Article: The Shale Gas Boom: A Fracking Primer

The shale gas boom has totally transformed the US energy landscape.  Shale gas refers to natural gas that is trapped within shale formations.  Shales are fine-grained sedimentary rocks that can be rich sources of petroleum and natural gas.  Sedimentary rocks are rocks formed by the accumulation of sediments at the Earth’s surface and within bodies of water. Common sedimentary rocks include sandstone, limestone, and shale.

For the several years, an increasing number of energy companies have been drilling wells using fracking techniques at an accelerated rate and pumping natural gas all over the country.  As a result, cheap natural gas is now displacing coal as the nation’s top source of electricity.  Natural gas is a vital component of the world’s supply of energy and it is one of the cleanest, safest, and useful of all energy sources.  It is also proven to be an efficient energy source.  Natural gas has become the fastest-growing source of gas in the United States.

Of the natural gas consumed in the United States in 2011, about 95 percent was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption. The availability of large quantities of shale gas should enable the United States to consume a predominantly domestic supply of gas for many years and produce more natural gas than it consumes.

In 2011 the United States passed Russia as the world’s largest producer of natural gas, said Mark Finley, BP’s general manager for global energy markets. But because the U.S. lacks sufficient facilities to liquefy and ship natural gas, most of that gas enters the domestic market.Slide1

The U.S. produced 651.3 billion cubic meters of natural gas in 2011, compared to 607 in Russia, the only other nation that comes close, according to BP’s Statistical Review of World Energy June 2012. The US is responsible for about half of the worldwide increase in gas production.

The fact of the matter is that natural gas from shale rock is providing the United States with reliable, affordable, cleaner and responsibly produced energy.  Developing these natural gas resources is helping to enhance the country’s energy security, strengthen local and state economies, and fuel job growth.  In 2010, the development of the Marcellus Shale, in Pennsylvania, alone generated $11.2 billion in the regional equivalent of gross domestic product, contributed $1.1 billion in state and local tax revenues, and supported nearly 140,000 jobs.  The predicted growth of the resource likely means we also can expect to see correlating economic and energy security benefits over the coming years.

Low gas prices associated with the shale gas revolution caused a marked decrease in coal use in the United States, the world’s second-largest consumer.  This led US thermal coal producers to seek other markets, which resulted in an oversupply of coal in Europe and a significant gas-to-coal switch, according to The U.S. Energy Information Administration (EIA).

In recent years the gulf between open market gas prices in North America and the rest of the world has widened dramatically.  The reason – as is now generally understood – was the development in the US of massive gas reserves trapped in previously inaccessible shale rock formations.  The benchmark price at Henry Hub in Texas fell from a pre-shale peak of nearly $13 per million British Thermal Units (BTU) in mid-2008 to as low as $2.71 in January this year.  Since January 2011 the US price has averaged less than $4 while the British National Balancing Point (NBP) price has averaged more than $9.Slide2

Open market gas prices on either side of the Atlantic roughly tracked each other for 13 years from mid-1995 until mid-2008, when they abruptly separated.

Initially many observers thought the market divergence would be short lived.  Some believed the US bonanza would evaporate, that once the easy gains had been made the marginal costs would rise, new production would be harder to bring on, and prices would return to higher levels. So far this has not happened:  The typical marginal costs of new shale gas production are now around $3 per million BTU.  In 2011 shale gas accounted for a quarter of US natural gas production.

The impact on reserves has been equally dramatic.  In 2000, US dry natural gas resources were estimated by the EIA at 1,500 trillion cubic feet, almost entirely in conventional reservoirs.  By 2012 estimated reserves had risen by 67 per cent to more than 2,500 trillion cubic feet, of which a third was accounted for by gas in shale formations.

Meanwhile the US has begun to benefit from significantly lower energy costs. Industrial output looks like growing at 4-5 per cent this year and next.  Power generators are switching to gas from more expensive and dirty coal, and this trend is forecast to increase dramatically over the next quarter-century.  Americans’ perennial sense of insecurity, most recently voiced by President Obama, about over-reliance on energy imports, looks like evaporating.  The technological advances that have given the US its abundant shale gas will also provide crude oil from shale.

Price Waterhouse Cooper suggests US manufacturing will, by 2025, see the impact of shale gas development create a further one million jobs.  A study by global market consultants IHS estimates that by 2035, US jobs from natural gas production could peak as high as 2.4 million and generate $1.5 trillion in tax and royalty revenue.  For good measure, the national switch from coal to natural gas has seen domestic gas prices halved and has, as the new EU reports acknowledge, led to a flat-lining of global (and European) gas prices.  Something unheard of just a couple of years ago, energy independence is today being widely touted as a more than realistic proposition for the US.

One simple example: cheap gas will encourage the US petrochemical industry to invest $30 billion in new plant over the next five years, according to the Chevron Phillips Chemical Co. Plastics producers will get a double boost from cheaper feedstock gas – the raw material for their product – and lower electricity costs. This will further increase the American advantage over competitors in Western Europe and Asia whose usual feedstock is oil.

The boom of shale gas in the US is actually hurting some oil and gas field services companies.  On Friday, both Schlumberger and Baker Hughes delivered weaker than expected third quarter earnings, and management teams in both companies blamed oversupplied inland markets for their disappointing performance.  Interestingly, while shale plays are affecting their profitability, the ill-reputed deep-water market of the Gulf of Mexico is booming, partially offsetting the loss of pricing power.

However, the bottom line is that natural gas, an efficient energy source, is the cleanest-burning conventional fuel, producing lower levels of greenhouse gas emissions than heavier hydrocarbon fuels such as coal and oil.  Natural gas resources developed from shale rock have resulted in lower-priced natural gas for U.S. consumers, making it less expensive for Americans to heat their homes and generate electricity from natural gas.

1.      FRACKING:

The process of hydraulic fracturing to get natural gas or oil from petroleum bearing rocks or geology is known as fracking or hydro-fracking which is based on horizontal drilling coupled with multi-stage hydraulic fracturing.  It is a relatively new process of natural gas extraction and here is a simplified version its steps:Slide3

  • A well is drilled vertically to the desired depth, then turns ninety degrees and continues horizontally for several thousand feet into the shale believed to contain the trapped natural gas;
  • A mix of water, sand, and various chemicals is pumped into the well at high pressure in order to create fissures in the shale through which the gas can escape;
  • Natural gas escapes through the fissures and is drawn back up the well to the surface, where it is processed, refined, and shipped to market; and
  • Wastewater (also called “flow-back water” or “produced water”) returns to the surface after the fracking process is completed.

Just to compare this from a traditional process, fracking is fundamentally different than traditional gas extraction methods:

  • Fracking wells go thousands of feet deeper than traditional natural gas wells;
  • Fracking requires between two and five million gallons of local freshwater per well – up to 100 times more than traditional extraction methods; and
  • Fracking utilizes “fracking fluid,” a mix of water, sand, and a cocktail of toxic chemicals.  While companies performing fracking have resisted disclosure of the exact contents of the fracking fluid by claiming that this information is proprietary, studies of fracking waste indicate that the fluid contains: formaldehyde, acetic acids, citric acids, and boric acids, among hundreds of other chemical contaminants.

The graph presented under Figure 03, illustrates the fracking process.

Typically, steel pipe known as surface casing is cemented into place at the uppermost portion of a well for the explicit purpose of protecting the groundwater. The depth of the surface casing is generally determined based on groundwater protection, among other factors. As the well is drilled deeper, additional casing is installed to isolate the formation(s) from which oil or natural gas is to be produced, which further protects groundwater from the producing formations in the well.

Casing and cementing are critical parts of the well construction that not only protect any water zones, but are also important to successful oil or natural gas production from hydrocarbon bearing zones. Industry well design practices protect sources of drinking water from the other geologic zone of an oil and natural gas well with multiple layers of impervious rock.

The process of bringing a well to completion is generally short-lived, taking only 70 to 100 days for a single well, after which the well can be in production for 20 to 40 years. The process for a single horizontal well typically includes four to eight weeks to prepare the site for drilling, four or five weeks of rig work, including casing and cementing and moving all associated auxiliary equipment off the well site before fracturing operations commence, and two to five days for the entire multi-stage fracturing operation.

Once completed, the production site is reduced to about the size of a two-car garage. The remainder of the site is restored to its original condition and the environmental benefits, such as reduced air and greenhouse gas emissions, last for decades. Local impacts, such as noise, dust, and land disturbance, are largely confined to the initial phase of development.

2.      HISTORY:

Since Stanolind Oil introduced hydraulic fracturing in 1949, close to 2.5 million fracture treatments have been performed worldwide.  Some believe that approximately 60 percent of all wells drilled today are fractured.  Fracture stimulation not only increases the production rate, but it is credited with adding to reserves—9 billion bbl of oil and more than 700 Tscf of gas added since 1949 to US reserves alone – which otherwise would have been uneconomical to develop.  In addition, through accelerating production, net present value of reserves has increased.Slide4

Fracturing can be traced to the 1860s, when liquid (and later, solidified) nitroglycerin (NG) was used to stimulate shallow, hard rock wells in Pennsylvania, New York, Kentucky, and West Virginia.  Although extremely hazardous, and often used illegally, NG was spectacularly successful for oil well “shooting.” The object of shooting a well was to break up, or “rubblize”, the oil-bearing formation to increase both initial flow and ultimate recovery of oil.  This same fracturing principle was soon applied with equal effectiveness to water and gas wells.

In the 1930s, the idea of injecting a non-explosive fluid (acid) into the ground to stimulate a well began to be tried. The “pressure parting” phenomenon was recognized in well-acidizing operations as a means of creating a fracture that would not close completely because of acid etching. This would leave a flow channel to the well and enhance productivity.  The phenomenon was confirmed in the field, not only with acid treatments, but also during water injection and squeeze cementing operations.

But it was not until Floyd Farris of Stanolind Oil and Gas Corporation (Amoco) performed an in-depth study to establish a relationship between observed well performance and treatment pressures that “formation breakdown” during acidizing, water injection, and squeeze cementing became better understood. From this work, Farris conceived the idea of hydraulically fracturing a formation to enhance production from oil and gas wells.

The first experimental treatment to “Hydrafrac” a well for stimulation was performed in the Hugoton gas field in Grant County, Kansas, in 1947 by Stanolind Oil.   A total of 1,000 gal of naphthenic-acid and- palm-oil- (napalm-) thickened gasoline was injected, followed by a gel breaker, to stimulate a gas producing limestone formation at 2,400 ft. Deliverability of the well did not change appreciably, but it was a start. In 1948, the Hydrafrac process was introduced more widely to the industry in a paper written by J.B. Clark of Stanolind Oil.

A patent was issued in 1949, with an exclusive license granted to the Halliburton Oil Well Cementing Company (Howco) to pump the new Hydrafrac process.  Howco performed the first two commercial fracturing treatments – one, costing USD 900, in Stephens County, Oklahoma, and the other, costing USD 1,000, in Archer County, Texas – on March 17, 1949, using lease crude oil or a blend of crude and gasoline, and 100 to 150 lbm of sand.  In the first year, 332 wells were treated, with an average production increase of 75 percent. Applications of the fracturing process grew rapidly and increased the supply of oil in the United States far beyond anything anticipated.Slide5

Treatments reached more than 3,000 wells a month for stretches during the mid-1950s. The first one-half million-pound fracturing job in the free world was performed in October 1968, by Pan American Petroleum Corporation (later Amoco, now BP) in Stephens County, Oklahoma.  In 2008, more than 50,000 frac stages were completed worldwide at a cost of anywhere between USD 10,000 and USD 6 million.  It is now common to have from eight to as many as 40 frac stages in a single well.  Some estimate that hydraulic fracturing has increased US recoverable reserves of oil by at least 30 percent and of gas by 90 percent.

Many fields would not exist today without hydraulic fracturing.  In the US, these include the Spray berry trend in west Texas; Pine Island field, Louisiana; Anadarko basin; Morrow wells, northwestern Oklahoma; the entire San Juan basin, New Mexico; the Denver Julesburg basin, Colorado; the east Texas and north Louisiana trend, Cotton Valley; the tight gas sands of south Texas and western Colorado; the over thrust belt of western Wyoming; and many producing areas in the northeastern US.  As the global balance of supply and demand forces the hydrocarbon industry toward more unconventional resources including US shales such as the Barnett, Haynesville, Bossier, and Marcellus gas plays, hydraulic fracturing will continue to play a substantive role in unlocking otherwise unobtainable reserves.

The new fracking approach that has gained so much attention in the last few years is different in many ways from historic fracking:

  • The pressure used is much higher and the duration of the frack job is longer;
  • Much more water is used for a longer time period;
  • Fracking was combined with horizontal drilling; and
  • Fracking chemical mixtures became more complex.

Approximately 95 percent of new oil and gas wells in Colorado use hydraulic fracturing. Slide6

3.      SHALE GAS FORMATIONS:

Shale is a sedimentary rock typically characterized by fine laminations that are parallel to the bedding plane. The process by which these rocks break along the thin laminas is referred to as fissility, which is yet another predominant characteristic of this sedimentary rock type. In fact, it is this feature that distinguishes the shale rock from other mudstones, which are similar to the shale as far as their composition, is concerned.

The shale is made up of mud, which comprises clay minerals and traces of minerals like quartz and calcite. The grains of these minerals, like quartz and calcite, are so fine, that they can be only seen with the help of a microscope. The varying ratio of the clay minerals to the other minerals determines the physical attributes of the shale rock. Owing to their fissility, these rocks tend to split unevenly but parallel to the bedding plane. As with various other sedimentary rocks even shale is smooth in terms of texture. In fact, you can scratch this rock with the help of a knife. It tends to breaks in flakes when subjected to immense weathering.

Sedimentary rocks form by the means of sedimentation. In case of shale, the process of its formation is referred to as ‘compaction’, wherein fine grains which compose the rock get consolidated at the rock bed over the years. Being very fine in nature, the particles which form shale tend to float in water long after the other dense particles settle down. Owing to the tendency of these fine particles to settle in slow moving water, shale rock formation is most often observed in lakes, river deltas, flood plains and, at times, even in deeper regions of continental shelf, where water is relatively calm. When this rock is subjected to intense heat and pressure, it tends to undergo the process of metamorphism, and turns to a metamorphic rock type known as the slate.Slide7

These rocks predominantly contain clay minerals and fine grains of quartz or calcite, owing to which they get their gray color. The clay minerals present in these rocks include kaolinite, montmorillonite, illite etc. Minor traces of chert, calcite, dolomite, ankerite, hematite etc. are also seen in shale rocks. The varying amount of these minor constituents in the rock determines its color. Generally, gray color is predominant, but colors like red, yellow, brown, and green are also observed. Red color indicates the presence of hematite, brown color indicates the presence of goethite and green color indicates the presence of chlorite. The black color, on the other hand, is attributed to the presence of carbonaceous material in it. This is also a sign of the process of oxidation-reduction.

Even though this rock is predominantly made of clay, it plasticity to water differentiates it from the clay to a significant extent. Owing to its various characteristics, shale rock has become an important constituent of various requirements of mankind. Among its various uses, its use in brick kilns where bricks are manufactured is perhaps the most popular. It is also an important component of cement used in construction.

Here is a graph (Figure 04) that maps out the shale gas basins and the top reserve holders of shale gas throughout the world. With regard to the basins, they are differentiated between “with resources” and “without resource” estimates.

4.      GLOBAL VIEW:

The worldwide market for hydraulic fracturing is expected to expand 19 percent this year to a record $37 billion, one-third the pace of expansion in 2011, said Spears & Associates Inc.    Slide8

In North America, which accounted for 87 percent of the fracking market last year, spending on the technique used to extract oil and natural gas from shale will top $30 billion in 2012.  Four companies – Halliburton Co., Schlumberger Ltd., Baker Hughes Inc.’s BJ Services unit and Frac Tech Services LLC – provided more than half the North American fracking services last year, Spears said. Halliburton was at the top of the group with 18 percent of the horsepower, followed by Schlumberger with 13 percent, BJ Services with 12 percent and Frac Tech with 11 percent.

The mid-continent region that includes Oklahoma dominated the North American fracking market last year with $5 billion in sales, Spears said.  Canada was second-largest with $4 billion in orders, followed by south Texas and the East Texas/Northern Louisiana region, which each accounted for $3.5 billion in fracking work.

The Rocky Mountains region, which includes the Bakken shale that underlies North Dakota and Montana, generated $3 billion in fracking sales.  The eastern U.S., which includes the Marcellus and Utica shale formations, amounted to $2 billion in fracking work last year.

The global fracking market grew by 63 percent in 2011 to $31 billion.  Fracturing has grown at a rate much faster than drilling because frack intensity – the number of stages fracked per new well.  In the U.S., horizontal drilling, the precursor to most fracking activity, is expected to rise to almost 19,000 new wells this year, breaking 2011’s record of 16,000, according to Spears.

Here are some highlights:

4.1                China:

The Chinese government will step into fifth gear this year when it comes exploring for natural gas hidden under thick shale rock beneath the earth’s surface, an official said over the weekend.  China’s been promising to move forward on shale gas production for the past two years.  The Ministry of Land and Resources said that China will strengthen the survey and appraisal of shale gas in 2012 to expedite discovery and development of China shale deposits.  The move comes after the recent approval of the State Council in the capital to list shale gas as an independent mineral resource.  China is slowly moving towards producing shale gas.

Currently, the country does not have any shale natural gas production, adding to the country’s overall lack of natural gas in its energy matrix. China’s rough terrain and lack of technological know-how has kept it out of the shale gas biz. The country is largely beholden to coal to keep the lights on.

China’s Ministry of Land estimates the country holds around 31 trillion cubic meters of natural gas hidden under shale, equivalent to the total amount of conventional natural gas. If developed, the country’s shale gas output could exceed 100 billion cubic meters by 2020; Land Ministry’s second in command, Wang Min, told reporters during a national geological survey conference in Beijing this weekend.  China’s reserves are almost 50 percent greater than those of the U.S., according to the U.S. EIA;

4.2               India:

Fracking Boom Means Good Times for India’s Guar Farmers.  The New York Times best coverage yet of the boom in shale gas drilling, this story about how poor farmers in India have benefitted from meeting soaring demand for guar, a hard little bean that is one of the few crops that like to grow in the Rajasthani desert.

Hydraulic fracturing, or fracking, uses a lot of guar for its ability to gel up fracking water. Thickening the frack water with guar enables it to carry a more homogenous concoction of prop pants and chemicals down into the well and get that concoction to stick in place. It also makes the water slicker, decreasing friction.  Halliburton said recently that the costs of guar can make up 30 percent of the cost of a frack job and that the high price of guar contributed to a shortfall in profits.

India might be guar central (the word guar means “cow food” in Hindi), with 8.6 million acres planted this year, according to Bloomberg.  But farmers in Texas and Oklahoma are trying it too, likely planting 50,000 acres this year, triple 2011 levels;

4.3               Canada:

Canada’s current drilling boom dates to the late 1990s, when Encana began using fracking to extract gas from dense rock in northern British Columbia.

The second-largest gas driller in North America, Encana also started fracking shallow coal seams, or coalbed methane, in Alberta in the early 2000s, using nitrogen rather than water to free the gas. Coalbed methane drilling generally requires less fluid than fracking shale but occurs much closer to drinking water. In some cases, Encana and other companies have drilled wells directly into aquifers, injecting fracking fluids into groundwater suitable for drinking.

In the middle of the last decade, Encana and other operators started exploring northern British Columbia’s shale gas reserves. The formations were promising, holding at least 200 trillion cubic feet of gas, according to industry estimates.  But drillers faced formidable hurdles to get to it. Unlike the Barnett and Marcellus shales in the U.S., Canada’s best shale basins are far from most markets and existing infrastructure. Soggy ground slows drilling in the spring and summer, and the average high temperature hovers around zero degrees Fahrenheit in January.

Early last year, deep in the forests of northern British Columbia, workers for Apache Corp. performed what the company proclaimed was the biggest hydraulic fracturing operation ever.  The project used 259 million gallons of water and 50,000 tons of sand to frack 16 gas wells side by side. It was “nearly four times larger than any project of its nature in North America,” Apache boasted;

4.4       The European Union:

Chevron has already bought up operating rights across a swathe of land in Eastern Europe from the shores of the Black Sea to the Baltic, in anticipation of the anti-fracking tide turning in Europe.  Bucking the European Union (EU) trend, Poland and the UK have already opted not to put barriers in the way of the domestic development of significant shale gas resources.  The German government, after its knee-jerk reaction to Fukushima, is currently in “two-minds” over shale development.  But it is currently searching for a way to back-track on its commitment to total nuclear closedown; not least in the face of a looming energy ‘gap’ that its renewable energy industry won’t be able to fill. Bulgaria is also re-visiting its fracking ban.  Meanwhile, French oil companies are concerned at the country’s potential dismissal of its own vast domestic shale gas resources and have called for shale drilling experiments to be conducted to calm an over-heated public debate.

Shale gas’s transformation of the U.S. energy scene may not translate to the same degree in Europe, but the benefits to EU economies with few domestic energy resources and a total reliance on foreign gas imports, particularly from Russia, ought to be plain.  Shale gas development is already the key bright spot in a troubled U.S. economy.  By the end of 2011, 600,000 new jobs had been created in America.

According to the EIA, shale gas could increase the world’s technically recoverable gas resources by a full 40 percent – and that’s a conservative estimate. If the obvious economic benefits elsewhere don’t thaw the European anti-shale freeze-out, then perhaps a clutch of the EU’s own new reports will. UK shale advocate, Nick Grealy, takes up the case of how the latest EU reports ought to re-direct shale gas policy;

4.5       The United Kingdom:

In Europe, fracking is set to be adopted widely, particularly in Poland which has significant reserves of gas-shale, while in France, which is similarly well resourced, reservations over groundwater contamination by fracking are sufficiently strident that the country’s legislators are considering banning it. France indeed produces almost 80 percent of its electricity from nuclear power, while other EU nations rely far more on fossil fuels and for whom gas is a more important ingredient of their energy-mix, including the UK.

In the inauguration of a pilot study offshore near the famous holiday resort of Blackpool, renowned for its “sticks of rock” and big-dipper rides, in the North-West of the United Kingdom, an unexpected side-effect of fracking has been identified, namely an earthquake of magnitude 2.3 which has reinforced some disquiet as to the safety of the procedure. The news is reminiscent of the discovery made in Switzerland a couple of years back that pumping water deep into hot rocks to extract geothermal energy can also cause earthquakes. It is thought that the UK operation will be put on hold for several weeks while the British Geological Survey considers the situation, but given the potential importance of fracking as a substantial contribution to world future energy needs, it is almost certain that it will not be abandoned.

However, there had been a temporary ban of fracking in the UK after the process was blamed for two earthquakes in Lancashire in 2011. Now that ban is over and fracking is back on in the UK.  The Independent has reported that as the ban comes to an end, government documents seen by the Independent show that more than 32,000 square miles – or 64 percent of the countryside – could potentially be exploited for shale gas and is being considered for exploration licenses.

Cuadrilla Resources, the company which claims to have found a huge new shale gas field in Lancashire, has revealed a little more about their find.  They claim that the field is 5 – 10 times deeper than the Marcellus shale in the US.  Executive director Dennis Carlton said initial results show a basin five to 10 times thicker than America’s Marcellus shale.  It doesn’t have the width of the Marcellus shale, this is true, but at that sort of depth it doesn’t really need to. Various people are playing with numbers on the backs of envelopes and all of the results coming back are that this is a game changer.  200 trillion cubic feet is one estimate of the holdings of the entire reserve and if 20 percent is recoverable (a reasonable sort of number) then that would replace all UK gas imports for the next 30 years;

4.6       Australia:

Australia’s tremendous shale potential is only just being realized. Explorers have discovered that the country’s geological and industrial conditions mirror those in the US and Canada, where the shale revolution began.

The United States’ EIA estimates Australia’s technically recoverable shale resources could top 390 trillion cubic feet (Tcf) over only four of the nine commercially viable basins containing shale. The estimated gas in place is three times that, at approximately 1,381 Tcf. However, unlike the US, the domestic market for gas in Australia amongst power generators, manufacturers and the transport industry is currently small – about 1.1 Tcf in 2010-11.

The shale industry in Australia is being pioneered by mid-tier and junior explorers. Should the industry enjoy similar success to that of Canada or the US, these companies could stand to make enviable profits, rocketing them to the forefront of global explorations, or positioning them as valuable acquisitions;

4.7       Mexico:

Mexico’s massive shale gas deposits could be profitably extracted if North American natural gas prices continue rising toward $4 per million cubic feet, an official with state oil monopoly Pemex said on Monday.

The country boasts the world’s fourth-largest reserves of shale gas in deposits that may contain rich pockets of both natural gas and oil, according to the US EIA.

Jose Antonio Escalera, deputy director of exploration at Pemex Exploration and Production (PEP), said the company could turn a profit with prices “in the order of between $3 and $4” per million cubic feet and that it plans to drill 20 to 25 liquid shale gas wells in 2013.  US natural gas prices closed on Monday at $3.47 per million cubic feet. They are down more than 74 percent since 2008 largely due to dramatically increased supplies, but they’ve recently been rising, climbing from $1.90 in April.

Escalera also said that PEP has already drilled four shale gas wells in the country’s Burro-Picachos field, an extension of the Eagle Ford shale formation near the U.S.-Mexico border, plus two others nearby.  Once test wells are drilled and data collected, Escalera said he expects each well to cost $5 million to $8 million.

The EIA estimates Mexico, the world’s No. 7 oil producer, has up to 680 trillion cubic feet (tcf) of natural gas;

4.8       South Africa:

The EIA suspects South Africa might boast shale-gas reserves of around 485 trillion cubic feet. The gas would only be accessible by hydraulic fracturing–“fracking”–pumping water and chemicals into rock at high pressure. In April 2011, in response to opposition from environmental groups and the local community, South Africa’s government slapped a moratorium on fracking.

But last month Collins Chabane, a minister in the president’s office, announced that the cabinet was lifting the ban. A study by a technical task team appointed last year had eased their concerns, said Mr. Chabane, and clearly showed that exploration was safe. The report–of which so far only a summary has been released–concluded that keeping the moratorium in place or too stringently regulating exploration would be costly to South Africa. Three foreign companies – Royal Dutch Shell, Falcon Oil & Gas and Sunset Energy – have been granted licences to explore for gas.

If the EIA estimates are accurate, the shale gas fields in the Karoo would be the fifth largest in the world. A report published earlier this year by Econometrix, a South African think tank, argued that fracking would bring what the area so urgently needs: jobs and development. It would be transformational, gushed the study, which was sponsored by Royal Dutch Shell. If only a tenth of the estimated gas can be extracted, thousands of jobs could be created. The gas extracted could provide South Africa with 400 years’ worth of energy. For a country that regularly endures power cuts, that would mean a brighter future. The government reckons that if 30 trillion cubic feet of gas is produced, the sales value would be almost a trillion rand; and

4.9       Argentina:

According to the Annual Energy Outlook 2011, released in April of last year by the EIA, Argentina is the country with the third-highest geological potential for these types of hydrocarbons, after China and the United States.

The study assessed the viability of 48 shale gas basins in 32 countries and estimated Argentina’s shale gas reserves at 774 trillion cubic feet (TCF), 60 times greater than the country’s current conventional reserves.

While experts in various branches of engineering and economics are enthusiastic over the prospects of the reserves discovered, they warn that the price paid to benefit from them could be steep.  “There is indirect evidence of deposits in Argentina, but this will be determined with certainty when further exploration takes place,” economist Roberto Kozulj from the National University of Río Negro said.

Kozulj, a specialist on the oil economy, said that the obstacles lie in the amount of investment required and the environmental risks, due to the consumption of huge volumes of water and energy and the chemical substances used to extract these resources.

5.     CONTROVERSY:

Natural gas is cleaner-burning than coal or oil. The combustion of natural gas emits significantly lower levels of carbon dioxide (CO2) and sulfur dioxide than does the combustion of coal or oil. When used in efficient combined-cycle power plants, natural gas combustion can emit less than half as much CO2 as coal combustion, per unit of electricity output.

Here some potential environmental concerns associated with the production of shale gas:

  • First, the fracturing of wells requires large amounts of water. In some areas of the country, significant use of water for shale gas production may affect the availability of water for other uses and can affect aquatic habitats;
  • Second, if mismanaged, hydraulic fracturing fluid – which may contain potentially hazardous chemicals – can be released by spills, leaks, faulty well construction, or other exposure pathways. Any such releases can contaminate surrounding areas;
  • Third, fracturing also produces large amounts of wastewater, which may contain dissolved chemicals and other contaminants that could require treatment before disposal or reuse. Because of the quantities of water used and the complexities inherent in treating some of the wastewater components, treatment and disposal are important and challenging issue; and
  • Finally, according to the United States Geological Survey, hydraulic fracturing “causes small earthquakes, but they are almost always too small to be a safety concern. In addition to natural gas, fracking fluids and formation waters are returned to the surface. These wastewaters are frequently disposed of by injection into deep wells. The injection of wastewater into the subsurface can cause earthquakes that are large enough to be felt and may cause damage.” The injection wells typically discharge the wastewater into non-potable salt-water aquifers.

The natural gas boom could very well be the result of the Energy Policy Act in 2005 which exempted fracking from compliance with the Safe Drinking Water Act, the Clean Air and the Clean Water Act.  Also, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) which is known as Superfund Act, doesn’t cover fracking sites.  Regulation was then left up to the States and has been piecemeal.  This has allowed the energy industry to keep the chemicals used in fracking fluids secret.

The environmentalists are determined to change the situation and demanding the federal as well as state governments to impose regulations, believing that the process of fracturing is threatening to the environment.   However, the fact of the matter is that natural gas has helped contribute to a drop in the US carbon dioxide emissions.   According to the IEA, the United States has cut its emissions 7.7 percent since 2006, more than any other country or region in the world.  It is worth noticing that a natural gas plant emits about half the carbon dioxide in comparison with a coal plant, although fracking for gas can release heat-trapping methane.

Texas became the first state in the union to require well-by-well disclosure of all ingredients of fracturing fluids being used anywhere in the state when Governor Rick Perry signed into law House Bill 3328, the Texas Hydraulic Fracturing Fluid Disclosure bill, in June, 2011. As Chairman of the Texas Railroad Commission, the nation’s premier energy oversight agency, I made sure that the prompt enactment of rulemaking to implement the statute supported our very important dual mission of ensuring responsible production of Texas’s bountiful energy resources, protecting the environment, and ensuring the safety of Texans.

Like every other law governing fluid disclosure, the Texas law contains a provision that allows contractors to protect chemical ingredients or compounds that qualify as proprietary information. It does so using a process governed by the State Attorney General’s office that has been a feature of Texas law for decades, and it contains a process for concerned parties to file challenges if they believe the process is being abused.

This provision of Texas law that assigns oversight of proprietary information to the Attorney General has proven to be fair and effective over time. That is why the sponsors of HB 3328 decided to use it as the procedure for the hydraulic fracturing disclosure law.

The new regulations were originally introduced by President Obama to better protect the environment from polluted water and potential earthquakes. At the same time, Interior Secretary Ken Salazar outlined a series of rules that called for tighter state regulations on everything from full chemical disclosure to well integrity. Salazar maintained that the rules are necessary for the states that are not considered up-to-par when it comes to regulating fracking on federal land.

Industry officials agree the proposed fracking regulations will not only slow down the drilling permit approval process but also negatively affect production rates. The Western Energy Alliance industry also estimates the rules will add at least $1.2 billion to the cost of new wells in 13 states. Those companies against a full-disclosure clause say the mandate will force them to divulge proprietary information. Several governors from heavy oil and gas drilling states are also joining in the debate to express their concern over which of the stricter regulations will hinder economic growth.

The crux of the matter is there is no concrete evidence supporting the safety claim. Dozens of federal agencies, including the Environmental Protection Agency (EPA) and Occupational Safety and Health Administration, have not been able to produce justifiable evidence that links fracking to serious environmental consequences. The U.S. Bureau of Land Management has also failed to solidify any scientific data that would lead to harsher safety or environmental regulations.

Environmentalists still continue to demand full chemical disclosure to ensure drinking water in fracking areas remains safe for consumption. However, an EPA study conducted last month in Dimock, Pennsylvania, concluded that fracking had no effect on the town’s drinking water. Cabot Oil & Gas Corp., the driller in the area, originally believed the EPA study was politically motivated. On the contrary, it seems as though the results—no contaminants found in the drinking-water wells—have justified the fracking movement.

6.     CONCLUSION:

A team of researchers from UB, University of Wyoming and Penn State University examined violations at almost 4,000 natural gas wells in Pennsylvania between January 2008 and August 2011. The peer-reviewed study found approximately two-thirds of the 3,000 violations were administrative, 38 percent were environmental, and only 25 were deemed “major,” defined as site restoration failures, serious contamination of water supplies, major land spills, blowouts and venting and gas migration.

The majority were “due to operator error, negligence, or a failure to follow proper procedures when drilling,” according to the report. “This suggests that the industry has room for improvement, and the frequency of environmental events can be reduced,” the authors wrote.

The safety profile of hydraulic fracturing has improved dramatically in Pennsylvania since 2008. Environmental violations as a percentage of wells drilled dropped by more than half over the course of the years examined. The study—the first based on comprehensive data rather than on anecdotal claims or selective reports—contradicts claims by anti-fracking groups that shale gas extraction is poorly regulated in Pennsylvania and that the environmental dangers are increasing.

“This study presents a compelling case that state oversight of oil and gas regulation has been effective,” said University of Wyoming economics professor Timothy Considine, who was the lead author:

  • “Regulatory learning and technological progress has been considerable over the past four years.”
  • “While prior research has anecdotally reviewed state regulations, now we have comprehensive data that demonstrates, without ambiguity, that state regulation coupled with improvements in industry practices results in a low risk of an environmental event occurring in shale development, and the risks continue to diminish year after year,” Considine added.

Supplies of natural gas now economically recoverable from shale in the United States could accommodate the country’s domestic demand for natural gas at current levels of consumption for more than a hundred years: an economic and strategic boon, and, at least in the near term, an important stepping-stone toward lower-carbon, greener energy.

But even though natural gas is relatively “clean” – particularly relative to coal burned to generate electricity – the “fracking” process used to produce the new supplies poses environmental risks. There is a need to make sure that procedures and policies are in place to minimize potential damage to local and regional air quality and to protect essential water resources. There is also a need to make sure that extraction of the gas (consisting mainly of methane, with small amounts of other gases) from shale and its transport to market does not result in a significant increase in “fugitive” (inadvertent) emissions of methane (CH4)—which is 10 times more powerful as a climate-altering agent, molecule per molecule, than carbon dioxide (CO2, the most abundant greenhouse gas). 

Resources:

  1. US Energy Information Administration – Energy in Brief
  2. BP – Statistical Review
  3. Chevron – Natural Gas from Shale
  4. Standpoint
  5. Carpe Diem
  6. Forbes Thought of the Day – Schlumberger
  7. Clean Water Action
  8. How Fracking Works
  9. History of Hydraulic Fracturing
  10. Buzzle – Shale Rock
  11. The Knowledge Effect
  12. Money News
  13. Forbes – China Closer to Joining Gas Fracking Craze
  14. Forbes – Fracking Boom means Good Times for India’s Guar Farmers
  15. Pro Publica – Oh, Canada’s become a Home for Record Fracking
  16. Energy Tribune – EU Reports Should “Green-Light” Shale Revolution
  17. News from Bloomberg
  18. PWC – Sale Gas – A Renaissance in US Manufacturing
  19. Forbes – British “Fracking” Causes Earthquake – What Now?
  20. Gas 2 – Natural Gas Fracking “Probable” Cause of Earthquake in England
  21. The Guardian – Fracking – A Flash in the Pan
  22. Forbes – UK Shale Gas – Larger than the Marcellus Shale
  23. Gas Today – Australian Shale – What’s the Next Move?
  24. Reuters – Mexico’s Pemex Sees Profits from Shale Gas
  25. USGS – Frequent Asked Questions
  26. Forbes – Clearing the Air on Hydraulic Fracturing Laws in Texas
  27. Forbes – Lack of Environmental Evidence Fails to Stop Proposed Fracking Regulations
  28. University of Wyoming
  29. Forbes – Fracking Safety Improves Dramatically
  30. Harvard Magazine – Fracking’s Future
  31. Schumpeter – Fracking the Karoo
  32. Buenos Aires Herald – Argentina Faces the dilemma of Unconventional Oil and Gas

Leave a Reply

Your email address will not be published. Required fields are marked *