Recent news of interest:
Keystone Pipeline in East Texas – Fuelfix has published a series of articles on construction of the Keystone Pipeline in East Texas, providing some great photos, including this one:
Not a small operation. And this one, of protesters who camped in trees, causing the company to re-route a segment of the line:
Three interesting stories:
Guar, a bean grown mostly in India, has become a hot commodity because of its use as an additive in frac fluid. See this CNBC Report. Indian farmers are getting rich, American farmers are looking into growing the bean, and Halliburton’s income is down “due to increased costs, particularly for guar gum.”
Protests are popping up all along the XL pipeline being built by Transcanada to transport heavy oil from Canada. Eight demonstrators were arrested in Wood County for chaining themselves to heavy equipment. Seven platforms have been built in trees and occupied by protestors within the pipeline right-of-way. Protestors appeared at the Texas Capitol. Actress Daryl Hannah has joined demonstrations along the pipeline route. See Austin Statesman article here.
I recently spoke at a Continuing Legal Education Program for Texas real estate attorneys about regulation of hydraulic fracturing. My job was to give a short overview of the development of fracing and horizontal drilling in the US and its impact on production and the economy. Here are some slides I used in the presentation.
Below is a photo of a well during the process of fracing. The trucks are big hydraulic pumps, all hooked up to a manifold that is hooked to the well. The earthen tank in the picture is filled with fresh water used in the fracing operation. The water is mixed with sand and chemicals and pumped into the well under high pressure to “frac” the formation. Note that these pad sites are larger than for conventionally drilled wells. One pad site may be used to drill three or six or more wells. The horizontal lateral of the well will be 5,000-8,000 feet.
Below is a schematic for a horizontal well, intended to show the distance horizontally between fresh water aquifers and the depth at which the well is completed, and the multiple layers of casing installed between the well and the aquifer to protect fresh water. The distance between fresh water zones and the producing formations varies by field. For the Barnett Shale, fresh water is at about 1,200 feet, and the Barnett Shale is it about 6,500-8,000 feet. For the Haynesville Shale in Lousiana and East Texas, fresh water is at about 400 feet and the formation is at 10,500 to 13,500 feet. For the Marcellus Shale in Pennsylvanie, freshwater is at about 850 feet, and the formation is between 4,500 and 8,500 feet. Here is a video from Chesapeake showing how wells are drilled horizontally.
Fortune Magazine’s April issue has three good articles on the resurgence of oil and gas exploration and production activity US onshore. The lead article, “Exxon’s Big Bet on Shale Gas,” provides a good summary of the growth and success of unconventional shale plays in the US in the last 8-10 years. A second article chronicles the revival of the North American oil and gas industry and its effects on the US economy. The third article is an interview with Daniel Yergin, author of The Prize: the Epic Quest for Oil, and most recently The Quest: Energy, Security, and the Remaking of the Mordern World.
In 2010 Exxon purchased XTO Energy for $35 billion in stock, Exxon’s largest acquisition since its merger with Mobil in 1999. Exxon’s acquisition was an effort to get in on the shale gas revolution by buying XTO, one of the biggest holders of shale gas reserves. Exxon has (wisely in my view) kept XTO as a separate entity, in what Rex Tillerson, Exxon’s CEO, calls “reverse integration.” Since Exxon acquired XTO, XTO’s gas reserves have increased 81% to 82 Tcf. Fifty percent of Exxon’s total reserves are now in natural gas. XTO is Exxon’s big bet on the long-term success of domestic natural gas as the preferred energy source for the US.
US natural gas production has increased 28% since 2005, and about one-third of that production is from shale gas. By 2035 it is estimated that shale gas will make up about 60% of US production. Rex Tillerson believes that natural gas will be the fuel of choice for electricity generation. Exxon estimates that world demand for electricity will grow 80% by 2040 and that natural gas will pass coal as the world’s second-largest fuel source (behind crude oil) by 2025. Daniel Yergin: “I believe natural gas in the years ahead is going to be the default fuel for new electrical generation. Power demand is going to go up 15% to 20% in the US over this decade because of the increasing electrification of our society — everything from iPads to electric Nissan Leafs. Utilities will need a predicable source of fuel in volume to meet that demand, and natural gas best fits that description.”
Rolling Stone magazine’s Jeff Goodell has weighed in on the debate over natural gas reserves, the safety of hydraulic fracturing, global warming, methane groundwater contamination, and Chesapeake Energy’s controversial finances, in an article titled “The Big Fracking Bubble: The Scam Behind the Gas Boom.” Goodell pulled no punches. He calls Aubrey McClendon, Chesapeake’s CEO, “an influential right-wing power broker.” He says that “Fracking, it turns out, is about producing cheap energy the same way the mortgage crisis was about helping realize the dreams of middle-class homeowners.” He claims that “for Chesapeake, the primary profit in fracking comes not from selling the gas itself, but from buying and flipping the land that contains the gas,” and that Chesapeake “has more in common with Enron than ExxonMobil.”
Goodell’s article covers ground that is not new in the debate over the safety, ecology and economics of hydraulic fracturing. He touches on the study by Anthony Engraffea at Cornell University on whether natural gas has less global-warming effect than coal. He discusses the Duke University study of methane in water wells in Pennsylvania. He quotes Arthur Berman (Berman says miss-quoted), a long-time critic of the industry’s estimates of shale gas reserves.
McClendon says he agreed to talk to Goodell after he was told that the magazine would publish an article on Chesapeake whether it cooperated or not. Chesapeake has issued a rebuttal to the article (“Although our expectations for honesty and fairness were quite low, the writer failed to reach even that low bar.”), and Goodell has responded to Chesapeake’s rebuttal (“The company entirely dodges the article’s central point: that Chesapeake is a highly-leveraged firm operated by a corporate gambler who engaged in complex scheme to profit off the illusion that America has a virtually unlimited supply of cheap natural gas.”). (Isn’t the internet amazing?)
The law school at Texas Wesleyan is hosting a two-day conference on oil and gas law that is packed with good speakers and very inexpensive – $140 for both days.
There is a lot on the program about the Marcellus Shale. To see the program, go here:
WSJ Weighs In On Fracing Controversy
The Wall Street Journal gives its opinion on the dangers of hydraulic fracturing, siding with the industry: “The shale gas and oil boom is the result of U.S. business innovation and risk-taking. If we let the fear of undocumented pollution kill this boom, we will deserve our fate as a second-class industrial power.”
Powell Shale Digest Issues Report on Eagle Ford
The Digest reported on wells drilled so far in Eagle Ford fields in Texas. Enough information is now publicly available to begin to see where the play is headed, and where it’s most successful.
The counties with highest oil and gas production are Dimmit, Karnes, Webb and La Salle. The counties with the best results per well are Karnes and DeWitt:
Baker Hughes’ oil rig count reached 1,000 for the first time since it began tracking oil and gas rigs separately in 1987. 843 oil and gas rigs are currently located in Texas.
Two recent articles by a New York Times reporter, Ian Urbina, have caused strong reactions among the industry and those following shale plays in the U.S. Urbina’s articles may be found here and here. Urbina’s basic theme is that the new reserves of natural gas attributed to shale plays are not real, but are a “Ponzi scheme” created by overestimates of reserves by companies desiring to pump up their stock prices. Urbina bases his conclusions on emails from different industry players and analysts, including the Energy Information Administration, PNC Wealth Management and IHS Drilling Data, and anonymous sources in the industry, including Chesapeake and Enron. Links to these emails are in the articles. Many of them date back to 2009. “In the e-mails, energy executives, industry lawyers, state geologists and market analysts voice skepticism about lofty forecasts and question whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves. Many of these e-mails also suggest a view that is in stark contrast to more bullish public comments made by the industry, in much the same way that insiders have raised doubts about previous financial bubbles,” says Urbina.
Urbina’s articles have provoked strong responses.
A study group sponsored by the Massachusetts Institute of Technology has issued a report, The Future of Natural Gas, the fourth in a series of MIT multidisciplinary reports examinging the role of various energy sources and the effects of carbon dioxide emissions restraints. The full 170-page report can be found here. The report analyzes the relative carbon footprint of natural gas compared to other fuels and the environmental impact of the development of shale gas reserves, among other topics. Here are some excerpts:
Major conclusions of the report:
Regarding gas’s carbon footprint, the report concludes that “Among
the fossil fuels, it has the lowest carbon intensity, emitting less CO2
per unit of energy generated than other fossil fuels. It burns cleanly
and efficiently, with very few non-carbon emissions. Unlike oil, natural gas generally requires limited processing to prepare it for end use.”
Regarding potential natural gas supply:
Fracking has become more and more a topic in the general media and part of the state and federal environmental energy agenda, with new stories appearing daily. A sample:
Secretary of Energy Steveb Chu has appointed an advisory panel, officially called the Secretary of Energy Advisory Board’s subcommittee on natural gas, to study the environmental issues around hydraulic fracturing and shale gas production. Members of the subcommittee are John Deutch, former head of the CIA during the Clinton administration, in the Department of Energy during the Carter administration, now a professor at MIT, and former board member of Schlumberger, Ltd.; Daniel Yergin, IHS Cambridge Energy Research Associates Chairman; Susan Tierney, Chair of the board of the Energy Foundation; Stephen Holditch, chair of the Department of Petroleum Engineering at Texas A&M; Fred Krupp, President of Environmental Defense Fund; Kathleen McGinty, former head of Pennsylvania’s Department of Environmental Protection; and Mark Zoback, geophysics professor at Stanford University. Steven Chu, Secretary of Energy, has charged the subcommittee to make recommendations on ways to improve safety of fracking in 90 days, and offer advice to other agencies within six months on how they can better protect the environment from shale gas drilling. http://thehill.com/blogs/e2-wire/677-e2-wire/164057-overnight-energy-fracking . Beginnings of the subcommittee’s work have not shown promise: at the first meeting of the committee, Dusty Horwitt of the Environmental Working Group said its chairman John Deutch should resign because of his former ties to Schlumberger and Cheniere Energy. On the other side, Republicans including Darrel Issa (R-Calif), chair of the House Oversight and Government Reform Committee, have said that Chu’s subcommittee is composed primarily of Democratic appointees hostile to drilling interests.
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