04 May 2015

Sidley Shale Gas and Hydraulic Fracturing Report

Vol. 4, No. 18

Topics discussed in this week’s Report include:

  • United States and Canada Issue New Regulations for Crude Oil Tank Cars.
  • China to Reduce Government Incentives for Shale Gas Development.
  • Increased Ethane Concentrations Result from Hydraulic Fracturing Operations in Marcellus.

Federal

United States and Canada Issue New Regulations for Crude Oil Tank Cars. On May 1, the U.S. Department of Transportation and Transport Canada announced jointly developed regulations for railcars carrying crude oil and hazardous substances. Among other changes, the new standard for “117” tank cars requires the use of thicker steel than existing cars as well as redesigned bottom outlet valves. Existing “111” railcars will have to be retired or upgraded by 2018 in the United States and must be retired by 2017 in Canada. More recent “CPC-1232” tank cars must be retired by 2020. Overall, the agencies estimate that the rule will cost approximately $2.5 billion. Environmental groups have sought an immediate ban of DOT-111 cars, while industry stakeholders have expressed concern over whether manufacturers have sufficient capacity to meet the timeline for replacing existing cars. Railroad industry representatives have also raised objections to a separate requirement for electronically-controlled pneumatic braking systems for oil trains carrying 70 or more cars as a decision made without adequate data or analysis. The rule also imposes a nationwide speed restriction of 50-mph for trains carrying crude oil and hazardous substances, and a 40-mph speed restriction in highly urbanized areas.

International

China to Reduce Government Incentives for Shale Gas Development. China announced that it will reduce existing subsidies for shale gas development over the next five years. The subsidy, which is currently 0.4 yuan per square meter, will be reduced to 0.3 yuan per square meter from 2016 to 2018, and then to 0.2 yuan from 2019 to 2020. Despite these subsidies, shale gas development has still proceeded slowly in China due in part to challenging geology, less developed infrastructure and limited exploration rights, and has caused China to reduce its shale gas development targets by two-thirds to 30 billion cubic meters. There remain substantial opportunities, because in 2012 China produced about 2.5 percent as much shale gas as the United States despite having shale gas reserves that are double those in the United States.

Studies

Recent Report Claims Increased Ethane Concentrations Result from Hydraulic Fracturing Operations in Marcellus. A recent article published in Atmospheric Environment reported increased concentrations of ethane gas at monitoring stations downwind of hydraulic fracturing operations in the Marcellus Shale. The monitoring stations, located near Baltimore and Washington, D.C., have reported increases of ethane since 2010. The authors assert that other potential sources of ethane, such as natural gas pipeline losses, vehicle emissions or natural gas storage fields could not explain the elevated ethane levels at the monitors. Ethane is the second largest constituent of natural gas after methane.

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