Daniel B. Markind, Esq.
Weir and Partners, LLP
Good shale gas news: with the coming of fall came two major developments in the shale gas world, one two weeks ago and one this week.
The first came on September 15 when the Department of Energy issued its long-awaited study on the effect of hydraulic fracturing on water supplies. The report found no evidence that the hydraulic fracturing process causes contamination in the drinking water supply. This report is significant because the DOE worked with the industry and used tracers to look for any evidence of migration. It found none.
The DOE’s Good Shale Gas News
Over a two-year period, the DOE researchers collected samples from 130 drinking water wells in Pennsylvania and Texas. They found contamination is eight clusters of wells. The researchers then used a combination of noble gas and hydrocarbon tracers to trace the source of the methane. As reported in USA Today, “(t)hese results appear to rule out the possibility that methane has migrated up into drinking water aquifers because of horizontal drilling or hydraulic fracturing…”
The report stated that … “fracture growth ceased more than 5,000 feet below drinking water aquifers and there was no detectable upward migration of gas or fluids from the hydraulically-fractured Marcellus Shale.” In other words, hydraulic fracturing takes place thousands of feet below drinking water tables, and there is no evidence that the chemicals or other materials used in the process can migrate up to contaminate the water.
However, and this is a big caveat, the DOE study also found that while hydraulic fracturing is not contaminating water supplies, poor well construction might be. Co-author Thomas Darrah of Ohio State University stated that “our data clearly shows that the contamination …stems from well-integrity problems such as poor casing and cementing.” As discussed many times in these updates, while the process itself appears safe, the well itself must be constructed properly. If not, stray chemicals and other materials can leak. That is where and how the drinking water gets polluted. This is extremely good news for the industry, but comes with a warning. If you cut corners you can cause damage. Should that happen, the political winds will shift.
FERC’s Good Shale Gas News
The second major development happened Monday when the Federal Energy Regulatory Commission ended a two year review of Dominion Energy’s Cove Point facility in Maryland and gave the company approval to begin a $3.8B retrofit of an existing structure for LNG exports. Cove Point thus becomes the fourth LNG export terminal to receive government approval, but the first outside of the Gulf of Mexico.
This ruling will not end the story. Many environmental groups such as the Sierra Club and Earthjustice are on record as planning to challenge the decision if Dominion proceeds. The ruling clearly shows, however, which way the political winds are blowing. Despite all the concerns (legitimate or not) raised about environmental issues and the potential for increased domestic prices upon the export of American gas, FERC now has given one company a foothold in the Mid-Atlantic Region to export LNG. It could be only a matter of time before others receive approval in this area. Given its closer proximity to Europe and the shale gas fields, the Mid-Atlantic Region could be an enormous beneficiary of the shale gas bounty.
American natural gas export can have an enormous impact on the world energy market. While hydraulic fracturing remains controversial throughout Europe, enough countries are moving forward that, combined with American exports, could entirely reshape the energy market. Romanian Prime Minister Victor Ponta announced on television this weekend that his nation is working on structures and regulations to move forward with shale development. One idea floated was that royalties would be split 50/50 between the landowner and the state. This would be a marked change in the legal system throughout most of the world, in which the state owns all subsurface mineral rights.
The energy market will not be the only one affected. As reported yesterday in FuelFix, the American resurgence in petrochemicals is being closely watched in Europe, where “companies are wondering whether the deluge of North American shale gas will sap away their competitive advantage.” European companies are worried that they are heading for extinction, given the cheaper price of American raw materials and energy and substantial EU regulations.
Finally, there is this. Methane emissions from fracking fell 73% from 2011 according to the EPA. This is the main contributor to an overall 12% reduction since 2011 in methane emissions from petroleum and natural gas systems sector.
Overall, the news has been very good for the shale industry in September, with one very important warning. It appears only the industry itself can kill the industry. Let’s hope and work together to make sure that does not happen.
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