The U.S. is “over-fracked and over-drilled,” says Royal Dutch Shell plc (ADR) (NYSE:RDS.A) (NYSE:RDS.B) executive Matthias Bichsel. “The reservoirs don’t need that many wells. The reservoirs don’t need that many stages of fracks, because not all the pieces of the rocks are as good,” he said in an interview, reports Yadullah Hussain of the Financial Post.
What is hydraulic fracturing
Hydraulic fracturing, more commonly referred to as fracking, is a controversial process that gets natural gas or petroleum from shale rock, and it has quickly turned the U.S. into a net energy exporter. If the pace of fracking continues the U.S. could even become the largest oil producing nation in the world, but critics say this has come at a high environmental cost. It has also put pressure on natural gas prices, reducing the expected profits from many of the wells.
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As with other drilling operations, quality and profitability varies from well to well. While environmentalists may try to take his comment out of context, he probably just means that there are a number of low-quality sites being used, and that the price pressure is harming everyone’s margins.
Shell’s Director on fracking effects
But this could still be a powerful argument for people who want to restrict the growth of fracking. Right now the debate has been between those who say the environmental damage is too great and those who think the U.S. must strive towards energy independence. But if the business argument for fracking evaporates then it will much easier to prevent new sites from opening up. That’s probably not the effect that Royal Dutch Shell plc (ADR) (NYSE:RDS.A) (NYSE:RDS.B)’s project and technology director intended to have, but no one should be surprised when his quote shows up in issue advocacy ads.
Public protest is already disrupting fracking operations in other countries. Chevron Corporation (NYSE:CVX) announced this week that it had halted exploration in Romania in response to public protest, and growing protests in Ukraine could force a similar response, even though it has all of its permits in order in both countries. With so much public pressure to halt the practice, forcing the energy industry to be pickier about which sites are really attractive for exploration might not be the worst idea.