22 October 2013

This Week in Hydraulic Fracturing

 

Volume 2, No. 42

 

Federal

Environmental group seeks federal moratorium on off-shore hydraulic fracturing. The Environmental Defense Center (“EDC”) has asked the Bureau of Safety and Environmental Enforcement (“BSEE”) to issue a moratorium on the use of hydraulic fracturing to enhance recovery from oil wells off the California coast. EDC claims hydraulic fracturing has been approved for offshore wells 15 times over the past two decades, and argues the practice should not be allowed until proven safe through a programmatic environmental impact statement (“EIS”). EDC is also asking the federal government to rescind categorical exemptions used to approve use of hydraulic fracturing, review the approvals to ensure compliance with the Endangered Species Act, Coastal Zone Management Act, and the Marine Mammal Protection Act, and revise Clean Water Act permits for offshore oil platforms to account for wastewater from hydraulic fracturing.

States

Colorado announces fines for late chemical reporting. The Colorado Oil & Gas Conservation Commission (“COGCC”) has fined 11 companies for allegedly not timely reporting chemicals used in hydraulic fracturing fluid on the FracFocus.org website. Environmental groups have been critical of the reporting website, claiming companies have not filed timely reports, and the Interstate Oil & Gas Compact Commission and Groundwater Protection Council, which operate the site, have responded that they have no power to enforce deadlines and that it is up to states to enforce them. Colorado announced earlier this year that it would begin actively enforcing reporting deadlines starting July 1, 2013. Since then, while noting increased compliance, COGCC initiated actions against 11 companies. Seven cases have settled, with four still pending. The settling companies stated the violations stemmed from technical and clerical errors that will not be repeated.

Wyoming Supreme Court to hear chemical disclosure suit. Environmental groups are appealing the Wyoming Oil and Gas Conservation Commission’s hydraulic fracturing chemical disclosure rule to the Wyoming Supreme Court. Wyoming was the first state to require public disclosure of the list of chemicals used in hydraulic fracturing fluid, but the groups claim the rule improperly protects from disclosure chemicals found to be trade secrets. The groups argue that limiting disclosure prevents landowners from determining whether hydraulic fracturing was responsible for groundwater contamination. The groups filed an open records request seeking a list of all chemicals disclosed to the Wyoming Oil & gas Conservation Commission but were denied a list of those chemicals marked as trade secrets. A district court upheld the denial, prompting the groups’ appeal. Well service company Halliburton Energy Services has intervened in the Supreme Court litigation on behalf of the state.

North Dakota companies look to reduce flaring. The North Dakota Petroleum Council created a task force of companies operating in North Dakota to identify ways to reduce flaring of waste gas that could otherwise be sold. Among the possibilities the task force will investigate is optimizing existing pipelines to carry more gas and building new pipelines and processing facilities. Some studies claim that nearly 30% of all gas produced by Bakken Shale play wells are flared off. The practice prompted mineral rights owners to file class action lawsuits against ten North Dakota oil producers, claiming that flaring gas is wasteful and deprives them of hundreds of millions of dollars in royalties. They argue that state law requires the companies to pay royalties on the gas even if it is never brought to market.

Weather, Bakken development strain North Dakota’s infrastructure. Recent heavy rains caused McKenzie County officials to close roads to heavy equipment, stranding wells in North Dakota’s most productive county for tight oil. Most county roads are gravel and were built for low volumes of farm equipment traffic. As North Dakota’s oil production is poised to reach one million barrels per day in early 2014, the state is committing over half a billion dollars to fix damaged roads. Even without the rains, companies are losing working days due to road closures when they cannot transport water, fuel, and crude oil into and out of well sites. The state’s power grid is also strained by oil production, with power failures shutting down gas processing plants in July, and state officials have expressed concerns a harsh winter could result in further power outages.

Dallas City Council debates ban on hydraulic fracturing. Dallas sits atop a portion of Barnett Shale, making it attractive to gas companies. However, residents, citing fears of air and water pollution as well as truck traffic, are urging the city council to ban hydraulic fracturing within city limits. The Dallas City Planning Commission has recommended an ordinance requiring a 1,500 foot setback from homes, business, and churches, an increase from the current 500 foot setback, but the council has not yet acted on the recommendation. Trinity East Energy, which signed a $19 million lease with the city, has been trying to develop its leasehold and is threatening legal action if it is not allowed to begin work. The council rejected Trinity’s zoning permit application in August 2013 but the company has said it is continuing to negotiate with the city. If the parties do not reach an agreement and Trinity files suit, the litigation could set a precedent establishing whether incorporated cities in Texas have the power to block companies from developing their mineral rights.

Wisconsin bill seeks to stop local ordinances against sand mining. A new bill introduced in the Wisconsin Senate would stop municipalities from regulating non-metallic mining within the state, including sand used for hydraulic fracturing. Sand mining has rapidly expanded in Wisconsin, growing from 10 mines and processing facilities in 2010 to 170 today. Municipal governments have sought to regulate the mines, citing potential health concerns. The bill would overturn a Wisconsin Supreme Court decision from last year that upheld the town of Crooks Valley’s power to restrict sand mining through zoning ordinances. Proponents of the bill argue that the industry needs relief from a patchwork of inconsistent and multi-layered government regulations.

International

Protest against hydraulic fracturing in New Brunswick. Hundreds of protestors from the Elsipogtog tribe gathered to protest against shale gas development in Rexton, New Brunswick. SWN Resources Canada obtained an injunction to prevent protestors from blocking the entrance to its site while it undertakes seismic testing, but the protestors ignored the court order and stopped SWN’s heavy equipment from entering the site. Clashes with the Royal Canadian Mounted Police resulted in 40 arrests as protestors burned police cars. The tribe claims that hydraulic fracturing will pollute drinking water and reservation land.

Romanian shale exploration on hold after protests. Chevron is suspending its shale gas exploration activities in eastern Romania in light of protests by local residents. The company obtained the necessary permits to drill exploratory wells in the town of Pungesti. Country residents, however, held several rallies to block both shale exploration and government plans to open a nearby gold mine. Chevron stated that it will cease operations pending further negotiations with the government and local residents. The Pungesti local council will hold a referendum in late November on whether to ban Chevron’s exploration activities but Chevron stated that the council lacks the power to stop the project. The U.S. Energy Information Administration estimates that Romania shale reserves hold 51 trillion cubic feet of recoverable natural gas.

Saudi Arabia to develop shale gas. Saudi Aramco, Saudi Arabia’s state-owned energy company, announced that it will begin shale gas development within the next few years and use that gas to meet a new supply agreement signed with a large phosphate mining power plant. The company estimates that Saudi Arabia holds up to 600 trillion cubic feet of recoverable shale gas, approximately double its proven conventional reserves. Exploratory drilling is already underway at three sites. Saudi Aramco is still grappling with how to use hydraulic fracturing in an area where water is scarce.

Environmental group vows to fight South Africa’s shale development regulations. The Karoo Action Group warned that the South African government can expect lawsuits challenging proposed regulations that would allow hydraulic fracturing in the Karoo region. The area is estimated to hold nearly 500 trillion cubic feet of natural gas. The group argues that hydraulic fracturing will impact drinking water, which is scarce in the arid Karoo region. South Africa rescinded its ban on hydraulic fracturing last year and is now promoting shale gas development to reduce the country’s reliance on imported energy.

Greenpeace organizing challenges to hydraulic fracturing in the U.K. Greenpeace is urging British landowners to file trespass claims against companies planning to develop shale gas. Greenpeace claims companies cannot drill horizontally under a landowner’s property in the UK without the landowner’s express permission, and they are urging landowners to block exploratory drilling by withholding their consent and threatening suits for trespass. The government is currently trying to incentivize shale development with tax breaks and clear regulation, but environmental groups and some landowners oppose the practice.

Research

FERC: Plenty of gas to get through winter. Federal Energy Regulatory Commission (“FERC”) issued its winter assessment, finding that gas supplies should easily meet the demands of a mild winter predicted by the National Oceanic and Atmospheric Administration. Despite the ready supply of gas, Henry Hub prices have risen slightly, well above the lows of 2012. Gas prices in New England are expected to remain high due to constraints on supply. Although Pennsylvania’s Marcellus Shale play is the country’s largest gas-producing region, existing pipelines cannot carry enough gas to meet demand in the Northeast. New pipelines are under construction, but FERC’s assessment noted that grid operators are wary that the construction may not be proceeding quickly enough to head off grid reliability concerns.

Study: U.S. fifth in “oil security.” Analytical firm Roubini Global Economics ranks the United States fifth out of 13 countries in its Oil Security Index. The metric considers how exposed countries are to price shocks and supply disruptions. Although the United States’ position has improved compared to prior years due to dramatically increased domestic oil production and reduced consumption, the study still finds that the country relies significantly on imported oil, leaving it exposed to short- and medium-term price volatility. The U.S. ranks behind Japan, the U.K., Canada, and Germany.

Colorado State, Carnegie Mellon announce fugitive methane study. Researchers from Colorado State University and Carnegie Mellon University will undertake a six-month study of methane leaks from natural gas processing plants and compression stations. The study will cover 100 processing plants in 12 states and measurements will be used to model fugitive emissions from processing facilities nationwide. Results are expected to be published in a peer reviewed journal in the summer of 2014. The amount of fugitive methane emissions has been the subject of considerable debate among academic and government researchers, with studies reporting different conclusions regarding the percentage of methane that is released during processing.

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