21 October 2014

Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 42


North Dakota: Companies announce plan for $4 billion petrochemical plant. On October 13 Badlands NGL, Tecnicas Reuindas, and Vinmar Projects announced plans to construct a $4 billion petrochemical plant that will convert ethane from oil and gas wells into polyethylene, a key feedstock for the plastics industry. The project, which is the largest private investment in North Dakota’s history will produce 3.3 billion pounds of polyethylene per year and employ 500 people. Gov. Dalrymple praised the project as an important investment that will help the State meet its goal to reduce flaring at oil and gas wells.

Illinois: Landowners sue DNR over failure to issue hydraulic fracturing regulations. On October 15 a group of landowners sued the Illinois Department of Natural Resources (DNR) over its failure to issue final regulations for hydraulic fracturing in Illinois. Illinois passed a law to allow hydraulic fracturing in 2013, but has not yet issued implementing regulations. The suit alleged that, by failing to allow hydraulic fracturing, the state violated the Constitution by taking their mineral rights without compensation. The suit was filed one day after the Illinois Joint Committee on Administrative Rules delayed a vote to approve the regulations. While hydraulic fracturing operations could potentially be permitted beginning on Nov. 15, regardless of whether regulations are in place, the Illinois DNR has stated that, until regulations are finalized, it will not issue permits without a court order.


The Netherlands delays decision on allowing hydraulic fracturing until 2016. The Dutch government recently announced that, in response to public comments on a draft policy, it would delay until 2016 a decision on whether to allow hydraulic fracturing. The government granted two shale gas exploration licenses in 2011, but has since been operating under a de facto moratorium until completing an assessment and policy document. That moratorium will now last until at least 2016. According to the U.S. Energy Information Agency, the Netherlands has 735 billion cubic meters of shale gas resources.


Aspen Institute study concludes that lifting oil export ban will benefit domestic manufacturing. A recent report issued by the Aspen Institute concluded that eliminating the current ban on crude oil exports will benefit the manufacturing sector through increased oil production. According to the report, increased oil production will increase demand for pipes, machinery and other durable goods needed for drilling and transporting oil. Overall, the report concluded that the manufacturing sector would grow by an average of 37,000 jobs per year if the ban were lifted. Others, however, have argued that allowing the export of U.S. crude oil will reduce global prices and limit the incentive for U.S. companies to increase production.

IEA Report: Declining oil prices may affect production, viability of shale companies. In its monthly Oil Market Report, the International Energy Agency (IEA) projected that a prolonged downturn in oil prices could affect both production and the viability of some companies involved in shale oil development. Noting that production continues to outstrip demand, the IEA cut its forecast for 2014 demand growth to 700,000 barrels per day (a 200,000 barrels per day reduction). The IEA also noted that a long-term drop in crude prices could induce a wave of mergers and acquisitions within the industry, with high debt levels or operating in high-cost fields serving as primary targets. Highlighting the variation in drilling costs, even in highly productive fields, an IEA representative noted that even in the Bakken shale, break even production prices vary from as low as $40 per barrel in core areas to more than $85 per barrel in others.

Study highlights employment benefits of drilling in Marcellus shale. A recent study conducted by researchers at the University of Illinois, Urbana-Champagne found that natural gas development in the Marcellus shale has generated more than 45,000 construction jobs since 2008. The study, which was commissioned by the Oil and Natural Gas Industry Labor-Management Committee, evaluated total hours worked in 13 trades associated with natural gas development in Pennsylvania, Ohio, Maryland and West Virginia. The 31 percent growth in labor hours for oil and gas and related industries differed markedly from the 54 percent decline in labor hours in other sectors, demonstrating the positive impact that hydraulic fracturing has had on local economies in the Marcellus shale.

Researchers’ model predicts increased reliance on natural gas will not reduce climate change. In an article published in Nature, researchers concluded that increased consumption of natural gas will have little effect on climate change because gas will replace zero- and low-emission energy sources rather than other fossil fuels. In the study, five research teams from the United States, Australia, Austria, Germany and Italy developed “integrated assessment models” to assess the impact of increased natural gas consumption. The article reported the models showed that by replacing renewable fuels, causing releases of methane emissions through leaks and other sources, and increasing overall energy use due to lower prices, natural gas would leave greenhouse gas emissions little changed from business as usual projections. At the same time, the article acknowledges that natural gas development provides measurable benefits including economic growth, reduced local air pollution and increase in energy security.

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