28 May 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 21

Federal

NIOSH investigating potential risks of exposure to hydraulic fracturing flowback. The National Institute for Occupational Safety and Health (NIOSH) is investigating potential risks associated with acute exposure to hydraulic fracturing flowback water. NIOSH initiated the investigation in response to the deaths of four workers who had been taking measurements at flowback storage tanks in the Bakken Shale. NIOSH noted the concern related to hydrocarbons in the flowback, but not from chemicals added to hydraulic fracturing fluids. The agency acknowledged results were preliminary and that additional research was needed. NIOSH is seeking to partner with the industry to characterize and understand worker exposures and related risks.

States

California: EIA reduces estimates of recoverable oil from the Monterey Shale by 96%. The U.S. Energy Information Administration (EIA) cut estimates of recoverable oil in the Monterey Shale play by 96%, from 13.7 billion barrels to 600 million barrels. The reduced estimates do not reflect a change in the amount of oil present, but a change in the amount that can be recovered using existing technologies, including hydraulic fracturing. According to the EIA, the oil-bearing rock strata in the Monterey Shale are uneven and broken up by prior seismic activity, making horizontal drilling more challenging than in other shale oil plays. Industry experts disputed contentions that the revised estimate altered prospects for shale oil development in California, stating that they made investment decisions based on their own geological analysis and have not relied on EIA’s estimates. Beyond development costs, recent hydraulic fracturing laws enacted in California may impose significant additional costs that may make the Monterey Shale less attractive than other shale oil plays.

North Dakota: Expansion of Hess gas plant to reduce flaring. Expanded operations at Hess Corp.’s Tioga Gas Plant will process additional natural gas and reduce significantly the natural gas that would have to be flared in North Dakota’s Bakken field. Once the plant is fully operational, Hess projects that flaring from Hess operations will be reduced to between 15 and 20%. Overall, the expanded facility will process up to 250 million standard cubic feet of gas per day (MMSCFD), up from 120 MMSCFD today. North Dakota governor Jack Dalrymple (R) and Sen. Heidi Heitkamp (D) both lauded the expansion as an example of how the state can create value by collecting and processing natural gas that would otherwise be flared.

North Dakota: Study shows Bakken crude oil no more hazardous than other types of crude oil. A recent study conducted by the North Dakota Petroleum Council concludes that Bakken crude has similar characteristics to other light crudes, with a vapor pressure, boiling point, and flash point within the normal range. The study is based on 150 samples taken from well site and rail loading facilities during March and April, 2014. The conclusions differ from a recent report by the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA), which found that Bakken crude oil has a lower flash point and poses a greater fire risk. The relative safety of Bakken crude has been at the center of a debate regarding appropriate requirements for shipment of crude by rail. Rail shipments have increased as Bakken production has increased, with a 50% increase in 2013.

International

United Kingdom: BGS study finds up to 8.5 billion barrels of oil in Weald Basin. A recent study by the British Geological Survey (BGS) found that the Weald Basin in southern England holds between 2.2 and 8.5 billion barrels of oil. The BGS cautioned that the estimates include the total amount of oil in the formation, and that it is still too early to determine how much may be recoverable. In addition to offering tax incentives to promote shale oil development, the UK has announced plans to simplify property access for shale oil and gas developers. At the same time, the government also announced plans to increase royalty payments to local communities where shale oil and gas development occurs.

Markets

Cameron LNG Project partner signs long-term supply contract with Japan. GDF Suez recently signed a long-term contract to supply 270,000 metric tons of liquefied natural gas (LNG) annually to Japanese utility Tohoku Electric Power Co beginning in 2018. The LNG will be supplied by the Cameron LNG Project in Louisiana, which will have an export capacity of 1.7 billion cubic feet of LNG per day when operating at full capacity. The Cameron LNG Project received conditional approval from the Department of Energy to export LNG and a finding of no significant impact from the Department’s National Environmental Policy Act (NEPA) review. GDF Suez and other partners have entered into a joint venture agreement with Sempra, the current owner of the Cameron LNG facility, and will take an equity interest after necessary regulatory approvals for LNG export have been obtained.

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