10 August 2015

Sidley Shale and Hydraulic Fracturing Report

Vol. 4, No. 32

Topics discussed in this week’s Report include:

  • EPA Final Clean Power Plan Is Less Favorable to Natural Gas.
  • Oklahoma: State Regulator Restricts Underground Injection of Wastewater.
  • Texas: Denton Amends Gas Well Regulations.
  • Iran Deal May Impact Market Quickly.

Federal

EPA Final Clean Power Plan Is Less Favorable to Natural Gas. The Environmental Protection Agency’s (EPA) controversial new rules governing CO2 emissions from new and existing electricity generating units are more stringent and more complex than proposed. One significant effect of the revisions is that the final rule expresses a stronger preference for renewable energy and thus would not be expected to cause as significant an increase in natural gas-fired electricity generation as had originally been expected. The targets set by the final rule assume the United States will generate 28 percent of its power using renewable energy by 2030, an increase from 22 percent in the proposed rule. The final rule also allows states to develop plans that would phase-in carbon dioxide reductions more slowly through 2030. These adjustments make an immediate switch to natural gas-fired power less necessary to meet interim targets. Overall, EPA actually projects that natural gas generation will decline slightly in 2030 in comparison to its base case projections without the rule. Whether any of these changes occur will depend upon court rulings, as legal challenges to the rules are expected. (For more information about the rules, see our previous Environmental Update, here.)

States

Oklahoma: State Regulator Restricts Underground Injection of Wastewater. The Oklahoma Corporation Commission ordered 12 operators of 23 oil and gas wastewater injection wells to reduce injection volumes by 38 percent in stages over a 60-day period. The restrictions are currently focused on a 600 square mile area northwest of Oklahoma City, but the Commission observed that it could expand this covered area in the future. Oklahoma hopes its actions will address the rise in the frequency of minor earthquakes the state has been experiencing.

Texas: Denton Amends Gas Well Regulations. The City of Denton, Texas has strengthened its gas well regulations after it repealed the city’s previous ban on hydraulic fracturing in response to a new state statute limiting municipal authority to regulate oil and gas operations. The new ordinance is designed to shift hydraulic fracturing within city borders to industrial areas of Denton, by reducing setback requirements for natural gas production wells to 250 feet in industrial zones, while establishing a 1,000 foot setback requirement for residential and commercial zones. A company may drill a well within the 1,000 foot setback, but would need to obtain a waiver from 100 percent of the “protected uses” in the area, such as homes and schools. Denton also enacted requirements regarding signage at drilling sites and public notice surrounding drilling.

International

Iran Deal May Impact Market Quickly. Analysts believe that July’s multi-nation agreement with Iran over its nuclear program, which granted sanctions relief, could quickly lead to a large increase in Iranian crude oil sales. Analysts at the Deloitte Center for Energy Solutions have estimated that during 2016 Iran could export approximately 500,000 additional barrels of oil per day, and potentially even as much as 800,000 barrels per day. Some analysts believe that a rapid increase in production could begin as soon as January 2016. These projections are subject to continuing review of the terms of the agreement in signatory countries, including the U.S. where the agreement is subject to review by the Congress.

If you have any questions regarding this Report, please contact us.

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