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A group of environmentally conscious social and investor organizations has produced a report, Disclosing the Facts: Transparency and Risk in Hydrualic Fracturing Operations. The report grades companies on how well they report risks attendant to operations in the major US shale plays.

The report is a collaboration of four organizations: As You Sow, Boston Common Asset Management, Green Century Capital Management, Inc., and The Investor Environmental Health Network.  It was made possible by grants from several foundations, listed in the report.

The report assesses the public disclosures of 24 oil and gas companies on their quantitative reporting in five areas of environmental, social and governance metrics: toxic chemicals, water and waste management, air emissions, community impacts, and management accountability. Each company is graded on these metrics based on how well they measure and disclose, quantitatively, their performance in these areas. The grades are based solely on publicly available information provided by the companies. Example criteria:

  • Does the company report its use of diesel fuel and TBEX in frac fluids?
  • Does the company report its testing of water wells within a specified distance of a new well before and after drilling?
  • Does the company report its percentage of flowback water reuse, its total water use, and its water use intensity?
  • Does the company report the extent to which it uses closed-loop systems to manage drilling fluids?
  • Does the company report the percentage of “green completions” (capturing natural gas produced during drilling rather than releasing or flaring the gas)?
  • Does the company track community impact concerns (road damage, traffic congestion, etc.)?

The idea behind the report is to convince companies (and their shareholders) that monitoring and reporting of environmental and social impacts is good for business. It is a follow-up to an earlier report, Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations, by The Investor Environmental Health Network, in 2011.

The highest scoring company was Encana, with a score of 14 out of a possible 32.

The report contains many good links to other reports and information. For example:

Resources for the Future, “The State of State Shale Gas Regulation” (2013): http://www.rff.org/RFF/Documents/RFF-Rpt-StateofStateRegs_Report.pdf

Model regulations for chemical disclosure and strengthening well drilling and completion practices, developed in collaboration with Southwestern Energy and the Environmental Defense Fund:  http://portal.ncdenr.org/c/document_library/get_file?uuid=8356eb89-9c9f-4f8e-bb4d-4bb51b605575&groupId=8198095

George King, “Hydraulic Fracturing 101: What Every Representative, Environmentalist, Regulator, Reporter, Investor, University Researcher, Neighbor and Engineer Should Know About Estimating Frac Risk and Improving Frac Performance in Unconventional Gas and Oil Wells” (Society of Petroleum Engineers Paper SPE 152596 (2012)

http://FracFocus.org/sites/default/files/publications/hydraulic_fracturing_101.pdf.

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I have recently seen articles predicting the end of the shale boom, coming not only from those who have consistently predicted that shale production would never amount to anything, but also from respected sources whose predictions have previously proven accurate. A recent Houston Chronicle article quotes from a paper written by Amy Myers Jaffe, executive director for energy and sustainability at the University of California, Davis, and Mahmoud El-Gamal of Rice University, saying that “The most likely scenario – absent war – is for oil prices to decline significantly.” A significant decline in oil prices would make many if not most wells shale wells now being drilled in the Eagle Ford and Permian areas of Texas uneconomical. Jaffe expects oil prices to decline in the next three to five years. “To hold up prices it would have to be a regime change in several countries that results in lasting civil wars with lots of infrastructure being blown up,” she said.

An article in Business Week says that the break-even price for profitability in the Cline Shale play of the Permian Basin is $96 per barrell; in the Eagle Ford, it’s $78/barrel, and in the Bakken, $84.  Here is one analyst’s prediction of future oil prices:

Business Week graph.JPG

Falling fuel demand is a big part of the prediction.  Jaffe believes demand will fall even with continued growth in China and other emerging nations. The average fuel economy for new vehicles in the US is up 4.7 mpg since October 2007. And Americans are driving less.  Lower-priced natural gas will replace some of the oil demand.  From the Energy Information Administration:

US Crude Oil and Energy Consumption.JPG

And, as with natural gas in the latter part of the last decade, US crude oil production and resulting supply are increasing:

Crude Oil Production and Ending Stocks.JPG

EIA has begun publishing a new report, its “Drilling Productivity Report,” focusing on production in the six major shale plays in the US.  The report appears to me to highlight two attributes of shale plays:  first, companies are lowering the cost of drilling and completing wells in these plays, increasing the efficiency of putting new production online; and second, the industry has to continue to drill wells to replace the rapid decline in production from these plays. Here are a couple of the EIA’s charts from its recent analysis of Eagle Ford wells that illustrate these attributes:

Eagle Ford new well production per rig.JPG

This shows that fewer rigs are needed to continue the increase in production from the Eagle Ford.

On the other hand, it takes continuous drilling to replace the decline in existing production:

Eagle Ford change in oil production.JPG

The above chart tells me that, if and when oil prices decline, the growth in oil production from the Eagle Ford will quickly turn into a rapid decline, when rigs leave the play.

 

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I recently came across a study just published by a group of sociology professors testing our ability to make decisions based on facts. It takes a little explanation, but it is worth looking at. The question they asked:  Why does public conflict over societal risks persist in the face of compellng and widely accessible scientific evidence? To find out, the professors asked 1,111 participants a series of questions designed to gauge their political views, and then they were asked to solve a word math problem. Half of the participants were given the following problem:

Math problem 1.JPG

The correct answer?  Patients who used the skin cream were more likely to get worse than those who didn’t.  Roughly 1 in 3 patients who used the skin cream got worse, but roughly 1 in 5 of those who didn’t use the skin cream got worse. Solving the problem requires skill in “numeracy”, basically the ability to solve math problems. (For the study, the data were reversed for half of the participants and presented so that they suggested that the skin cream did work.)  59% of those in the study got the answer wrong. The more “numerate” the study participants were, the more likely they were to get the problem right. That was true whether the participants were liberal Democrats or conservative Republicans.

The other half of the participants were given a different problem:  they were asked to determine the effectivenes of laws “banning private citizens from carrying concealed handguns in public.” Participants were given data about cities that had or had not passed concealed carry bans, and where crime in these cities had or had not decreased. The numbers used in this problem were exactly the same as those in the skin-rash problem. The results are shown below:

Math problem summary.JPG

 

Even though the numbers in both problems were exactly the same, the answers of participants were quite different. This time, the political leanings of the participants had a significant impact on their responses. Liberal Democrats did much better on the gun problem when the right answer was that crime decreases with gun control; conservative Republicans did much better when the right answer was that crime does not decrease with gun control. Here are the results shown graphically:

Math graphs.JPG

 

In other words, more knowledge (numeracy) does not increase people’s ability to reason when it comes to politically charged issues like gun control. People let their biases get in the way.

Here are two good articles on the problem of rational decision-making, commenting on the study:

http://grist.org/politics/science-confirms-politics-wrecks-your-ability-to-do-math/

http://www.motherjones.com/politics/2011/03/denial-science-chris-mooney

So what does this have to do with oil and gas? It reminds me of the debate over hydraulic fracturing. It appears that the more those in favor of fracing are presented with facts showing its dangers, the more they deny those facts and argue it is safe; and the more those opposed to fracing are presented with facts showing its benefits, the more they argue in opposition. The same could be said of global warming, the Affordable Care Act, the presence of weapons of mass destruction in Iraq, abortion rights, gay marriage, evolution, etc.

Leon Festinger, a famous Stanford University psychologist, said that “A man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point.”  Changing one’s point of view on difficult politically charged issues is difficult.

A group called “Ark Encounter” is raising money to construct a replica of Noah’s Ark in Williamstown, Kentucky, using the exact dimensions and directions found in Genesis. It will be more than 500 feet in length, three stories high, and built with planks, beams and pegs. When asked how they were going to get the more than 2 million species of animals now on the planet in the ark, they say that, in Noah’s time, there were only some 2,000 types of animals, and that all animals today descend from those original animals. Fitting myth to reality is no problem for believers. Changing their minds about the facts is more of a problem.

 

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Texans for Public Justice, www.tpj.org, issued its report on 2012 Election Cycle Spending by Texas political action committees.  You can see it here. Some highlights:

Of the $70 million spent by Texas business PACs in 2011-12, $11.9 million, or 9%, was spent by PACs devoted to energy and natural resources issues/candidates. Here are the top spenders:

Energy PACs.JPG

The above figures represent spending by these PACs both in-state and out-of-state.

Energy Future Holdings is the successor to TXU Corp., acquired by EFH in a $45 billion leveraged buyout. EFH, now threatened with bankruptcy, is one of the state’s largest electricity generators. The five EFH PACs spent more than $750,000. 

Valero Energy’s PAC spent $729,000 of its $2 million in Texas and was a larger supporter of Senator Ted Cruz. ConocoPhillips’ PAC spent $221,000 in Texas and gave large sums to Texas Railroad Commissioners.

Lawyer and lobbyist PACs were also big spenders:

Lawyer PACs.JPG

In 2010, Public Citizen issued a report on political contributions to Texas Railroad Commissioners. It found that total funds raised by commissioners increased from $511,000 in 2000 to $3.5 million in 2007-2008. Industry donors increased from $230,000 in 2000 to more than $2.1 million in 2008:

RRC contributions.JPG

Contributions to sitting commissioners increased substantially in 2006 and 2008 election cycles:

contributions to sitting commissioners.JPG

Public Citizens’ conclusions:

  • Most of the increase in funding of commission races is driven by industry and those who have an economic interest in the decisions made by the commission.
  • Increased spending by large donors is likely putting pressure on smaller, independent operators to contribute.
  • Fundraising rarely ceases, except just after an election.

The Railroad Commission has been up for review by the Texas Sunset Commission in the last two sessions of the Texas Legislature, and both times the legislature failed to enact any of the recommendations of the Sunset Commission — save one. In 2012, the legislature passed a bill requiring commissioners to resign if they decide to run for another elective office.  Governor Rick Perry vetoed that bill.  Among the Sunset Commission’s recommendations was that the commission should levy more fines for violation of commission rules.  In the first quarter of 2013, the commission issued almost 14,000 notices of violations; it collected less than $200,000 in fines.

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Last week I attended the State Bar Annual Advanced Oil, Gas and Energy Law Conference in Houston. This year is the 75th anniversary of the Oil, Gas and Energy Section of the Texas Bar (older than the State Bar itself), and there was a special dinner to honor the occasion, at which Daniel Yergin spoke.  He is the author of the Pulitzer-prize-winning book The Prize, a history of the global prusuit of oil, money and power — a great read. More recently Yergin published his follow-up, The Quest: Energy, Security, and the Remaking of the Modern World, updating the history of global energy production and demand from the first Gulf War to the present.

Some tidbits from Yergin’s talk:  politically, the biggest risk to the industry is the opposition to hydraulic fracturing — not a big issue in Texas, but a huge issue in eastern states and California — and the pressure for increased federal regulation of drilling.  The biggest practical challenges to the industry in the US are dealing safely with wastewater from oil and gas operations, and, in some parts of the US, the industry demand for fresh water for fracing. Once again, peak-oil predictors have been proven wrong, by the triumph of technology.  Texas has long been a leader in the industry not only because of its abundance of natural resources but also because of private ownership of oil and gas and the development of the legal theories and framework for the industry by the Texas bar and courts in the 20th century. 

To see Yergin’s “world energy timeline, click here.

I highly recommend Yergin’s books – hugely informative and very readable.

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A report recently released by the University of Texas’ Cockrell School of Engineering, “Measurements of methane emissions at natural gas production sites in the United States,” has re-energized the debate between industry and environmental groups over whether natural gas is good for the environment.

UT’s report is a peer-reviewed paper reporting on the results of measurements of methane emissions at 190 onshore natural gas sites in the US. It was sponsored by the Environmental Defense Fund, Anadarko Petroleum, BG Group, Chevron, Encana, Pioneer Natural Resources, Shell, Southwestern Energy, Talisman Energy USA, and Exxon. The study is part of a larger series of studies being sponsored by EDF to determine how much methane is emitted by natural gas exploration, production and transportion in the US. The issue is important because, on the one hand, burning of methane releases less carbon dioxide into the atmosphere than coal or oil, and on the other hand, methane is itself a powerful greenhouse gas that contributes to global warming. Over the first 20 years after it is released, methane is 72 times more potent than carbon dioxide as a greenhouse gas.

Those environmental groups who oppose further development of hydrocarbon resources argue that, because of methane emissions, natural gas is not a good alternative to other fossil fuels. They have argued, based in part on estimates of methane emissions from completion operations on wells using hydraulic fracturing, that the increased development of natural gas resources made possible by fracing is bad for the environment. The industry, and some environmental groups, see natural gas as a plus, a “bridge fuel” to development of renewable energy.

The debate over the greenhouse effect of methane was triggered by the release of a study by two Cornell University professors, Robert Howarth and Anthony Ingraffea, contending that EPA estimates of methane emissions were low, and that because of those emissions natural gas was a worse greenhouse gas than carbon dioxide and other emissions from burning coal. Howarth’s study has been widely criticized for using old data and vastly inflating methane emission estimates by the US Energy Department, the University of Maryland, MIT, Carengie Mellon Universty and the Worldwatch Institute. 

Howarth has issued a press release criticizing the UT study, saying it relied on data from the nine companies who helped sponsor the study. He pointed to a study published last month by the National Oceanic and Atmospheric Administration (NOAA) as more representative of a worst-case scenario. It studied air emissions in an entire basin in Utah. “They’re finding methane emissions that are 10 to 20 times higher than this new study,” Howarth says, “and I think [that’s] probably more representative of at least those western gas fields, when industry does not realize it’s being watched.”

UT was criticized last year over possible bias in a study published by UT Austin’s Energy Institute, “Fact-Based Regulation for Environmental Protection in Shale Gas Development.” After review by an independent commission appointed by the University, UT withdrew the study.  Its author had failed to reveal that he sits on the board of Plains Exploration and received substantial compensation from the company. The review panel concluded that the report was not “fact-based” or subject to serious peer review and that a summary press release of the report was misleading and “seemed to suggest that public concerns were without scientific basis and largely resulted from media bias.” (See my report on the controversy here.)

So what does the new UT study really tell us?  Its measurements of methane released from completion and fracing operations are substantially lower than EPA’s estimates. But its measurements of gas released from pneumatic pumps and controllers and equipment leaks were either comparable to or higher than EPA estimates. Overall, the study’s estimates of methane emissions were in line with EPA’s most recent estimates. Lower measurements of emissions from well completions may be a result of better completion techniques that capture more methane, either for sale or flaring.  UT’s study also attempted to measure methane emissions from “well unloadings”; while it found emissions from those events to be substantial, it concluded that its sample size was not sufficient to extrapolate emissions from that source and more sampling would be necessary. For a good explanation of emissions from “well unloadings” and well completions, you can watch the video on UT’s website explaining its study. EDF’s website explaining its efforts to better measure methane emissions is also instructive.

The debate continues.

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I subscribe to the Economist, and it recently sent its subscribers a booklet, Pocket World in Figures, that contains rankings of 198 countries in categories ranging from longest river to biggest cities to number of refugees to living standards, etc.  Here are some interesting statistics related to energy from that booklet:

Top 10 Oil Producers 2012 (‘000 bbls/day)

Saudi Arabia           11,530

Russia                    10,643

U.S.                        8,905

China                       4,153

Canada                    3,741

Iran                          3,680

UAR                         3,380

Kuwait                      3,127

Iraq                           3,115

Mexico                      2,911

 

Top Ten Oil Consumers 2012 (‘000 bbls/day)

U.S.                         18,555

China                       10,221

Japan                         4,714

India                           3,652

Russia                        3,174

Saudi Arabia                2,935

Brazil                          2,805

South Korea                2,458

Canada                       2,412

Germany                     2,358

 

Top 10 Natural Gas Producers 2012 (billion cubic meters)

U.S.                           681.4

Russia                        592.3

Iran                            160.5

Qatar                          157.0

Canada                       156.5

Norway                       114.9

China                          107.2

Saudi Arabia                102.8

Algeria                          81.5

Indonesia                      71.1

 

Top 10 Natural Gas Consumers 2012 (billion cubic meters)

U.S.                             722.1

Russia                         416.2

Iran                              156.1

China                           143.8

Japan                           116.7

Saudi Arabia                 102.8

Canada                         100.7

Mexico                           83.7

U.K.                               78.3

Germany                        75.2

 

In coal production, China ranked 1st (2012), with 1,825 million tonnes oil equivalent, with the U.S. a distant second at 515.9.

The U.S. ranks 30th in number of cars owned per 1,000 population (2011), behind countries such as Australia, Germany, France, Norway, Spain, and the Czech Republic.

In 2011, China produced 14,485,000 cars. Number two was Japan at 7,159,000. The U.S. ranked 6th, at 2,966,000, behind Germany, South Kora and India (3,054,000).

China ranked 1st in emissions of carbon dioxide in 2009 (7,687 million tonnes). Following it (in order): U.S. (5,267 million tonnes), India (1,979), Russia (1,574), Japan, Germany, Iran, Canada, South Korea, and South Africa.  In the rank of carbon dioxide emissions per person, U.S. ranked 10 (17.3 tonnes per person). The leader was Qatar at 44 tonnes per person, followed by Trinidad & Tobago, Kuwait, Brunei, UAR, Aruba, Bahrain, Luxembourg and Australia.

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The historic floods in Colorado have inundated hundreds of oil and gas wells, dislodging tanks and threatening significant pollution of the flood water.

Colorado 1.jpg

Colorado 2.jpg

Colorado 3.jpg

 

The disaster has raised questions across the country about regulation of drillsite locations in areas that could be subject to flooding.  The Colorado Oil and Gas Conservation Commission Wednesday released a statement that it “is aggressively assessing the impacts of the flood to oil and gas facilities,” including by mapping drilling sites within flooded areas, tracking reports from the ground, and sending out inspection teams. A similar disaster occurred in 2010-2011 in North Dakota, where floods from thawing snow along the Missouri River caused flooding of wells, resulting in contamination of flood waters by fracking fluids, drilling mud and saltwater. That flood prompted changes in North Dakota’s regulation of wasterwater storage.  The North Dakota Industrial Commission amended its rules to prohibit the use of open pits except in cases of emergencies. Companies can still store drilling waste in open pits for up to 72 hours after drilling a well or after securing approval from the commission.

Here are stories and additional photos of the impact of Colorado’s flooding on its oil and gas sites:

http://www.reuters.com/article/2013/09/18/us-usa-colorado-flooding-fracking-idUSBRE98H15820130918

 http://www.rollingstone.com/politics/news/flooding-and-fracking-in-colorado-double-disaster-20130919#ixzz2fRUuZaru

http://www.huffingtonpost.com/2013/09/17/colorado-floodwaters-cove_n_3941958.html?utm_hp_ref=green

The Texas Railroad Commission has no rules governing the placement of oil and gas wells in areas subject to flooding or the storage of fluids in flood-prone areas.  With Texas in the middle of a historic drought, it might seem incongruous to be concerned about flooding. But we are all hoping for historic rain events to re-fill our reservoirs and break the drought. Meanwhile, thousands of new wells have been drilled across Texas, including wells in watersheds for rivers like the Guadalupe, Nueces and Frio that cross the Eagle Ford. Prudence dictates that Texas consider adopting rules that would diminish the risk of significant contamination by flood events like those recently experienced by Colorado and North Dakota.

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