07 October 2014

Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 40

Federal

EPA reports that methane emissions from oil and gas dropped in 2013. The Environmental Protection Agency (“EPA”) released the results from its 2013 Greenhouse Gas Reporting Program, showing that oil and gas operations reduced their share of the country’s methane emissions. Landfills and wastewater treatment plants took the top two spots with the oil and gas sector in third, contributing 33% of methane emissions. This is a 73% decrease compared to methane emissions from oil and gas operations in 2011. Overall, total greenhouse gas emissions from the oil and gas industry, including the production, transmission, processing and distribution sectors, were down 1% in 2013 when compared with the prior year.

DOT rejects requests to keep route information confidential. The Department of Transportation (“DOT”) rejected requests by railroad trade associations to rescind an emergency order issued in May 2014 requiring railroads hauling one million gallons or more of Bakken crude oil to disclose shipping information to states. DOT ordered railroads to produce information on the route trains take, their cargo, and the frequency of shipments to states through which they would ship crude oil so that first responders could be better prepared. Railroads had argued that state open records laws make this information available to the public, posing security risks and exposing confidential business information. DOT, however, rejected these contentions, arguing the railroads had not documented any actual harm resulting from the public release of this information.

FERC approves Cove Point LNG terminal. Cove Point, the East Coast’s first planned liquefied natural gas (LNG) export terminal, won Federal Energy Regulatory Commission (“FERC”) approval. The approval, which included an extensive environmental review, drew protests from environmental groups. The groups have threatened litigation, claiming FERC should have conducted a full Environmental Impact Statement under the National Environmental Policy Act (“NEPA”) and examined the environmental impacts of the hydraulic fracturing used to supply some of the gas that would be exported. Dominion Resources, the project’s developer, is still waiting for final approval from the Department of Energy (“DOE”) on its application to export over five million tons of LNG to countries without a free trade agreement. DOE previously provided conditional approval to supply LNG to customers and Japan and India, beginning in 2017.

States

New York: Bill would prohibit disposal of out-of-state hydraulic fracturing wastes. NGOs are backing a New York State Senate bill that would prohibit the disposal of out-of-state hydraulic fracturing wastes, such as drill cuttings, at New York landfills. The bill’s proponent, Sen. Ted O’Brien, cited the presence of naturally occurring radioactive materials in the wastes as the reason to ban their disposal. Another bill would prohibit New York municipal waste treatment facilities from treating wastewater from out-of-state drilling operations unless it meets a set of new treatment standards.

Texas: Comments filed on proposed rules on seismic activity. Texas has proposed rules that would require operators seeking underground injection permits to dispose of wastes to consult first with U.S. Geological Survey (“USGS”) records to determine if the area where injection is proposed could present a seismic threat before receiving a permit. Although some commenters found the proposals to be a good step forward, the reliance on USGS records was criticized, as even the USGS believes the agency has too few stations in Texas to provide adequate warning. EPA Region 6 and academics from Southern Methodist University (“SMU”) made similar comments. Industry groups joined EPA and the SMU researchers in asking the Texas Railroad Commission to reconsider how its proposal would require permit applicants to conduct seismic surveys, citing several factors that they claim were not considered. The proposal was sparked, in part, by a series of small earthquakes near Azle, Texas, a town in the Barnett Shale formation, that some have linked to three underground injection wells.

West Virginia plan to drill under Ohio River attracts controversy. Environmental groups are protesting a plan for West Virginia to allow companies to drill for shale gas underneath the Ohio River. Governor Earl Ray Tomblin cited a $100 million budget shortfall as the reason for fielding four bids from companies to secure the drilling rights to a 14-mile area along the river. The environmental groups claimed that hydraulic fracturing near the river would adversely impact the Ohio River, which is used as a source of drinking water.

Business

Baker Hughes begins disclosure of chemicals. Starting on October 1, 2014, Baker Hughes announced that it began fully disclosing all of the chemicals used in its hydraulic fracturing fluids. The company first announced in April 2014 that it can provide the disclosures without comprising trade secret protections. Now, after each hydraulic fracturing job performed for a client, it will disclose a list of chemicals and their maximum concentrations. Environmental groups and a Department of Energy advisory panel have advocated for the disclosure of chemicals used in hydraulic fracturing fluids without trade secret protections.

Encana deal makes it a player in the Permian. Canada’s Encana Corporation announced that it was buying Athlon Energy, Inc., a Fort Worth independent oil and gas company, in a deal valued at approximately $7 billion. Athlon’s assets are concentrated in the Permian Basin, one of the United States’ largest on-shore oil fields. Through the deal, Encana will acquire 140,000 acres in the Permian Basin for exploration, estimated to hold as much as three billion barrels of oil-equivalent hydrocarbons.

Wyoming may see next manufacturing boom. J.R. Simplot announced plans to construct a $300 million ammonia fertilizer plant in Rock Springs, Wyoming, citing the availability of cheap natural gas. The Wyoming Business Council stated that it is in discussions with other companies, which it declined to name, to locate in Wyoming for similar reasons. The Council is pitching new development near the Jonah natural gas field, which has become significantly more productive with the use of hydraulic fracturing, and is hoping to mimic the boom in petrochemical manufacturing currently enjoyed in the Gulf Coast region.

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