14 November 2013

This Week in Hydraulic Fracturing

Volume 2, No. 45

Federal

Senate Panel questions EPA on oil & gas methane emissions. During a recent hearing, members of the Senate Environment & Public Works’ oversight subcommittee wanted to know when the Environmental Protection Agency (“EPA”) will regulate fugitive methane emissions from the oil and gas sector. Sen. Sheldon Whitehouse (D-RI) urged EPA to consider the direct regulation of methane under the oil and gas sector New Source Performance Standards (“NSPS”). NGOs and a group of 15 state Attorneys General have asked EPA to reconsider its 2012 update to the NSPS, as they are dissatisfied with EPA’s position that methane emission reductions are a co-benefit of reducing VOC emissions. EPA representative Sarah Dunham testified that by requiring “green completions,” the NSPS will eliminate more than 1 million tons of methane while providing industry with additional revenue through the capture of salable gas. Ms. Dunham deflected questions regarding whether EPA was contemplating new regulations for methane, stating only that EPA is still studying the question.

Industry group wants change to LNG export revocation policy. The Industrial Energy Consumers of America, a trade association representing energy intensive manufacturers, criticized congressional testimony by Department of Energy (“DOE”) deputy assistant secretary Paula Gant stating that DOE would only revoke an LNG export license under “extreme circumstances.” In a letter to Energy Secretary Ernest Moniz, the group said the policy was “anti-manufacturing” and would benefit gas exporters over American consumers. The group has previously urged a cautious approach to LNG exports, fearing that increased exports could lead to price spikes for manufacturing facilities that rely on gas for fuel and feedstock. The group demanded “a full review of this policy” and argued that LNG exporters do not deserve “greater investment protection” than domestic manufacturers.

BLM to consider restricting oil and gas drilling in Colorado valley. As the Bureau of Land Management (“BLM”) updates its Uncompahgre Field Office resource management plan governing 3.1 million acres of federal land in southwestern Colorado, it has agreed to consider NGO and landowner demands to stop all oil and gas drilling in the North Fork Valley. BLM’s draft plan, to be released in 2014, will include a ban on oil and gas development as one of its alternatives. Drilling opponents claim the area is unsuited for development, as it would disturb existing farms and wineries which are increasingly a draw for tourists. The groups previously persuaded BLM to defer lease sales in the valley and won a lawsuit forcing the agency to divulge the identities of companies that nominated the parcels.

NGOs criticize BLM proposals to conserve Greater sage grouse. Several NGOs, led by WildEarth Guardians, criticized BLM’s proposals to conserve the Greater sage grouse population across five Western states. The NGOs argue the proposed plans would allow too much oil and gas development near grouse habitat and breeding areas and impose protections that are too weak. The three plans, covering portions of California, Idaho, Montana, Nevada, and Utah, would impact land use on 31 million acres of federal lands. Although the plans would effectively prohibit oil and gas exploration on federal lands in Idaho and southwestern Montana and severely restrict drilling in California, the groups argue the prohibitions are stated as vague and unenforceable goals and seek more specific restrictions on parcels already leased. The U.S. Fish & Wildlife Service has a court-ordered deadline to make an ESA listing decision in 2015 and the proposed plans are part of a National Greater Sage-Grouse Planning Strategy intended to avoid a listing.

States

Three Colorado moratoria ballot measures pass; fourth too close to call. Ballot measures imposing or extending moratoria on hydraulic fracturing in three Colorado cities passed. More than 75% of Boulder voters supported a five-year extension of the city’s current moratorium on hydraulic fracturing. Voting was closer in Fort Collins, where a five-year moratorium passed with just over 55% approval. Lafayette, Colorado passed a municipal charter amendment with 57% support. Entitled “The Community Bill of Rights and Obligations,” the amendment bans hydraulic fracturing within city limits as well as wastewater storage, the construction of oil and gas pipelines, and withdrawing water from within the city’s jurisdiction that could be used for drilling operations. The Lafayette amendment also purports to invalidate any federal or state permits allowing oil and gas activities and to strip corporations of all Constitutional rights to challenge the charter amendment. A fourth ballot measure, to impose a five-year moratorium on hydraulic fracturing in Broomfield, was too close to call and is undergoing a recount that could continue until the end of November. Oil and gas companies previously hinted that they would challenge any local moratorium on hydraulic fracturing, citing a 1992 Colorado Supreme Court case that prohibits local governments from regulating oil and gas operations. Litigation challenging a ban on hydraulic fracturing in Longmont, Colorado is ongoing.

Youngstown hydraulic fracturing moratorium rejected again. For the second time in a year, Youngstown, Ohio voters rejected a ballot initiative to ban hydraulic fracturing. The vote was somewhat closer this November, failing 55% to 45%; in May, the same initiative lost 57% to 43%. A spokesman for the Community Bill of Rights Committee, the group that organized both indicatives, stated that the group will continue to seek a moratorium. The plumbers and pipefitters union had opposed the initiative, arguing it threatened jobs. In less publicized elections, voters in Bowling Green overwhelmingly rejected an initiative to ban hydraulic fracturing while a similar initiative passed in Oberlin with strong voter support.

International

Newfoundland and Labrador imposes hydraulic fracturing moratorium. The Newfoundland and Labrador Ministry of Natural Resources stated that it will not process permit applications for oil drilling using hydraulic fracturing until they have reviewed the regulations of other jurisdictions, performed technical geological studies, and taken public comments on the issue. The Green Point shale deposit, which may hold up to 50 billion gallons of oil, lies on Newfoundland and Labrador’s western coast, near Gros Morne National Park. The government had previously allowed Shoal Point Energy to perform exploratory drilling in the Green Point shale, prompting objections from the public and UNESCO, given the Gros Morne National Park’s UNESCO heritage designation.

Shale gas development designated “key strategic industry” by Chinese government. China’s National Energy Administration included shale gas development among the country’s “key strategic industries,” entitling developers to financial incentives and more lenient regulations. The policy is intended to encourage foreign companies to enter into joint ventures or cooperative agreements with Chinese companies to develop shale gas. The “key strategic industries” designation is provided to select industries where the government wants to encourage development under its five-year plans. Shale production will be entitled to accelerated permitting, subsidies, and exemptions from the value-added tax, mineral resource fees, and corporate income taxes.

Business

Newfield announces new shale play. Newfield Exploration Company announced the discovery of a new shale play in Oklahoma’s Anadarko Basin. The company has named it the “Stack play” due to its stacked shale layers. The company stated that initial wells are producing significant amounts of crude oil. Newfield has approximately 150,000 acres in the Anadarko Basin under lease which it plans to develop by the end of 2014.

Devon Energy profits after focusing on shale production. Oklahoma City’s Devon Energy posted a third-quarter profit, as compared to a loss the previous year. Devon has sold off assets in the Gulf of Mexico and Brazil and wrapped up its pipeline and processing business into a master limited partnership with Crosstex Energy, which will receive a $4.8 billion investment from Devon. These changes freed Devon to focus on its North American onshore assets, which saw increased oil production, especially from its Permian Basin and Rocky Mountain-area wells.

Research

Study: Opportunities to reduce water usage. Energy industry consultant IHS published an analysis finding that new technologies and adjustments to state regulation could reduce hydraulic fracturing water usage by 30-40%. Although shale development uses much less water than agriculture or other industrial facilities, NGOs and regulators have raised concern about water consumption where water is scarce, such as Texas and Oklahoma. Some oil and gas companies are taking measures to reduce their water consumption and secure supplies. For instance, Antero Resources is spending $525 million to lay 200 miles of water pipelines in the Marcellus Shale play. Large well service companies are also introducing gels, foams and surfactants that can be used with recycled water. The report, however, also found that some state laws prevent the re-use of wastewater or prohibit large wastewater storage pits. These laws would likely need to be changed to accommodate widespread wastewater re-use.

Report: More hydraulic fracturing disclosure to investors needed. The As You Sow Foundation, a group that advocates for increased corporate environmental and social responsibility, and three socially conscious investment groups, released a report arguing that oil and gas companies are not disclosing sufficient information about the risks of hydraulic fracturing to investors. According to the report, no large oil and gas company disclosed information on half of the indicators that the report deems essential to investors, such as chemical management, air and water pollution, noise, traffic, and crime. The groups stated that such disclosure is important to a company’s reputation, access to capital, and its “social license to operate.”

Linking gas to oil prices fades but gains ground in Asia. A study by the International Gas Union found that pegging natural gas prices to those of crude oil has increased in parts of Asia, especially in China and India who are signing more import contracts where gas is pegged to crude prices. These countries continue to see increasing demand for scarce gas, providing leverage to suppliers. By contrast, “gas-on-gas” pricing, where gas suppliers compete with each other regardless of crude oil prices has become the norm in the United States, and the IGU study reports this pricing method has gained ground elsewhere, particularly in Europe. Some European countries especially benefitted where they have been able to use increased LNG supplies to de-couple gas prices from crude prices in re-negotiations of long-term contracts.

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