Shale Gas – 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 The Shale Shock—How the World Has Changed http://www.oilgasmonitor.com/the-shale-shock-how-the-world-has-changed/ Wed, 14 Oct 2015 11:00:13 +0000 http://www.oilgasmonitor.com/?p=10301 Steve Goreham | Climate Science Coalition of America The world has changed. Although few yet understand it, the revolution in the production of oil and natural gas from shale has altered the course of global energy, affecting most of the world’s people. This is not a short-term event. Citizens, industries, and nations will be impacted […]

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October 14, 2015
Steve Goreham | Climate Science Coalition of America
Graphic1The world has changed. Although few yet understand it, the revolution in the production of oil and natural gas from shale has altered the course of global energy, affecting most of the world’s people. This is not a short-term event. Citizens, industries, and nations will be impacted for decades to come.

We are witnessing a modern energy miracle. For more than 30 years, US crude oil production fell from 9.6 million barrels per day in 1970 to 5 million barrels per day in 2008. Oil production, an annual 200-billion dollar industry, was in long-term decline. Industry experts proclaimed that we had reached “peak oil” and that world oil output would soon fall. But beginning in 2008, US production soared, again reaching 9.6 million barrels in June of this year, recovering all of a 30-year decline in just seven short years.
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For more than a century, geologists searched for pockets of oil and gas between rock layers. But by using the technological advancements of hydraulic fracturing, or fracking, and horizontal drilling, geologists learned how to squeeze oil and gas out of the rock itself. Shale is a common rock formation that covers large areas in the US and other nations. In a 2013 study, the Energy Information Administration concluded, “…the world shale oil and shale gas resource is vast.” The shale revolution has opened additional centuries of low-cost hydrocarbon resources to modern society.
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On the world stage, the most obvious Shale Shock impact is the precipitous drop in world oil price. The price of a barrel of West Texas crude dropped from $106 in July, 2014 to $53 in January of this year. Prices have now fallen to under $45 per barrel, a level not seen since 2009. Our current $2.50 price for a gallon of gasoline is a direct result.

For the first time in four decades, the world market price for petroleum is determined by competition. The Organization of Petroleum Exporting Countries (OPEC) can no longer dictate the price of crude oil by restricting production. Small firms that led the shale revolution, such as Baker Hughes, Cabot Oil & Gas, and Range Resources, now have the ability to quickly ramp or reduce production from shale fields, depending on market price. Big oil firms like ExxonMobil and BP are reacting to the Shale Shock along with everyone else.

It appears that low oil prices are the new normal. In the shale fields, oil production per drilling rig has increased 500 percent in the last seven years. Energy expert Mark Mills of the Manhattan Institute estimates that the fracker cost will soon drop to $20 per barrel, on par with the low-cost oil fields of Saudi Arabia.
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The geopolitical implications of the Shale Shock are huge. Low oil prices have crippled the economies of oil-baron nations Venezuela and Nigeria. Food and medicine shortages are rampant in Venezuela and prices are soaring. Oil provides 80 percent of the government revenue of Nigeria, where low prices have forced budget cuts and stimulated civil unrest. In Russia, oil and gas account for over 50 percent of the national budget and 75 percent of export revenue. The Russian ruble has weakened to 71 rubles per dollar, halved in value over the last year.

On the positive side, affordable prices are great for consumers and the world’s poor. Lower oil prices are reflected not only in energy but also in transported food and consumer goods. Low prices are boosting the economies of nations not dependent upon hydrocarbon production.

The anti-fossil fuel environmental movement is in despair. For decades, proponents of the ideology of sustainable development preached that humanity was running out of oil and gas, that consumption of hydrocarbons was destroying the climate, and that renewable energy was rapidly becoming a cost-effective alternative. But the Shale Shock has slain peak oil and promises low-cost oil and gas for centuries to come.

Oil and gas from shale will provide irresistible pressure for global carbon dioxide emissions to increase. Environmental groups are engaged in an all-out effort to stop fracking, but these efforts will ultimately fail. The world’s one billion automobiles today will double to two billion in the next 40 years, buoyed by inexpensive hydrocarbon vehicle fuel.

Electric cars and biofuels are already being impacted. US sales of hybrid and plug-in electric vehicles fell fifteen percent in the first half of 2015 compared to last year. Ethanol vehicle fuel, an alternative when gasoline was priced at $4 per gallon, is no longer competitive.

Natural gas from the shale revolution provides a tremendous advantage for our nation. US natural gas prices are one-half those of Europe and one-third those of Japan. Inexpensive gas now powers a growing number of power plants, keeping US electricity prices low. Global chemical producers are relocating to the US to utilize low-cost ethane feedstock from natural gas.

The shale industry will provide a US competitive advantage for many years. More than two billion well-feet of horizontal shaft have been drilled in the US over the last 20 years, a distance equal to 15 times around the Earth. Fracturing is just starting in China, Argentina, and the United Kingdom, but such efforts are more than a decade behind.

The Shale Shock is a tribute to US hydrocarbon geologists and to human ingenuity.  Dozens of small companies perfected hydraulic fracturing, launched the shale revolution, and changed the world. As the late economist Julian Simon pointed out, the greatest resource of mankind is not material in the ground, but the ingenuity of people operating in a free society. 

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‘It’s All About that Basin, Bout Dat Basin…No Trouble (Well Maybe a Little) http://www.oilgasmonitor.com/its-all-about-that-basin-bout-dat-basinno-trouble-well-maybe-a-little/ Wed, 17 Dec 2014 06:07:00 +0000 http://www.oilgasmonitor.com/?p=8344 Gregory D. Russell & Pete Lusenhop | Vorys, Sater, Seymour and Pease Cases from the Shale Plays That Will Impact the Oil and Gas Industry If there is a lesson to be learned from recent and pending cases in the shale plays, it might just be, “Proceed with Caution.” This is particularly true in states […]

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December 17, 2014
Gregory D. Russell & Pete Lusenhop | Vorys, Sater, Seymour and Pease
Cases from the Shale Plays That Will Impact the Oil and Gas Industry

If there is a lesson to be learned from recent and pending cases in the shale plays, it might just be, “Proceed with Caution.” This is particularly true in states in the newer shale plays, like Ohio, where the local courts are revisiting settled rules governing mineral ownership, conflicts between local and state regulators, traditional lease terms, and even the very nature of oil and gas property rights. While the outcomes of these cases are unclear and sometimes even surprising, what is clear is they will impact operators far beyond the borders of the Utica and the other basins where they are decided.

Ohio, like other states, passed a Dormant Minerals Act (DMA). As originally enacted in 1989, the DMA provides that severed mineral interests shall be deemed abandoned and vested in the surface owner unless a savings event occurred within the preceding twenty years. The DMA was amended in 2006 to require surface owners to serve severed mineral interest holders with a notice of abandonment and to allow the severed interest holder an opportunity to contest abandonment. For years, many players viewed the 89 Act as self-executing (meaning that if no savings event occurred within the statute’s look-back period, the mineral interest was automatically abandoned and vested in the surface owner), that the Act is constitutional, and that the mere mention of an ancient reservation in a surface deed was not the type of “savings event” under the DMA that would prevent a severed interest from being abandoned. This may all change. It may not.

In three separate cases, Walker v. Shondrick-Nau, , Tribett v. Shepherd, and Dodd v. Croskey, the Ohio Court of Appeals for the Seventh District recently affirmed the views held by many of the 89 and 2006 DMAs. Walker held the 89 DMA is self-executing. Tribett found the 89 DMA constitutional under both the state and federal constitutions. And Dodd held that the mere mention of an ancient reservation in a surface deed does not make the severed interest “the subject of” a title transaction under the Act (and hence does not constitute a savings event under the 1989 and 2006 DMAs). Instead, the Court held that for a severed mineral interest to be the “subject of” a title transaction, the mineral interest must itself be conveyed or retained by the grantor. All three cases are now on appeal to the Ohio Supreme Court, and each potentially holds far ranging consequences for a number of oil and gas transactions.

And these are not the only important DMA issues likely to be decided in the near term. In Chesapeake v. Buell, the U.S. District Court for the Southern District of Ohio certified to the Supreme Court of Ohio the questions whether a recorded oil and gas lease and the expiration of an oil and gas lease are title transactions under the DMA. Significantly, the case prompted participation of many amicus curiae. The Ohio Attorney General filed an amicus brief arguing that oil and gas leases are mere licenses, and not real property interests, as commonly understood. This argument would seem to allow Ohio to claim ownership of mineral interests in properties where the State had only purchased surface rights. Industry groups filed their own amicus brief arguing, among other things, that oil and gas leases are in fact and law interests in real property. Buell remains pending. A significant portion of oil and gas law rests on the nature of the property interest in oil and gas (license or fee), the outcome of this case could have a significant ripple effect across much of Ohio oil and gas law.

The Ohio Supreme Court is also addressing the conflict between state and local regulation of development. In 2004, the Ohio General Assembly confirmed that the State had sole and exclusive authority to regulate exploration and production. In 2011, however, a trial court allowed a small city to enforce its municipal code against Beck Energy Corp., essentially upholding a local ban on drilling. The Court of Appeals reversed, holding that the local code was preempted by state law. The matter is now before the Ohio Supreme Court. State of Ohio ex rel. City of Munroe Falls, Ohio et al. v. Beck Energy Corp. et al. Like similar cases in New York and Pennsylvania, Beck Energy could substantially impact where and how Ohio operators can drill. And, like the New York and Pennsylvania cases before it, Beck Energy will be cited in courts across the country.

Usually, the old rules win out and settled assumptions are confirmed. In Hupp et al. v. Beck Energy Corp. et al., the Ohio Seventh District Court of Appeals affirmed the ongoing viability of several typical oil and gas lease terms. The leases contained an habendum clause that stated that the leases will continue “for a term of ten years and so much longer thereafter as oil and gas or their constituents are produced or are capable of being produced on the premises in paying quantities, in the judgment of the Lessee, or as the premises shall be operated by the Lessee in the search for oil or gas”. The landowners challenged the leases alleging that the habendum clause rendered the leases “no-term” or “perpetual” leases that were contrary to public policy and, therefore, void ab initio. The landowners also argued that the leases allowed the lessee to hold the property indefinitely and without production through the payment of minimal delay rentals or by the lessee’s assertion that the land was capable of producing oil and gas. The trial court agreed with the landowners. The operator appealed.

The Court of Appeals reversed, issuing several important rulings, including that the habendum clause in the leases was a two-tiered clause with a definite primary term and an indefinite secondary term (i.e., continuing so long as there is production in paying quantities); that delay rental provisions only apply during the primary term; that the phrase “capable of production” in the habendum clause requires that the well, and not merely the land, be capable of production; that the phrase “capable of being produced on the premises in paying quantities, in the judgment of the lessee,” does not permit the lease to continue in perpetuity at the lessee’s sole discretion but instead a good-faith standard will apply; and that implied covenants, including the implied covenant to develop, may be disclaimed by the parties. Hupp will no doubt serve as a guide to other courts, and it too may end up before the Ohio Supreme Court.

Ohio courts have not had a monopoly on important cases.   The US 5th Circuit Court of Appeals recently ruled for Chesapeake in two cases addressing the deduction of post-production costs from gas royalties. See Potts v. Chesapeake Exploration, No. 13-10601, and Warren v. Chesapeake Exploration, No. 13-10619. While some might argue that Potts and Warren are unremarkable in that they merely affirm the net-back rule for calculating price at the well-head, they are important for the court’s focus on the precise lease terms at issue, notwithstanding other factors that could have weighed in favor of the landowners.

For example, the Potts oil and gas lease provided that royalties would be “the market value at the point of sale of 1/4 of the gas sold or used.” It also provided: “Notwithstanding anything to the contrary herein contained, all royalty paid to Lessor shall be free of all costs and expenses related to the exploration, production and marketing of oil and gas production from the lease including, but not limited to, costs of compression, dehydration, treatment and transportation.” Notwithstanding the lease language and a complex relationship between the lessee Chesapeake and affiliated entities that processed and purchased the gas from Chesapeake, the 5th Circuit held that Chesapeake was entitled to calculate Potts’ royalties net of post-production costs. The Court reasoned that Chesapeake’s sale to its affiliate was at the well, the “point of sale” in the lease, and thus the market value at that point was the price Chesapeake received from its affiliate, which was properly determined by use of the net back method. “Chesapeake has sold the gas at the wellhead. That is the point of sale at which market value must be calculated under the terms of the lessors’ lease.” More post production cost cases are coming and Potts and Warren are likely to feature in many.

In Antero Resources Corp. et al. v. William G. Strudley et al., the Colorado Supreme Court is currently considering whether local courts may issue a “Lone Pine Order” requiring personal injury plaintiffs alleging exposure to frac fluids to provide prima facie evidence to support their claims before discovery may proceed. A “Lone Pine” Order requires plaintiffs to show the identity of the chemical or substance that caused the injury, the specific injury caused by the substance, and a causal link between exposure and the injury before their case may proceed.  A ruling either way will be significant for future toxic tort cases alleging injuries from hydraulic fracturing activity.

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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 […]

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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.

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The Shale Revolution: Expanding the Use of Alternative Financing Structures http://www.oilgasmonitor.com/the-shale-revolution-expanding-the-use-of-alternative-financing-structures/ Mon, 01 Dec 2014 06:14:32 +0000 http://www.oilgasmonitor.com/?p=8230 Kirsten Polyansky | Haynes and Boone, LLP THE BOOM: It is difficult, if not impossible, to survey the current energy landscape in the United States without seeing the phrase “shale boom”—for good or for bad—somewhere in the rhetoric. In the past 10 years, technological advances in fracking and horizontal drilling have drastically changed domestic production […]

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December 1, 2014
Kirsten Polyansky | Haynes and Boone, LLP

THE BOOM: It is difficult, if not impossible, to survey the current energy landscape in the United States without seeing the phrase “shale boom”—for good or for bad—somewhere in the rhetoric. In the past 10 years, technological advances in fracking and horizontal drilling have drastically changed domestic production and overhauled the possibilities for the future. The U.S. shale boom is attributed with not only record U.S. gasoline exports and record increases in domestic crude production, but also lower gas prices for U.S. consumers, increased jobs for American workers, reductions in carbon emissions and even a possible boost to Black Friday spending in 2014. And in the realm of U.S. policy, the shale boom has provided a market response to concerns of foreign oil dependence that many would say is unrivaled by any formal government response. For these reasons, some say the “shale boom” is actually a “shale revolution” if we consider that shale advances have created a fundamental shift in the North American energy landscape in a relatively short period of time.

OPPORTUNITIES ABOUND: Despite a period of low crude oil prices and more organized opposition to fracking, the opportunities stemming from the shale revolution continue to be seen. For instance, U.S. infrastructure demand continues to expand resulting in new development projects cropping up around the country. Adequately servicing the capital needs for such projects has meant that new financing sources and alternative financing arrangements are being explored. For example, several years ago when record Bakken supply met with undeveloped infrastructure and therefore constrained delivery options, it created rapid demand in the rail car industry for new and converted rail cars. In turn, the demand for rail cars created increased demand for financing, which in turn encouraged new types of financing arrangements; the rail car space saw new entrants, including financial intermediaries, getting into the market.

HERE’S SOMETHING NEW: Outside of rail, the midstream space more generally has seen an uptick in interest from financial entities looking to employ alternative financing structures. “Inventory monetization” and other intermediation-type structures are being put into place either replacing in full, or working alongside on a much reduced level, traditional secured lending facilities. Key to a monetization structure is title transfer of the underlying commodity from the original owner (the “Client”) to the financing entity via a purchase and sale arrangement; such sale happens on a “true sale” basis and may involve commingled commodities. While the underlying commodity may eventually be sold back to the Client on an as-needed, just-in-time basis, such sale is not legislated by a pre-determined forward sale (different from a traditional repo-type structure). Often in a monetization structure the financing entity also is involved in supply and offtake/exchange arrangements connected to the Client.

THE GOOD AND THE GOOD: While many of the high-dollar, high-profile inventory monetization deals have been executed with refineries, such structures can be utilized outside of the refining space to assist, for instance, companies that hold title to commodities in storage or transit. A monetization structure is intended to positively (1) provide an initial injection of capital, (2) deliver off balance sheet treatment, (3) alleviate/decrease capital-intensive supply chain or offtake requirements, and (4) offer reduced capital costs. Monetization structures are interesting to financing entities because these structures are geared to be credit neutral and can be employed for a wide spectrum of credit profiles (including very credit-challenged entities). These alternative structures diversify the manner in which financing entities participate in the commodities space with a strong focus on the Client relationship. Financing entities are smart to take into account “true sale” considerations for these types of structures in order to mitigate against re-characterization risk in a liquidation scenario.

THINK CREATIVELY: As opportunities from the shale revolution continue to develop, and considering the possibility that such opportunities will require more capital input than may be easily available, it is advantageous to consider both traditional and alternative sources of financing to best optimize capital availability.

 

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Key Developments that Shape the World of Oil and Gas http://www.oilgasmonitor.com/key-developments-that-shape-the-world-of-oil-and-gas/ Fri, 28 Nov 2014 06:54:36 +0000 http://www.oilgasmonitor.com/?p=8217 Tom Mallon | GlobalView The recent rise of oil production in the United States, referred to by some as the “shale boom,” has caused a significant change in the global discussion about energy. The United States is poised to become a much larger presence in global oil, thanks to higher levels of production from new drilling […]

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November 28, 2014
Tom Mallon | GlobalView
The recent rise of oil production in the United States, referred to by some as the “shale boom,” has caused a significant change in the global discussion about energy. The United States is poised to become a much larger presence in global oil, thanks to higher levels of production from new drilling techniques that allow companies to tap into reserves of tight oil in formations of rocks. This rise in production has caused some to call for a lifting of the ban in place on exporting crude oil in the United States. To understand whether or not the lifting of this ban is a good idea, it is important to consider the current situation as well as the most common beliefs about the forecast for the future of oil production and reserves.

The U.S. Shale Boom

The shale boom is the name for a trend in the U.S. energy industry that has allowed oil companies to unlock more oil than ever before from rock formations, particularly shale. Some of the areas where production has risen tremendously include the Eagle Ford formation in south Texas and the Marcellus formation in western Pennsylvania, West Virginia, and parts of upstate New York.

Statistics from the Energy Information Association show that production in several key oil fields of the United States has tripled in growth between 2008 and 2014, from around 4 million barrels of oil per day to roughly 12 million. In May 2014, the EIA released a report indicating that U.S. crude oil production had reached an average of 8.3 million barrels per day, the highest monthly level in 26 years.

This tremendous growth in American oil has lead to a new dynamic in the global oil market. In the summer of 2014, the United States overtook Saudi Arabia and Russia to become the world’s largest producer of oil. This means that the U.S. is less dependent on foreign oil imports, since the wide-reaching ban on crude oil exports in the U.S. means that a huge majority of that oil stays at home.

Why the U.S. Bans Crude Oil Exports

Since the middle of the 1970s, the United States has banned almost all crude oil exports, to insulate the American economy from fluctuations by conserving as much of the country’s oil reserves as possible. This law and similar oil-conserving laws of the era grew out of fear from the 1973 oil embargo by OPEC against the United States, which resulted in a gas shortage that saw gas prices rise exponentially and dealt a significant blow to the American economy. Today, certain areas of California and Cook Inlet in Alaska are among the few places where gas can still be exported out of the country from.

Decades later, however, many believe that these bans are outdated and need to be revised based on current U.S. oil production levels and economic conditions, as well as future projections for energy production in the U.S. Opponents, however, are concerned that these forecasts may be misleading and are worried about the impact of increasing oil production.

Two Views on the Forecast for U.S. Oil Production and Reserves

Those that are in support of lifting the ban on crude oil exports generally feel that this would be an economically-sound decision, in part because of several reports showing that levels of oil reserves are higher than previously believed. In its annual study on world energy, BP put the United States’ oil reserves at 44.2 billion barrels, a 26% increase from its previous estimate. In 2012, the U.S. EIA similarly raised its projection of U.S. crude oil reserves by 15% to 33 billion barrels.

The combination of increased oil reserves, rapidly-rising oil production rates, and more efficient use of gas and oil leads some to believe that the U.S. will have enough oil to fulfill domestic energy requirements sooner rather than later. A report from BP in January projected that the U.S. will achieve energy independence by 2035. Proponents of lifting the ban on crude exports believe that allowing oil companies to export a portion of this surplus of American oil will help contribute to positive growth and sustained levels of oil production in the future.

On the other side of the debate, there are those who believe that the ban should stay in place for a few reasons. Some, like U.S. Senator Robert Menendez, believe that lifting the ban on exporting crude oil is simply an attempt by energy companies to grab more profits and will hurt America’s economic recovery by raising gas prices for businesses and consumers. Others are worried about the accuracy of oil estimates from the EIA and energy companies like BP.

In October, geoscientist J. David Hughes and the Post Carbon Institute published a report that conducted a comprehensive analysis of the 12 major shale formations that currently account for more than four-fifths of tight oil production in the United States. Hughes’ study paints a much different picture of the future of energy: it projects that oil production from most of the major U.S. formations will peak in the next decade, and by 2040 production levels will be far below the EIA’s predictions.

After reviewing the data, one thing is clear: production of oil in the United States is on the rise. The country’s future direction depends on exactly how sharp that rise is. While the precise numbers may still be unknown, it is safe to say that the amount of oil reserves available in the U.S. and the ability of energy companies to extract this oil will have a major impact on the American economy and foreign policy in the coming years.

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UK Shale Gas – Impending Boom or Arrested Development? http://www.oilgasmonitor.com/uk-shale-gas-impending-boom-or-arrested-development/ Fri, 21 Nov 2014 06:16:32 +0000 http://www.oilgasmonitor.com/?p=8169 Simon Ede, Anthony J. Melling & Bethany Kirkpatrick | Berkeley Research Group Much has been said in the United Kingdom about the potential for shale gas to transform the UK energy market as it has in the United States, where wholesale gas prices are a third of those paid by British consumers. The British Geological […]

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November 21, 2014
Simon Ede, Anthony J. Melling & Bethany Kirkpatrick | Berkeley Research Group
Much has been said in the United Kingdom about the potential for shale gas to transform the UK energy market as it has in the United States, where wholesale gas prices are a third of those paid by British consumers. The British Geological Survey estimates that the UK’s main shale formation, the Bowland Shale (Figure 1), has some 1,300 Tcf of gas in place. With annual gas consumption in the UK at around 3 Tcf, this alone could amount to decades of supply even at very conservative estimates of economically recoverable reserves. There are, however, significant obstacles to U.S.-style growth in the UK shale gas industry.

Figure 1: Bowland Shale

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The United States has 2.9 million wells drilled to date. This activity provided the country with many advantages from its existing oil and gas industry in the early development stages of its shale industry. Hundreds of rigs, supplied by a large and efficient oil and gas field services industry, were already drilling over 15,000 onshore oil and gas wells each year. Currently, over 1,400 unconventionally focused U.S. rigs drill over 30,000 wells per year.

By contrast, in the United Kingdom only around 2,000 wells have been drilled onshore since 1900. With far fewer rigs capable of horizontal drilling currently operating in the United Kingdom (and in Europe more generally), a local supply chain will need to be built virtually from scratch. This will need to be done in a tight labour market for technical experts in the hydrocarbons exploration and production industry. An entire support network of commercial staff will need to be established to obtain drilling sites and permissions. Networks for water supply, fuel, electricity, and gas processing will need to be developed and/or adapted. New demand will be created for waste management companies that can supply, process, and dispose of drilling and fracking fluids.

Recent estimates of UK shale gas wellhead costs have been around two to three times levels observed in the United States. For example, the UK Onshore Operators Group recently forecasted the cost of bringing a well online to be about $13.5 million (excluding land acquisition/lease costs) (Figure 2). At recent market prices of around $8 to $10/Mmbtu, such costs would make UK shale gas economically marginal.

Figure 2: Estimated total cost of a single shale gas well for the US and UK ($m)

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Advances in drilling technology and rig deployment strategies, combined with well-completion-driven productivity improvements in the United States, have driven down break-even costs and enabled the industry to adapt to lower market prices. Even allowing for potentially higher future prices, in the absence of a thriving service industry and an efficient licencing and planning process, persistently higher costs could thwart development in the United Kingdom.

Whilst the UK private sector may rise to the challenge of developing an onshore service industry for shale gas, it’s unlikely to do so without greater clarity on the possible scale and intensity of activity. Geological uncertainty has bred wide-ranging estimates on this, from a few hundred to a few thousand wells each year. Recent technological and operational practices, such as pad drilling and multiple lateral branches from single vertical wells, which have driven down cost in the United States, are dependent on geological conditions. The Bowland Shale is thought to be thicker than many U.S. plays, and this would improve the feasibility of multiple laterals. On the other hand, it is highly fractured, and this may make the drilling process more complex and more expensive.

An eighteen-month moratorium on shale gas drilling in the United Kingdom ended in 2012. The fourteenth onshore oil and gas licensing round (which covers the main shale basins) closed at the end of October this year. The government has engaged in efforts to ensure that resulting exploratory wells are permitted and approved as efficiently and quickly as possible. A new National Planning Policy Framework for Shale established a strong presumption in favour of extraction, a 1 percent royalty payment to local communities, and endeavours to minimise the involvement of local planning agencies. Local planning steps can be fraught with delay (as experienced by onshore wind farm developers). Additionally, subsurface access rights have been clarified this year to prevent surrounding landowners (to a drill site) from delaying drilling by claiming trespass in relation to the lateral sections of the well. HM Treasury has also revised the fiscal regime to place shale hydrocarbons developments on a more comparable footing to conventional hydrocarbons by recognising the concept of pad drilling.

As a result of the scale of opportunity and these regulatory efforts, interest has grown beyond the smaller players (like Cuadrilla, Igas, and Dart) currently operating in the United Kingdom. Centrica (owner of the UK’s largest utility), GDF Suez, and Total have all taken positions in shale prospects.

Much remains up in the air until test wells have been drilled and fractured—and not just from a commercial perspective. While public support for shale gas drilling has been favourable, until recently it has been in decline. When specific development steps have been taken, the associated debate has been vigorous, though not necessarily always well informed, denting confidence. As a 2015 national general election approaches, political priorities have shifted towards security and cost of supply. This ought to favour development, but political support outside of the governing Conservative Party could be described as at best heavily caveated. There remains a risk that public concern could stymie progress (witness the noisy protests around Cuadrilla’s Balcombe 2013 test well—despite the firm’s promise not to hydraulically fracture the well). As landowners in the United Kingdom do not hold mineral rights and will not benefit directly from royalties—as in the United States—the local planning stage will still be at risk from protest and delay, particularly during local election cycles.

Even with a framework in place, it’s too early to declare a shale gas revolution for the United Kingdom. It should, however, now be possible for the industry to start fleshing out what that potential might be.

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Shale Gas Market is Expected to Reach $104.1 Billion, Globally, by 2020 http://www.oilgasmonitor.com/allied-market-research/ Tue, 16 Sep 2014 16:52:11 +0000 http://www.oilgasmonitor.com/?page_id=7772 Shale Gas Market is Expected to Reach $104.1 Billion, Globally, by 2020 – Allied Market Research FOR IMMEDIATE RELEASE PRESS CONTACT: Cathy Viber Email: Cathy Viber Allied Market Research Website Direct: +1 (503) 505-6949 Toll Free: +1 (855) 711-1555 (U.S. & Canada) Fax: +1 (855) 550-5975 Portland, Oregon – (September 16, 2014) According to a […]

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Shale Gas Market is Expected to Reach $104.1 Billion, Globally, by 2020 – Allied Market Research

FOR IMMEDIATE RELEASE
PRESS CONTACT:
Cathy Viber
Email: Cathy Viber
Allied Market Research Website
Direct: +1 (503) 505-6949
Toll Free: +1 (855) 711-1555 (U.S. & Canada)
Fax: +1 (855) 550-5975

Portland, Oregon – (September 16, 2014) According to a new market research report by Allied Market Research titled, “Global Shale Gas Market (Technology, Application and Geography) – Industry Analysis, Trends, Share, Opportunities and Forecast, 2013 – 2020” the global shale gas market is forecast to reach $104.1 billion by 2020, registering a CAGR of 9.3% during the forecast period (2014 – 2020). The corresponding volume consumption will reach 19,619.4 bcf in the same year. The advent of hydraulic fracturing and horizontal drilling techniques has nearly doubled the efficiency of shale gas retrieval from plays, revolutionizing the shale gas market. China is a major Asian country to propel the demand aided by insatiable energy needs and increasing dependence on natural gas.

“Shale gas, as potent alternative source of natural gas, is expected to shake up the global energy market in the coming years. The availability of large number of shale plays, which is estimated at 6,148 tcf in total, is presenting opportunity for marketer”, state AMR analysts Apurva Sale and Guru Mallick. “Technological advancements vis-à-vis the exploration and extraction of shale gas are enabling corporations to gain strategically advantageous positions in the competitive market”, add the analysts. Though the large number of shale gas reserves are available across the world, (North America 1685 tcf, South America 1430 tcf, Europe 470 tcf,Middle East and Africa 1393 tcf, and Asia-Pacific 1170 tcf), exploration and extraction still remains the major challenge in most of the regions due to high extraction cost and large amount water usage in conventional processes. The technological trend such as hydraulic fracturing and horizontal drilling for the extraction of the shale gas are contributing to the rise in the production of shale gas in various geographies. As shale plays are available in abundance and almost equally across the regions, the mass production will lower dependence on fossil fuel reserves which is available only in specific region. More energy independence with shale gas adoption will eventually lead to better economic stability of the country.

To view the complete report, visit the website.

Despite the latent commercial potential, the regulatory issues in various regions would impede market growth. According to UK government, fracking would be impractical in the parts of UK due to the scarcity of the water supplies. Amidst, various European countries such as Poland, United Kingdom, and Algeria would start the production of shale gas in next two to three years with the help of advance extraction technology.

Shale Gas has a wide ranging application in power generation, industrial usage, residential and commercial utility and usage in transportation. The power generation sector would benefit the most from the adoption of shale gas as it would be a cost-effective alternative that ensures reduced electricity costs.

The worldwide adoption of shale gas as an energy resource would undoubtedly benefit every region. The usage of unconventional energy resource is an upcoming trend in the energy industry. A substantial number of shale reserves in countries such as China,Argentina and Algeria would act as a golden opportunity for companies to enter the shale gas market. The Asia Pacific region appears especially attractive due to the up gradation of technology for the extraction of shale gas and the significant number of shale reserves. In-spite large availability of shale reserves in the European countries the production and adoption would be at lower side due to stringent regulatory hurdles.

Key players such as Baker Hughes Incorporation, Anadarko Petroleum Corporation, BHP Billiton Limited, Royal Dutch Shell, ConcoPhillips, ExxonMobil & Chesapeake Energy Corporation and the developmental strategies adopted by them have been carefully examined. Acquisitions, expansions, partnerships, collaborations and joint ventures are some major strategies adopted by market players in order to sustain in the competitive market.

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About Allied Market Research
Allied Market Research (AMR) is a full-service market research and business consulting wing of Allied Analytics LLP, based in Portland, Oregon. Allied Market Research provides global enterprises as well as medium and small businesses with unmatched quality of “Market Research Reports” and “Business Intelligence Solutions”. AMR has a targeted view to provide business insights and consulting to assist its clients to make strategic business decisions and achieve sustainable growth in their respective market domain.

We are in professional corporate relations with various companies, and this helps us in digging out market data that helps us generate accurate research data tables and confirm utmost accuracy in our market forecasting. All the data presented in the reports published by us is extracted through primary interviews with top officials from leading companies of concerned domain. Our secondary data procurement methodology includes deep online and offline research and discussions with knowledgeable professionals and analysts in the industry.

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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 […]

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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.

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Integration Central to Improving Capital Efficiency in Shale Operations http://www.oilgasmonitor.com/integration-central-improving-capital-efficiency-shale-operations/ Wed, 16 Jul 2014 11:55:50 +0000 http://www.oilgasmonitor.com/?p=7497 Hemant Kumar & Bakul Pant | Wipro Shale Markets Present a Key Financial Challenge Shale gas production has positively transformed the US natural gas supply markets over the past decade. Billions of dollars in capital continue to be deployed by oil majors to tap domestic shale resources. The success has spawned some challenges as well […]

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July 16, 2014
Hemant Kumar & Bakul Pant | Wipro

Shale Markets Present a Key Financial Challenge

Shale gas production has positively transformed the US natural gas supply markets over the past decade. Billions of dollars in capital continue to be deployed by oil majors to tap domestic shale resources. The success has spawned some challenges as well – A supply glut has led to depressed natural gas prices while the oilfield services (OFS) market, limited on materials (e.g. rigs) and skilled labor, remains resilient. Deployed capital demands financial returns and prevailing “stagflation” type conditions must be overcome to achieve it.

Enabling Intra-Function Efficiencies in Shale Business

Shale gas is a capital-intensive industry in which both the finished product (natural gas) and the raw materials (rigs, labor) are either commodities or near-commoditized. Commodity prices are fickle, not fully in a company’s control and hence a twin-sided crunch situation is ever looming. To address this situation strategically, companies must utilize all levers within their ambit of control that bring relative predictability and efficiency to the business. These levers span three key functions in a typical shale gas business: Commercial (i.e. Sales & Marketing), Operations & Supply Chain Management (SCM).

Creating a more predictable natural gas sales demand can help streamline operations, minimize stranded capital and foster a strategic relationship with suppliers. It is also the central pivot from which all operational and SCM planning emanates. Wherever feasible, oil companies may choose to move away from spot pricing and sign long-term offtake agreements at fixed prices with reliable customers. For integrated Oil & Gas majors, selling shale gas production to self-owned downstream petrochemical operations (e.g. for polyethylene production) will help bring predictability and also ensure that economic value resulting from low gas prices stays within the corporation.

Operations is an area that offers ample scope for efficiency gain in Shale gas business since it is complex, cross-functional and only partially streamlined so far. The shale gas industry grew due to the pioneering efforts of innovators. To achieve scalable profitable growth, skills must pass from the collective brains of innovators to the repeatable efficiency of systems & processes. Introducing Business Process Management (BPM) techniques can help – Winning processes must be defined, benchmarked and standardized. In keeping with the evolving nature of the business, they must be subject to a continuous improvement program via a feedback loop. Perhaps more importantly, the processes need to be designed to ensure cross-functional collaboration and incorporate rapid escalation mechanisms that are key to success in the unique shale business.

Clearer processes pave the way for focused operational action to achieve financial aims. Operational action should focus on meeting the committed gas offtake volume at lowest possible marginal cost of extraction by making optimal well & drilling portfolio choices. With talented labor in limited supply and capital equipment rental prices high, maximizing their utilization and minimizing Non-Productive Time (NPT) is important. These efficiencies can be substantial: Many shale sites are known remain non-productive for a fair fraction of the total development time due to planning issues. Deployment of Planning & Scheduling processes & tools can help unlock these latent operational efficiencies. Capital and Labor can be made available at the right place at the right time at the right cost.

Shale business’ Supply Chain Management (SCM) vendor market is a volatile one (it is currently a seller’s market). Predictable gas sales offtake and streamlined operations enable the clarity needed for decision-making for signing long-term, cost-effective strategic contracts with vendors. Operational visibility drives “No Stockout and No Obsolescence” principle with minimal cash bleeding rush orders. Additional levers for unlocking SCM function efficiencies exist: Obtaining preferential pricing by economies of scale is crucial, wherein levers like category management and vendor consolidation can play a role.

Inter-Functional Integration Enables Additional Efficiencies

Integration across Commercial, Operations & Supply Chain Management functions enables additional efficiencies by dampening the “bullwhip effect”. This integration must cover the People- Process-Technology triad comprehensively.

Shale operations require a simple, nimble & integrated organization structure with clearly assigned individual accountabilities. Two inter-functional roles that saddle (1) Commercial & Operations and (2) Operations & SCM functions are of key importance: The first is a strategy manager who has operational “dust on his boots” helping him/her coordinate business planning with site-level operational scheduling. The second role is that of strategic sourcing manager: The category manager’s role can be transformed to take on strategic sourcing responsibilities involving a mandatory interface with operations function, continual vendor market scanning and vendor performance management.

The technology strategy for shale operations should center on the concept of “Integrated Agility”. Multiple and often overlapping point solutions within organization should be replaced with standardized platforms to reduce complexity, improve data integration and accelerate delivery of new capabilities (such as analytics and reporting). Such platforms may include commercial planning, operational scheduling, drilling and supply chain management applications.

Agility is a central concept for Shale technology architecture: Traditional enterprise software systems may be over-engineered & too rigid for shale business and may saddle the shale P&L with unnecessary costs. Shale’s technology strategy should embody three essential components of Agility: Flexibility (i.e. ability to pick and choose applications when needed), Speed (i.e. fast deployment of new capabilities) and Cost adjustability (i.e. pay-as-you-go capabilities). This requires a low-frills fit-for-purpose base solution that can be tuned up or down based on market requirements. In an industry where asset ownership changes hands often, hosting the solution compnents in a cloud-based Software-as-a-Service (SaaS) format will enable pay-as-you-go capabilities as and when needed.

An enterprise program management office can play a key role in cost effective and efficient delivery of IT services to organizations by driving unified project management approach. A centralized governance approach to IT delivery is recommended to discourage federated development of point solutions in different operating units.

Multiple Strategic Benefits Accrue

Reengineering of business processes & functionally integrating the Shale business will help standardize the winning formula for running shale enterprise in a financially effective way. A central IP repository of iteratively refined & codified best practices can be applied to new shale plays as the investors’ portfolios evolve over time. A codified IP base may also eventually enable private equity investors to launch an upstream services company that serves multiple shale customers beyond their immediate portfolio.

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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, […]

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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.

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