigenous Peoples Conference onTerritories, Rights and Sustainable Development, which tookplace in Rio in 2012, called on the UN, governments andcorporations to abandon false solutions to climate changesuch as hydraulic fracturing which endanger the future of lifeas we know it.35

Instead of helping to reduce global warming, they poison anddestroy the environment and let the climate crisis spiralexponentially, which may render the planet almost uninhabitable.36

Opposition to the development of shale gas & oil

There is a moderate level of anti-fracking activism in Brazilaccording to the 2012 Global Anti-Fracking Movement report,37

and a minor to moderate political and security risk. However, aswith everywhere else in the world, the anti-fracking movementin Brazil is growing, with a number of initiatives from citizens,environmental groups, indigenous people, workersorganisations, officials and political decision makers. Recentpolitical developments to introduce a moratorium suggest thatthe political risk for shale gas investment in the country hasincreased since the 2012 report.

For example, a group has been set up in Paran Paran semFracking to oppose all fracking in the state,38 while somemunicipalities such as Toledo have opposed the development offracking in their region.39 The National Association of BrazilsEnvironmental Specialists and Civil Servants (ASIBAMA Nacional- Associao Nacional dos Serv. Carreira de Especialista em MeioAmbiente e PECMA) is also opposed to fracking in Brazil and issupporting the call for a moratorium.40

Opposition to the developmentof shale gas / oil

Yes

Opposit ion to the development

30 http://www.pnas.org/content/early/2014/06/25/132342211131 http://policymix.nina.no/portals/policymix/Images/Case%20studies/Brazil/Mapa1_

LegalAmazon.jpghttp://raisg.socioambiental.org/system/files/ENGLISH-reduzido.jpg

32 http://assets.geoexpro.com/uploads/a642b73d-6845-4d21-bce8-54e 8da70c4cc/map.jpg 33 http://www.whrc.org/news/pressroom/PR-2013-Coe-IOP-ERL_No-

win_situation_for_agricultural_expansion_in_the_Amazon.html 34 http://www.ogj.com/articles/print/volume-109/issue-10/exploration-development/shale-

gas-oil-minerals-processing-offer-synergies.html 35 http://www.ienearth.org/kari-oca-2-declaration/ 36 http://www.ienearth.org/kari-oca-2-declaration/ 37 http://www.controlrisks.com/~/media/Public%20Site/Files/Oversized%20Assets/

shale_gas_whitepaper.pdf 38 https://pt-br.facebook.com/paranasemfracking39 http://www.toledo.pr.gov.br/noticia/toledo-se-une-em-manifesto-contra-o-fracking 40 http://www.asibamanacional.org.br/wp-

content/uploads/2013/09/Resolu%C3%A7%C3%A3o_petr%C3%B3leo_ingles.pdf

Mato Grosso deforestation. Pedro Biondi/ABr/commons.wikimedia.org


the americas

Argentina is heavily dependent on fossil fuels, and the countryseconomy is dependent on the oil and gas sector. In 2011, thecountry had an energy balance deficit of US$ 3.4 billion1,leading it to embrace the development of shale oil and gasfollowing the discovery of significant deposits in the Loma deLata field in Nequn province in 2010. There are a number ofconcerns about the environmental and social impacts offracking, particularly concerning the demand for water, and theviolation of indigenous peoples territory rights.

argentina c

3

Argentina shale gas reserves & water-stressed REGIONS

Sources: World Resource Institute, 2014 & US EIA, 2013, Swedish Water House.

CH I LE

BOLIVIA

BRAZI L

PARAGUAY

U RUGUAY

12

3

5

4

6

7

BU ENOS AI RES

USH UAIA

RO GALLEGOS STAN LEY

COMODORO R IVADAVIA

RAWSON

VI EDMA

N EUQUN

SANTA ROSA DE TOAY

BAHA BLANCAMAR DEL PLATA

LA PLATA

PARAN

ROSARIO

SANTA FE COMODOROCR DOBA

RO CUARTO

SAN LU ISMEN DOZA

SAN J UAN

LA R IOJA

CATAMARCASANTIAGO DEL ESTERO

FORMOSA

R ESISTENC IA

COR RI ENTES

POSADAS

SAN MIGU EL DE TUCUMN

SALTA

SAN SALVADOR DE J UJ UY

S O U T H A T L A N T I C O C E A N


A R G E N T I N A

1

C HACO PARANAENSE2

CUYANA3

C LAROMEC4

N EQU ENA5

GOLFO DE SAN JORGE6

AUSTRAL7

SHALE GAS RESERVES

PROSPECTIVE BASI NS

NOROESTE

MEDI UM TO H IGH

H IGH

EXTR EMELY H IGH

AR I D & LOW WATER USE 28%

WATER-STRESSED REGIONS

LOW 62%

LOW TO MEDI UM 10%


1 https://www.foeeurope.org/sites/default/files/publications/shalegas_heading_south_june2014.pdf

2 http://www.eia.gov/analysis/studies/worldshalegas/pdf/fullreport.pdf3 http://www.eia.gov/analysis/studies/worldshalegas/ 4 http://www.chevron.com/chevron/pressreleases/article/07162013_

chevronargentinasypfsignaccordtodevelopvacamuertashale.news 5 http://www.nortonrosefulbright.com/files/norton-rose-fulbright-shale-gas-handbook-

108992.pdf6 http://www.state.gov/s/ciea/ugtep/

http://www.doi.gov/intl/itap/ugtep.cfmhttp://www.eia.gov/analysis/studies/worldshalegas/#3Other U.S. government agencies that participate in the UGTEP include: the U.S.Department of Energys Office of Fossil Energy (DOE/FE); the U.S. Agency for InternationalDevelopment (USAID); the U.S. Department of Interiors U.S. Geological Survey (USGS); U.S.Department of Interiors Bureau of Ocean Energy Management (BOEM); the U.S.Department of Commerces Commercial Law Development Program (CLDP); and the U.S.Environmental Protection Agency (EPA). The U.S. Department of the Interiors (DOI)

International Technical Assistance Program (ITAP) is also involved in SGD across the globeand helps to organize workshops

7 http://www.longtailpipe.com/2014/02/state-department-pushes-fracking-and.htmlhttp://docs.house.gov/meetings/FA/FA07/20130411/100622/HHRG-113-FA07-Wstate-GoldwynD-20130411.pdf

8 http://www.haynesboone.com/files/Uploads/Documents/Argentina%20presentation%201.21.pdfhttp://www.nortonrosefulbright.com/files/norton-rose-fulbright-shale-gas-handbook-108992.pdfhttp://f.datasrvr.com/fr1/314/48797/Shale_Gas,_an_International_Guide_v3.pdfhttps://www.foeeurope.org/sites/default/files/publications/shalegas_heading_south_june2014.pdfhttp://ungi.mines.edu/vm.htmlhttp://geology.mines.edu/Vaca_Muerta/index.html http://www.eia.gov/analysis/studies/worldshalegas/pdf/fullreport.pdf

9 http://www.nortonrosefulbright.com/files/norton-rose-fulbright-shale-gas-handbook-108992.pdfhttp://f.datasrvr.com/fr1/314/48797/Shale_Gas,_an_International_Guide_v3.pdfhttp://www.ypf.com/enu/InversoresAccionistas/Documents/Presentations/29-08-2013-Presentation-YPF.pdf

Technically recoverable resources2


27

(bcm)

22,710

Shale gas(tcf)

802

Worldranking3

Shale oil

4

Shale gas

2



According to EIA estimates, Argentina has the worlds secondlargest reserves of technically recoverable shale gas, with anestimated 802 tcf (22,710 bcm). The country also has anestimated 27 billion barrels of technically recoverable shale oilresources, the fourth largest shale oil reserves identified.

In July 2013, the first big investment joint venture wasannounced in the Vaca Muerta area, in Neuqun province. Thepartly re-nationalised Argentine oil company YPF (YacimientosPetrolferos Fiscales) has formed a partnership with the UScompany Chevron to develop some projects to extract theestimated 308 tcf (8721 bcm) of shale gas and 16 billion barrelsof oil located there.4 The Vaca Muerta shale basin covers some30,000 km in Neuqun province, making it one of the largestshale basins outside of the U.S.5

Targeted by UGTEP

Argentina is not an official partner of the US UnconventionalGas Technical Engagement Programme (UGTEP). However, thecountrys substantial shale potential and existing infrastructureare already attracting significant foreign investment in shale oiland gas development. UGTEP lists Argentina as a target countryfor diplomatic engagement or regional workshops in 2014 andit is likely to have had some contact with the program.7

Targeted by / Listed as partner of the USUnconventional Gas Technical EngagementProgramme (UGTEP)

Yes

UGTEP - Targeted By / L isted as Partner6


Vaca Muerta Consortium,(Chevron, Shell, Halliburton,Pluspetrol, Weatherford), Total,ExxonMobil, Dow Chemical, Pan American Energy (CNOOCLtd., Bridas Corp., BP), Petrobras, Wintershall


YPF S.A. (Yacimientos Petrolferos Fiscales), GyP, (Gas & Petrleo de Neuqun)



Yes

X

No Yes

X

No

State Private

X

Resource ownership9

FRACKING

FRENZY


Under provincial law, some areas may be explicitly reserved forexploration/exploitation by state-owned companies.International oil and gas companies therefore have to sign ajoint venture contract in order to develop shale oil and gasexploration and/or exploitation in Neuqun.

New legislation & legal framework

The partial re-nationalisation of YPF, which has cost theArgentine people at least US$ 5 billion in compensation to theprevious owner, Repsol,11 follows the establishment, in May2012, of the Hydrocarbon Sovereignty law (Law No. 26,741),through which the Argentine Government has attempted toregain control over the energy sector and increase staterevenues. This legal change allows the state to press ahead withoil and gas development, including through joint ventures withstrategic partners, with a view to securing self-sufficiency inhydrocarbons.12 This has been declared as being in the publicinterest and a priority for the country.13

the americas

Resource ownership

Under the Argentine Hydrocarbon Law (No. 17,319), oil and gasfields belong to the national government, although the right togrant exploration permits and exploitation concessions has beengiven to the provinces under Law No. 26,197 (Short Law) in 2007.Once extracted, the oil and gas belong to the extracting company.

In Neuqun province, holders of exploration rights cantransport, process and market the extracted hydrocarbons aslong as they respect the general right of the Province to receivea share of the hydrocarbons produced (Article 12 ofHydrocarbons Law No. 2,453 of Neuqun Province).

The YPF oil company was recently partly re-nationalized, with51% of its shares held by the national state and provincialgovernments. However, YPF remains a corporation and is notsubject to any legislation or regulation applicable to nationalentities or state-owned companies. It holds the rights to mostof the unconventional oil and gas potential in Neuqun, inpartnership with the provincial Gas y Petrleo de Neuqun.

11 http://articles.chicagotribune.com/2014-05-09/business/sns-rt-us-repsol-20140509_1_repsol-spanish-oil-ypfhttp://www.laht.com/article.asp?ArticleId=1860993&CategoryId=14093 http://latino.foxnews.com/latino/politics/2014/04/24/argentine-congress-oks-settlement-with-spain-repsol-over-ypf/

12 http://www.haynesboone.com/files/Uploads/Documents/Argentina%20presentation%201.21.pdf 13 https://www.foeeurope.org/sites/default/files/publications/shalegas_heading_south_june2014.pdf

10 http://www.nortonrosefulbright.com/files/norton-rose-fulbright-shale-gas-handbook-108992.pdfhttp://f.datasrvr.com/fr1/314/48797/Shale_Gas,_an_International_Guide_v3.pdfhttp://www.haynesboone.com/files/Uploads/Documents/Argentina%20presentation%201.21.pdfhttp://latinvex.com/app/article.aspx?id=1227http://www.pagbam.com.ar/newsletters/OilGas/Energy_Newsletter_-_April_2013_n_55


1994

2007

May 2012

2013

2014

Law No. 17,319 (Hydrocarbons Law)

Law No. 26,197 (the Short Law)

Law No 26,741 and Regulatory Decree No.1,277/2012 (Hydrocarbon Sovereignty/YPF-Law)

Resolution 1/2013 (Programme for theStimulation of Surpluses of Natural Gas Injection)

Resolution No. 130/2013 (Argentine Hydrocarbon Fund US$2 billion)

Executive Decree No. 929/2013 (creates promotionalsystem for investment Chevron Decree)

Hydrocarbons Law No. 2,453 of the Province ofNeuqun (Law)

Provincial Executive Order No. 3,124implementing Hydrocarbons Law No. 2,453 ofthe Province of Neuqun

Provincial Executive Order No. 1,447

Law No. 33.001 (New National Hydrocarbon Law)


NoYes

X



FRACKING

FRENZY

In February 2013, the Commission for Strategic Planning andCoordination for the National Hydrocarbons Plan issuedResolution 1/2013 which included a Programme Intended toFoster Natural Gas Excess Injection and guaranteed:

A minimum price of US$ 7.50 per million unit (MMBTU) forall additional sales to the Argentine market (above aquarterly adjusted base supply); and

A minimum price of US$ 2.30 per unit for all sales within thebase injection levels. The base level is put forward bypotential producers and is usually based on the 2012average for production.14

Given that the average price for incremental sales waspreviously approximately US$ 2.80 per unit, the new minimumguaranteed price has been increased by a factor of almost three.This reflects the shale gas industrys dependence on high pricesto make their capital-intensive projects economically viable. Italso shows that shale gas development does not necessarilymean that gas prices will fall.

In April 2013, the Ministry of Economy and Public Financecreated Resolution 130/2013, known as the ArgentineHydrocarbon Fund, which has been set up with US$ 2 billion tofinance exploration and/or exploitation and marketing ofhydrocarbons, provided that the Argentine state is ashareholder or has voting or economic rights in the applicant oiland gas company.

A new financial framework, the so-called Chevron decree,creates a supportive framework for investment in the oil andgas industry, recognising that companies need long timecontracts, guaranteed minimum prices and a continuous capitalflow in order to ensure the economic viability of the shale oiland gas development. The decree was signed by ArgentinasPresident Cristina Fernndez de Kirchner in July 2013, a daybefore the YPF-Chevron-deal was sealed. It encouragescompanies to invest more than US$ 1 billion over a five-yearperiod by allowing companies to trade 20 % of the extractedhydrocarbons at international prices on either the export ordomestic markets, free from export taxes. The decree alsointroduces the Unconventional Exploitation Concession, whichallows companies to develop unconventional fossil fuels inexisting concessions without going through a new biddingprocess. It also extends YPFs existing concession until 2048.15 InMay 2014, an appeals court ordered an investigation into thelegality of the Chevron Decree.16

According to Articles 10 and 22 of the provincial NeuqunHydrocarbon Law, exploration permits can be granted for 9 13years, and can cover a minimum area of 100 km and a maximumof 100,000 km (Article 23 and 24). Exploitation concessions aregranted for 25 years, with an extension option of up to 10 years(Article 34), although they can be extended if there is timeremaining under the exploration permit (Article 22).

In October 2014, the Argentine government enacted a newNational Hydrocarbon Law, incorporating explicit references tonon-conventional hydrocarbon activities to specifically promoteshale investments in the country.17 The new law establishesterms for concessions, differentiating by type of operations: amaximum of 13 years for exploration permits for non-conventional shale gas and shale oil (two periods of 4 years andan extension of 5 years), 25 years for the extraction ofconventional and 35 years for non-conventional (shale), and 25 30 years for offshore production. It also fixes - in general -provincial tax on production at 12%. A further 3% might becharged if the licence is extended. At the same time, provincescan reduce taxes to 5% to stimulate decreasing production.18

Status of devel

Fracking frenzy

Documents

Transcript of Fracking frenzy