The hydrofracing bill, ANWR and offshore drilling

A couple more quick notes for the evening: the bill to move hydrofracing under the Clean Water Act and about which I summarized the hearing last week, was put forward today.

Democratic Representatives Diana DeGette, Maurice Hinchey and Jared Polis offered a bill that would reverse a 2005 measure that excluded hydraulic fracturing from regulation under the Safe Drinking Water Act.

In the Senate, Democrat Bob Casey introduced similar legislation.

While the initial intent, as commented by Congresswoman DeGette at the hearing last week was purportedly just to have the chemicals included in the hydrofrac reported, under the rules of the Safe Drinking Water Act, the impacts on the supply of natural gas, which relies on hydrofracing to release the gas in the gas shales, is also going to be a consequence. The API highlighted an IHS report that concluded that:

additional federal regulations would lower the number of US wells drilled by more than 20% over a five-year period, while cutting natural gas production by about 10% from last year’s levels by 2014.

That does not seem to concern the bill’s authors who seemed to have a much more severe impact in mind.

"It's time to fix an unfortunate chapter in the Bush administration's energy policy and close the 'Halliburton loophole' that has enabled energy companies to pump enormous amounts of toxins, such as benzene and toluene, into the ground that then jeopardize the quality of our drinking water," Hinchey of New York said.

The fact that they are being pumped some 8-10,000 ft down, and are then removed, accounted for and safely disposed of in other wells at depths well below the few hundred feet to the water table is irrelevant to a point of view that seems to want the practice of hydrofracing completely banned. It might be interesting to hear where he expects the heating fuel to come from for his constituents next winter.

Certainly they should not, it seems, expect much help from Alaska, the Senate Energy and Natural Resources Committee has refused permission to use directional drilling to reach oil formations in the Arctic Natural Wildlife Refuge, in a way that would not put drilling rigs into the refuge.

As another part of that action the Committee voted to end the ban on drilling offshore in the Eastern Gulf, something not that popular in Florida. But it will require a state initiative to remove the ban that Florida has imposed.

Offshore Sweden and Finland plans are still moving forward to run the Nord Stream gas pipeline down through the Baltic. But there is a rumor that both the Swedish and Finnish authorities may oppose the project.

All in all, perhaps not a good day for the natural gas industry.

House Hearing on Hydrofracturing

This morning the House Committee on Natural Resources Subcommittee on Energy and Mineral Resources held a Hearing, motivated by (among others) Congresswoman Diana DeGette of Denver, to remove the Safe Drinking Water Act exemption from the hydraulic fluids used in hydraulically fracturing (hydrofracing) oil and gas wells. The exemption was granted in 2005. It is particularly relevant to today and tomorrow’s supplies of energy since it is only through the extensive use of hydrofracing that it is possible to viably recover the large quantities of natural gas that are now being developed from the gas shale deposits around the country.

I was led to listen in by Joe Romm at Climate Progress who seems to have just discovered both Peak Oil and the Gas Shales, and I am glad that I did. The issue seems to have become of increasing public interest since the discovery that one of the larger gas shale deposits in the country is the Marcellus, which can be found under parts of New York and Pennsylvania, and with the large volumes of fluid that are used in the hydrofracing process (of which more in a bit) there is a growing concern (and some rumors generated) that the fluids from that process will get into the local drinking water and surface waters; that the fluids contain toxic materials, and thus the public is being put, unnecessarily, at risk.


The witnesses before the Sub-Committee were:

Mr. Douglas Duncan who is 
Associate Coordinator for the Energy Resources Program of the United States Geological Survey.

Mr. Scott Kell
, President
 of the Ground Water Protection Council and a State Regulatory , Official from Ohio.

Mr. Mike John who is the 
Vice President of Corporate Development and Government Relations, for the Eastern Division
 of Chesapeake Energy Corporation.

Mr. Lynn Helms who is the 
Director of the Oil and Gas Division of the 
North Dakota Industrial Commission, and who spoke of the activity of the Interstate Oil and Gas Compact Commission.

Mr. Albert F. Appleton who is a consultant on 
Infrastructure and the Environment and a 
former Director of the New York City Water and Sewer System.

Of these, Mr. Duncan spoke of the size of the gas shale resource, on land in the United States (and did mention that the USGS was working out how much there was in the rest of the world) but otherwise seemed to try and stay outside of the debate. Interestingly, later in the debate, ho noted that the USGS had data for the public lands in the United States, but had not finished the survey as to what lay beneath private lands.

In his opening statement Scott Kell spoke to the work that the States already do in this regard. He specifically cited two reports, though I only got the reference to the first. That was “Modern Shale Gas Development in the United States – A Primer”, (pdf) and it appears to be an excellent reference to the topic, and I am going to use it to substantiate some of the comments from the panel of witnesses.

He noted that the rumors of ill health caused by hydrofrac fluids suggested up to 1,000 cases of environmental damage focused on six states. He contacted the relevant agencies in those states and found that the reports were unfounded. The Ground Water Protection Council was founded by State Oil and Gas Regulators and is designed to protect the public’s water.

Mike John, speaking on behalf of Cheasapeake, noted that the Marcellus is likely to be a real game changer in regard to US reserves. It will provide an “ocean of natural gas,” with production being limited by demand, since there is now too much supply. They have 94 rigs operating and he described defining the shale in their lease, identifying the sweet spots with 3-D seismic and then drilling, from a single 5-acre site, perhaps 6 t0 10 wells that go down 8 – 10,000 ft (depending on the deposit) and then turn lateral and go out a mile horizontally. He believes that the four major gas shales (Haynesville, Fayetteville, Marcellus and Woodford) will generate half the US demand for natural gas by 2020, at 30 bcf/day.

Lynn Helms spoke of the benefits to come from the Bakken in North Dakota, as a State Official he has no greater priority than protecting the water, but has seen no credible real threat to the water and believes that the industry is adequately regulated.

Thus the first four speakers (or at least the middle three) were of the “it ain’t broke so why fix it,” school, and it was left to the last member of the panel, Albert Appleton, to explain the concerns that had led to the Hearing and possible change in legislation). He has been, as one concerned with the NY water supply, a critical evaluator of what goes on in the watershed that feeds water to the city and the state. He spoke to the fact that we are supposed to be moving away from fossil fuels toward renewable ones, that there are concerns with the fluids that are used in hydrofracing, and the industry that says it can’t afford more regulation is the one that makes these huge profits. His main concern was that the fluids used are toxic and do not biodegrade, so that even though they are stored in deep wells, they are still there as a threat. But there are also concerns that there are not enough regulators to ensure compliance with the regulations, and that water withdrawal may have severe and negative impact on communities. And he returned to the point that the Government is now pouring billions into green energy but this will compete with natural gas, so that if we subsidize the gas by easing the regulations we are undercutting the green energy program. And we have to be concerned about global warming. (Joe Romm is quoting NASA as saying that we will set a new global temperature record within a year or two).

Well after these opening statements, the Sub-Committee members had their say, some speaking more themselves, and one or two merely asking questions. The ad hominem argument that appears in other discussions also popped up here. Congressman Hinchey (I believe) from New York asked Mr Kell where he got his funding and focused in on the oil and gas companies that therefore “bought” the conclusions he had provided. (This was rebutted by the witness). He was particularly concerned with the benzine in the fluid, and returned to its toxic nature and longevity once spilled.

Congressman Boren from McAlester, OK talked about the rigs that are laid down, and the high unemployment in the oil and gas business in his district, for him $4 gas was too cheap. He did note that then Senator Obama voted to provide the exemption, and he wondered why they were trying to “solve a problem that doesn’t exist.” He got the witnesses to differentiate between the depth of the wells (8-10,000 ft) where the fluid is used, and the 2-300 ft of the water supplies of concern. They also pointed out that without the hydrofrac, gas from the shales can’t happen. He noted that the prevailing backup to the wind and solar farms being installed today is natural gas, and so we really need it.

Congresswoman Lummis from Wyoming talked of the “game change” nature of the natural gas, and asked of the consequences of the proposed change. The example given in response was the effect of the LEAF (Legal Environmental Assistance Foundation) legislature in Alabama which was directed at control of coal bed methane and hydrofracing (historic review.) The result of the judgement was to place a two-year drilling moratorium in the state. She urged the Sub-Committee not to remove the exemption.

The State regulators pointed out that the States had been handling this problem for years, without documented cases where there were problems in over 20 years of operation.

Congressman Gohmert of Texas pointed out that they are drilling into the Barnett shale in downtown Ft Worth without problems. Congressman Fleming of Louisiana commented on the developments in the Haynesville shale and how they were a great boost for the local economy, without incidents.

Yet in a reply Mr Appleton returned to the point that non-Federal regulation of the industry was a subsidy to the National Gas Industry.

Congressman Sarbanes of Maryland went back to the toxic chemical point, seeking to determine if any of the fluids were Class 1 chemicals (they are Class 2) He was answered that all sites (to comply with OSHA) must have the pertinent MSDS data sheets for all the chemicals at the site and available – so the fluid chemistry is determinable. However, it was pointed out that the chemistry changes from well to well and site to site, and thus it is impossible to generate a single “one mix fits all.” The fluids from the well are stored on site, in either tanks or double clay-lined pits, from which the fluid (monitored by the agencies on a per barrel basis) is transported to injection wells and pumped deep underground. There are some issues with water quantity however, (though this was not followed up on very much).

In terms of price, Mr John said that Chesapeake could live with $4 gas (per thousand cu ft) but that he expected the price to return to $6 to $8 fairly soon. They have not shut in any of their wells in the Marcellus. In response to the question as to what a typical fracing fluid contains as a chemical package he began to read the table (exhibit 36) below.

Typical fracing fluid contents

Congresswoman DeGette then came into the Hearing and asked questions as to the objection to the legislation. If the chemicals are reported anyway, why is there a problem. Some foks say there are no incidents, but incidents don’t always get reported. And there are stories of contamination, and injuries.

There had been one break in the Hearing and I was distracted a couple of times so that this is not a full and complete report, just what I was able to note.

My sense was that most of the Sub-committee did not see the reason for change, with only two or three members pushing the need for a change in regulation, but I suspect that not all the members were there and that this may have more passion on the part of those seeking the change.

2009 Energy Conference - Natural Gas discussion

Following the coffee break the meeting broke into two sessions, one that dealt with the future of transport demand, and one on the future of natural gas markets. I went to the one on natural gas markets, since this is the one that deals more with supply. The five main speakers sat around a table and chatted, under the guidance of EIA moderator, Steve Harvey. First they introduced themselves.

Rick Smead of the American Clean Skies Foundation spoke of the benefits of natural gas in keeping the air clean. He noted that the opportunities provided by the production from gas shale give a step change to the supply available and that it is just a case of going out and working out how to get it.

Jim Simpson of BENTEK who provide real time supply data and modeling, noted that it is only practical to model for two years ahead, conditions are changing that quickly. He polled the audience on where the gas price was going and the majority seemed to indicate slightly up. (Perhaps to $6), though he seemed to think that it is more likely that it will stay below or at $4.

Brian Jeffries of the Wyoming Pipeline Authority talked of the conditions (93% of Wyoming’s energy is exported) that led to the creation of the authority.

Christine Tezak had, until the recent debacle, been working for the Stanford Group and brought up some of the problems that might face the growth of the industry. How does the recent concern over the fluids used in fracing the horizontal wells and the Clean Water Act impact their future use, given that some of the water may pick up small amounts of contaminants, such as benzine, when it comes into contact with the rock formation. The question also is that while the Waxman- Markey bill gives a current Congressional position it is not clear which direction the Congress will swing from that base.

John Strom of Haddington Ventures talked a little on bulk energy storage and particularly wind energy with its need to even out the supply load. There is a need to separate the two parts to energy supply, that of the energy availability itself, and that of storage capacity to hold the energy against demand. He noted that there are “lots” of natural gas folk coming into the new Administration and that it is the “working girl” of the current energy supply.


(I won’t identify speakers in the following discussion). The change from 2005 when 2 hurricanes in the Gulf caused a rapid run up in price, to this past year, when 2 hurricanes and the price of natural gas dropped, indicates the advances that have been made in natural gas supply. This has been brought about with the coming of the natural gas from shale, and the vast reserves that this has now added. The Haynesville alone, now that the technical problems are resolved, has added a great quantity to national supply, and wells there are currently being throttled back to control feed into the network.

Those states in the North East that need the gas, and for whom supply is limited by the size of the pipes feeding it to them, now have the choice, with the Marcellus, of providing some of their own energy, but to do so will likely need to modify some of their regulations and simplify them. The Marcellus apparently runs under the Manhattan aquifer.

The conate water issue (the water found in the rock with the gas) as well as the need to dispose of the water used in the multiple frac jobs that make gas shale practical have not been fully addressed yet in PA and NY, though PA is somewhat more advanced in this regard. Exactly how the availability of LNG will play into this market is not clear, but the potential of oversupply, and the resulting long-term price that is closer to $4 than $6 will control where that NG goes. One supplier noted that a tanker, by the time it clears the Gibraltar passage will have passed 14 terminals where it could have dropped its cargo. Thus if the US price is too low, (considering the $4 transit fee) the tankers will simply divert to where the price is higher.

Alaskan natural gas was thought to be still 10 years away (and ask again in 10 years). With current lower 48 supplies being what they are, that gas is not needed, and may be more profitably be put in LNG tankers and sold to Asia.

It was noted that while drilling overall is down, numbers are still holding up for the Haynesville and some of the other shales. However it should be noted that at present natural gas is only used for about 25% of its potential in the generation of electricity. That percentage can easily be increased, and if it rises to 35%, then all bets on the amount that is available relative to supply will likely be off the table.

For while much of the argument at the moment is over the relative amount of Carbon Dioxide that coal generates relative to NG (about double) the other concerns over SO2 and NOX may also cause movement toward the cleaner gas.

As natural gas is used more and more as a partner with wind in providing the backup service it is needed, since the economics of running transmission lines based only on the 33% availability of wind is somewhat less favorable. The high variability in the wind energy supply from a farm is of some concern (and running a gas turbine only when the supply fails to ensure stable demand will guarantee an extremely short life for the turbine, due to the highly variable load).

There is a growing question as to the availability of transmission lines given future power generator location relative to the market, and with an adequate supply looking to the future (technology keeps solving the problems that face the industry) those issues should perhaps be addressed in more detail. And yet the models only go out two years, and the life of the gas wells in the shale is on the same order of magnitude (something I found folk were a lot cagier about discussing). However the size of the reserve is such that now the independent producers that have developed the product are now seeing the majors start to move into the market as its size has become more evident. They have the capital to stabilize the market and production from the fields. Certainly the size of the reserves that have been identified in the United States has weakened the ability of Russia, Iran and Qatar to form a cartel to control price and production.

Coming out of the meeting a couple of folk commented that if you did not know the business, following the discussion would have been a little difficult, and I think that this held true for most of the papers given at the meeting.