Oil and Gas Lawyer Blog

A new report on the risks and advantages of hydraulic fracturing by Ann Davis Vaughan and David Pursell, "Frac Attack: Risks, Hype, and Financial Reality of Hydraulic Fracturing in the Shale Plays," provides a much-needed objective summary and analysis of the recent debate over the safety of hydraulic fracturing. Ann Davis Vaughan founded Reservoir Research Partners and is a former investigative journalist for the Wall Street Journal. David Pursell is an analyst with Tudor Pickering Holt & Co., an investment banking firm in Houston specializing in the energy industry.

Continue reading "New Report Provides Objective View of Debate Over Hydraulic Fracturing" »

Gasland is a film documentary about the dangers caused by hydraulic fracturing of gas wells being drilled in shale plays across the U.S. It won a Special Jury Prize at the Sundance Film Festival this year. It was filmed by Josh Fox, whose family owns land in Pennsylvania that is in the Marcellus Shale Play. Gasland is now being screened across the country.

Josh Fox was recently interviewed about his film on the PBS program NOW. The film asserts that frac'ing of wells has caused underground aquifers to be charged with methane in Pennsylvania and Colorado and poses severe risks of contamination to the water supply. Josh Fox notes that hydraulic fracturing is exempt from federal regulation, and he advocates for passage of the FRAC Act now before Congress that would give the EPA jurisdiction over hydraulic fracturing.

The comments about the NOW story posted on its website evidence the growing controversy over frac'ing.

 

Continue reading "Movie 'Gasland' Stirs More Controversy About Hydraulic Fracturing" »

The Bureau of Land Management has signed a settlement agreement in which it agreed to "suspend" oil and gas leases covering BLM lands in Montana until it has completed a review of the effect of oil and gas development on greenhouse gas emissions.

The settlement was entered in Montana Environmental Information Center, et al. v. United States Bureau of Land Management, Case No. 08-178-M-DWM, in the U.S. District Court for the District of Montana, Missoula Division, on March 11, 2010. The case was brought by citizens groups who contended that federal law required the BLM to consider the cumulative impacts of oil and gas development on the environment, and specifically the greenhouse gas emissions caused by oil and gas well drilling and production, before granting oil and gas leases on lands in Montana.

The plaintiffs' petition contains some interesting facts:

The State of Montana published a Greenhouse Gas Emissions Inventory and Reference Case Projections 1990-2020G, in 2007; it estimated that oil and gas operations in Montana released 4.7 million metric tons of CO2 or its equivalent in 2005, more than 12% of the state's total GHG emissions.

According to the Inventory of U.S. GHG Gases and Sink: 1990-2006, by the Environmental Protection Agency, oil and gas systems are the largest human-made source of methane emissions and account for 24% of methane emissions in the U.S. - 2% of the U.S.'s total GHG emissions. (Methane - natural gas - has 21 times the global warming impact of carbon dioxide.)

The EPA has a program called the Natural Gas STAR Program, designed to encourage oil and gas companies to voluntarily reduce their GHG emissions by following GHG reduction technologies and practices. EPA reported that industry partners in its STAR Program achieved GHG emission reductions totaling 92.3 billion cubic feet. This is equivalent to the annual greenhouse gas emissions from approximately 6.8 million passenger vehicles.

Companies producing oil and gas have reported success in utilizing a number of methane reduction measures, including replacement of high-bleed pneumatic controllers with low-bleed pneumatics, installing plunger lifts, using "green" completions (not venting gas produced during completion operations), replacing gas-actuated pumps with solar electric pumps, and utilizing vapor recovery units (devices that capture vapor emitted from storage tanks and recycle it back into the production stream), and conducting regular inspections of facilities to identify and reduce fugitive leaks from valves, flanges and other connectors.

We may expect that federal agencies like the BLM and the Minerals Management Service, who are responsible for leasing of federal lands, will move toward imposing requirements on oil and gas operators to reduce their GHG emissions by using best available technologies like those enumerated in the plaintiffs' petition in this case. Those same technologies could be used to reduce emissions in and around the Barnett Shale, where residents are increasingly complaining about emissions from oil and gas compressors and other facilities.

The debate over the safety of hydraulic fracturing continues. The Environmental Working Group, a Washington-based non-profit environmental advocacy organization, has issued a white paper, "Drilling Around the Law," calling for fracking to be regulated under the Safe Drinking Water Act and to require public disclosure of chemicals used in frac fluid. The EWG claims that "companies that drill for natural gas and oil are skirting federal law and injecting toxic petroleum distillates into thousands of wells, threatening drinking water supplies from Pennsylvania to Wyoming." EWG claims that fracking has been linked to drinking water contamination and proeprty damage in Colorado, Ohio, Pennsylvania, Wyoming and other states, citing articles written by Abrahm Lustgarten in ProPublica, another non-profit organization.

Meanwhile, Chesapeake has published on its website a "Fact Sheet" listing the chemicals used in its frac fluids in the Barnett Shale. The list includes "petroleum distillate," which Chesapeake describes as a "friction reducer," describing it as a product "used in cosmetics including hair, make-up, nail and skin products." The website shows that 99.5% of frac fluid is made up of water and sand, and only .5% is made up of additives, including "petroleum distillate." But the site does not show what percentage or volume of "petroleum distillate" or other additives are used in the frac fluid, or what kind of petroleum distillate is being used.

Another energy organization, Energy In Depth, has published a response to the EWG's white paper on fracking, "When Gummy Bears Attack." its author, Chris Tucker, cites data from the U.S. Department of Energy to show that "petroleum distillate" represents .088% of the volume of frack fluid. He says that petroleum distillates are used in lip gloss, sunscreen and gummy bears.

So what is "petroleum distillate"? Purdue University describes "petroleum distillates" as including all products derived from the distillation of petroleum, from diesel fuel to petroleum jelly to waxes and asphalts:

"Petroleum distillates are found in a wide variety of consumer-products including lip gloss, liquid gas, fertilizer, furniture polish, pesticides, plastics, paint thinners, solvents, motor oil, fuels and hundreds of other products. Petroleum distillates listed commonly on labels of general household products are those that distill off around naphthas. Petroleum jelly, a petroleum distillate product, is generally regarded as nontoxic.

"Petroleum distillates contain both aromatic hydrocarbons (carbon rings) and aliphatic hydrocarbons (straight carbon chains). The chemical structure of the hydrocarbon largely defines the nature and behavior of these compounds. Aromatic hydrocarbons are the most toxic compounds found in petroleum products. Most aromatic hydrocarbons are long-term toxins and known cancer causing agents. These aromatic compounds are found in all crude oils and most petroleum products. Many aromatic hydrocarbons have a pleasant odor and include such substances as naphthalene, xylene, toluene, and benzene. Aliphatic hydrocarbons are flammable and may be explosively flammable. Aliphatic hydrocarbons include methane, propane, and kerosene.

"Aliphatics and aromatics pose a special health risk if ingested and vomited. When swallowed, the lighter, more volatile distillate products can be sucked into the lungs interfering with the lung's functions and chemical pneumonia may result. Aspiration of fluid into the lungs can occur both during swallowing and vomiting of the product. Upon skin contact, petroleum distillates can produce local skin irritation and sensitivity to light in some individuals. Environmentally, many of the petroleum distillate products add to smog and water pollution due to improper disposal or during their manufacture and use."

The controversy over frac fluids has made the Wall Street Journal.

The industry claims that hydraulic fracturing is safe and is necessary to tap oil and gas reserves in the U.S. to reduce our dependency on foreign resources. Environmental groups claim that frac fluid can cause contamination of drinking water and should be closely regulated. Much of the debate appears to suffer from a lack of reasonableness and objectivity.

 

 

The information below is from the Energy Information Administration.  Note the wide variation in City Gate and Wellhead Prices among different states:

 

Below is the same information in graph form.  Why would average residential gas prices in Texas be $12.88 per mcf, while residential prices in California and Minnesota -- far from natural gas production -- be less than $10 per mcf? Why such variations in Residential prices?

 

Exxon Mobil announced that it would acquire XTO Energy in an all-stock deal worth $41 billion. The acquisition is viewed as Exxon's decision to enter the domestic onshore gas shale play, which to date has been developed almost exclusively by independent producers. But the deal includes an exit clause in the event Congress passes legislation that would make hydraulic fracturing illegal or "commercially impracticable." Shale gas development would be impossible without hydraulic fracturing technology. Bills are pending in Congress (known as the FRAC Act) to subject fracturing to federal regulation under the Safe Drinking Water Act. The bills would require companies to publicly disclose the chemicals used in frac fluids. And U.S. Rep. Ed Markey, Dem. Massachusetts, said he would hold hearings in the House Energy and Commerce Committee to review the Exxon-XTO deal and to address environmental concerns about hydraulic fracturing.

State Representative Lon Burnam, Dem. Fort Worth, asked nine questions of the Texas Commission on Environmental Quality concerning its investigations of emissions of methane and volatile organic compounds from oil and gas operations in the Barnett Shale area and in Texas in general. Recent air quality tests by private companies for local towns in the Fort Worth area have created a stir and caused some to call for increased monitoring and additional testing of emissions from oil and gas operations. Rep. Burnam has also called for the City of Fort Worth to place a moratorium on issuing permits for drilling until additional testing has been done. A group of concerned citizens has formed the North Central Texas Communities Alliance, to press for a moratorium in the DFW area until environnmental and other concerns are addressed.

The TCEQ's response to Rep. Burnam's questions provides some interesting data.

Continue reading "TCEQ Answers Rep. Lon Burnam's Questions on Investigations of Air Quality" »

Twenty-two U.S. House Democrats from Texas, Louisiana, Oklahoma, New Mexico, Arkansas, Utah and Idaho delivered a letter to Environmental Protection Agency Director Lisa P. Jackson, cautioning the EPA to do a "reasonable and transparent study" of whether hydraulic fracturing of wells creates risks to drinking water. EPA is required to study whether hydraulic fracturing creates risks to underground sources of drinking water under the 2010 Appropriations Act for the Department of the Interior. The producing-states Congressmen want to be sure that the EPA's study is scientific, systematic, transparent, accurate and valid.

The EPA conducted a similar study of fracing in 2004. That study was done to investigate whether hydraulic fracturing of wells completed in coalbed methane seams posed a risk to groundwater drinking supplies. The study was in response to alleged incidents of groundwater contamination and to a judgment of a U.S. Court that, because hydraulic fracturing of coalbeds to produce methane is a form of underground injection, the EPA is required to regulate it under Part C of the Safe Drinking Water Act. That Act requires states to regulate underground injection of fluids and to develop an Underground Injection Control Program approved by the EPA. The EPA's 2004 study of fracturing of coalbed methane wells found no evidence that any water had been contaminated by fracing of wells or that fracing posed any risk to drinking water. That study was criticized by some, including scientists in the EPA. In 2005, Congress exempted hydraulic fracturing from coverage under the Safe Drinking Water Act, in part at least based on EPA's 2004 study.

The requirement for a new EPA study of fracing in 2010 has been driven, in my opinion, by the development of the Marcellus Shale play in Pennsylvania and New York. New York has placed a moratorium on permits for wells and has published its own draft study of risks to surface and underground water supplies caused by drilling in the area of upstate New York that provides drinking water to New York City. That study is still subject to comment and revision and has caused much controversy in New York. The New York draft study likewise concludes that hydraulic fracturing poses no risk to drinking water if properly regulated. In a related development, a bill in Congress, the FRAC Act, proposes to require companies to disclose the chemical content of frac fluids.

 

The International Energy Agency (IEA) issued a forecast of world energy consumption and use, and for the first time included a scenario projecting the impacts of taking steps to stabilize greenhouse gases in the atmosphere at about 450 parts per million by 2030. This "450 Secnario" would limit overall temperature increases to 2 degrees C., versus a rise in global temperature of as much as 6 degrees if no efforts to curb carbon dioxide are made. The report compares this 450 Scenario to its "reference scenario," its projections of energy production, prices and consumption assuming no policy changes are enacted.

Its conclusions:

Under the reference scenario, oil prices would increase to $87/bbl in 2015, $100/bbl by 2020, and $115/bbl by 2030 (in 2008 dollars). Under the 450 Scenario, the oil price would level off at $90/bbl by 2020.

Natural gas prices would grow 17% by 3020 under the 450 Scenario, or an average of 0.7%/year.  In 2030, gas prices would be 17% lower than under the reference scenario.

Although significant additional investment would be necessary to meet the 450 Scenario, this investment would be more than offset by fuel cost savings. Oil and gas import costs for OECD countries would be much less. Oil and gas import costs for China and India would be 30% lower in China and India in 2030 than in the reference scenario.

The Energy Information Administration has issued rankings of states in production of oil, gas, coal, electricity generation, and energy consumption. Texas ranks prominently in most categories.

-- Texas is first in total energy production, producing 10,997 trillion Btus of energy in 2006 (the most recent information available). Wyoming is second (mainly from coal production) with 10,062 trillion Btus. Texas produced 15.5% of all the energy produced in the nation.

-- Texas is first in crude oil production, producing 32.77 million barrels in May 2009 (20% of the nation's production), ahead of Alaska with 21 million barrels; and (by far) first in natural gas production, producing 6 trillion mcf in May 2009 (30% of the nation's production), ahead of second-place Wyoming with 1.9 trillion mcf.

-- Texas produced 41.6 million megawatt hours of electricity in July 2009, ranking first ahead of California, which produced 21.5 million megawatt hours.

-- Texas also ranked first in carbon dioxide emissions (2007 data), emitting 255,092,183 metric tons of CO2. The nearest competitor was Ohio, which emitted 130,407,085 metric tons.

-- Texas ranked fifth in total energy consumption per capita (2007 data), behind Alaska, Wyoming, Lousiana, and North Dakota. Texans consumed 496 million Btu per capita; Alaskans consumed 1,062 million Btu per capita. It's cold in Alaska, Wyoming and North Dakota. Louisianans consumed 861 million Btu per capita -- maybe they had a cold winter in 2007?

 

America's Natural Gas Alliance, a recently formed energy lobbying group formed by natural gas producers, has issued a press release praising the Senate's version of a climate bill.  Without actually endorsing the bill, the Alliance commended the bill's authors for "including provisions in their bill that will enable us to continue to engage in the process of developing language that will effectively promote natural gas as part of the climate solution."

The Alliance was formed in March 2009, and according to its website it represents 28 of North America's largest independent natural gas producing companies, whose members produce more than 40 percent of total U.S. natural gas supplies, about nine trillion cubic feet per year. Its members include Anadarko, Apache, Chesapeake, Devon, El Paso, Encana, Petrohawk, Pioneer, Plains, and XTO. The Alliance's position on the Kerry-Boxer energy bill is markedly different from that of the American Petroleum Institute and the Texas Alliance of Energy Producers, long-time lobbyists for the energy industry which have come out strongly against cap-and-trade legislation. Alex Mills, President of Texas Alliance of Energy Producers, is in particular an opponent of cap-and-trade, saying that it will wreak havoc on the energy industry. Chesapeake, Devon, Encana, and XTO are also members of the Texas Alliance. Politics makes strange bedfellows.

But companies relying mainly on gas production -- more than 90 percent of Chesapeake's total production is natural gas -- believe that natural gas producers can benefit from climate legislation, since natural gas is a clean-burning fuel with much lower carbon emissions per unit of energy than oil or coal. Tom Price, Senior V.P. of Chesapeake for corporate development and government relations, said that "We think Texas, Oklahoma, Louisiana, Arkansas and the states that are primarily natural gas producers will come out very favoarable to a legislation that differentiates among the low-carbon fuels."

Items from this week:

Prices:  Natural gas prices continue to decline. Below is a comparison of gas NYMEX futures prices with S&P 500 for the last year:

 

On August 14, futures for September delivery settled at $3.24/MMBtu, a 52-week low.  Futures prices have declined about 65% from this time a year ago. The Energy Information Administration reports that gas in storage increased by 63 Bcf to 3.152 Tcf for the week ended August 7, compared to 2.65 Tcf a year ago, and well above the five-year average of 2.635 Bcf. Absent severe supply disruptions or a very cold winter, gas prices are likely to remain low for some time.

 

The price decline has resulted in a corresponding decline in lease and drilling activity. The chart below shows the number of oil and gas leases filed of record in Tarrant County, the center of Barnett Shale activity:

This shows a decline in leasing from 18,000 leases in May, 2008, the height of the leasing frenzy, to 2,000 in July 2009.

 

Earthquakes:  Scientists from Southern Methodist University have tentatively concluded that recent earthquakes in the vicinity of Dallas-Fort Worth Airport may have been caused by a salt water disposal well located at the southern end of the airport, operated by Chesapeake.

 

Continue reading "Energy News" »

The NAT Gas Act has been introduced in the U.S. Senate, as S. 1408, sponsored by Senators Robert Menendez, D-NJ, and Orrin Hatch, R-UT. The Act provides incentives for increased use of vehicles powered by natural gas. It was previously introduced in the House as H.R. 1835. The Act increases the tax credit for purchasing natural gas vehicles and provides incentives for installation of natural gas fueling stations.

Freightliner, a large truck maker, announced its first natural gas-powered truck model. The company claims that the truck will save $6,000 per year in fuel and maintenance costs.

Clean Energy Fuels Corporation last week opened what it says is the world's largest natural gas truck fueling station, in the Ports of Los Angeles and Long Beach, California.

It appears that someone is listening to Boone Pickens.

On April 2, Keith O. Rattie, CEO of Questar Corporation, gave a speech to students at Utah Valley University about global warming and U.S. energy policy.  The parts of the speech about global warming seek to raise questions about the science behind conclusions of the global warming trend. The most interesting parts of the speech, to me, concern U.S. energy policy.

Points made by Mr. Rattie:

•   The stated U.S. energy policy goal is for an 80 percent reduction in CO2 emissions by 2050 - "80 by 50." Rattie says that this goal is unattainable. According to him, the U.S. carbon footprint is about 20 tons per person per year. An 80 percent reduction would require that footprint to be reduced to 4 tons per person per year by 2050. But that does not take into account population growth. If projections for population increases in the U.S. are taken into account, 80-by-50 would require that the U.S. reduce its carbon emissions to 2 tons per person per year - a 90 percent reduction in per capita carbon footprint.
  

Continue reading "Questar Corp. CEO Keith Rattie on U.S. Energy Policy" »

Momentum appears to be gaining to increase use of compressed natural gas in vehicles in the U.S., both to decrease the nation's dependence on foreign oil and as a "bridge fuel" to fight global warming.

• Last Week, the Potential Gas Committee issued a report estimating that the toal U.S. natural gas resource base at year-end 2008 was 1,836 trillion cubic feet, an increase of 39% from its 2006 estimate. Most of this increase comes from newly discovered shale reservoirs. Boone Pickens said that the new estimate "is the equivalent of nearly 350 billion barrels of oil, about the same as Saudi Arabia's oil reserves."
• Boone Pickens' energy plan includes greatly expanding the use of natural gas as fuel for transportation.
• At current natural gas prices, compressed natural gas is about $1.00 cheaper than gasoline.
• Natural gas is clean-burning: greenhouse gas emissions are 20 to 22 percent lower than comparable gasoline or diesel vehicles. Natural gas vehicles (NGVs) are the cleanest-emission vehicles now on the road. In tests conducted in metropolitan areas that have been designated by EPA as non-attainment areas for air quality, exhaust from NGVs has sometimes tested cleaner than the ambient air. Natural gas produces about half of the carbon dioxide emissions as coal for the same amount of heating energy.
• The biggest obstacle to use of NGVs is lack of available refueling stations. The map at the following link shows compressed natural gas fueling stations in the U.S.: http://rpm.nrel.gov/transatlas/launch/ . Most are in California and along the east coast.
• In the rest of the world, natural gas is a major transportation fuel. In Italy, there are more than 800 CNG stations. In Germany, NGVs are expected to increase to 2 million vehicles by 2020. Worldwide, there are more than seven million NGVs on the roads, with the largest numbers in Argentina, Brazil, Pakistan, Italy, India, China, Thailand and Iran.
• Many manufacturers make bi-fuel vehicles, capable of burning either gasoline or compressed natural gas. Major manufacturers of NGVs include Fiat, Opel, Peugeot, Volkswagen, Toyota, Honda and others. The Honda Civic GX is the only CNG-powered car currently sold in the U.S, mostly in California. Fiat's expertise in NGVs is expected to be imported into U.S.-made Chrysler vehicles.
• Aubrey McClendon, CEO of Chesapeake, drives a bi-fuel Chevrolet Tahoe and says that CNG has cost him on average about 95 cents per gallon.
• Many state and federal incentives are being enacted to encourage construction of NGV fueling stations.  For example, Oklahoma passed a new law that will allow the State to provide a refueling structure for fleet services used by schools, county and municipal governments, and sets up a fund to provide money to state agencies and political subdivisions to lease or buy NGVs.
• "Compressed Natural Gas" and "Compressed Natural Gas Vehicles" have their own entries in Wikipedia.

So when are you going to by your first NGV?