Natural gas “expectations were rewritten in the last decade”

Michael Giberson

A brief mention, for those of you keeping track of Giberson media appearances at home, of a brief appearance in a brief story on natural gas supply issues on last Friday’s Marketplace radio news program.

As the story says, natural gas industry expectations were rewritten in the last decade. (But of course you already know all about that.)

Fracking at the Becker-Posner blog

Lynne Kiesling

Fracking and energy self-sufficiency is the topic of the week at the Becker-Posner blog. Becker’s contribution provides a stream-of-consciousness overview that is consistent with the past fracking discussions here; it touches on fuel source competition, the quest for self-sufficiency, the environmental impact of fracking, and the likely effects of fuel export regulation. I’m disturbed by seeing the spectre of fuel export regulations rise again, and Becker correctly points out that at least in oil, as long as the world price is higher than the US domestic price, export regulations will have no impact. And with natural gas inventories so high that natural gas prices are falling toward zero, why harm US natural gas companies by restricting their ability to export to countries with higher prices when we have a surfeit?

Becker’s ultimate focus is how fracking contributes to energy self-sufficiency in the US: “Fracking has made the US self-sufficient in gas, and it is leading to reduced imports of oil. If this progress continues, before too long US consumption of oil as well as natural gas would not be drastically affected even by an entire breakdown of imports from the Middle East.” This conclusion depends on there being a reasonably high elasticity of substitution between oil and natural gas, but natural gas is not perfectly substitutable for oil in all instances. Take, for example, electricity generation. According to the EIA’s Electric Power Annual for 2010, there are 55,647MW of generation capacity using petroleum for fuel, and 40.2 percent of that capacity is switchable with natural gas (Table 1.8). Total nameplate generation capacity in 2010 was 1,138,638MW (Table 1.2), which means that only 4.89% of generation capacity uses petroleum fuel, and thus that 1.96% of total nameplate capacity is switchable to natural gas. Electricity is not where the oil-natural gas substitutability is. Coal-natural gas is a different story, but neither Becker nor Posner touch on that analysis, which is less relevant to their main question of energy self-sufficiency.

EPA backs off “imminent and substantial endangerment” claim in Texas hydraulic fracturing case

Michael Giberson

On December 7, 2010, the Environmental Protection Agency dropped a bomb on Range Resources Corporation. From the EPA news release:

(DALLAS – December 7, 2010) Today, the U.S. Environmental Protection Agency (EPA) has ordered a natural gas company in Forth Worth, Texas, to take immediate action to protect homeowners living near one of its drilling operations who have complained about flammable and bubbling drinking water coming out of their tap. EPA testing has confirmed that extremely high levels of methane in their water pose an imminent and substantial risk of explosion or fire. EPA has also found other contaminants including benzene, which can cause cancer, in their drinking water.

EPA has determined that natural gas drilling near the homes by Range Resources in Parker County, Texas, has caused or contributed to the contamination of at least two residential drinking water wells. Therefore, today, EPA has ordered the company to step in immediately to stop the contamination, provide drinking water and provide methane gas monitors to the homeowners. EPA has issued an imminent and substantial endangerment order under Section 1431 of the Safe Drinking Water Act.

The endangerment order threatened Range Resources with thousands of dollars a day in fines if they did not take immediate action in response to EPA’s administrative order. Range Resources denied responsibility for methane in complainants groundwater and objected to being subjected to either fines or expensive remediation efforts without a hearing on the evidence. Range Resources went to court to bar enforcement of the order.

Fast forward to last Thursday, some 15 months after EPA’s order to take immediate action, and EPA has decided to withdraw its endangerment order  in order to “shift the agency’s focus in this particular case away from litigation and toward a joint effort on the science and safety of energy extraction.” Range Resources agreed to collect quarterly groundwater samples from 20 wells for one year, have the samples analyzed, and share the analysis with the EPA. (See also the Bloomberg story and WSJ coverage.)

The industry-side spin is that this is vindication for Range Resources and another black eye for the EPA. From Energy in Depth, “a troubling trend for EPA: Every time EPA intervenes in a high-profile case – generating scads of maligning headlines about shale and hydraulic fracturing in the process – the agency ends up getting it wrong.”  Texas Railroad Commissioner David Porter takes the same position.

At least one fracking critic says “not so fast” with the pro-Range Resource conclusions, apparently inferring from Range’s willingness to conduct groundwater sampling some sort of tacit concession on the company’s part.

My guess is that Range was tacitly admitting they’d rather collect groundwater samples than continue to pay lawyers and operate under the cloud of uncertainty created by the EPA endangerment order. After all, the scientific analysis is probably cheaper than the lawyers, and if the samples turn out the way Range expects, then the data becomes more evidence for the industry and against the EPA in the battle for public opinion.

I’m on board with the industry-side spin: this is vindication for Range Resources and another black eye for the EPA.

RELATED: We first posted on Knowledge Problem about the Range Resources case soon after the initial endangerment order.

Legal action continues. The initial complainants, Steve and Shyla Lipsky have sued Range Resources in civil courts, seeking $6.5 million in damages. Range Resources have counter-sued the Lipskys and their environmental consultant Alisa Rich for $4.2 million plus additional damages. In February of this year a judge refused a motion by the Lipskys and Rich to dismiss the countersuit, with the judge ruling that Lipskys had worked with Rich to create a deceptive video intended to give the impression they could light their groundwater on fire. (Here is the video as annotated by blogger “Texas Sharon.”)