Tuesday, January 31, 2012

Natural gas war pits Saran Wrap against Honda Civic GX “Cracker plant” and vehicles vie for shale supplies

Shell's Pulau Bukom plant off Pulau Hantu reefs in Singapore 
The site of a similar plant in Appalachia is to be determined   
CNN's Steve Hargreaves is among the many mainstream news reporters to declare the natural gas industry a winner under President Obama’s recent State of the Union address. Hargreaves reported Monday that “out of all the different energy players, natural gas seems to have won the most.”

Maybe. In giving this assessment the critique it deserves, it’s important to keep in mind that Obama’s favorable tone towards shale gas development is nothing new. His energy blueprint, released last summer, characterizes domestic oil and natural gas supplies as “critical components of our Nation’s energy portfolio.” He has already supported an unsuccessful initiative in Congress to provide tax credits to natural gas vehicles and infrastructure. In an election year, then, it’s no surprise that Obama is counting on the country’s eagerness to find fixes for the economy and the environment, and on the face, “clean energy” seems to do both.

If only it were so simple.  A complicating factor is that one person’s clean abundant natural gas is another person’s environmental problem.  Hydraulic fracturing necessary to produce shale gas also produces unprecedented amounts of waste. No need to go into details here given the coverage this gets in other venues, but take a look at the EPA investigations in Dimock, Pa. and Pavillion Wyoming for more. Even without a set of hurdles being placed in the path of shale gas development by the anti-fracking movement (most notably in New York State) and possibly by the EPA itself, Obama’s plan for natural gas as a bridge to cleaner energy has to pass the test of market factors.

For natural gas production to flourish, prices will have to go up, and that means demand will have to increase. For demand to increase, new markets must be developed.  To address this, Obama is counting on providing infrastructure and incentives to fuel vehicles – like the Honda Civic GX -- with natural gas. But before this can happen, Obama, if reelected, would have to resolve a fight between two opposing capitalist heavyweights. On one side is Koch Industries, a $100 billion privately held conglomerate with major holdings in cattle, timber, and oil controlled by Charles Koch and his brother, David. On the other is T. Boone Pickens, the outspoken natural gas tycoon and creator of the Picken’s Plan which seeks to convert the nation’s vehicles to natural gas.

Koch -- teamed with Dow Chemicals and lobbyists from the petro-chemical manufacturing sector which makes things like plastic wrap to nail polish – have already stalled the Picken’s Plan once, and there’s no reason to believe future initiatives to give tax breaks to natural gas vehicles will overcome this formidable resistance. That’s because the Pickens Plan would hurt Koch Industries on several fronts. It would reduce the need for pipelines and oil refineries, in which Koch is heavily invested. It would also, by raising demand, raise the price of natural gas and encroach on a cheap, abundant supply of feedstock, including ethane, that the petrochemical companies use to make products ranging from plastic wrap to fertilizer.

That brings us to the latest natural gas saga unfolding in Appalachia: The “cracker plant.” As reported by various regional and national press, Pennsylvania, Ohio and West Virginia are in the running to land a multi-billion dollar petrochemical processing plant – a “cracker plant” – overlaying the Marcellus and Utica shales. The plant, by Shell Oil, would use shale gas as both fuel and feedstock for products at the core of the U.S. consumer econmy, including packaging material and plastics of all sizes and shapes. Where will this plant go? Answer: Wherever it can get the biggest tax break. There is supposedly an abundance of shale gas to supply this endeavor. But is there enough public money to feed the interests of both Pickens and the petrochemical industry supported by Koch? That may be very well for the victors of this year’s elections to determine.

UPDATE MARCH 16, 2O12: Shell chose a site in Potter Township for further evaluation for its plant. CLICK HERE for more.

Saturday, January 28, 2012

New York’s shale gas future tied to battle over land rights

The Decker farm, where Exxon Mobile is extending its drilling rights
While companies publically threaten to drop their drilling ambitions in New York state, they are privately clutching their leaseholds with all their legal might.

Multi-national energy companies are using force majeure, the legal tool to extract a party from contractual obligations in the event of unforeseen circumstances and acts of God. Companies such as Chesapeake Energy are invoking force majeure after Governor David Paterson ordered an environmental review on the safety of high volume hydraulic fracturing in 2008. As most following the Marcellus shale story in New York state know, Paterson’s order was accompanied by a de facto moratorium on permits for shale gas extraction until the new permitting guidelines are finalized. Chesapeake and other companies are using this as a reason to extend their claims to the land under force majeure, even though conventional drilling and fracking are still allowed to explore the Marcellus or Utica shales, or to develop conventional horizons.

From here, the plot thickens. A market glut caused by a surge in shale gas production nationally combined with sluggish demand are forcing companies to scale back drilling operations and curb production in the Marcellus. In this context, it’s interesting that Chesapeake Energy and other companies reigning in operations are pointing to New York’s moratorium on high-volume hydraulic fracturing as justification to extend leases. There are market risks in doing business, of course. In the case or the drilling industry, operators are not shy about applying their considerable legal wherewithal to divert those risks to landowners. As noted by Sue Heavenrich, a reporter covering gas exploration in Western New York, gas companies are in some instances using force majeure as a blunt tool to gain control over leaseholds, even though (common to popular belief) drilling in New York has not been prohibited. Over the past five years, the state has issued 166 permits to Chesapeake for conventional wells.

The industry’s effort to press legal claims to New York’s Marcellus Country, even after leases have expired, runs counter to this theme commonly articulated by industry proponents: Delays and overbearing regulation in New York will surely kill drilling plans here. This view holds that the drilling companies are victims. Brad Gill, executive director of the Independent Oil and Gas Association of New York, recently made this very point to an audience at a forum hosted by the Binghamton Press & Sun Bulletin and the Greater Binghamton Chamber of Commerce: “I can tell you right now, this will drive an industry out of the state that is trying to get established, especially with [the same opportunities in] Ohio and Pennsylvania, and as uncompetitive as we are in New York.”

There are plenty of people on the other side of the issue who find the portrayal of the drilling industry as a victim laughable. But even within the pro-drilling camp, the force majeure battle is causing a new set of stress fractures among landowner groups. Some are banding together to fight the claims to their land in court. Others are not.

Dewey Decker, a drilling supporter, is among those landowners who are not. Decker, longtime supervisor of the Town of Sanford, leads a coalition of farmers in Broome and Delaware counties who leased 45,000 acres to XTO Energy (now owned by Exxon Mobile) for $110 million in 2008. The lease is schedule to expire next year, at which time the company would owe landowners another $110 million for a 5-year extension. Decker, who became a multi-millionaire from a lump-sum lease payment, told me this week he is “unhappy” about the claim to extend rights to his land without additional compensation. But he also wants to see drilling to come sooner, rather than later, and he blames the environmental movement and anti-fracking campaigns for stalling it.

Dewey Decker
“It’s the environmentalists’ fault,” Decker said as he took me on a tour this week and showed me his family’s once flourishing dairy farm. Decker, a fourth generation farmer, has sold his herd, and now the massive barns are vacant and the computerized milking equipment and stainless steel tanks sit idle. Dewey is hoping the land will soon yield a new era of production through natural gas development. Given the sum of money that XTO invested to acquire the mineral rights, that prospect once looked like a sure thing. Now it is not. The majority of XTO’s leasehold is in the protected Delaware River Watershed, where the future of drilling is complicated by jurisdictional issues that go beyond the growing tensions between local, state and federal government control, which have become the latest in a rush of developments that characterize the debate over shale gas development and onshore drilling. More than 80 percent of the XTO leasehold falls under the regulatory  watch of the Delaware River Basin Commission, and 10 percent of it is in the New York City Watershed, which respectively have various levels of protection. The front line of the fracking battle formed along this area on the western fringes of the Catskill Mountains, and it’s where environmental activists have focused their most devoted efforts.

Although the arguments for and against fracking are multi-dimensional – water quality concerns, market pressures, transparency, enforcement wherewithal, Decker, like many caught up on the fight, sees the issue as being pretty straightforward. In his view, it’s largely about restrictions on upstate landowners based on downstate interests. It’s a beef he holds dating to the early 1960s, when authorities bought out and flooded Cannonsville, a berg that had been an important market for the family’s creamery, to make a reservoir to supply New York City. Then came Route 17, which claimed some of the family’s farm buildings through eminent domain in the process of further connecting downstate with upstate.

Now, Dewey said, “They’re getting all our clean water. And then they send their trash back up Route 17 to be buried in upstate landfills. I resent that. They are not the only ones that care about the water, but they act like they are.”

Decker’s farm sits less than 10 miles from the border with Pennsylvania, and just south of this border federal EPA officials are sampling water in at least 60 homes after the agency identified health concerns from contamination associated with intensive shale gas development in Susquehanna County. Decker sees the complaints related to spills as exaggerated and unhelpful. I was in Dimock, Pa. last week, and I met residents with contaminated wells waiting on EPA deliveries of fresh water who would disagree.

Thursday, January 26, 2012

Obama’s speech evades key fracking question

President Obama prepares for State of the Union address
Photo: White House release
President Obama’s State of the Union pledge to aggressively pursue new sources of domestic energy while improving conservation is politically safe in an election year. How can you vote against clean, domestically produced energy as an economic driver?  His endorsement of shale gas extraction as a subset of this ventures into riskier political territory, but is not a huge gamble at this stage. He has already endorsed shale gas in an energy plan unveiled last summer, called Blueprint for a Secure Energy Future. This plan recognizes shale gas development as part of the administration's energy strategy, including a component to support global efforts to displace oil with natural gas. At the time of his State of the Union address, Obama was also due to give the carbon industry a rhetorical nod after taking away the Keystone pipeline project, which remains a sore spot among his critics.

Probing beyond the rhetoric, Obama’s call for "safe drilling" can mean a lot of things on a technical level that were not included in his speech, which gave little insight into a fundamental question on which the future of shale gas development hinges: Will the industry be regulated under the Safe Drinking Water Act under Obama's watch? And if so, is shale gas extraction economically sustainable with the low prices and market glut?

There are strong capital forces at work, which I explore in Under the Surface. Not all of these forces encourage a rush to embrace natural gas as America’s fuel of choice. Along them are Charles Koch and his brother, David, who control Koch Industries, a $100 billion privately held conglomerate with major holdings in cattle, timber, and oil; and Dow Chemical Company, which uses natural gas as both a fuel and feedstock in manufacturing 3,300 different products, from paints to personal care items. Both Koch and Dow Chemical lobbied against a bill, supported by Obama and natural gas booster T-Boone Pickens. HR 1380, commonly known as The Pickens Plan, would subsidize natural gas vehicles. In their opposition, both Koch Industries and Dow argued that government-subsidized initiatives would drive up prices and encroach on their cheap supply of natural gas.

There are other factors at work that belie the rhetorical simplicity of natural gas production outlined in the president’s speech. The EPA has recently shown a willingness to insert itself in the hydraulic fracturing controversy, as it takes over an investigation from the Pennsylvania state DEP looking at groundwater contamination in Dimock. The Dimock probe will be factored into a larger study on the safety of hydraulic fracturing due to be released by the EPA later this year, possibly in the throes of the presidential campaign. The economy, the fracking debate, the EPA study, the political atmosphere, and capital pressures on domestic energy supply and demand – each are variables that could swing one way or another in months to come, with a combined effect that defies prediction.

Tuesday, January 24, 2012

EPA's probe of Dimock water begins with much at stake – A report from the front lines of the investigation.

 EPA technicians collect samples in Dimock.
DIMOCK, PA – Julie Sautner’s basement was a busy place today. A half dozen EPA technicians and contractors went in and out a door that opened to the back yard. Dogs in kennels raised a ruckus every time the visitors passed with loads of lab paraphernalia: rubber gloves, hoses, buckets, coolers, beakers and test tubes packaged in clear sterile wrap. They carried the supplies from three vehicles parked along the roadside in front of the house. Their tailgates were open to folding tables under tents with even more equipment that spoke to the rigors of the investigation underway. Before meaningful samples could be collected, field test had to be designed and executed to determine baselines for metals and total dissolved solids, and to establish other reference points. Plumbing would have to be unhooked to eliminate variables that might be introduced by filters, pipes, or hoses. GPS systems documented the precise location of the water well from which samples were drawn. Rules for chain of custody and testing protocol had to be observed by the letter and fully witnessed and documented.

There is a lot on the line. Dimock is part of a federal review looking into the safety of hydraulic fracturing – a controversy energized by disputes among powerful lobbyist, politicians, and activists. Even before the first water sample was collected in Dimock this week, the EPA investigation was a clear rebuke of the way the Pennsylvania DEP has handled the case. The state agency, under Gov. Ed Rendell’s administration, held Cabot Oil & Gas accountable for pollution related to its intensive drilling into the Marcellus Shale. In the end of 2010, the DEP demanded that Cabot construct an $11 million municipal water line to replace the aquifer, which had absorbed dangerous levels of methane from Cabot’s over-pressurized gas wells. The company denies the accusation. Under Gov. Tom Corbett and his DEP chief, Michael Krancer, the state agency changed its position. The company had made good by offering affected residents filter systems to fix the problem, according to Krancer’s DEP. The company was then allowed to discontinue deliveries of fresh water to affected homes that were mandated under Rendell’s DEP.


Julie Sautner and her husband, Craig, were originally pro-drilling when they leased their land to Cabot in 2008. Shortly after that, their well turned brown and foul smelling. The Sautner’s accepted an offer by Cabot to install a filtration system to remedy the problem. Ken Komoroski, a company lawyer, told me at the time that Cabot’s gift -- a network of tanks and filters that had to be unhooked for the EPA sampling -- was not an admission of guilt, but an example of Cabot being “a good corporate neighbor.” The Sautners found the system was prone to failure, clogging, and was ultimately ineffective.  Now they and others fear Cabot’s offer for a new system will turn out no differently, and they have rejected it as they pursue litigation against the company for damages related to pollution.  

The EPA, acting in the public interest as an impartial party, will be closely watched and very possibly challenged no matter what the outcome. The Sautner's is among the first on a list of 60 residences that the agency will be testing, after the agency’s preliminary investigation found inorganic hazardous substances in four residential wells at levels that present a public health concern. The agency’s testing is an attempt to fill in what EPA Regional Administrator Shawn M. Garvin called  “information gaps" raising troubling questions after the DEP investigation.

A few minutes before the work began at the Sautner’s this morning, a water tanker pulled on Carter Road, a scenic lane in the middle of a 9-square-mile area of intensive drilling where much of the problems have come to light.  Water tankers are a familiar site in Susquehanna County, and I passed many on their way to hydraulic fracturing jobs all over the countryside. This one, however, was an EPA contractor delivering water to the Sautner’s and three other Carter Road households with unsafe drinking water, based on the EPA’s preliminary assessment.   

Not everybody is keen on the EPA taking over the investigation. Some residents have settled the matter privately with Cabot, and some of them will not let the EPA on their property to do tests.  Conversely, some residents have refused the EPA’s invitation to allow Cabot and the DEP representatives to analyze samples as part of the probe by the federal agency. Sautner said she no longer trusted the DEP after it sided with Cabot and allowed the company to discontinue water deliveries to affected homes.

Richard Rupert, an EPA manager supervising operations at the Sautner home, said the DEP and Cabot were welcome but not essential parties to the investigation. Each is likely to use its own labratory contractor to test a given sample, and that "gives more assurances" to the outcome, Rupert said. Sautner didn't see it that way. 

“It’s like two against one,” she said. “DEP and Cabot are both on the same team.”

Monday, January 23, 2012

Dimock: Small Town USA drives nation’s policy debate

Anybody who cares about the country’s energy future and legacy of conservation should be paying attention to the showdown in Dimock, Pennsylvania between the federal EPA and the Pennsylvania DEP.

Most people following the fight over hydraulic fracturing and its implications for the future of domestic shale gas development know the Dimock story, so I will spare the details here. Suffice it to say the EPA’s decision to make Dimock a federal case is striking when considered in the context of the larger story. Most residents in the rural community in northeastern Pennsylvania were enthusiastic about the prospects of tapping the Marcellus Shale, a world class gas reserve under their land, even after they had naively leased rights to their land for $25 an acre. Disputes that have defined the initiative by Cabot Oil & Gas didn’t come until drilling began and problems arose, beginning with the explosion of Norma Fiorentino’s well in January 1, 2009. Since then, a stage of shifting allegiances and antagonisms have charactretized the struggle in this small-town-USA:

Cabot versus residents: The initial conflict pitted residents with polluted wells against Cabot in early 2009. A group lead by resident Victoria Switzer, Ron and Jeannie Carter, Craig and Julie Sautner, and other residents began a campaign to have Cabot deliver water to all affected homes.

DEP versus Cabot: After a 10-month investigation, DEP officials began pressing Cabot to address the problem. Under the Rendell administration, DEP secretary John Hanger tried to force the company to build an $11 million pipeline to provide clean municipal water to more than a dozen households with polluted water. From there, the conflict grew uglier.

Thursday, January 19, 2012

Between rhetorical poles, forum finds constructive dialog

Nuance and detail are often the casualties of a debate dominated by interests vested in either stopping or promoting hydraulic fracturing. Today’s panel discussion hosted by the Press & Sun-Bulletin and the Greater Binghamton Chamber of Commerce included those necessary voices, but it also went beyond to include an engaged and open-minded audience that steered the discussion in constructive ways.

The audience was part of the Broome Leadership Institute, a program run through the chamber to educate young professionals interested in current events and civic duty. These people, who aspire to serve on boards, advise government, or fill voluntary leadership roles, are interested in mastering the daily issues that most affect their hometowns, and shale gas development is high on the list. As a resident of New York’s Southern Tier, I was encouraged by what they brought to this forum, held in a conference room at the Binghamton Press printing plant in Johnson City.

I was fortunate to be invited to participate on the panel, moderated by Press & Sun Bulletin City Editor Ed Christine. Other guests included Walter Hang, president of Toxic Targeting; Brad Gill, executive director of the Independent Oil & Gas Association of New York; Rob Wedlake, a lease attorney with Hinman, Howard & Kattell; and Brian Shea, legislative director for Assemblywoman Donna Lupardo. Hang and Gill, by the nature of their positions, are adversaries. Hang is a career environmentalist who makes a living by finding and tracking pollution for clients that include civil engineers and developers. Gill is a public relations voice for an industry that is often at the center of Hang’s public criticism. 

Wednesday, January 18, 2012

Dimock story continues to gain traction in New York state Senator Ball latest to call for fracking ban after Pa. visit

The rush for shale gas in Pennsylvania, unhindered in the absence of regulatory burdens under Governor Tom Corbett’s administration, continues to provide fodder for skeptics in New York.

Greg Ball, a 35-year-old Republican senator from Carmel, is the latest New York state politician to hold Pennsylvania up as an example of how to botch shale gas development. Today Ball is schedule to meet with residents of Dimock, Pennsylvania who claim water and property have been degraded by shale gas development. The meeting is a backdrop for the senator’s push for a one-year ban on hydraulic fracturing in New York.

Ball said he believes the shale gas development can help New York’s economy, but not the way it is unfolding in Pennsylvania. In a recent Town Hall meeting in Milan, Ball explained the challenge of getting to the bottom of the rhetoric that typifies the debate about the merit of hydraulic fracturing. “The industry will tell me one thing – ‘you can drink the fracking fluid – don’t worry about it, there are no issues whatsoever. And those 20 cows that died?  That was just a mistake, that really never happens ‘… And you have the anti-frackers who say there are four-headed fish and they are walking down the streets and its Armageddon.”

Monday, January 16, 2012

Work pace accelerates leading up to book publication Networking in the Internet age brings aspects of old, new

With Under the Surface now in production, life’s easy. I just sit back and await accolades and income the book will surely generate…

Sounds nice. Here’s the reality I'm learning about book authorship:  Each day brings new surprises, like stray cats on a doorstep. Today I wonder whether it’s more difficult completing an index for a book, or advancing my quest to become adept at social media. I concurrently wonder how much time I should budget for each of these tasks along with the others that I fear falling behind in. The primary task of the day, however, is feeding the blog.  The blog often gets hungry, and the bigger and more successful it becomes, the more feeding it requires. It can tolerate some (but not too many) leftovers – scraps cleverly reheated and spiced up with some original perspective.  It can also get by on the occasional bites of processed informational nuggests generated from institutional sources, if they are newsworthy enough.  (Often they are not).

Most of all, though, the blog thrives on original home-cooked entries. I’m constantly choosing new ingredients, and as even as I write this, I have the window to my online networks open for a look at the ever-present cornucopia of evolving possibilities in the never-ending shale gas epic. The New York DEC’s dilemma dealing with 40,000 comments on the SGEIS review on which shale gas development in New York depends; Governor Cuomo's comments that suggest there will be no fracking in the Empire State during the next budget cycle; the home rule cases making their way through lower court systems that will decide government control over drilling; the price of natural gas in the wake of market gluts; the EPA’s investigation in Dimock, Pa. There are stories overlapping on federal, local and state levels, and the possibilities and permutations are endless.

Friday, January 13, 2012

EPA’s Enck remains central figure in NY’s shale gas future

As previously reported in this blog, Judith Enck was Governor David Paterson’s top environmental advisor in 2008 when the New York DEC did an about face on its stance regarding the safety of hydraulic fracturing. Now Enck heads EPA’s Region II, a position from which she continues to influence New York’s landmark environmental debate, most recently with comments from her staff on the revised SGEIS. 

Thursday, January 12, 2012

NY’s drilling ban sprang from seeds sown by Tier residents

It’s easy to associate the organized movements that characterize the shale gas impasse in New York --- now heading into its fifth year --- as forces responsible for that state's drilling moratorium. The most recent chapter of this saga ended Wednesday as the public comment period for New York’s shale gas policy drew to a close. (The New York DEC received more than 18,000 comments noting the deficiency of the SGIES  -- the document that will guide permitting guidelines for high volume hydraulic fracturing.) 

While groups like the Sierra Club, EarthJustice, and Shaleshock continue to leave indelible marks on the discussion, it’s important to keep in mind the origins of the controversy, which had very little to do with institutional environmental causes.

Tuesday, January 10, 2012

Why Dimock stays central to national energy policy debate

There’s a good chance that those following this blog are following, or at least interested in, events in Dimock, Pa. It’s hard to overstate the influence events in this small rural community could have on debate over the direction of U.S. energy policy.

Here’s why: Dimock, in northern Pennsylvania, sits over one of the most productive sections in the Marcellus Shale. Cabot Oil & Gas, of Houston, Texas, is drilling and hydraulic fracturing hundreds of wells in and around the rural community with record breaking production. After a history of environmental problems and violations related to Cabot drilling, a collection of several dozen residents filed suit against the company for damages related to contamination of their water wells. Cabot is fighting the claims. Dimock is not the only place where residents have found problems with drilling operations or where water has gone bad. But events in Dimock provide precedence for local, state and federal policy makers.

Thursday, January 5, 2012

Status of the FRAC Act: Gone today, here tomorrow?

Remember the Fracturing Responsibility and Awareness of Chemicals Act, a.k.a. the FRAC Act?

The legislation was first introduced in Congress in 2008 by Rep. Maurice Hinchey, a Democrat who represents an upstate constituency, including Binghamton and Ithaca, with significant stakes in shale gas development. The bill would eliminate the industry exemption—the so called “Halliburton Loophole”—provided in the 2005 national energy bill that dismisses companies from the burden of disclosing the concentrations and formulas of chemical solutions they inject into the ground to stimulate shale gas production. The FRAC act would require the federal Safe Drinking Water Act – by which other industries must abide – to apply to the drilling industry. Well service companies such as Halliburton would be subject to full disclosure of what exactly they inject into the ground. Consequent revelations could open the door to controls and limits on hydraulic fracturing formulas per federal laws.

The FRAC Act was proposed in 2008 and 2009 with some fanfare and, not surprisingly, it met opposition from the industry, which characterizes any regulation as a determent to economic growth. Although it was reintroduced in 2011 by Reps Diana DeGette and Jared Polis, both Colorado Democrats who also sponsored the original bill, the FRAC Act has been a non-issue due to the Republican-controlled House of Representatives.

This week I chatted with Michael Morosi, a spokesman for Hinchey, about the status of the FRAC Act. I learned that the bill lives as a prototype for a legislative tool that can be quickly taken off the shelf to regulate fracking, depending on two things that will become acutely relevant this election year:

The political climate in Washington;

How the EPA decides to handle the fracking issue.

Regarding the EPA’s approach: Preliminary results of the agency’s study looking into the safety of hydraulic fracturing is expected by year end. The study, supported by Hinchey as a member of the House Appropriations Committee, began in 2010 to reassess a previous determination in 2005, by the Bush EPA, that fracking was not a significant threat to water. This determination, which gave rise to the Haliburton Loophole, has become widely suspect in light of recent contamination blamed on the type of extensive fracking used for shale gas development.  The EPA is looking at cases in Dimock, Pennsylvania, Pavilion, Wyoming, and other places that could influence the agency’s approach to regulating the industry.

The EPA, of course, is subject to another influential force: the national political climate. You can count on that to be unsettled during the run-up to November’s elections. After that you can count on this: The threat of a FRAC Act will not be a factor in a Republican-controlled Congress. It could likely become a factor in a Congress controlled by Democrats, depending how the EPA proceeds after its study is completed. Now add this to the mix: Rumors have circulated that the 73-year-old Hinchey will retire at the end of the year, although his office strongly denies it. (So far there have been no public nods to a possible successor in the Democratic party.)

While the FRAC Act is yet to make it to the floor, its very existence has been an effective political tool to raise awareness and provoke talking points about the Haliburton Loophole, and stimulate a very public debate about the pros and cons of the issue. FRAC Act… Shale gas industry leaders would be happy if they never heard those words again, and they would also be the first to welcome the retirement of the Congressman who introduced it.

Tuesday, January 3, 2012

What does Total’s purchase of the Utica tell us? Three points to consider

This morning’s announcement by France’s largest energy company to increase its stakes in U.S. shale by $2.32 billion is impressive at face value. Specifically, as reported by Bloomberg’s Brian Swint, Total will take a 25 percent stake in 619,000 acres of Utica in eastern Ohio. As followers of the U.S. shale gas boom know, the Utica is the largely unexplored formation that sits well below the Marcellus and covers an even bigger footprint, extending north to the Great Lakes in New York, east to the New York’s Alleghany mountain range, west into Ohio, and south to Tennessee. Some have suggested that the Utica holds more energy than the Marcellus, although a working knowledge of its potential is yet to be developed.

Chesapeake Energy has been exploring the western part of the Utica, extending into Ohio, and has found natural gas liquids (NGLs). These include ethane, propane, and butane, which are valuable both as fuels and petrochemical feedstock for an array of manufacturing processes and products, including packaging, textiles, fertilizer, coatings, and adhesives. The westernmost part of the formation also holds oil reserves that, like natural gas and NGL, could be produced only by high-volume fracking.

Keep these points in mind when looking for relevance of how the Total investment will impact the shale gas boom that has accelerated with aggressive Marcellus development in Pennsylvania and West Virginia, and stalled in New York due to concerns over the environmental impact of fracking.

1 -- Total is reportedly interested in the liquid part of the Utica, which is in Ohio. The carbon reserves in the Utica, under New York and Pennsylvania, are thought to be primarily dry natural gas, for which the demand has lagged as production from shale reserves in other parts of the country has created a market glut. That could change with market conditions, which are driven by demand. Demand, in turn, is driven largely by policy and politics that reflect public opinion that natural gas development is indeed a bridge to cleaner alternatives, or simply an enabler of a greater dependency on antiquated fossil fuels.

2- Total became limited with its options for shale gas exploration in its own country in July when France outlawed hydraulic fracturing.

3- The U.S., with the second largest shale gas reserves in the world behind China, has continued to attract foreign investors looking to develop and refine their hydraulic fracturing technology on U.S. shale reserves. China National Offshore Oil Corporation (Cnooc), one of the three big Chinese state-run oil companies, owns one-third interest in Chesapeake’s shale projects in Colorado and Wyoming. Royal Dutch Shell, based in Britain, and Reliance Industries, based in India, have also invested in various U.S. shale gas plays. Chesapeake has been looking for an investor to raise capital to develop the western part of the Utica. Total, with available capital but limited by policies in its own country, was a fit.

Overall, Total’s purchase of the Utica fits a trend of foreign investment in U.S. shale production. The western portion of the Utica brings added value due to LNG and petroleum. How this pans out in the long term depends on the baseline belief by the U.S. voting base that there is merit in drilling for and burning of fossil fuels. As the largest energy consumer (soon to be surpassed by China), the U.S. is in a position to drive global energy markets. Without an abiding belief in fossil fuels, demand for the products of shale gas development and fracking will lag and the market incentives for drilling and fracking will weaken. Of course there are other complicating factors. The strength of the economy is a wild card, as the demand for energy tends to rise when times are good. Economic policy… Energy policy…  For more insights into these variables, look to the presidential campaigns that will culminate with November’s elections.