Fracking – Oil + Gas Monitor http://www.oilgasmonitor.com Your Monitor for the Oil & Gas Industry Mon, 15 Aug 2016 06:57:26 +0000 en-US hourly 1 https://wordpress.org/?v=4.6.9 From Fracked to Floated: The Next Chapter in the U.S. Natural Gas Story http://www.oilgasmonitor.com/fracked-floated-next-chapter-u-s-natural-gas-story/ Wed, 06 Apr 2016 13:12:12 +0000 http://www.oilgasmonitor.com/?p=11205 Patrick Haischer & Jordan Hesterman | A.T. Kearney If a revolution is defined as the overthrow of an old system in favor of a new, then the shale revolution warrants the term. We now ask: Are the first LNG cargoes from the United States just another chapter in the volatile shale revolution, or the first […]

The post From Fracked to Floated: The Next Chapter in the U.S. Natural Gas Story appeared first on Oil + Gas Monitor.

]]>
April 6, 2016
Patrick Haischer & Jordan Hesterman | A.T. Kearney

If a revolution is defined as the overthrow of an old system in favor of a new, then the shale revolution warrants the term. We now ask: Are the first LNG cargoes from the United States just another chapter in the volatile shale revolution, or the first chapter on a new and sustaining U.S.-centered global LNG marketplace?

Shale Gale 2.0: How U.S. LNG Became Relevant

Natural gas is now the fastest growing fossil fuel globally, driven by strong shale supply growth, low cost, and increasingly stringent environmental policies. Natural gas usage is projected to grow 2 percent per year over the next 20 years while oil grows at half the rate of gas and coal half the rate of oil. The United States has found itself in the right place at the right time as its ample shale gas supplies (it is by far the largest producer) and low production cost (currently second- or third-lowest on the landed cost curve to major markets) have it well positioned to serve this expanding market. It’s also worth mentioning that the United States benefits from one of the world’s most developed field-to-consumer midstream pipeline networks. Canada is a distant second shale producer, and significant shale resource exploration efforts are underway in several countries, but with only a small minority—including Algeria, Australia, and Russia—developing gas with the primary intentions of exporting. chart1The majority—such as China, Saudi Arabia, Argentina, Mexico, and South Africa—are pursuing development for mainly domestic use and the true potential of these resources remains unclear as the infrastructure to bring gas to market is in various stages of construction. In the meantime, those regions who are currently significantly short on gas (for example, Europe, China, Japan, India, and some parts of Latin America) will continue to look to the global market to close the gap. Analysis of the various gas trade scenarios suggests a range of possibilities exist for U.S. LNG based on a few key variables. Under most likely scenarios, for now and for the near future, we should assume that U.S. LNG volumes will continue to find a competitive place in the global LNG trade. But how much?

The Dance Floor Is Getting Crowded

The first LNG cargoes from the U.S. via Cheniere Sabine Pass have shipped and are now a part of the roughly 30 tcf/a global natural gas market. With the likely entry of other new players, the supply optionality for LNG consumers is likely to continue to increase. This notion is surprising when we consider the approximately 20 tcf/a of additional LNG projects currently being considered in North America alone. chart2The business case for Sabine Pass was founded on the ability to secure long-term, take-or-pay contracts for the majority of its volume while holding a portion aside for the (sometimes) more lucrative spot market. As new players on the supply cost curve emerge, consumers will again be evaluating the most attractive suppliers and contract terms. As for the spot market portion of the business plan, we have recently seen how easily the spot market can narrow when oil prices reduce to a point where oil vs. gas competition, depressed oil-indexed LNG spot prices, and softening demand combine to reduce profitable spot market participation to some limited pockets of opportunity. For those more confident in an oil price rebound, consider the fact that more than 70 percent of LNG spot trade is confined to Asia Pacific. If current estimates of Chinese shale production in 2020 are underestimated by just 10 percent, the results would likely displace 20 percent of the global spot market for LNG, and would come largely at the detriment of emerging Atlantic basin producers (for example, the United States and Canada). So while the U.S. has established its presence, there are several headwinds that will keep the domestic LNG build-out in check. As U.S. projects are completed and others clamor for project approval, LNG supply is also increasing elsewhere across the globe, with about 4.5 tcf/a currently under construction in Australia and elsewhere. Considering these dynamics, 3-7 tcf/a is a more likely LNG terminal build-out in the U.S.—out of the roughly 20 tcf/a proposed and under construction currently.

Key Takeaways: Making Sense of the Global Gas Balancing Act

Commercial dynamics will be…dynamic. The share of long-term contracts in LNG trade has gone from 95 percent in 2000 to approximately 70 percent in 2015, and with more supply options and capacity buyers will become increasingly reluctant to sign long-term contracts. The debate on the dominating pricing mechanism in the future will likely continue as some reconsider the value of oil-linked contracts while others see benefits in a move toward hub-based pricing (such as those considering Singapore’s new LNG price index). Moreover, some of the largest buyers in Asia are coordinating efforts through JVs (including Jera Co. and Kora Gas Corp.) to increase their leverage over suppliers.

chart3Projects will become increasingly difficult to execute. Since LNG project financing is dependent on supply contracts, the reluctance of buyers to engage in long-term contracts has significantly increased the investment costs of facilities. For example, one producer has experienced a near doubling of their cost of capital over 5 years during execution of multiple projects. High project costs coupled with supply beginning to outpace demand means one-fourth of the currently proposed projects is a more likely LNG terminal build-out scenario for the U.S.

The LNG landscape will continue to evolve with a mix of economic, environmental, and political drivers. For example, more than half of Europe’s natural gas imports come from Russia, and as political tensions ebb and flow this could add considerable pressure for Europe to displace their expected 6 tcf of 2020 pipeline imports from Russia with LNG from the United States and elsewhere (despite the gas cost advantage enjoyed by Russian pipeline gas). Japan is considering the post-Fukushima restart of nuclear reactors (which could further deplete demand for LNG in the region), while Germany works to exit nuclear altogether. Additionally, as pen is put to paper on curbing carbon emissions, natural gas is increasingly being looked upon as the bridge to non-hydrocarbon-based energy. Energy companies are now behind the carbon tax push with Shell, BP, Total, and others agreeing that a price on carbon “should be a key element” of an international agreement to address global climate change.

The impact of each of these decisions will ripple throughout the LNG marketplace and continue to merit a keen understanding of the fundamentals to stay on top of the situation. After all, regardless of one’s position on the political, economic, or environmental merits of natural gas trade, all agree that as the global balance of natural gas shifts it will continue to create infrastructure hot spots of distress and opportunity—with the winners claiming to be the ultimate victors of the shale revolution.

The post From Fracked to Floated: The Next Chapter in the U.S. Natural Gas Story appeared first on Oil + Gas Monitor.

]]>
Cheap Energy Threats and Opportunities http://www.oilgasmonitor.com/cheap-energy-threats-and-opportunities/ Fri, 23 Oct 2015 06:12:57 +0000 http://www.oilgasmonitor.com/?p=10322 Wal van Lierop | Chrysalix Energy Venture Capital The United States, largely due to fracking, has become reliant on cheap energy. While this has brought many social and economic benefits, including a relatively easy recovery from the 2008 recession, is it really sustainable for the U.S. to maintain its position as one of the world’s […]

The post Cheap Energy Threats and Opportunities appeared first on Oil + Gas Monitor.

]]>
October 23, 2015
Wal van Lierop | Chrysalix Energy Venture Capital
The United States, largely due to fracking, has become reliant on cheap energy. While this has brought many social and economic benefits, including a relatively easy recovery from the 2008 recession, is it really sustainable for the U.S. to maintain its position as one of the world’s largest oil & gas producers?

Innovation in the oil industry, such as tight oil hydraulic fracking, has changed oil supply dramatically. With smaller, more flexible projects and shorter lead times, fracking has enabled greater adaptability to volatile market conditions. While the growth in fracking internationally, and even to some degree in North America, is less advanced than often expected (due to factors such as regional differences in geology, regulation and incentives to land owners), in many cases bringing new technologies to mature fields will continue to help keep supply up and dampen the increase in oil prices, which longer term may slow down further developments.

Many other countries that do not enjoy the same access to cheap hydrocarbons, such as China and other Asian countries that are seeing natural gas prices (in the form of LNG) at around 4X those in the U.S., have started to aggressively innovate and develop cheap renewables. Later this decade or early next, North America will “wake up” and realize that while they focused on short term energy advantages, Asia has built massive new clean energy industries for the future over which they have control. They stand a good chance to dominate the new energy industry for many years to come. China already has thriving markets for solar (on its way to dominate the new power industry with 4cts/kwhr), wind, electric vehicles and LED lights, while in Japan fuel cell vehicles will be front and center at the Tokyo Olympics. Asia will own essential industries in cleantech and sustainable innovation, unless we see a quick and dramatic innovation change in North America.

The financial community is a powerful driver of change in this regard. We have already seen a huge divestment from fossil fuels to the tune of $2.6 trillion, a 50-fold increase from the cumulative total one year ago. In addition, we observe that many financial institutions (including the large California pension funds CalPERS and CalSTRS, and others) have started to communicate that they are getting reluctant to participate in new “traditional” hydrocarbon projects. They fear that capital now committed to such projects could within their rated life time (30-50 years) result in stranded assets, either through innovation or through regulation.

In a recent speech Mark Carney, Governor of the Bank of England, has said: “The need to manage emerging, mega risks is as important as ever. Alongside major technological, demographic and political shifts, our very world is changing. Shifts in our climate bring potentially profound implications for insurers, financial stability and the economy” and the society at large. Stranded assets may sooner rather than later become a huge issue and sustainable innovation may become key to future energy financings and dominance in the new energy industry.

Oil and gas companies should therefore focus on direct applicable incremental sustainable innovations, combined with innovations that may lead to step-change breakthroughs enabling novel sustainable ways to maximize the longer term value of their exploration sites, plus renewable innovations that could become additional core offerings in their portfolio. The innovative capacity of North America is still world leading and those American companies that embrace innovation fully for roll-out at home and to export stand a chance to reap outsized returns and become the true new energy giants, the “Green Elephants” of the future.

The post Cheap Energy Threats and Opportunities appeared first on Oil + Gas Monitor.

]]>
New Laws, Technologies Lead to Continuing Increase in Oil and Gas Litigation http://www.oilgasmonitor.com/new-laws-technologies-lead-to-continuing-increase-in-oil-and-gas-litigation/ Wed, 24 Dec 2014 06:51:37 +0000 http://www.oilgasmonitor.com/?p=8388 Greg Meece & Michael Schneider | Thompson & Knight The past few years have seen a dramatic increase in the number of unconventional oil and gas-related lawsuits, with Texas seeing the most activity, followed by Oklahoma, Pennsylvania, Ohio and Louisiana. New trends and areas of litigation have also emerged over the past few years, and […]

The post New Laws, Technologies Lead to Continuing Increase in Oil and Gas Litigation appeared first on Oil + Gas Monitor.

]]>
December 24, 2014
Greg Meece & Michael Schneider | Thompson & Knight

The past few years have seen a dramatic increase in the number of unconventional oil and gas-related lawsuits, with Texas seeing the most activity, followed by Oklahoma, Pennsylvania, Ohio and Louisiana. New trends and areas of litigation have also emerged over the past few years, and industry participants will continue to confront the challenge of adapting to emerging and often differing state laws, as well as a continually evolving legal landscape as landmark cases are decided by the courts.

One litigation trend arises out of the development and increased utilization of horizontal drilling and hydraulic fracturing.   Current issues related to horizontal drilling and hydraulic fracturing include disputes about water rights and water ownership, the mineral owner’s dominant right to use the surface estate for operations, and the land owner’s claim for damages to its property caused by or incidental to production. Recurrent allegations in these disputes include claims of trespass, private nuisance, negligence, environmental violations/liability and breach of contract.

FPL Farming Ltd v. Environmental Processing Systems is a recent noteworthy example of a surface owner dispute involving claims for subsurface trespass. In FPL, the defendant, Environmental Processing Systems, obtained permits from the Texas Commission on Environmental Equality to operate two deep wastewater injection wells on a tract next to land owned by FPL Farming Ltd in Liberty County. FPL sued EPS for tort damages and a permanent injunction for physical trespass based on alleged subsurface migration onto its property that contaminated its water supply. The Beaumont Court of Appeals held that FPL could not recover for trespass damages because the wells were authorized by the TCEQ permits obtained by EPS. Finding that EPS’s permits could not shield it from trespass liability, the Texas Supreme Court reversed and remanded, holding that “agency authorization or permission [does not result] in blanket immunity from trespass liability.” On remand, the Beaumont Court of Appeals held that waster water migration in deep, subsurface formations may constitute a trespass. The case is now pending in the Texas Supreme Court.

Wheeler v. Enbridge Pipelines, L.P. involved a landowner’s action against a pipeline company for breach of contract and trespass arising from the destruction of trees in preparing an easement area for pipeline construction. Distinguishing the differences in recovery for temporary and permanent injuries to property, the Texas Supreme Court found that the landowner was entitled to recover the damage to the fair market value of his property, but not the costs of restoring the property, because the restoration costs grossly exceeded the diminution in the fair market value caused by the company’s destruction. However, the Court also found that the landowner could recover the intrinsic value of the trees that were destroyed, which the jury found to be $288,000.

Finally, in Parr v. Aruba, a Texas jury in April of 2014 awarded $2.9 million in damages to a landowner for injuries allegedly caused by nearby drilling activities. In 2011, the Parr family, who own a 40 acre ranch in Wise County (atop the Barnett Shale), brought a lawsuit against Aruba Petroleum and several other energy companies, alleging that E&P activities near their ranch polluted the air with hazardous substances causing health problems, including asthma, ear ringing, headaches and nausea. Following a jury verdict in favor of the landowners, this case is now on appeal.

In MDU Barnett Ltd. Partnership v. Chesapeake Exploration Ltd. Partnership, a federal district judge from the Southern District of Texas ruled that the Texas Supreme Court’s opinion in Reeder v. Wood County Energy was now the controlling law in the Fifth Circuit in considering disputes involving joint ownership. In Reeder, the Texas Supreme Court addressed whether an exculpatory clause in a Joint Operating Agreement extended to all alleged breaches of the JOA or whether it was limited to claims that the operator breached its duties in operating the well. According to the Court, the scope of an exculpatory clause depends on the modifying language of the particular clause: if the JOA follows the 1977 or 1982 Model form, and contains language such as “Operator shall conduct all such operations in a good and workmanlike manner…”, then the exculpatory clause is limited to claims that the operator breached its duty in operating the well, and does not apply to claims that it otherwise breached the JOA. But, if the exculpatory clause follows the 1989 Model Form JOA and includes language such as: “operator shall conduct its activities…under this agreement as a reasonable prudent operator in a good and workmanlike manner…”, then the exculpatory clause applies to both claims that the operator failed to act as a reasonably prudent operator and claims that it breached the JOA. This highlights the importance of understanding what provisions the operator and the non–operators intend to include in their JOAs.

Key Operating & Equip., Inc. v. Hegar involved the question of whether an operator of a pooled unit has the right to use the road on adjacent surface property when there is no production from the adjacent tract, but the tract is part of the pooled unit. The trial court issued an injunction prohibiting Key from using the Hegars’ road because there was no production from the Hegar tract. The Court of Appeals affirmed that injunction. In June, 2014, the Texas Supreme Court held that because the Hegars’ tract was included in the pooled unit, the operator had the right to use the road regardless of whether there was production from that tract.

Finally, in Zachry Construction Corp. v. Port of Houston the Texas Supreme Court confirmed that contractual waivers for future gross negligence are void. The Court also called into question on public policy grounds any contractual waivers that seek to insulate a party from future, deliberate, wrongful conduct. This case may have significant ramifications for contracting parties that are attempting to limit claims for future damages in JOAs, purchase and sales agreements, and other contracts.

Other areas of disputes include preferential rights, payment of joint interest billings, gas flaring cases, royalty ownership disputes and lease termination lawsuits. Royalty disputes were the most common type of unconventional oil and gas cases in the second half of 2013. Land and lease rights disputes, which often involve issues such as the termination of leases, ownership disputes regarding mineral rights, or injunctions to stop or prevent drilling, were likewise among the most common types of disputes filed in 2012-2013.

Many of the cases being decided now will likely have major impacts on the oil and gas industry operating in Texas and throughout the country. As unconventional production and development of oil and gas continues to flourish, and new laws are enacted around the country, industry participants will likely continue to see a steady increase in the amount of unconventional oil and gas litigation in both federal and state court.

 

The post New Laws, Technologies Lead to Continuing Increase in Oil and Gas Litigation appeared first on Oil + Gas Monitor.

]]>
My Mom and Proof of Reasonable Risk Associated with Hydraulic Fracturing http://www.oilgasmonitor.com/my-mom-and-proof-of-reasonable-risk-associated-with-hydraulic-fracturing/ Fri, 19 Dec 2014 06:25:30 +0000 http://www.oilgasmonitor.com/?p=8362 William Anaya | Arnstein & Lehr Often faced with one of her children’s’ tortured explanations, my mother would quip, “well, anything is possible.” In the same breath, she would quickly add, “but is it likely?” With regard to hydraulic fracturing, and the recent, largely unsupported claims associated with seismicity, I would add, “even if it […]

The post My Mom and Proof of Reasonable Risk Associated with Hydraulic Fracturing appeared first on Oil + Gas Monitor.

]]>
December 19, 2014
William Anaya | Arnstein & Lehr
Often faced with one of her children’s’ tortured explanations, my mother would quip, “well, anything is possible.” In the same breath, she would quickly add, “but is it likely?” With regard to hydraulic fracturing, and the recent, largely unsupported claims associated with seismicity, I would add, “even if it is possible, is the risk significant/”

With high volume, horizontal hydraulic fracturing, let’s first understand the process – the three stages of the process — and then ask if some part of that process contributes to seismicity. If so, which part, and is the risk significant?

First, modern hydraulic fracturing involves piping several hundred thousand gallons of water (containing added biocides and surfactants in small volume), with sand deep into the earth several thousand feet below the surface, and under sufficient pressure to crack subsurface rocks and cause the release hydrocarbon gas and an oily material that can be refined into gasoline. (Because we are here only analyzing the latest published fear related to seismicity, the biocides and surfactants do not really matter.) Clearly, the energy in the water and sand is calculated to crack the subsurface rocks, but that part of the process is significantly measured and controlled. Historically, subsurface rock was fractured with a stick of dynamite – a process that was largely uncontrolled. Dynamite may be the source of anecdotes associated with seismic activity, but no longer.

Then the water and sand are pumped out of the hole, returning with the hydrocarbons and in very brackish water. Indeed, the deep subsurface conditions involve significant concentrations of salt (saline) at greater concentrations than found in the sea. And, while thousands of gallons of water were hydraulically pumped into the subsurface under pressure at the initiation of the process, the recovery process involves removing a great deal more material including very brackish water. The volume of water removed is significantly more than was introduced, and there is no indication that this removal part of the procedure increases the potential for seismic activity.

In some instances, that removed material is placed in settling ponds, and the water evaporates leaving a mess. Some criticize this part of the process as creating migrating dead zones. Other times, this removed material is re-injected into the ground near the hydraulic fracturing well site, or trucked off-site to deep injection wells in places like Ohio.

The United States Geological Service recently has made a statistical connection to increased seismic activity and increased hydraulic fracturing, but the service is also quick to point out that the matter needs more study.

Thus far, there is no evidence that the initial process of introducing water and sand to the subsurface creates any significant risk of seismic activity. Indeed, the evidence developed thus far is to the contrary. The volume of material introduced in a well at the initial stage of the hydraulic fracturing process just is not that significant.

Calibrated pumps are used to remove the material from the hole and, the process is well managed. The removal process is controlled, and even though a great deal more material is pumped to the surface than was introduced. Removing the material – even so much more of it – is not thought to cause any significant risk to increased seismicity.

Because no causal connection to seismicity has been established with either the introduction or removal phases of what is popularly referred to as fracking, scientist are now focusing on the waste disposal activities associated with the use of deep injection wells. On the one hand, the use of settling/evaporation ponds may involve other concerns, but seismicity is not one of them.

Deep injection wells are not new, indeed, the process is recognized and fairly well understood. Waste is pumped deep below the earth’s surface into that inhabitable area. The problem may be – it is still hypothetical and under study – that the sheer volume of material being injected into the earth’s crust is significant, and that this process may be creating conditions of instability and seismicity.

So far, however, most of the reported seismic activity is not noticeable at the surface. And, it has been observed only with very sophisticated, new instruments. Perhaps more importantly, we only learned about potential additional seismicity because scientists are now studying seismicity possibly related to hydraulic fracturing. As with the simple conundrum, if no one heard the tree fall, did it? The corollary, just because we now recognize very insignificant seismicity because we are looking for it, does not mean it was not occurring before we began listening for it. We simply may never have known of the earlier frequency.

Regulators in the oil, gas and waste industries have long suspected a potential correlation with deep injection wells and seismicity. Indeed, in places like Illinois, the deep well injection process is prohibited at the well head under the Illinois Hydraulic Fracturing Act – effectively removing all risk of seismicity associated with hydraulic fracturing in Illinois.

Regardless, almost all of the observed seismic activity presents no significant risk. The concept of an acceptable risk is a topic for another day. Suffice it to say there is a risk every time you drive a car, enter an elevator or turn on a light switch.

At this point, let the scientists analyze the problems and define the risk for us before we over react. Indeed, it is possible that hydraulic fracturing increases the risk of seismicity when water and sand is introduced at the beginning of the process. It is just not likely. Similarly, it is possible that the extraction of material from the boring may cause or create seismicity, but that too, is not very likely. Finally, it is possible that using deep injection wells may create an increased risk of seismicity, but in places like Illinois that practice is prohibited, and there is no likely risk of increased seismicity in Illinois. And, in those other states, let’s let the scientists tell us what we need to do to possibly modify the process – but only if modification of the process is necessary.

As my mother would also admonish, “don’t throw the baby out with the bathwater.” She would have been a good lawyer.

The post My Mom and Proof of Reasonable Risk Associated with Hydraulic Fracturing appeared first on Oil + Gas Monitor.

]]>
Newest Bans Offer Important Insight http://www.oilgasmonitor.com/newest-bans-offer-important-insight/ Fri, 12 Dec 2014 06:13:36 +0000 http://www.oilgasmonitor.com/?p=8315 Chris Faulkner

The post Newest Bans Offer Important Insight appeared first on Oil + Gas Monitor.

]]>
December 12, 2014
Chris Faulkner | Breitling Energy Corporation
One thing the oil and gas industry has a lot of is money.
 
So, if all it took was big money, every proposed fracking ban would be roundly defeated.
 
Yet, in Richmond, CA, an estimated $3 million in outside funding failed to dissuade voters from imposing a proposed ban.

In Denton, TX, energy companies poured at least $700,000 into the campaign to defeat the proposed ban. Environmental activists nonetheless managed to get the fracking ban passed with only about $75,000 in funding.

Similar bans recently succeeded in two California communities, in Ohio, and in Colorado. Bans were already in place in Hawaii, New Mexico, New Jersey and New York. More are in the works.

Still, industry chugs along, doing business as usual. More money, more slick ad campaigns, more headstrong refusal to meet the actual challenge.

But an examination of the bans that were passed could give industry the key to defeating more such bans.

Take Denton, for example. It’s a safe bet that the ban surprised a lot of people, especially those who didn’t know the background. A fracking ban in Texas?! No way!

The Price of Industry Hubris

But Denton offers a warning about the price of industry hubris. Yes, Texas is oil and gas country. No, that doesn’t mean that operators can ignore the concerns of residents, secure in the notion that oil and gas are king.

Very much at the heart of the issue in Denton was the fact that some oil companies chose to ignore new ordinances and citizen concerns. Citing pre-existing permits that allowed drilling and fracking closer to homes, schools, parks and businesses, they went ahead with drilling and fracking operations that the new regulations would have prohibited.

Running roughshod over the community’s concerns, those operators may as well have started a petition against fracking themselves.

Maybe it’s old-school thinking. Maybe just standard operating procedure for operators who feel that the revenue they generate entitles them to “get their way.”

It’s a Small, Small Digital World

What these types of operators forget, or aren’t aware of, is that this is a new, highly connected world. They forget that younger people, especially college students, are overwhelmingly against fracking, and those young people operate in a digital village that has no love for industry ad campaigns. They forget that it’s often the younger generation that gets out and volunteers, knocking on doors and dialing the phones.

A glance at the bans that passed tells this tale: Athens, OH has a high percentage of college students, as does Denton, TX. Santa Barbara County also has a lot of college students, who voted 80/20 for the ban, but not enough of them to sway the vote.

Instead of talking to these highly motivated and generally anti-fracking youth, industry plows ahead, pouring money into the ads, the mailers, the billboards. Think how much further that money would go if it was used to support personal outreach within operational communities, armies of industry folk whose sole mission is simply to talk to people, and, more importantly, to listen to them.

It’s not the industry standard, but it works when it comes to drilling operations and would work during elections. The simple act of showing up, in person, to discuss plans and address questions and doubts, is industry’s best hope for continued and uninterrupted operations. Real dialogue, supported by the stacks and stacks of research and statistics and first-hand experience that shows the safety of drilling and fracking, is the way forward.

Oh, sure, there will be legal battles over the bans that have just been voted in. The lawsuits have already begun. More money. More of what those outside the industry see as strong-arm tactics. More marks against the industry as a whole.

The post Newest Bans Offer Important Insight appeared first on Oil + Gas Monitor.

]]>
Shaky Claims: Hydraulic Fracturing Is Causing Earthquakes http://www.oilgasmonitor.com/shaky-claims-hydraulic-fracturing-is-causing-earthquakes/ Wed, 10 Dec 2014 06:56:47 +0000 http://www.oilgasmonitor.com/?p=8304 Isaac Orr | The Heartland Institute The term “fracking”—short for hydraulic fracturing—has become a buzzword throughout the United States. Proponents of the technology celebrate oil and natural gas production as a means of reducing energy prices and stimulating economic growth, while opponents of the well-completion technique voice environmental concerns, among them the fear hydraulic fracturing […]

The post Shaky Claims: Hydraulic Fracturing Is Causing Earthquakes appeared first on Oil + Gas Monitor.

]]>
December 10, 2014
Isaac Orr | The Heartland Institute
The term “fracking”—short for hydraulic fracturing—has become a buzzword throughout the United States. Proponents of the technology celebrate oil and natural gas production as a means of reducing energy prices and stimulating economic growth, while opponents of the well-completion technique voice environmental concerns, among them the fear hydraulic fracturing will usher in a new era of manmade earthquakes.

Since the technique was first used in 1947, hydraulic fracturing is thought to have caused only a handful of earthquakes large enough to be felt on the surface. The overwhelming majority of the wells where hydraulic fracturing is used are aseismic, meaning no earthquakes occur. The risks of hydraulic fracturing causing an earthquake are small compared with other human activities such as constructing dams, mining, and the use of deep underground injection wells to dispose of waste, which can cause comparatively larger earthquakes.

The largest earthquake risk associated with hydraulic fracturing stems from the use of injection wells to dispose of the wastewater generated during the fracturing process. Each hydraulically fractured well requires an average of two to four million gallons of water, and approximately 10 to 20 percent of this water flows back to the surface and is known as “flowback water.” This wastewater is generally either recycled or disposed of in injection wells. The best-available scientific evidence at this time suggests wastewater disposal – not the process of hydraulic fracturing itself – is the reason for increased seismic activity in some energy-producing areas of the country such as Kansas, Ohio, Oklahoma, and Texas.

Even well-respected news outlets such as Reuters have failed to distinguish between earthquakes caused by hydraulic fracturing (which are extremely rare) and those likely caused by wastewater disposal wells (which are more common) in the nuanced manner necessary to give readers the proper understanding of the issue. When headlines like “Small quake shakes Dallas area, stirring fracking critics” are published without discussion of the role played by the injection of wastewater into disposal wells, readers are left without the information they need to accurately weigh the costs and benefits of hydraulic fracturing as they pertain to earthquakes.

When Fault Li(n)es with Fracking

Most hydraulic fracturing operations have almost no detectable seismic impact. A recent study published in Seismological Research Letters notes the typical hydraulic fracturing operation accounts for seismic activity in the M3.0 to M0.0 range, about the same amount of energy generated when a gallon of milk falls from a kitchen counter. Additionally, because the moment magnitude scale is logarithmic, these microquakes are millions of times smaller than any seismicity than can be felt on the surface.

However, the study suggests hydraulic fracturing can lead to larger-than-normal seismic readings if oil and natural gas wells are drilled too close to existing fault lines, as was the case in Ohio in October 2013. The study found a series of earthquakes – the largest of them being an M2.2 – was generated when a well was drilled too close to an existing fault line. Although these quakes were larger than expected, likely due to the fault extending down to the basement rock, they were well below the threshold of what can be felt by people at the surface, a key reason why there were no reports anyone had felt these earthquakes.

One in a Million

Although no one in Ohio felt the earthquakes generated by hydraulic fracturing, incidents of the process generating earthquakes large enough to be felt at the surface have occurred.

Dr. Richard Davies, a professor of earth sciences at Durham University, compiled 198 published examples of manmade earthquakes from around the world registering at a magnitude greater or equal to 1.0 since 1929. Of these earthquakes, hydraulic fracturing was found to be responsible for only three quakes large enough to be felt on the surface: one in Canada, one in the United States, and one in Great Britain. The largest of these occurred in 2011 in the Horn River Basin of Canada and registered at M3.8, on the lower end of earthquakes that can be felt by people.

Because earthquakes must generally register near a magnitude 4.0 on the moment magnitude scale to be felt at the surface and between M5.5 and M6.0 to cause even slight damage to buildings, earthquakes caused by hydraulic fracturing are unlikely to have an effect on our everyday lives. These facts prompted Davies to make the following statement: “We have concluded that hydraulic fracturing is not a significant mechanism for inducing felt earthquakes. It is extremely unlikely that any of us will ever be able to feel an earthquake caused by fracking.”

Hydraulic fracturing has been used to stimulate more than one million oil and natural gas wells in the United States since 1947, according to estimates, making the incidence of earthquakes large enough to be felt on the surface caused by hydraulic fracturing in the United States one in one million.

Going Back to the (Injection) Well

Although hydraulic fracturing is not a significant mechanism for causing earthquakes large enough to be felt at the surface, the use of deep injection wells to dispose of wastewater can lead to earthquakes large enough to be felt. The first earthquakes caused by injection wells occurred in Colorado in 1965, after waste from a military complex was pumped for disposal into a hole 12,044 feet deep. These quakes eventually became known as the “Denver Earthquakes” and prompted further research on the link between waste disposal and manmade earthquakes.

The use of these wells to dispose of the wastewater produced by the hydraulic fracturing process has been linked to increased seismic activity in some energy-producing states, particularly Ohio, Oklahoma, and Texas. Furthermore, earthquakes caused by injection wells can be larger than those caused by hydraulic fracturing, potentially triggering earthquakes in M2.0 to M5.3 range.

Fortunately, according to a recent study in the journal Science, the risks associated with earthquakes triggered by the use of injection wells to dispose of fracking waste can be substantially reduced by avoiding wastewater disposal near major faults and the use of appropriate monitoring and mitigation strategies.

Oil-and-gas-producing states already have begun to incorporate protective rules and regulations limiting the volume of waste that can be pumped in a given well. Ohio regulators have enacted measures requiring the installation of pressure-monitoring systems to detect when wells have been over-pressurized and rules prohibiting drilling injection wells near fault lines and into basement rock formations. These rules and best practices give states a framework with which to reduce the amount of seismic activity associated with wastewater disposal.

Conclusion

The link between hydraulic fracturing and earthquakes has been largely overstated by environmental groups and often mischaracterized in news stories. Hydraulic fracturing has been shown to have caused felt earthquakes on only a handful of occasions worldwide since 1947. A greater risk of induced seismicity comes from the injection of wastewater from hydraulic fracturing operations, but these risks can be mitigated by encouraging the industry to recycle greater amounts of wastewater and enacting regulatory schemes to monitor and mitigate wells to prevent instances of manmade earthquakes.

The post Shaky Claims: Hydraulic Fracturing Is Causing Earthquakes appeared first on Oil + Gas Monitor.

]]>
Stepping Up to the Challenge: How Local Communities in the Utica Shale Play are Taking Advantage of the Boom http://www.oilgasmonitor.com/stepping-challenge-local-communities-utica-shale-play-taking-advantage-boom/ Mon, 15 Sep 2014 08:29:27 +0000 http://www.oilgasmonitor.com/?p=7748 Zack Space | Vorys Advisors By now, all of us have heard about the far-reaching effect that shale fracking has had on our national energy policy. What is less clear is its impact on the many rural communities around the country that overlie the oil and gas-rich shale. Many of these areas have seen the […]

The post Stepping Up to the Challenge: How Local Communities in the Utica Shale Play are Taking Advantage of the Boom appeared first on Oil + Gas Monitor.

]]>
September 15, 2014
Zack Space | Vorys Advisors
By now, all of us have heard about the far-reaching effect that shale fracking has had on our national energy policy. What is less clear is its impact on the many rural communities around the country that overlie the oil and gas-rich shale. Many of these areas have seen the shale boom as a sort of saving grace: one that promises good jobs and prosperity in regions where high poverty and unemployment have lingered for generations. Conversely, many shale communities are discovering that the shale boom is not without its challenges.

Shale communities are working hard to confront the stress that rapid oil and gas activity has placed on local infrastructure, educational, housing, and public safety resources. Simultaneously, they are striving to make the economic benefits of the play lasting and sustainable. Thanks to creative economic tools many of these communities are confident that the shale boom can be properly managed in the short term, and sustainable in the long term. And that is good news for many shale communities, which ironically have a history of natural resource-based economies that have resulted in boom-to-bust cycles.

For example, much of Eastern Ohio, which lies over the Utica Shale, is currently experiencing a rapid gas and oil boom. This boom is the latest in a long line of economic cycles founded in the extraction of natural resources. Many Eastern Ohio counties continue to pay the price for over-dependence on a once-booming coal industry. Most coal profits—during peak production—left the region, and were not invested in public infrastructure expansion. Moreover, apart from electrical generation facilities, there were no obvious downstream manufacturing markets for which the coal could be put to long-term use. A failure to promote economic diversification and build public infrastructure debilitated the region, which still reels decades after the coal boom peaked. Now, community leaders in the region are faced with the challenge of making the shale economy both robust and sustainable, and they appear up to the task.

Ohio law has created a number of creative economic development tools that allow county commissioners, mayors, and township trustees to leverage the shale economy for the creation of strong infrastructural build out: building new water and wastewater treatment and delivery systems, roads, schools, and industrial parks. Tax Incentive Financing and Joint Economic Development Districts are two such tools that are gaining in popularity among Eastern Ohio local governments.

Port Authority directors and other economic development professionals across the Eastern Ohio region are leading efforts to attract downstream manufacturers by developing industrial sites and aggressively marketing the region’s economic potential. What’s more, the Utica counties of Ohio have collaborated with one another in these efforts, demonstrating that a regional team is stronger than the sum of its individual parts.

Public-private partnerships are also working to promote sustainable growth. Communities have teamed with oil and gas developers and midstream companies to build and maintain roads, water and wastewater systems, broadband access and industrial parks. Educators—from secondary and vocational schools to higher-ed facilities—are working with the industry to create vigorous workforce development pipelines to ensure local workers have access to shale-related jobs.

Shale-based oil and gas production has presented both enormous challenges and incredible opportunities for the rural communities of shale country. Will this rural-based economic boom be different than those that preceded it? Early indications suggest that creative, collaborative actions on the part of local government officials and the industry, offer a chance to break the boom to bust cycle, making for long-lasting economic improvement.

The post Stepping Up to the Challenge: How Local Communities in the Utica Shale Play are Taking Advantage of the Boom appeared first on Oil + Gas Monitor.

]]>
Fracking on Tribal Lands Fracked by Federal Government http://www.oilgasmonitor.com/fracking-tribal-lands-fracked-federal-government/ Fri, 05 Sep 2014 13:57:56 +0000 http://www.oilgasmonitor.com/?p=7689 Chris Faulkner

The post Fracking on Tribal Lands Fracked by Federal Government appeared first on Oil + Gas Monitor.

]]>
September 5, 2014
Chris Faulkner | Breitling Oil and Gas

When the nasty smear of “Indian giver” was first slung in the 1700s, it was mistakenly applied to Native Americans due to misunderstanding of their bartering practices. Today, the same smear could be more accurately used against the U.S. government.
 
What else can we call it when the federal government first “grants” small parcels of the land that once belonged to the tribes, agrees to tribal sovereignty, and then federally restricts what the tribes can do with their supposedly sovereign lands, to the detriment of the tribes?

An estimated 20 percent of all U.S. oil and gas reserves are on tribal lands, yet only 12 percent of tribal reserves have been developed so far due to the nightmare of permitting requirements and fees that the federal government has created.

Under the guise of somehow protecting Native Americans, the government has effectively blocked development of natural resources that could free them from poverty and reduce their reliance on government handouts.

The federal government largely leaves fracking permitting and regulation to the states. It steps in when operators are applying for permits on federal lands managed by the Bureau of Land Management (BLM), which also oversees tribal lands. Tribal lands otherwise considered sovereign “domestic dependent nations.”

How bad is it? Operators seeking permits to drill on Native American lands must deal with four separate federal agencies and complete a 49-step process that can take 480 days. According to the American Petroleum Institute, it took the BLM an average of 307 days to process permits in 2011. In North Dakota Case it can take as little as 5 steps and 10 days to secure a drilling permit on state lands, in Ohio 14 days and in Colorado 27 days.

On top of the dauntingly long permitting process, the BLM adds insult to injury with exorbitant fees, charging $6,500, plus other fees for right of way applications and other work on federal and tribal lands, while, for example, the State of Montana charges $75. That’s not a typo. The BLM charges $6,500, as opposed to the standard state fee of $75.

It’s no wonder that most oil and gas companies balk at the notion of a frustrating year-plus permitting mess that will cost them nearly 90 times what they can pay to achieve in a month or less on non-tribal lands.

The net effect of the federal government’s interference in tribal matters is clear: while production on state and private lands increased by 34 percent from 2003 to 2013, production on federal and tribal lands decreased by 21 percent. In the name of “protecting” Native Americans, the BLM is denying them their sovereign right to the management and stewardship of their own lands and killing some tribes’ best chance at overcoming the poverty that has plagued them since first being relegated to the reservations.

We’re not talking about pennies. We’re talking millions.

Where a few tribes have been able to push ahead with oil and gas development, the economic rewards have been astonishing. The Blackfeet reservation in Montana has been suffering unemployment at high as 70 percent in recent years. The construction of a single oil-drilling rig resulted in 49 new jobs for the tribe, and each of its members received a $200 payment. As a whole, the tribe has collected around $30 million in leases and bonus payments.

The Three Affiliated Tribes (Mandan, Hidatsa and Arikara) earned royalties in the realm of $182 million, according to Chairman Tex Hall, from 250 wells in production since 2012. Speaking to the House Natural Resource Committee’s Subcommittee on Indian and Alaska Native Affairs, Hall estimated that one well pours more than $2 million per year into tribal government funds.

The Council of Energy Resource Tribes has estimated that tribal lands are home to reserves valued at nearly $1.5 trillion. The U.S. Bureau of Indian Affairs has noted that income from energy and minerals constitutes “the largest revenue source generated from Trust lands.” The agency estimates that royalty income among tribal mineral owners will exceed $1 billion this year.

Yet, according to the U.S. Census Bureau, nearly one in three Native Americans lives in poverty. They wouldn’t have to if the BLM would get out of the tribes’ way. The best way to ensure that tribes can reap the benefits of their own natural resources is to get rid of the barriers that have been erected by the federal government. It’s time that tribal lands were truly sovereign.

The post Fracking on Tribal Lands Fracked by Federal Government appeared first on Oil + Gas Monitor.

]]>
Environmental Groups Have Lost the War Against Fracking http://www.oilgasmonitor.com/environmental-groups-lost-war-fracking/ Fri, 13 Jun 2014 12:55:15 +0000 http://www.oilgasmonitor.com/?p=7292 Steve Goreham | Climate Science Coalition of America Hydraulic fracturing, or fracking, a technique to remove natural gas and oil from shale formations, has been under withering assault from environmental groups for much of the last decade. Fracking has been blamed for contamination of drinking water, air pollution, earthquakes, water shortages, global warming, radiation discharge, […]

The post Environmental Groups Have Lost the War Against Fracking appeared first on Oil + Gas Monitor.

]]>
June 13, 2014
Steve Goreham | Climate Science Coalition of America
Hydraulic fracturing, or fracking, a technique to remove natural gas and oil from shale formations, has been under withering assault from environmental groups for much of the last decade. Fracking has been blamed for contamination of drinking water, air pollution, earthquakes, water shortages, global warming, radiation discharge, and even cancer. But it appears that environmentalists have lost the battle against fracking.

Fracking ProtestorsEnvironmental groups have been almost unanimously opposed to hydraulic fracturing. Greenpeace and the Sierra Club favor outright bans, and other organizations call for tight controls on the process. According to the Sierra Club website, “‘Fracking,’ a violent process that dislodges gas deposits from shale rock formations, is known to contaminate drinking water, pollute the air, and cause earthquakes. If drillers can’t extract natural gas without destroying landscapes and endangering the health of families, then we should not drill for natural gas.”

But the case against hydraulic fracturing is weak. Shale is typically fractured at depths greater than 5,000 feet, with thousands of feet of rock between the fractured area and the water table, which is located near the surface. When properly designed, fracking wells are lined with multiple layers of steel and cement casing to prevent leakage of water and natural gas into the local water supply. Approximately one million wells have been hydraulically fractured over the last six decades without cases of water contamination. During Congressional testimony in 2011, Environmental Protection Agency administrator Lisa Jackson stated, “I am not aware of any proven case where the fracking process itself has affected water, although there are investigations ongoing.”

Earthquakes caused by hydraulic fracturing appear to be minimal. Only a handful of micro quakes have been linked to fractured wells. None of these quakes have caused damage and most are too weak to feel. Nor is there evidence to show that fracking poses greater air pollution, radiation discharge, or cancer impact than agriculture, other mining, or other common industrial processes.

Burning natural gas releases carbon dioxide, like any other combustion. Climate activists oppose natural gas as a planet-warming fossil fuel and therefore oppose fracking. But gas combustion releases about half the carbon dioxide of coal combustion. The majority of the decline in US carbon dioxide emissions over the last ten years is due to the switch of electric utilities from coal to natural gas fuel, not from the growth of renewables.

Arguments about pollution of drinking water, earthquakes, water usage, radiation, and cancer appear to be a smoke screen to protect renewable energy, the sacred cow of the environmental movement. Natural gas from hydraulic fracturing is a direct threat to the growth of wind and solar energy.

Gas-fueled power plants are low-cost and dispatchable. In contrast, wind and solar electricity is two to three times the price and plagued by intermittent output, unable to respond to varying electrical demand. With hundreds of years of natural gas available from hydraulic fracturing and horizontal drilling techniques, why build another wind turbine?

Fracking opposition has been strong in isolated locations across the world. Bans or moratoriums are in place in Bulgaria, France, Germany, and South Africa. Protesters are blocking fracking operations in England and Poland. Selected US counties and communities have imposed fracking bans. The state of New York established a fracking moratorium in 2008 and has delayed approval of fracking for more than five years. Ironically, natural gas provides a growing majority of New York’s energy consumption.

Despite the opposition, it appears that environmental groups have lost the battle against fracking. In 2012, 40 percent of US natural gas production was shale gas, using fracking technology, up from less than one percent in 2000. Shale gas is projected to exceed 50 percent of production by 2040. US crude oil production is also surging due to oil recovered from shale fields, up more than 50 percent since 2005.

Growth of US Shale Gas Production

Growth of US Shale Gas Production

 

 

 

 

 

 

 

 

In Europe, concerns about energy dependency on Russia have triggered a turnaround of government opposition to fracking. Germany is preparing a framework for tapping oil and gas by hydraulic fracturing and planning to lift its ban. The British government is proposing policies to remove roadblocks from fracking efforts.

The Obama administration, despite its campaign to fight climate change, publically supports hydraulic fracturing and liquefied natural gas exports. Climate hawks, such as Senator Mark Udall of Colorado, also support the expansion of natural gas, to the dismay of green organizations. Governor Jerry Brown of California presses for action on climate change, but has not opposed hydraulic fracturing.

Today, hydraulic fracturing is underway in 21 states. Several more states are developing supporting regulations. Despite a number of local bans, fracking is now a frequently used industrial process across the nation.

Shale gas and oil are here to stay. Weak environmental arguments to ban fracking are being overwhelmed by the irresistible economic bonanza of low-cost energy.

The post Environmental Groups Have Lost the War Against Fracking appeared first on Oil + Gas Monitor.

]]>
New EIA Estimate for Monterey: Dashed Dreams or Nightmare Deferred? http://www.oilgasmonitor.com/new-eia-estimate-monterey-dashed-dreams-nightmare-deferred/ Fri, 06 Jun 2014 11:41:00 +0000 http://www.oilgasmonitor.com/?p=7277 Chris Faulkner

The post New EIA Estimate for Monterey: Dashed Dreams or Nightmare Deferred? appeared first on Oil + Gas Monitor.

]]>
June 6, 2014
Chris Faulkner | Breitling Oil and Gas

Reading the dozens of dire, gleeful, mournful and doubtful headlines after Reuters and the Los Angeles Times broke news of the Energy Information Administration’s revised estimates, one would think that oil production in California’s Monterey Shale is either an industry dream that will never come true or a nightmare from which environmentalists have awakened, jubilant and relieved.

While the vast majority of the headlines displayed restrained neutrality, such as “U.S. officials cut estimate of recoverable Monterey Shale oil by 96%,” from the Los Angeles Times, there were of course more than a few that were markedly more celebratory:

  • • “California’s Fracking Boom Just Got Busted” (from TruthOut.org)
  • • “Write-down of two-thirds of US shale oil explodes fracking myth” (from The Guardian)

And, by far the best of the snarky:

  • • “Monterey Shale: Fracking’s Great Moment Of Derp” (from CleanTechnica)

All this and the EIA report hadn’t even been officially released yet! (The report is due out in June.)

EIA “News” No Surprise

Of course, anyone who’s been paying attention already knew that production from the Monterey formation has been and will continue to be challenging. What the excited headline writers forget, or never understood, is that it’s not the current production from the Monterey that has industry so interested; it’s the huge potential.

Regardless of what the EIA now says about technically recoverable reserves, the estimate of 400 billion barrels of oil residing in the Monterey still stands. It may not be largely recoverable with today’s technology, but the oil will still be there when the technology catches up.

Interesting side note: none of these articles sounding the death knell for California’s oil industry acknowledged the fact that the state is among the top four oil-producing states in the U.S.

California’s mature oil fields continue their prolific production, ignorant of the premature obituaries being published in answer to the EIA’s revised estimate. In fact, during the same announcement, the EIA also noted that its revised estimate does not affect its projections for near-term production. On the contrary, the EIA expects an average of 57,000 barrels per day between 2010 and 2040. That’s an upgrade from last year’s estimate of 14,000 barrels per day between 2010 and 2040.

What EIA petroleum analyst John Staub told reporters was nothing new: “From the information we’ve been able to gather, we’ve not seen evidence that oil extraction in this area is very productive using techniques like fracking.”

Potential Outweighs the Challenges

Industry has long known that the directional drilling and hydraulic fracturing techniques that have proven so valuable in the Bakken, Marcellus, and other plays is not likely to be the key to unlocking the Monterey Shale. California’s seismicity has already fractured the shale and created a chaotic jumble that’s not conducive to the types of approaches used in other plays.

That hasn’t dampened interest in California’s potential in the least. This is an industry now booming in large part thanks to the stubbornness of folks like George Mitchell, who persisted in pouring money ($6 million), land (his own) and time (15 years) into the research to crack the code of the Barnett Shale, reviving a dying industry and putting the U.S. on track to energy security.

Combine the industry’s history of innovation with the potential of the Monterey Shale, and it’s clear why companies will continue researching, innovating and testing until they’ve unlocked this formation. In theory, development of the 1,750-mile formation could generate a half million new jobs by 2015 and nearly 3 million by 2020, according to a study by the University of Southern California and a Los Angeles think tank, the Communications Institute. Under this forecast, California stands to reap $4.5 billion in oil-related tax revenues by 2015 and nearly $25 billion by 2020—if industry can find the solution to the Monterey shale riddle.

Naturally, the fractivists are all over this announcement from the EIA, trumpeting their “victory” far and wide as if industry will now take its ball and go home. Having long waged a war against fracking in California, the rhetoric is bound only to continue heating up.

That’s despite the fact that fracking doesn’t seem to be the answer to profitable production from the Monterey. Energized by the EIA revision and recent developments like the permanent ban on fracking in Santa Cruz, it’s clear that the fractivists see the battle turning against industry. Expect renewed fervor over a California senate bill that would place a moratorium on fracking, acid injection, and other well-stimulation techniques while the state further studies their safety.

Only time will tell whether the fractivists’ nightmare is ending or industry’s dream of full production from the Monterey Shale will come true. If history is any indication, the safe bet is on industry’s dream.

The post New EIA Estimate for Monterey: Dashed Dreams or Nightmare Deferred? appeared first on Oil + Gas Monitor.

]]>