11 March 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 10


Sen. Murkowski: President has power to increase crude oil exports. Senator Lisa Murkowski (R-AK) is continuing her efforts to convince the Obama Administration that it has the power to authorize increased crude oil exports. In a report released last week, Sen. Murkowski catalogued actions taken by past administrations to allow targeted crude oil exports over the past 30 years. At a recent IHS CERA conference Murkowski argued that increased ability to export crude oil will promote economic and political stability in Europe, Asia, and across the world. While there is some support in Congress to reverse a 1970’s law that largely prohibits the export of crude oil, others have suggested that administrative action may prove to be a more viable option in the near term.

Ukraine crisis prompts calls for LNG exports. Congressional supporters of Liquefied Natural Gas (LNG) exports are pointing to the conflict in Ukraine as a reason to fast-track permitting of LNG terminals to facilitate exports to U.S. allies. Members on both sides of the political aisle have argued that increased export capacity is needed to counter the leverage Russia currently wields in Ukraine and parts of Europe where it is the primary natural gas supplier. Members of Congress are proposing legislation and appealing directly to the Department of Energy (DOE) to simplify the process for LNG projects so that the United States can respond to international crises. Speaker of the House, Rep. John Boehner (R-OH), noted in a press briefing that DOE had only approved permits for 6 LNG facilities in the last 3 years, while 24 more permits are still pending. Although the Ukraine crisis has provided a sense of urgency, LNG supporters assert there is a much broader need for secure energy sources for U.S. allies throughout Europe and Asia. At the same time, analysis by Barclays Capital suggests that the stakes of natural gas trade were too high for all parties involved for the Ukraine crisis to pose any concerns for grid stability in Europe.

SEAB makes recommendations for disclosure of hydraulic fracturing fluids. In a March 5, 2014 report, the Department of Energy Secretary of Energy Advisory Board (SEAB) recommended “full disclosure of all known constituents” of hydraulic fracturing fluids. The report assessed FracFocus, a commonly used web-based registry of chemicals used in hydraulic fracturing. The SEAB asserted that trade secrets could be adequately protected if companies reported a list of all chemical constituents separately from the commercial products that contain them because the information would not permit a competitor to reverse engineer the protected products. The SEAB also made recommendations to improve FracFocus’ website interface, its data quality protocols, and its funding structure. The SEAB’s recommendations are not binding on FracFocus.

Railroad representative testifies that shale oil is more volatile than conventional oil. In a March 6, 2014 hearing before the House Energy and Commerce Committee, Edward Hamberger, president of the Association of American Railroads (AAR) testified that oil from shale formations is more volatile than conventional oil because it contains more national gas liquids including methane and butane. Hamberger’s statement was based on conversations with the Pipeline and Hazardous Materials Safety Administration (PHMSA). Hamberger’s statement was supported by a recent report by the Canadian Transportation Safety Board, which reported that samples from crude in the Lac Megantic tragedy had a flash point similar to gasoline. PHMSA is currently working to develop new regulations for railroad tanker cars. Hamberger also defended the rail industry’s safety record, noting that 99.98 percent of carloads reached their destination without incident.


Colorado: Court upholds vote to ban hydraulic fracturing in Broomfield. A court in Colorado affirmed the legality of the voting process used to enact a 5-year moratorium on hydraulic fracturing activities within the city of Broomfield. The vote had been challenged by a number of groups who had challenged the legality of moratoria. The moratorium was passed last November by a very narrow margin. A number of local moratoria have been passed recently in Colorado, and several have been challenged in court, based on the argument that such moratoria are preempted by state law.

Colorado: City enacts short-term ban on hydraulic fracturing. Brighton, Colorado enacted a four-month moratorium on any permitting activity associated with hydraulic fracturing. The city claims the moratorium is needed to address “issues of local concern” and designed to give staff adequate time to educate government leaders about oil and gas development as well as regulatory changes adopted or under consideration by the state. Under the moratorium, the city will begin processing applications again on July 15, 2014.

Colorado: State to surpass 60-year record for oil production. Oil production in Colorado increased by more than 17% from 2012 to 2013. Total output is expected to exceed the record 58.6 million barrels produced in 1956. The increase in oil production is due in part to changing market conditions, as low gas prices have resulted in a 12% reduction in gas production over the same time period.

California: Los Angeles moves forward with efforts to ban hydraulic fracturing. In a 10-0 vote, the Los Angeles city council voted on February 28, 2014 to draft an ordinance banning hydraulic fracturing. The ordinance would be expansive, banning both well stimulation and the use of waste disposal wells within city limits. Los Angeles, which has 1,880 active and 2,932 abandoned oil and gas wells, would be the first city in California with active oil and gas development to ban hydraulic fracturing. Critics have pointed out that by banning waste disposal wells, the proposed ordinance would also have a detrimental effect on conventional oil and gas development.

Michigan: Attorney General files antitrust charges against Chesapeake and Encana. Michigan Attorney General Bill Scheutte has charged Chesapeake Energy Corp. and Encana Oil and Gas USA, Inc. with criminal antitrust violations based on allegations that they colluded to limit bid prices in oil and gas auctions on public land. The auctions involved land in northern Michigan’s Collingwood shale formation. The charges carry a fine of up to $1 million. The companies are also defendants in a civil antitrust suit filed by Northstar Energy LLC. Chesapeake and Encana representatives stated that internal investigations revealed no violations.

North Dakota: Industrial Commission announces plan to reduce natural gas flaring. The North Dakota Industrial Commission has adopted a new plan to reduce natural gas flaring. Beginning June 1, 2014, drilling permit applicants must prepare a gas capture plan and must also make the plans available to natural gas gathering companies working in the area. Currently, one third of the natural gas produced in the state is flared, and the commission hopes to reduce that to five percent by 2020. In related action, Governor Jack Dalryple highlighted the importance of increasing investments in processing plants and chemical manufacturing to provide a market for the natural gas that is currently being flared in the state.


China falls behind targets for shale gas production. Recent analyses suggest China will fall short of its goal of producing 6.5 billion cubic meters of natural gas from unconventional sources by 2015. Projections from China National Petroleum Corp. and China Petrochemical Corp., the two largest producers in China, indicate the production will be closer to 3.0 billion cubic meters. China, which potentially has larger shale reserves than the United States, is seeking to reduce its reliance on coal and turning to natural gas as an alternative.


ACC study projects shale gas will fuel investment boom in chemical industry. A recent study by the American Chemistry Council (ACC) projects that more than $100 billion in new chemical facilities will be constructed in the United States over the next decade in response to low natural gas prices caused by increased shale gas production. ACC estimates that this growth will result in $81 billion in annual chemical output, along with 600,000 permanent jobs. This contrasts with the situation 10 years ago when high natural gas costs were driving investments abroad. Potential challenges to continued growth cited in the report include local moratoriums on hydraulic fracturing and the need for additional infrastructure to connect chemical facilities in the Gulf Coast to natural gas supplies, such as in the Marcellus Shale.

EDF reports control options available to reduce methane emissions. A study commissioned by the Environmental Defense Fund (EDF) reports that methane emissions from the oil and gas sector could be reduced by 40% using available control methods. ICF International concludes for EDF that the majority of methane emissions came from oil wells as a byproduct of oil production. According to the report, improved leak detection and repair, replacement of pneumatic devices with low-bleed alternatives, reduced venting from wells and equipment, and capturing gas using wet-seal compressors would require an investment of $2.2 billion, but would result in annual savings of $108 million per year.

Research paper asserts 2011 Oklahoma earthquake attributed to underground injection. Scientists from the United States Geological Survey (USGS) and several universities published a research paper supporting their hypothesis that a 2011 earthquake near Prague, Oklahoma which registered 5.7 on the Richter scale was triggered by the underground injection of oil and gas wastewater. Oklahoma now ranks second behind only California in the lower 48 states for seismic activity, leading to speculation that injection of flowback from oil and gas production into deep disposal wells is causing or contributing to the change in seismic activity.

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