21 August 2013

This Week in Hydraulic Fracturing

Volume 2, No. 33

Federal

BLM sage grouse plan could disrupt oil and gas development. The Bureau of Land Management (“BLM”) released a draft environmental impact statement and resource management plan amendment that will implement protections for the sage grouse on 1.6 million acres of BLM and U.S. Forest Service lands in Colorado. The plan includes land use restrictions and “management options” for a 910,000 acre “Area of Critical Environmental Concern,” which could significantly curtail oil and gas development in Colorado’s Niobrara Shale play. Nearly half of the sage grouse’s habitat lies in federal lands in Colorado. The plan’s goal is to preserve sage grouse habitat before the species is listed as threatened or endangered, which would restrict land use even further. BLM will take public comment on the proposal until November 14, 2013 and thus a final plan will not be released until 2014.

EIA: Energy production on federal lands drops again. A new U.S. Energy Information Administration report shows that fossil fuel production on federal lands dropped in fiscal year 2012 by 3.7%, the second annual reduction in a row and the lowest level in the past ten years. Much of the decline was attributed to coal mining, however, oil and gas production dropped as well. Traditionally, approximately 1/3 of U.S. energy production has come from federal lands. That proportion has dropped to 28% as hydraulic fracturing has largely developed on private or state-owned land.

States

New Pennsylvania regulations to cut air emissions from shale operations. The Pennsylvania Department of Environmental Protection (“PADEP”) eliminated its longstanding exemption from air permitting regulations for shale gas drillers. Companies will now have to provide an air quality plan for PADEP’s approval or win an exemption by demonstrating that they will use methods to reduce air emissions below federal standards. The exemptions require companies to, at a minimum, implement a leak detection and repair program for the entire well site, reduce volatile organic compound and hazardous air pollutant emissions below federal levels, reduce nitrogen oxide levels to 100 pounds per hour/ 1,000 pounds per day/ 6.6 tons per year, and only flare gas on an emergency basis.

California Coastal Commission to investigate offshore hydraulic fracturing. In light of recent reports that oil companies have used hydraulic fracturing to stimulate aging oil wells off the coast of California, the California Coastal Commission has announced an investigation into the practice. Several state legislators have expressed concern that offshore hydraulic fracturing has been permitted with minimal environmental review. A spokesman for the Commission stated that it was not previously aware of the practice because the offshore rigs are regulated by the U.S. Bureau of Safety and Environmental Enforcement (“BSEE”). The Coastal Commission will examine how often the practice has occurred and if the Commission has any power to regulate offshore hydraulic fracturing. No California agencies have regulations specific to offshore hydraulic fracturing. Environmental groups are demanding a moratorium on the practice, both onshore and offshore. BSEE stated that it never informed the Commission of approvals to use hydraulic fracturing because they were “minor revisions” to permits that did not require public notice and were subject to a categorical exclusion under the National Environmental Policy Act.

Ballot initiative would impose moratorium on hydraulic fracturing. Broomfield, Colorado, a northern Denver suburb, will put the question of whether to impose a moratorium on hydraulic fracturing to voters in November. A group called Our Broomfield, a subsidiary of a national movement to implement local bans and moratoria on hydraulic fracturing, obtained the signatures required to put the proposal on the ballot.

Franklin County, Kentucky imposes pipeline moratorium. Franklin County imposed a one year emergency moratorium on roadway crossings for pipelines carrying hazardous materials, reportedly in order to study potential risks. The move was aimed at blocking construction of the Bluegrass Pipeline that would ship natural gas liquids from the Marcellus Shale play to Gulf coast plants. The pipeline is being developed by Williams Cos. and Boardwalk Pipeline Partners. The companies have not indicated yet if they will challenge the moratorium in court.

<lt;STRONG>Business

Railroad to experiment with LNG fuel. BNSF Railway, the country’s largest railroad operator, will implement a pilot program to run trains on liquefied natural gas (“LNG”) instead of diesel. The railroad, which consumes about 1.4 billion gallons of diesel per year, believes that it could realize significant cost savings by converting to LNG. Even if the pilot program works, converting fleet operations to LNG would depend on an economic analysis of future LNG prices and obtaining government approval from several federal agencies.

Antero Resources developing water pipeline. Antero Resources, one of the largest drillers in the Marcellus Shale play, is planning an 80-mile, $500 million pipeline that will ship water from the Ohio River to well sites in West Virginia and Ohio. The company stated that the project will ensure consistent water supplies while cutting costs from trucking water to each site. Other companies have constructed water pipelines to supply drill sites, but Antero’s planned pipeline is by far the largest and most ambitious water pipeline project to date.

New recycling method could ease drilling waste burden. Scott Environmental Services announced that it is introducing a new waste treatment process that compacts solid drilling wastes, primarily mud and cuttings, for reuse as well pads, compressor pads, and road beds. The company asserts that its compaction method is in-line with the Environmental Protection Agency (“EPA”) practices for solidifying, stabilizing, and burying waste in cleaning up contaminating sites. The process can reduce the costs of current waste disposal, which requires the wastes to be treated to remove metals before being shipped to a solid waste landfill. To date, Scott received approvals to sell its services in seven states with active shale development operations. The company plans to launch a pilot project in Texas within the next few months.

Research

Marcellus gas production up despite low prices. Energy market analyst Bentek released a report showing that natural gas production in Pennsylvania and West Virginia is up by 50% compared to July 2012, with much of the new production coming since April 2013. That is the time that new pipelines and processing plants came on-line with an eye towards shipping the gas to east coast metropolitan areas. The analysts stated they were surprised and assumed that producers would wait until additional infrastructure arrives in 2014. The report predicts that the Marcellus Shale play will produce approximately 3.2 trillion cubic feet of gas in 2013 and is starting to displace the Gulf of Mexico as the primary supplier of natural gas to the Northeast United States.

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