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Home , Hydraulic fracturing, Unconventional gas

Unconventional gas and Issue briefing .com/sustainability and hydraulic fracturing Issue briefing 2 How we operate At BP, we recognize that we need to produce energy responsibly – minimizing impacts to people, communities and the environment.

We operate in around 80 countries, and our systems of governance, management and operation are designed to help us conduct our business while respecting safety, environmental, social and financial considerations. Across all BP operations, established practices support the management of potential environmental and social impacts from the pre-appraisal stage through to the operational stage and beyond – reflecting BP’s values, responsibilities and local regulatory requirements. BP’s operating management system integrates BP requirements on health, safety, security, social, environment and operational reliability, as well as maintenance, contractor relations, compliance and organizational learning into a common system. BP participates in a number of venture operations, such as in Algeria and Indonesia, to extract unconventional gas. Some of these are under our direct operational control, while others not. When participating in a joint venture not under BP control, we encourage the operator of the joint venture, through dialogue and constructive engagement, to adopt our practices.

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Cover image BP’s gas well drilling site in, Wamsutter, Wyoming, US.

The BP Annual Report and Form 20-F may be downloaded from bp.com/annualreport. No material in this document forms any part of those documents. No part of this document constitutes, or shall be taken to constitute, an invitation or inducement to invest in BP p.l.c. or any other entity and must not be relied upon in any way in connection with any investment decisions. BP p.l.c. is the parent company of the BP group of companies. Unless otherwise stated, the text does not distinguish between the activities and operations of the parent company and those of its subsidiaries. Unconventional gas and hydraulic fracturing Issue briefing 3 BP and unconventional gas , including gas from unconventional reservoirs, has an increasingly important role in meeting the world’s growing energy needs.

BP is working to responsibly develop and What is unconventional gas? What is hydraulic fracturing? produce natural gas from unconventional Conventional natural gas comes from Hydraulic fracturing (sometimes referred resources including gas, ‘tight’ gas permeable reservoirs, typically composed to as ‘fracking’) is the process of pumping and bed – at our operations of or , where extraction water, mixed with a small proportion of in the US, Algeria, Indonesia and Oman. is relatively straightforward because the and chemicals, underground at a high More than 80% of our onshore natural gas gas generally flows freely. In contrast, enough to split and keep open production is from unconventional resources. unconventional gas is situated in rocks with the rock and release natural gas that would We believe these resources have the extremely low permeability, which makes otherwise not be accessible. This process potential to contribute safely, sustainably extracting it much more difficult. New has been applied since the late 1940s when and affordably to global energy security and enhanced applications of , now part of BP, performed some of and efforts to reduce the emissions of existing techniques are making it possible the first treatments in the Hugoton greenhouse gases from energy use. for BP to extract these unconventional field in . By our estimates, natural gas is likely natural gas resources safely, responsibly and The fracturing operation results in to meet around 26% of total global energy economically. The combination of horizontal a significant increase in the surface area demand by 2030. By then, it is projected wells, for example, and hydraulic fracturing exposed within the formation – from 1,000 that over half of US natural gas will come have been key to unlocking unconventional to 100,000 times more. This means it is from unconventional sources. gas reserves in the US and elsewhere. possible to produce natural gas reserves that could not otherwise have been reached.

US Algeria Oman Indonesia Stakeholder concerns Some stakeholders have raised concerns about the potential environmental and community impacts of hydraulic fracturing during unconventional gas development. BP recognizes these concerns and seeks to apply responsible well design and BP has unconventional gas operations in four global locations. construction, surface operation and fluid handling practices to mitigate these risks. We also believe that it is important to explain Hydraulic fracturing process our plans to local communities, listen to Recovered water is their concerns and answer their questions. Water tankers stored in lined pits and/or tanks Well publicized media and community Fracturing fluid is concerns about unconventional gas pumped into the production in the US have led to close well head Waste water is recovered regulatory scrutiny and a similar situation for treatment, reuse is emerging in the European Union. or disposal BP is advocating for regulations based on the best-available science and sound technical practices. We believe hydraulic fracturing can be done safely and responsibly Storage tanks Water table and that these techniques are important for the development of secure energy sources.

Well is isolated with cement

7,000 ft

Fissure

Shale Well

Gas flows along well from Unconventional gas and hydraulic fracturing Issue briefing 4 Managing water and other fluids Hydraulic fracturing uses water and other fluids, which need to be sourced, managed and disposed of appropriately.

Can natural gas and drilling fluids enter underground water sources due to the fracturing process? No – not if the well has been properly engineered and constructed. BP wells and facilities are designed, constructed, operated and decommissioned to mitigate the risk that natural gas and hydraulic fracturing fluids enter underground aquifers, including drinking water sources. For example, we install multiple layers of steel into the natural gas well and cement these above and below any freshwater aquifers. We test the integrity of our wellbores (the hole that is drilled to form the well) before beginning the fracturing process and again when work at the well reaches completion. We monitor the integrity of the well throughout its production life. In the US, we conduct baseline water quality testing of nearby registered drinking water wells before drilling starts and share the results of these tests with local landowners. Pumping water at one of our hydraulic fracturing operations. The business operates more than 10,000 producing In 2011, researchers at the gas wells across seven US states. Massachusetts Institute of (MIT) examined 43 widely-reported onshore Doesn’t fracturing use a lot of water? Are the chemicals used in the fracturing gas well drilling incidents in the mainland Several million gallons of water are process hazardous? US between 2005 and 2009. They found needed to drill and fracture some types Water and sand constitute on average no conclusive evidence that shallow of unconventional gas wells. This has 99.5% of the injection fluid. This is mixed water zones had been contaminated led to concerns being raised about the with chemicals to create the fracturing fluid with hydraulic fracturing fluids during water extraction, transportation and that is pumped underground at high pressure any of these incidents.1 usage, particularly in areas experiencing to fracture the rock with the sand propping Naturally occurring methane, a water shortage. the fractures open. , is often found close We are trialling a number of water-saving The chemicals used in this process to the surface and within aquifers. To innovations to minimize the amount of fresh help to reduce friction and control bacterial minimize the risk of methane interacting water used in our drilling and hydraulic growth in the well. They are mixed in a with underground drinking sources, we fracturing operations, including new variety of ways depending on the operational conduct geological studies of our natural technologies that could make it possible for needs of each fracturing operation. Some gas production sites prior to drilling. us to treat water used in fracturing for re-use of the chemicals are classified as hazardous in our operations. We are also supporting materials, as are the constituents of many research and development with universities, everyday products when in concentrated such as Texas A&M and the MIT, to identify form. Each chemical used in the fracturing “ The production subcommittee and test new technologies that can be process is listed in the material safety shares the prevailing view that the risk applied for water treatment purposes. data sheets at each site, which detail safe of fracturing fluid leakage into drinking We think it is important to consider dosage limits. water sources through fractures made water usage across the entire lifecycle of We take part in a number of voluntary in deep shale reservoirs is remote.” these resources from production through to disclosure efforts and we make public converting the resources into energy. Natural information about chemicals used to the US Department of Energy gas-fired power plants use significantly less extent allowed by our suppliers, who own water per unit of energy produced when the chemical formulas. For example, we Secretary of Energy Advisory compared with coal plants. For example, submit data on chemicals used at our Board, Ninety Day Report a report by the US Department of Energy hydraulically fractured wells in the US (August 2011) found that natural gas-fired combined-cycle at FracFocus.org. gas turbines use about half as much water as coal-fired plants. MIT also found that the water intensity of shale gas ranks among the lowest of all fuel sources. 1 US Department of Energy, ‘Energy Demands on Water Resources’ (2006) Unconventional gas and hydraulic fracturing Issue briefing 5

Where does the water and hydraulic In the US, we are developing a water fracturing fluid used in the fracturing management model to help determine the process go? most economically and environmentally The main method of handling water that efficient means of managing water in our flows back from the well is to re-inject it into unconventional gas projects and operations. underground formations that are thousands The model, covering areas such as how of feet beneath and isolated from drinking water is sourced and how it is transported, water aquifers. treated and disposed, is scheduled to be When underground re-injection is not field tested in 2013. viable, we explore other options including treatment of the water to regulatory standards. BP is also researching water treatment technologies to improve the opportunities for reuse within our operations. In cases where re-injection or treatment is not feasible, we use evaporation ponds to allow the water to naturally evaporate. BP puts impermeable clay or heavy duty polyethylene liners into our ponds to contain the liquid and prevent it from seeping into the soil. BP’s gas well site in Durango, Colorado, US, where we’ve operated for 30 years.

Water management model Looking across the water lifecycle

Surface water Treatment/re-use (e.g. municipal, lakes, rivers)

Evaporation ponds Ground water al S s ou o rc p Re-use of Underground injection is in D g fracturing water

Produced water

Water

S n t o o ti Pipeline r a ag rt e po ns Water tanks Tra Rail

Direct use (no storage) Trucks Unconventional gas and hydraulic fracturing Issue briefing 6

Air quality and greenhouse gas emissions New studies can help inform our management of air quality and the greenhouse gas footprint of natural gas operations.

What about the and How do you do this? We are working with regulators and greenhouse gas emissions associated Where feasible, we seek to use: our industry to reduce emissions. For with unconventional gas development? • Natural gas or electricity instead of example, BP is a charter partner in the Air emissions during drilling and hydraulic more carbon-intensive conventional US Environmental Protection Agency’s fracturing operations are mostly from the fuel sources to power operations at (EPA) Natural Gas Star programme, a engines powering the equipment and are sites where these energy sources are voluntary initiative focused on practices similar to those emitted by highway trucks. readily available and affordable. to reduce and we These emissions occur for the relatively • ‘Green completion’ techniques which actively support the EPA’s Global Methane short time required to drill and fracture a recover natural gas as a product, to Initiative. We are sponsors of and active well. Greenhouse gas emissions during minimize the amount of natural gas participants in the World Bank’s Global Gas these operations are mostly either flared or vented from our wells. Flaring Partnership which seeks to reduce emissions from fuel combustion. • Infrared cameras to help us to locate flaring globally. We continue to evaluate During completion of a well, emissions and fix operational leaks more quickly the lessons being learned from these can occur during the flow-back following and reduce emissions from fugitive leaks. programmes to see whether we can hydraulic fracture and may include vented • Lower-sulphur fuels where available for apply them to our operations globally. gases and pollutants from flaring which the engines of our drilling rigs and are similar to those from the normal use of hydraulic stimulation equipment which gas as a fuel. Emissions during production reduces sulphur dioxide emissions. include both vented and fugitive • Pipelines to reduce emissions from gas, and the normal pollutants from use transportation by reducing the need of natural gas as a fuel. Greenhouse gas for truck transport. Above image: emissions during these phases include BP’s drilling operation both methane and carbon dioxide. We also reduce transportation emissions in Wamsutter, Wyoming, US. We aim to minimize air pollutant by automating some operations (meaning and greenhouse gas emissions by using that fewer site visits are required) and by responsible practices and controls at our transporting chemicals in dry rather than operating sites. liquid form, taking up less space on trucks. Unconventional gas and hydraulic fracturing Issue briefing 7

Is natural gas as ‘climate friendly’ onshore natural gas assets are about a third available and cost-effective option for as publicized? of the level estimated by the US EPA for reducing greenhouse gas emissions Questions have been raised about the methane emissions from the US onshore per unit of energy produced. greenhouse gas emissions associated with natural gas production segment. We To continue to gain a better the lifecycle of natural gas development, believe that onshore understanding of the greenhouse gas particularly methane emissions during and gas resources can be developed with footprint of natural gas development, BP production and transportation to market. greenhouse gas footprints equivalent to is working with other companies and trade We believe that methane emissions other types of oil and gas development. organizations, the US EPA, and others to from natural gas development, particularly Natural gas has the lowest greenhouse gather data and measurements to more from production, are overestimated by gas emissions of any when burnt. accurately estimate emissions from the some US studies. We have inventoried When used for power generation, gas natural gas value chain. and managed methane and hydrocarbon produces about 50-60% less greenhouse emissions from our US onshore natural gas emissions than coal per unit of electricity gas operations for more than a decade. generated. The substitution of coal-fired Methane emissions from our operated US power generation with gas is a readily

Does hydraulic fracturing cause earth tremors? hydraulic fracturing could induce seismicity equivalent to the Before conducting work, BP assesses the potential risks of induced vibrations of trucks. seismicity (including minor and tremors caused by We evaluate industry-recommended guidance for avoiding human activity) resulting from our operations – for example, by and we apply these practices to our operations identifying natural faults in the local area. This analysis informs as appropriate. We are working with others in the oil and gas our development plans for drilling and hydraulic fracturing activity. industry to ensure that state-of-the-art knowledge and practices Hydraulic fracturing creates microseismic events, but the are put to use throughout our industry. magnitude of these is generally too small to be detected at the BP is a participant in an American Institute interest surface according to the Assessing the environmental risks from group which is examining the perceived risks of induced seismicity shale gas development study by the Worldwatch Institute. In and is developing educational tools to inform regulators and the rare cases when factors such as activating existing faults exist, public on this subject.

Pump trucks at BP’s fracturing operations, Khazzan-Makarem field, Oman. Unconventional gas and hydraulic fracturing Issue briefing 8

Managing community impacts We consider the potential impacts of our operations on the local environment, society and economy.

How can unconventional gas extraction We provide information about our activities impact the local community? to the public, and we identify and respond One way we engage with our local Most oil and gas development in the past to concerns and consequences. We also community is through community 50 years has occurred in rural areas or in maximize our local hiring and provide advisory panels. For example, the areas with a history of oil and gas production. workforce training about maintaining a Durango Citizen Advisory Panel, in the The recent development of unconventional positive relationship with local communities. La Plata County in Colorado, meets resources has moved energy companies We seek to design and locate our equipment every month to discuss issues of into new and often more populated areas. and manage our work patterns in ways that interest to the local community and BP. Increased traffic, noise, dust, light and reduce impact to relevant communities. Through the panel, residents can air pollution, visual impacts, disruption of We believe that people living near oil voice their concerns and based upon wildlife and habitat, and increased pressure and gas operations – and the general public their input, BP provides responses on the local infrastructure are some of the – have information about our activities and and looks for solutions. Recent topics potential impacts. These impacts can vary we commit to Good Neighbor Pledges, such have included royalties, an overview depending on the stage of the operation. as the one created by the La Plata County of local air quality management and For example, the hydraulic fracturing stage, Energy Council in the . how federal regulatory developments which typically lasts two to three months, Wherever we work, we strive to be will be implemented. is when drilling takes place and water and the local energy company; training and equipment are delivered to the site. The employing local staff and contributing to the production phase, which may last several local community. For example, we donated Above image: Pronghorn antelope decades, has minimal surface impact. $4 million to the San Juan College School of at BP’s Wamsutter Energy in Farmington, , in 2012 operations, Wyoming, US. How do we manage these impacts? to help build a new facility for students We manage these impacts in several pursuing careers in energy-related fields. ways. In the early stages of our projects, The investment is designed to help meet we assess the potential impacts of our the growing workforce development needs operations on the local communities. of the US energy industry, at a regional and We engage with those communities national level. throughout the lifecycle of our operations. Unconventional gas and hydraulic fracturing Issue briefing 9

What about the noise from the drilling and management plans to minimize any the traffic from the trucks? exposure to potential hazards. Drilling and truck traffic can raise concerns We helped pioneer the US National over noise and disturbance to the local South Texas Exploration and Production community. BP designs facilities and plans Safety Network, which brings together road, pipeline and well pad locations to limit operators and contractors to promote safety, disturbances and mitigate noise and other health and environmental improvement in impacts from drilling and truck traffic. To US onshore oil and gas operations. We are Right image: reduce the impacts from traffic, we seek to working to apply the lessons learned from Non-Executive Director apply dust suppression techniques, install this programme in our exploration and Paul Anderson (second pipelines to transfer water in places where production operations globally. from left), who is also Chairman of the safety, that is practical, and aim to minimize the ethics and environment number of kilometres driven. What happens to the animals and plants assurance committee, that live close to the operations? and BP Chairman Is it safe to work at a hydraulic fracturing site? Hydraulic fracturing operations disturb the Carl-Henric Svanberg We have issued guidance throughout BP land and can impact sensitive ecologies. (second from right) on how to drill and maintain wells to high, We design our operations with the aim on a board visit to BP’s North America consistent standards. We assess health of avoiding potential impacts. For example, Gas operations in hazards, such as noise, chemical and silica we identify and attempt to avoid impacts to East Texas, US. dust exposure. We also implement hearing sensitive species, habitats and archaeology. and respiratory protections for our workforce If such impacts are unavoidable, we seek where this is needed. Designated BP to minimize them. When this is not a viable representatives at every well site help make option, we explore means of compensation. sure that the work done by our contractors To minimize land use and reduce the conforms with BP and regulatory number of well pads, we use techniques requirements. such as placing multiple wells on a single We take road safety very seriously. Our well site. We also use construction practices drivers are required to undergo assessments that minimize the physical footprint of the and need to be trained, licensed and operations, and we carry out field studies medically fit to operate a . We limit in areas such as planting techniques and the number of hours they can work, and in topsoil storage and reuse to help us restore some circumstances we perform pre-trip the land after construction. risk assessments and develop journey Reports and publications This report is part of BP’s corporate reporting suite. We also report on our sustainability performance, and our financial and operating performance.

BP Statistical Review of World Energy June 2012 bp.com/statisticalreview

1 Introduction 36 Hydroelectricity 1 Group chief executive’s introduction 36 Consumption 2 2011 in review 38 6 Oil 38 Other renewables consumption 6 Reserves 39 Biofuels production 8 Production and consumption 15 Prices 16 Refi ning 40 18 Trade movements 40 Consumption 41 Consumption by fuel 20 Natural gas 20 Reserves 44 Appendices 22 Production and consumption 44 Approximate conversion factors 27 Prices 44 Defi nitions 28 Trade movements 45 More information 30 Coal 30 Reserves and prices 32 Production and consumption 35 Nuclear energy 35 Consumption

Sustainability Review Summary Review Annual Report and Form 20-F Oil issue briefing Statistical Review of World Energy Read the summary Read a summary of our financial Read details of our financial Read about BP’s investment The BP Statistical Review of World Sustainability Review 2011 and operating performance in and operating performance in in Canadian . Energy June 2012 reports on key in print or read more online. BP Summary Review 2011 in BP Annual Report and Form 20-F bp.com/oilsands global energy trends. bp.com/sustainability print or online. 2011 in print or online. bp.com/statisticalreview bp.com/summaryreview bp.com/annualreport

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