Will the energy industry get fracking right? The future of natural gas depends on it

Natural gas is quickly becoming a big chunk of the energy mix, with onshore natural gas extraction techniques like hydraulic fracturing, or “fracking,” playing a significant role in the shift from coal and nuclear power to alternative sources of energy. Elevated scrutiny of fracking practices means that even a small number of highly publicized accidents could compromise the entire energy and utility industry’s future plans.

As attention in the U.S. turns to fracking, corporate leaders need to reevaluate the methods required to prevent worst-case scenarios.

{mosads}1. Better understand the impacts of fracking. The understanding of environmental and social impacts of this extraction method is evolving. Better real-time data from active wells, by using methane sensors to detect fugitive emissions or by analyzing wastewater for toxins, is critically needed. With a more thorough understanding of the ongoing impacts — to air, water and soil — across all phases of the extraction process, a company can start to focus its attention and resources accordingly.

2. Fully disclose these impacts to industry and the public in a fair and unbiased way. New state requirements to disclose the impacts of fracking are emerging. Texas, for example, is the first to require disclosure of the chemicals used at each well. New York is evaluating lifting its fracking moratorium while establishing provisions for “rigorous and effective protections,” which would include disclosure of impacts. Pennsylvania is updating the regulations that govern well construction and water use to improve safety while also requiring disclosure of the chemicals used. On a national scale, in its first broad statement about fracking, the Obama Administration recently announced that fracking procedures must be closely monitored and a list of chemicals disclosed to the public.

Investors are also pressuring energy companies to disclose impacts. Shareholder resolutions on fracking fluid disclosure have fallen short of passing but gained high levels of support: 28.2% at ExxonMobil, 40.5% at Chevron, 41.7% at Ultra Petroleum and 49.5% at Energen Corporation.

Whether through legislative mandates, shareholder resolutions or public pressure, disclosure will be required in the future. The choice for corporate leaders is either to wait for these regulations to impact business and scramble to meet them or to get ahead of disclosure requirements. The recent industry association decision to disclose a subset of fracking chemicals is an indication of the direction the industry is moving.

3. Collaborate with others (in the industry and beyond) to create innovative solutions. Corporate executives need to consider perspectives from experts outside their companies. By incorporating objective criticism from policymakers, academics and nonprofits, companies can better predict and plan for highly improbable risks.

Once impacts are understood and disclosed, the next step is to solve the challenges presented by the rapid commercialization of fracking technology. An effective approach to solving large-scale challenges is open innovation (e.g. GE’s ecomagination Challenge). Open innovation can facilitate crowd-sourcing of solutions from across the globe. The facilitating company might either partner with or acquire the start-ups or inventions that emerge. Once solutions are identified, a company should work collaboratively with customers or partners to pilot and then scale solutions.

4. Nurture the next generation of innovators. With challenges to solve on fracking, it is critical to get the next generation of innovators working on our toughest energy problems.

Since many consider natural gas a lynchpin of our energy future, one way to foster innovation is through more sponsorships of natural gas research or fellowships at universities to draw talent to the field. Internally, companies can allow employees to allocate a portion of their time to work on any project they like. Companies like Google and 3M have profited from this tactic, which bolsters innovation and talent retention. By nurturing innovation a company may find a commercially viable and disruptive solution.

The high level of public interest in fracking and its potential environmental impact over large areas, particularly in the U.S., demands a fresh and comprehensive look at the industry’s risk assessment and mitigation planning. Companies could benefit greatly from taking the steps outlined here with the objective of developing more transparency and the most inherently safe methods of long-term operation. Companies need not wait for the threat of competition from early adopters or imminent state and federal regulations to begin their adoption of a comprehensive approach.

Beth Lowery is Senior Knowledge Leader, Environmental Responsibility at LRN, a company that helps businesses develop ethical cultures and inspire principled performance. David Gottesman, Senior Analyst and Sylvia Stone, Summer Marketing Analyst of GreenOrder, an LRN Advisory Group, also contributed to this article.