26 April 2016

Sidley Shale and Hydraulic Fracturing Report

Vol. 5, No. 17

Topics discussed in this week’s Report include:

  • Energy Department approves application to export natural gas.
  • Environmental NGOs petition President Obama to halt the export of crude oil.
  • North Dakota: Number of active drilling rigs is down, but production remains relatively stable.
  • Pennsylvania: Agency approves new oil and gas regulations.
  • Brookings Institution recommends that Pennsylvania and Ohio establish hydraulic fracturing trust funds.

Federal

Energy Department approves application to export natural gas. The U.S. Department of Energy has issued an order authorizing Flint Hills Resources LP to export 3.62 billion cubic feet/year of liquefied natural gas (LNG) for 20 years to countries with which the U.S. has a free-trade agreement (FTA). The company will be allowed to export the domestically produced natural gas in containers or in bulk from the Stabilis LNG Eagle Ford LLC facility in George West, Texas. Flint Hills Resources would buy the LNG from Stabilis. According to the order, no additional plant infrastructure will be required for the proposed exports, and Flint Hills anticipates the points of export to include the ports of Brownsville, Houston and Corpus Christi, Texas. The order does not address the company’s application to export LNG to non-FTA countries, which will be addressed separately.

Environmental NGOs petition President Obama to halt the export of crude oil. Three hundred fifty environmental non-governmental organizations (NGOs), including the Center for Biological Diversity, Friends of the Earth and others, petitioned President Obama to declare a national emergency and ban crude oil exports. The omnibus appropriations bill enacted by Congress late last year ended the then four-decade-long ban on the export of crude oil but gave the president the authority to reimpose the ban for a limited duration in the case of a national emergency.

States

North Dakota: Number of active drilling rigs is down, but production remains relatively stable. The North Dakota Department of Mineral Resources announced that there are 29 active drilling rigs in the state, the lowest since fall 2005. This total reflects a steep drop from peak activity in the state in 2012, when 218 drilling rigs were active. Production, however, has stayed relatively constant. In February, the state produced about 1.2 million barrels of oil per day, down only 4,000 barrels per day from January and nine percent from peak production in April 2014.

Pennsylvania: Agency approves new oil and gas regulations. Pennsylvania’s Independent Regulatory Review Commission (IRRC) gave final approval of the new Department of Environmental Protection regulations for surface operations at oil and gas wells in a 3-to-2 vote. The new rules amend the state’s Environmental Protection Performance Standards at Oil and Gas Well Sites, which have not been updated since 2001, and establish different requirements for conventional and unconventional production. They restrict the use of impoundments to store drilling wastes, impose new waste reporting requirements, require drillers to notify public agencies if drilling sites are near certain public resources and identify active or abandoned wells within 1,000 feet of the vertical and horizontal wellbore. The IRRC reviews all new Pennsylvania regulations to ensure that the issuing agency has statutory authority to issue the regulations and that regulations are consistent with legislative intent. The state legislature, committees of which had called for the IRRC to reject the rules, could still attempt to stop the regulations from becoming effective by voting to disapprove them — an action that Governor Tom Wolf (D) would likely veto. A group of independent oil producers is already challenging the regulations in court. For more information, see the April 19 edition of the Hydraulic Fracturing Report.

Studies

Brookings Institution recommends that Pennsylvania and Ohio establish hydraulic fracturing trust funds. In a recent study, the Brookings Institution recommended that Pennsylvania and Ohio enact a tax on unconventional oil and gas production, a portion of which they then allocate to a trust fund. The report suggests that the states use such trust fund monies to conduct research to increase their oil production, to fund education and to encourage investment in alternative energy. In making this recommendation, the study evaluates similar trust funds in states with a history of oil and gas production or mining, such as Texas, Montana, North Dakota and Alaska.

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

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