30 June 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 26


Commerce allows export of ultralight condensate. In a move that takes a step toward easing the restrictions on U.S. crude oil exports that have been in place since the 1970s, the Commerce Department granted permits to two Texas companies to export an ultralight, processed oil condensate. A Commerce spokesman claimed this does not signal a policy change on crude oil exports in general, because Commerce has reclassified the ultralight condensate as a processed product and allowed the companies to export it under the current rules. The oil industry and some members of Congress, including Sen. Lisa Murkowksi (R-Alaska), the lead Republican on the Senate Energy and Natural Resources Committee, have urged the Obama Administration to use existing authorities to allow crude oil exports.

House approves bill to expand oil and gas drilling. On June 26, the U.S. House of Representatives passed the “Lowering Gasoline Prices to Fuel an America that Works Act of 2014,” H.R. 4899, by a vote of 229-185. The measure, which combines multiple proposals that have previously been approved by the House, would direct the Department of the Interior to open additional land and water to energy exploration, expedite drilling applications and limit legal challenges.

Bicameral committee considers economic potential and risks of natural gas exports. On Tuesday, June 24, the Joint Economic Committee heard testimony on the potential economic impact and environmental risks that could come with natural gas exportation. Proponents have strongly argued for expansion of natural gas exports because increased domestic production due to hydraulic fracturing and horizontal drilling has created a surplus in some regions that could benefit the U.S. economy if exported. The U.S. Energy Information Administration reports that natural gas production increased 27% between 2007 and 2013 and that domestic crude oil production will increase to 9.6 million barrels/day by 2020. The growth in production is also linked to job creation; an industry research firm predicts 3.3 million jobs will be connected to unconventional oil and gas extraction by 2020, up from 2.1 million in 2012.


New York: Appellate court upholds local fracking bans. In a long awaited ruling, the New York Court of Appeals upheld bans on the use of hydraulic fracturing in the towns of Dryden and Middlefield. In a 5-2 decision, the court held that the state’s Oil, Gas and Solution Mining Law (OGSML) does not preempt the municipalities’ home rule authority to regulate land use. New York currently has approximately 170 bans and moratoriums on hydraulic fracturing, so the decision is expected to impact cases across the state. The court interpreted the OGSML’s preemption clause narrowly, holding that local governments cannot regulate how oil and gas development occurs, but are free to regulate where oil and gas development can occur. The court took no position on the propriety of hydraulic fracturing within the state, asserting that such policy decisions should be left to the legislature and executive.

Colorado: City rejects two-year fracking ban. Voters in Loveland, CO narrowly defeated a hydraulic fracturing moratorium on June 25. The measure would have banned hydraulic fracturing and the storage and disposal of hydraulic fracturing waste products within the city limits for two years. Loveland is the sixth city in Colorado to vote on a hydraulic fracturing moratorium but is the first to vote against the restrictions.

Ohio: Department of Natural Resources settles suit over hydraulic fracturing waste injection well records. The Ohio Department of Natural Resources (ODNR) settled a lawsuit with the Athens County Fracking Action Network (AFCAN) arising out of a dispute over the production of records concerning approval of a well used to inject hydraulic fracturing waste for disposal. AFCAN had sought the records as part of a challenge to the approval of the well. AFCAN lost its original challenge to the well permit, but announced it plans to file a motion for reconsideration now that the records have been released. This is ODNR’s third settlement of NGO suits seeking production of records – it agreed to pay fines and turned over similar records to the Sierra Club in 2012 and earlier in 2014.

Pennsylvania considers new natural gas tax. As part of discussions to resolve its $1 billion budget deficit, Pennsylvania may implement a severance tax on the extraction of natural gas. The state previously decided against a severance tax in 2012 in favor of a locally-directed, per-well impact fee (based primarily on the age of the well), but Governor Tom Corbett indicated this week that the state may be reconsidering the tax. Currently, Pennsylvania has the lowest effective tax rate on natural gas production when compared with other high production states. Other states are similarly using severance taxes to increase revenue; earlier this year, Oklahoma passed legislation to raise taxes on production from new wells and Ohio is currently considering proposals to increase its taxes on extraction.

Wyoming to test groundwater in Pavillion oil and gas field. In a further response to a 2011 U.S. Environmental Protection Agency (EPA) draft research report, the Wyoming Department of Environmental Quality (WDEQ) will begin testing groundwater in the oil and gas field near Pavillion. The WDEQ will also test the integrity of oil and gas wells near fourteen private drinking water wells and examine the status of legacy pits in the area. In its 2011 draft, EPA had concluded that groundwater contamination in the area was likely associated with natural gas production, but after EPA’s data and draft conclusions were challenged, the agency initiated a peer review process. After taking one set of public comments, EPA ultimately discontinued its work, announcing it would not finalize its peer review of the draft report, but would support State of Wyoming investigations. WDEQ expects to issue a report with its analyses by the end of 2014.


Flowback liquid may mobilize compounds in soils. A study conducted by researchers at Cornell University and published in the American Chemical Society’s Environmental Science & Technology journal concludes that flowback fluid from hydraulic fracturing of a well could potentially mobilize tiny particles, or colloids, in soils that may cause heavy metals and other compounds to leach out of the soil and into the flowback fluids. To date, the researchers have analyzed the effect of flowback fluid from a Marcellus Shale well on a column of sand with known deposited colloids, but the researchers reportedly next plan to evaluate the fluid’s impact on colloid movement in natural soil.


Lighter shale oil extracted from certain shale plays presents refining challenge. Industry experts report that high gas levels in oil from the Texas Eagle Ford Shale and Permian Basin and the Colorado Niobrara Shale are creating challenges for refineries designed for and accustomed to handling heavier crude. Until the past few years, most oil refined in the United States was heavier crude. Now the federal government’s Energy Information Agency has estimated that light and ultralight oil accounts for over 95% of oil growth production since 2011. In response, refiners are investing hundreds of millions to upgrade and add special equipment to handle the ultralight shale oil.

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