New York regulators take steps toward allowing fracking for natural gas production

Michael Giberson

Today the New York Department of Environmental Conservation took a few steps toward permitting fracking of natural gas wells, a process necessary to produce natural gas from underground shale formations. Regulatory processes being as they are, it likely means fracking will remain off-limits in the state for some time.

News reports include favorable reactions from both industry-group Energy in Depth and an attorney at the Natural Resources Defense Council, which seems like a sure indication that something is wrong. ;-)

Additional reactions to the New York Times articles documenting shale gas skepticism; More on fracking

Michael Giberson

As a follow-on to my post on the recent New York Times articles on shale gas skepticism, here’s a collection of other reactions:

  1. The most thoughtful response appears to come from Michael Levi at the Council on Foreign Relations, Is Shale Gas a Ponzi Scheme?: “The New York Times’ war on shale gas continues with two more big stories by Ian Urbina. … Both articles are based primarily on piles of emails, the first from industry sources and the second from EIA staff. I hate to say it, but on the whole, both pieces are of pretty poor quality. That’s a shame, because both – particularly the first one – had the potential to raise some important issues for debate.” Levi continues, “I’m going to focus on the Sunday story here, because it’s much more interesting, and because some of its sources raise some genuinely important issues…. In contrast, today’s story is mostly a mix of some frustrated EIA analysts’ complaints and some healthy internal EIA debate taken wildly out of context.”  Levi’s commentary continues with a cogent and somewhat damning analysis of the Times article. Worth reading the whole thing.
  2. Also thoughtful is Michael Lynch posting at MasterResource: “Two specific issues raised in the article are important: the profitability of shale gas wells and their long-term production profiles.” But also, “A careful reading of the articles, however, suggests that it is more smoke than fire.” The post includes addition examination of the relevant issues. The remaining items are not as good as these first two, but for more reactions read on!
  3. Dallas Morning News editorial: “This newspaper isn’t ready to give up on the enormous promise of ‘abundant, clean and cheap’ that natural gas may hold for America’s energy future. Still, a disturbing pattern of unfulfilled claims justifies the public’s increased skepticism.”
  4. Fort Worth Star-Telegram‘s Barnett Shale Blog: “Chesapeake Energy and its high-profile CEO Aubrey McClendon issued a blistering response to a Sunday New York Times article …. Meanwhile, U.S. Rep. Edward Markey, D-Mass., citing a related Times article published Monday, said he wants the U.S. Energy Information Administration to justify ‘optimistic estimates’ for shale-gas production. The Star-Telegram published versions of both articles.”
  5. Chesapeake Energy’s statement: the aforementioned “blistering response.”
  6. Grist writer David Roberts: “If the WSJ editorial board says it, it’s probably wrong.” Chesapeake Energy CEO Aubrey McClendon’s response to the NYT stories, “… is chock full of logically flawed arguments and right-wing talking points. Indeed, it sounds like it could have been written by the WSJ editorial board!” (HT to Roberts for mentioning the great Levi commentary noted above.)
  7. MarketNewsVideo.com reported that some of the companies mentioned in the articles were trading lower on Monday, but the effect appears small. Not mentioned by MarketNewsVideo.com was that some companies mentioned in the articles outperformed the market on Monday. I’d say no real market effect.
  8. The blogger at Early Warning speculates on the two-headed editorial sensibilities at the New York Times, sometimes publishing cheery resource reports that seem to reflect oil company PR claimes and other times publishing highly critical analyses.
  9. At FuturePundit, Randall Parker wonders whether the electric power industry and transportation policies may get burned by big investments predicated on the shale gas boom story, if it turns out the skeptics are right.

[ADDED: At FuelFix, Tom Fowler collects other reactions to the NYT articles, including a sharp blast from John Hanger, a former Pennsylvania regulator.]

While I’m at it, there have been a spate of other fracking related pieces lately, including:

  1. Wall Street Journal, The Facts About Fracking: “The U.S. is in the midst of an energy revolution, and we don’t mean solar panels or wind turbines. A new gusher of natural gas from shale has the potential to transform U.S. energy production—that is, unless politicians, greens and the industry mess it up.”
  2. Kathleen White in the National Review, The Fracus About Fracking (link goes to a summary, full article req. subscription at NR, NR link here): “Human ingenuity, catalyzed by market dynamics, has foiled predictions of irreversible decline in domestic oil and natural-gas resources. Official estimates of the amount of recoverable oil and natural gas have soared.”
  3. The Economist, Fracking Heaven: Other Europeans fear fracking, Poland is steaming ahead: “The rewards could be vast. Shale gas could free the country from its dependence on coal, a dirtier fuel, which currently accounts for 95% of Polish power generation. It could also mean that Poland no longer has to rely on Russia, the neighbourhood bully, for most of its natural gas.”
  4. At the Huffington Post, Kevis Begos reports Sportsmen Alliance for Marcellus Conservation: Fisherman, Hunters Take on Fracking: “A new coalition of outdoors groups is emerging as a potent force in the debate over natural gas drilling. The Sportsmen Alliance for Marcellus Conservation isn’t against the process of fracking for gas, but its members want to make sure the rush to cash in on the valuable resource doesn’t damage streams, forests, and the various creatures that call those places home.”
  5. And for something different, at Cycles, Trends, & Vibrations Mike Aucott offers a preliminary but well documented estimate of the shale gas energy return on energy invested (EROEI) along with a discussion of related issues. The EROEI he comes up with, in the range of 70 – 100, seems shockingly high.

Recommended in the comments: Ten Fracking Things Everyone Should Know

Michael Giberson

Commenter “Fat Man” recommends Peter C. Glover’s essay in the Energy Tribune: “Ten Fracking Things Everyone Should Know.”  Number one on the list of things to know is “Hydraulic fracking has been around for 60 years. Developments made by U.S. engineers around 2008-9 have simply made the process much more commercially viable.”

Relatedly, Greg Rehmke considers some implications of the oil production boom from the Eagle Ford Shale in Texas at Master Resource.

Science, law, and regulation of fracking for natural gas in the Marcellus Shale

Michael Giberson

The current issue of the Energy Law Journal includes an article examining the public policy history surrounding the use of hydraulic fracturing to develop natural gas in Pennsylvania and New York. The article, “Science and the Reasonable Development of Marcellus Shale Natural Gas Resources in Pennsylvania and New York,” is by attorneys Lynn Kerr McKay, Ralph H. Johnson and Laurie Alberts Salita.

SYNOPSIS: A fair amount of controversy concerning the development of natural gas resources in the Marcellus Shale formation has accompanied the return of significant oil and gas exploration and production to Pennsylvania. One need only look at the news headlines and legislative and regulatory dockets to appreciate the diversity of issues and positions on those issues related to the Marcellus Shale region. A growing number of lawsuits and media reports give the impression that Marcellus Shale drilling and production operations – especially the process known as hydraulic fracturing – are indisputably harmful to both the environment and to those who live in the vicinity of the wells. Lawmakers and regulators have introduced myriad measures imposing additional oversight and operational requirements on Marcellus Shale producers. The economic, environmental, and human impact of such measures will be significant – which is exactly why unbiased and informed scientific evaluation of the potential link between Marcellus Shale production activities and environmental and health concerns is essential to appropriate judicial and regulatory decisions. The success of efforts to explore and develop Marcellus Shale natural gas resources requires continued critical and scientific evaluation of information concerning all aspects of the enterprise.

Also in the current ELJ, “Shale Gas in Poland – The Legal Framework for Granting Concessions for Prospecting and Exploration of Hydrocarbons, by Wojciech Bagiński.

French fracking fracus

Michael Giberson

There is oil in shale formations in France, possibly even shale oil under the Eiffel Tower, and at least for now it looks like that is where the oil will remain. According to a report by Bloomberg News, a parliamentary committee agreed on a proposal to ban hydraulic fracturing in the country, the full parliament is slated to vote on the issue later this month and the proposal could become law by July.

A parliamentary committee yesterday agreed on a ban that removed the possibility of fracking even for “scientific experiments.” Both houses of the French parliament are slated to vote on the bill this month and it could become law in July.

Companies that were planning to use the technique will have their permits canceled under the proposal, which also includes jail time and fines for fracking and the creation of a commission to oversee research and evaluation of unconventional oil and gas exploration.

The view from Paris:

“I’m against hydraulic fracturing,” French Environment Minister Nathalie Kosciusko-Morizet has said. “We have seen the results in the U.S.,” with its “devastated countryside” and “sullied water tables.”

The French Environment Minister concluded remarks to developers with, “Now go away or I shall taunt you a second time.”*

*Just kidding, but really – “devastated countryside” and “sullied water tables”? I guess if you know no more about fracking than you saw in Gasland and the New York Times maybe you’d think so, but surely standards for policy analysis should be higher than that.

[HT to FuelFix.]

Keystone pipeline leaks boost case for new Keystone XL pipeline and other energy stories in the news

Michael Giberson

Mostly oil and natural gas stories from around the web:

  1. The Hill’s E2-Wire, Oil industry: Response to leaks boosts case for pipeline – “The Obama administration’s swift response to leaks at the TransCanada pipeline boosts the case for approving an extension of the line, the oil industry argued Monday.” Logic is: sure the pipeline has had a few leaks, but the Department of Transportation quickly and appropriately moved to limit any harms, so current regulations are sufficient to protect people, property and environmental values along the pipeline route.
  2. FuelFix notes additional investments in Texas oil production, Carrizo expands Eagle Ford footprint and Linc Energy buys producing fields in Texas, La. from ERG. EIA data indicates that after many years of stable or slight drops in production, Texas crude oil production is increasing in 2011 (back to levels last seen in 1999, still significantly below production levels of 15, 20, or 40 years ago).
  3. Speaking of EIA, they just published an analysis of LNG re-exports: Re-exports of liquefied natural gas rose rapidly in early winter.
  4. More from The Hill’s E2-WireReport: World could see natural-gas ‘golden age’ – The International Energy Agency sees the combination of hydraulic fracturing and other technological improvements boosting supply, while new nuclear power skepticism boosts demand. Natural gas use could outpace world coal use by 2030, the IEA said.
  5. The Wall Street Journal provides an update on the unraveling of Lubbock’s power plant purchase deals, Texas Power-Plant Deals Unravel in Local Dispute. See previously at KP here and here.
  6. Cuba prepares for oil exploration in the Caribbean. The Houston Chronicle reports, Embargo may block U.S. response to Cuban oil spill. No, there hasn’t been a Cuban oil spill, at least not yet. But if there were to be one, current U.S. law would deter firms doing business in the United States from responding. Cuba may have to wait for spill response ships and supplies to arrive from the North Sea or South America. A spill could reach U.S. shores in as little as three days.
  7. The Texas Railroad Commission intends to finish hydraulic fracturing disclosure regulations by July 1, 2012 even though law gives the agency until 2013 to issue the rules.


DOE shale gas hearings, day 1: Companies want state, not fed regulation; Environmentalists suspicious of panel bias

Michael Giberson

FuelFix has the run down on the first day of the U.S. Department of Energy’s hearings on shale gas fracking regulation. The title above offers captures much of the tone: Company execs urged regulation of fracking at the state level, rather than federal level; Environmental groups saw significant pro-energy industry bias among the advisory panel members and said they had low expectations for the panel’s ultimate assessment.

In day 2 of the hearing, the panel will hear from state regulators.

BACKGROUND: From the DOE website, “On May 5, 2011, U.S. Energy Secretary Steven Chu charged the Secretary of Energy Advisory Board (SEAB) Natural Gas Subcommittee to make recommendations to improve the safety and environmental performance of natural gas hydraulic fracturing from shale formations. Secretary Chu extended the Subcommittee membership beyond SEAB members to include the natural gas industry, states, and environmental experts. The Subcommittee is supported by the Departments of Energy and Interior, and the U.S. Environmental Protection Agency.” DOE indicates that video of the two day hearings will be made available after the event.

Another data point on oil and gas shale fracking profitability

Michael Giberson

Marathon Oil has agreed to pay $3.5 billion to acquire the Eagle Ford holdings of privately-owned Hilcorp Resources, about $25,000 per acre. The Eagle Ford is primarily a oil shale resource. Among other things, the purchase provides another public data point about the production promise of fracked shale resources. Much of the public controversy over the long-term productivity of fracked shale oil and gas was on the gas side of the business, perhaps because fracking was big news in shale gas before it became news in oil. The deal suggests increasing confidence that fracking quality oil shale resources can be done profitably.

Tom Fowler, FuelFix blog, interviewed Marathon’s Chairman/CEO Clarence Cazelot, CFO Janet Clark and Executive VP of Upstream Dave Robert. Some observers think the price paid was high. Unsurprisingly, the Marathon execs’ say it was worth the price:

FuelFix: The price tag seems to be a bit steep to some observers. KKR nearly tripled it $400 million investment in the partnership in just one year. How do you justify that to investors?

Cazelot: You’re exactly right about how KKR’s investment has grown since they came in, but we’ve seen several things happen since then.

A great deal of drilling has occurred since they entered and the play is much more significantly de-risked. There’s additional production history now in how these reservoirs perform.

We’ve seen oil prices at a higher level then when they entered as well . So I think there is much more comfort with the tremendous potential that the Eagle Ford has.

I would say that people who are opining on whether it’s pricy or not just because of a certain dollar price per acre, are taking a very naïve perspective. Not all acres out here are created equal. There’s a black oil trend, a volatile oil trend, a gas condensate trend, a dry gas trend. And every one of those has a very different set of economic results for the wells that are drilled. It is our belief that our acreage lies in the core of this trend where the economics are much better than other areas in part because of the higher liquids and higher pressures that lead to better recovery.

Dave Roberts: Beyond that, I would say there’s this  7,000 barrels per day of production from the assets that we just acquired. So we have a history of 45 to 50 wells that have been drilled on the asset in these core areas. So we have a very strong confidence have brought into the most significant value portion of this play.

Admittedly, the history of shale oil development in the Eagle Ford is still relatively short, but how many years of production from shale are required before the skeptics yield?

(The best known skeptic is still Art Berman. Here is a recent Berman presentation on shale gas. I’m not competent to judge the geological and engineering information presented, but many people in the business are. Among the many such competent people are folks working at Marathon and elsewhere agreeing to pay thousands of dollars per acre for shale resources. Why are there not more people persuaded to become shale skeptics after Berman’s years of arguing the merits of skepticism?)

Texas legislature passes fracking disclosure bill

Michael Giberson

The Texas legislature has passed the nation’s first hydraulic fracturing fluids disclosure bill. The governor is expected to sign the bill into law. The text of the bill is available from the Texas Legislature Online website.

In summary, a oil or gas well operator performing hydraulic fracturing will have to disclose the volume of water and the chemical ingredients of the fracturing fluids used. An operator will be able to withhold from disclosure information for which it claims trade secret protections, but affected property owners and neighbors to the property owners will be able to challenge the trade secret designation. In addition, a means will be provided to supply the information to health professionals and emergency responders in case of an injury or other accident.

Aspects of the bill remain controversial, for example the NRDC has criticized limiting public disclosures to ingredients found on the Material Safety Data Sheet (as the law requires) and broad trade secret protection limits.

The requirements will only apply to wells for which the initial drilling permit is issued on or after regulations implementing the law have been adopted by the Texas Railroad Commission. Any well with an initial drilling permit issued before the regulations are adopted will be governed by preexisting laws.

The website of State Rep. Jim Keffer, who introduced the bill in the State House, provided these additional details:

Upon the adoption of rules by the Texas Railroad Commission, an operator with a well that has undergone a hydraulic fracturing treatment will use the website http://www.fracfocus.org to disclose chemical ingredients of hydraulic fracturing fluids on a well-by-well basis. The registry is a joint project of the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission, and was designed for operators to report chemical ingredients listed by the federal Material Safety Data Sheet (MSDS). Under HB 3328, all chemicals intentionally used in the fracturing process (whether listed by MSDS or not) must be reported and publicly disclosed.

Some companies have already posted disclosures voluntarily at www.fracfocus.org. For example, Chesapeake Energy disclosed that on April 7, 2001 at a well in Hidalgo County, Texas, it injected fluids that were composed of about 94 percent fresh water, 4.5 percent CO2, 1.5 percent sand, and a handful of other materials in concentrations ranging from 0.032 percent to 0.0006 percent of the hydraulic fluids.* (As the form says, “Information is based on the maximum potential for concentration and thus the total may be over 100%”)

A Caspar Star-Tribune story reports that Wyoming already has fracking disclosure laws and several other states are considering such laws. Regulators in Montana have proposed fracking disclosure rules, also challenged due to trade secret protection rules.

*In order of decreasing concentration: Petroleum Distillate Blend, Polysaccharide, Mineral Oil (Paraffin Oil, White Mineral Oil), Magnesium Hydroxide, Magnesium Peroxide (Magnesium Dioxide), Magnesium Oxide, Methanol (Methyl Alcohol), Ethoxylated Nonyl Phenol (Nonyl Phenol Ethoxylate), Zirconium sodium hydroxy lactate complex, Triisopropanolamine, Ammonium Hydroxide, Acetic Anhydride, and Acetic acid.

Eagle Ford Shale providing oil production boost

Michael Giberson

Much of the talk about hydraulic fracturing of shale has been about natural gas, but the method is being used to develop oil shale as well. The New York Times is bringing the news to the east coast, “Shale Boom in Texas Could Increase U.S. Oil Output,” and Texas newspapers have been covering the story too, “Drilling, hydraulic fracturing used in Eagle Ford shale.”

The Texas oil and gas regulator hopes to stay on top of developing issues in the Eagle Ford by forming a task force with producers, oil field services firms, landowners, environmental groups and area politicians. (I guess this is tacit admission that they were surprised by some of the backlash and other developments in the Barnett Shale area in north Texas. The Eagle Ford is much less densely populated, which will reduce some potential conflicts, though water issues will be big in the arid region.)