Saturday, September 21, 2013

Will NY natural gas future break from problems of its past? DEC lacks funds to plug tens of thousands of leaky wells

Discharge from this abandoned well killed an acre of vegetation in Oneida County
The debate over natural gas development in New York has mostly been about the future. But residents living over New York’s abundant gas reserves must also figure out what to do about the past.

Regulators estimate there are 57,000 abandoned and orphan oil and gas wells statewide – many of them leaking. Of these, the state has listed 4,722 as a priority due to health and safety risks, but lacks funding to plug them. Wells tend to leak over time as casings deteriorate, raising risks of explosions and providing conduits for water contamination from methane, brine, arsenic and other pollution. The problem is summed up in this 2002 report from the New York Department of Environmental Conservation: “Abandoned wells can leak oil, gas and brine. They can contaminate groundwater and surface water, kill vegetation and cause safety and health problems. Underground leaks may go undetected for years before their damage is discovered.”

It’s a warning supported by facts in New York and neighboring shale gas states, where problems have ranged from drinking water pollution to fatal explosions. (More on that in a bit.)  Unlike many industrial hazards, abandoned wells lurk in unexpected places. (Map here.) They have been found at playgrounds and parking lots, inside buildings, in wetlands, underwater in creeks and ponds, in wooded and brushy areas and in residential yards, according to DEC records. DEC staff discovers more of them every year during scheduled inspections or while investigating complaints. The most threatening cases go on the state’s priority list to be plugged “whenever funds become available.”

So far, funds have not become available, even as the state considers plans to begin permitting new drilling on an unprecedented scale for operators targeting the Marcellus and Utica shales, extending under most of upstate New York.

The abandonment problem is rooted in the economics and regulation of gas production. As wells age and production declines, they become maintenance liabilities, which encourages their sale to whomever will buy them -- typically smaller, less established firms or even homeowners. In the end, the parties left holding them often drop them from their books or go bankrupt.

Theodore Loukides, head of the Oil & Gas Compliance and Enforcement Section for the DEC, issued a bulletin earlier this year notifying operators that “given the state of awareness surrounding energy development, the plugging of legacy wells will likely remain a high-profile issue of years to come.” In the bulletin, published in a newsletter for the Independent Oil & Gas Association of New York, he asked operators for input on plugging, and new initiatives focusing on waste, bulk storage, spills, and proper submittal of annual reports.

DEC spokesman Peter Constantakes didn’t return calls or emails about the subject this week. Yet the “state of awareness” that Loukides delicately mentions is due to the contentious issue of whether Governor Andrew Cuomo will finalize permitting guidelines for high volume hydraulic fracturing necessary to explore and produce the Marcellus and Utica shales, which collectively run under a good part of upstate New York. Since shale gas became a major political issue in 2008, the legacy of “old oil fields” is something you rarely, if ever, hear DEC officials talk about publically, even though the problem has been neatly summarized in prior studies and annual reports.

The 1995 annual report for the Minerals Resources Division was explicit in this warning ,which was repeated verbatim almost a decade later in a 2003 report commissioned by the state Energy and Research Development Authority:
One of the biggest challenges facing the oil and gas regulatory program is the growing liability of idle and abandoned wells. In most cases financial security, even for operators in compliance with current regulations, does not provide sufficient funding to plug the covered wells. When operators default on their tax bills and counties foreclose on properties that contain unplugged wells, those wells become a liability for local taxpayers. This is not a hypothetical worst-case scenario, but reflect current events already happening in the counties. We need a creative approach to develop new solutions to this problem, and hope to productively work together with all stakeholders in this effort.

Fixing the problem will require significant regulatory reform, according to Ron Bishop, a professor of chemistry and bio chemistry at SUNY Oneonta who has been studying the orphan well issue in New York. In a white paper for a land preservation group called Sustainable Otsego, Bishop explains:

Unless the state of New York does something to dramatically alter the long-standing culture of neglect, we can reasonably expect oil and gas industry operators to ignore any new standards just as they systematically ignore existing standards today. 

The problem extends from the pre-regulatory era to current times. It’s common practice for larger operators to sell off wells near the end of their life cycle to smaller firms with less capitol. The sale provides the seller with a better financial outcome than holding onto the dwindling returns and provides a buyer – typically one with limited capital -- a well that it doesn’t have to drill. Bishop cites this explanation from Lou Allstadt, a former senior executive with Mobile Oil:

The original company uses the cash to finance new investments. The buying company operates with lower costs because they spend less on maintenance and safety items and they have fewer well-qualified people to pay. The chain may end there or continue through smaller and ever lower cost operators who do no preventive maintenance at all, do the bare minimum of repairs to keep the well going and eventually walk away, maybe after plugging the hole as cheaply as possible and maybe not plugging at all. The smaller companies often operate each well or group of wells under a separate corporate entity that is always stripped of cash, so if something goes wrong there are no assets to pay off claims. Not all small operators will do this, but it happens. 

Shale gas wells are more prone to this outcome than yesterday’s conventional wells because production from shale, known as tight gas, tends to taper more quickly than conventional wells, according to Bishop.

Now for more on the legacy of problems in New York and Pennsylvania: A starting point is in 2008. The first wave of aggressive shale gas prospecting in New York raised many questions with residents, and DEC staffers staged informational meetings at town halls throughout the Southern Tier to address them. Officials from the Minerals Resources Division pitched shale gas as a clean, problem free and well-regulated industry. They avoided mention of the tens of thousands of orphan wells that in fact represented a serious, chronic, and concrete problem.

Around this time Walter Hang, an environmental researcher, began uncovering a history of neglect that undermined the DEC’s message and sowed early seeds of public doubt about the transparency of both the industry and those who oversee it. Hang is president of Toxics Targeting, a firm that identifies and tracks pollution liabilities for developers and municipalities.

Hang and others who tried to quantify and characterize the problem had tough going, due to a records system that was decentralized, archaic, and often incomplete with files scattered among disparate government offices, private companies, and court rooms. Still, Hang culled 270 records documenting mishaps —some from newspaper clippings, dossiers at health departments, complaints filed with elected officials, and some showing up on the DEC’s database for spills. Many of the problems -- including fires, blow-outs, methane migration, and spills relating to wells or infrastructure –- remained unresolved and partially documented.

Hang’s analysis, which I wrote about in a series of reports for the Press & Sun-Bulletin and later in Under the Surface, drew sharp criticism from industry and regulators who dismissed it as overblown.  A few hundred cases, they said, represents a negligible proportion of the tens of thousands of wells drilled through New York’s history. Still, the cases were troubling then and they are troubling now, mostly because they represent a subset of a greater number of problems that will remain unknown without a reliable and comprehensive system to document them.

In matters of transparency, the oil and gas industry operates mostly on its own terms.  It works on private land under contract with landowners. Chemicals pumped into wells are exempt from the Safe Drinking Water Act, and waste that comes out is exempt from federal hazardous waste laws. The absence of a federal regulatory baseline in these two critical areas leaves a lot of grey area.

And it gets greyer. The DEC, like other states, adopts a laissez-faire approach to much of its oversight.  Agency’s are understaffed and rely primarily on paperwork submitted by operators. Complaints involving water contamination are often settled privately between leaseholder and drillers, and they often end with non-disclosure agreements that eliminate any public paper trail.

William T. Boria, a water resources specialist at the Chautauqua County Health Department, was frustrated by this very approach.  He reported his agency had received more than 140 complaints related to water pollution or gas migration associated with nearby drilling operations. “Those complaints that were recorded are probably just a fraction of the actual problems that occurred,” he stated in a 2004 memo summarizing the issue. For fifty-three of those cases filed from 1983 to 2008, county health officials tabulated an informational spreadsheet that cited methane migration, brine pollution, and at least one home evacuation resulting from a water well explosion. “A representative I spoke with from the Division of Minerals [of the DEC] insists that the potential for drinking water contamination by oil and gas drilling is almost nonexistent,” Boria wrote in his memo to a party whose name was redacted. “However, this department has investigated numerous complaints of potential contamination problems resulting from oil and gas drilling.”

The problem is worse in Pennsylvania, where 200,000 or more abandoned wells are more or less hidden under the landscape. In September, 2009, the DEP compiled a draft of known cases where methane leaked from abandoned or working wells.  According to the briefing, methane migration from gas drilling, had “caused or contributed to” at least six explosions that killed four people and injured three others over the course of the decade preceding full-scale Marcellus development. The threat of explosions had forced 20 families from their homes, sometimes for months. At least 25 other families have had to deal with the shut-off of utility service or the installation of venting systems in their homes. At least 60 water wells (including three municipal supplies) had been contaminated.

What does this mean for the future? It’s hard to know where to start, but focusing on the cost of the problem is a good place. Plugging a single well can cost between $5,000 and $50,000, according to estimates from the DEC. That means the bill for dealing wells on New York’s priority list alone would cost between $24 million and $236 million. In economic terms, this cost is “externalized,” which means that it is not borne by businesses or their consumer. Rather, it’s falls to taxpayers, or comes at the expense of public health and safety.

In many ways the orphan well legacy is similar to the abandoned mine legacy that continues to foul water and create public hazards in Pennsylvania and other states, and it’s a manifestation of an important aspect of the extraction industry overall. Coal, natural gas, and oil provide modern-day comforts beyond historical comparison. As energy consumers, we should embrace a moral obligation to understand where our energy comes from and at what cost as we evaluate tradeoffs.

10 comments:

  1. Excellent Tom, thanks.

    Your numbers agree with the numbers I discovered when I looked at orphaned/abandoned wells in Oct 2012*: about 180k for PA and ~60k for NY.

    (* for my video series about how Binghamton's Headwaters are being Fracked )

    Walter Hang wrote about finding documentation for 5k in NY. I think the method Walter employed produced a low-estimate. Dr. Bishop's paper (which you cite) found, from the DEC's own documents, that they believed the number to be more like 60k. Many people cite the 5k number. I'm happy to see you cite the higher number, which I believe is closer to the truth.

    There's a group called Save Our Streams PA which documents these wells around SWPA.

    Here is a video from the Responsible Drilling Alliance of an orphaned well in Union, Tioga County PA with a "surface expression", i.e., a fracking geyser. Investigation found that the Butters well, a 5,385' deep well drilled in 1932, provided the pathway back to the surface for methane.

    I would imagine that if there is a pathway back the surface for methane, there could be a pathway for fluids as well (brines, produced water, flowback, fracking fluids.) Here is an infographic:

    http://stateimpact.npr.org/pennsylvania/files/2012/10/graphicscreenshot-300x255.jpg

    ReplyDelete
  2. Wow! To use a baseball analogy, you hit the ball out of the park Tom. Great job. I said it before and I'll say it again, you Marcellus guys have a grasp of the problem. The rest of the country would benefit greatly from your knowledge and expertise. The problem is getting others to read this blog and other blogs focusing on human and environmental impacts caused Marcellus shale development.

    Many of the abandoned conventional oil and gas wells are located in and around shale sweetspots (most prolific zone). Those wells were drilled below the shale to get the easy stuff. Vertical wells, with limited screen intervals (or well sink), were sufficient at the time. The source rock typically a sandstone or limestone is much more porous (liquids and gas flows more freely). The shale sitting above the traditional source rock was usually assumed to be a confining layer that trapped oil and gas. The rest of the story on fracking and shale dynamics has been told.

    Concerns with these old and abandoned wells in New York and Pennsylvania is only the tip of the iceberg with fracking. Every shale play throughout the US has this exact problem. It's almost worse for Illinois and Michigan, where O&G is starting to frack New Albany and Antrim shales. The old wells become unencumbered super pathways for gas and liquids to travel from shale fractures to the surface.

    Here's a nice definition on oil well abandonment should anyone want to get into legalese:
    http://definitions.uslegal.com/a/abandonment/

    The problem with abandonment is that it has become a business practice as Tom explained nicely in the post. Dump and run. With Superfund being unfunded and oil and gas never had to pay in for exploration and production, there's no federal money for well abandonment and site remediation. Many states' are broke.

    Here's a great paper on North American oil and gas wells needing plugging and abandonment. You can put in your information retrieval file if you'd like, Tom.

    http://www.iaee.org/en/students/best_papers/muehlenbachs.pdf

    More about the International Association of Energy Economics (IAEE):
    http://www.iaee.org/en/index.aspx

    The reason I'm linking the above is to show how much effort Oil and Gas is putting into trying to not plug and abandon every single petered out well. A lot of partial differential equations and statistics to make a simple decision: to cleanup or not cleanup.

    The words below were copied from the first link above. It's expensive is the bottom line.
    -----------------------------------
    The abandonment costs used in the calculation range from $7,200 to $90,000.Land reclamation costs are also included which vary by location from $13,200 (grasslands area east) to $33,700 (alpine area). However, abandonment and reclamation costs may drastically
    surpass these gures. For example, the Orphan Well Association has previously spent $800,000 to abandon a single well, and over $1,000,000 to remediate the land around another[Orphan, 2006].
    If the bond is less than the abandonment cost, there is no incentive for the rm to abandon the well. Furthermore, it is likely that the liability gures used are underestimates because they are calculated from gures submitted in a voluntary survey of costs. If a company becomes defunct,the Orphan Well Association will collect the required abandonment and reclamation costs from
    the remaining rms in the industry based on each rms share of industry liability.

    ReplyDelete
    Replies
    1. " I said it before and I'll say it again, you Marcellus guys have a grasp of the problem. The rest of the country would benefit greatly from your knowledge and expertise. The problem is getting others to read this blog and other blogs focusing on human and environmental impacts caused Marcellus shale development."

      All I can say is, we all need to share this and other relevant sources of accurate information as widely as possible. Imagine how much more difficult it would have been to amass and share this information pre-internet. At least now we have a shot at it.

      Delete
    2. Between about 1970 and 1995 we had pretty effective federal and state environmental agencies. Prior to 1970 we were pretty much on our own. Between 1995 and 2001, environmental regulations were slowly being nibbled at. Between 2001 and now, that nibbling of regulations has increased. After the 2014 and 2016 election cycles we'll see if we're back to pre 1970 environmental protection - but with blogs and apps and yet another human interest story that gets read only by the choir. Take a look at Shale Shock's recent blog post on LNG - its only a matter of time for the southern tier. Climate change seems to have trumped property rights, groundwater and air quality. Those concerns are like sooo 1995. It does seem like the ultimate solution will entail sacrificial zones like PA, IL, MI, TX, AR, etc.

      Delete
    3. Here's our national energy policy: MAKE MONEY FOR THE FOSSIL FUEL INDUSTRY. That's it--that's the whole deal--anything else is just window-dressing. Unless that changes fairly quickly, the future will be bleak. Unfortunately, wealthy, powerful people have the best chance of insulating themselves from the consequences of that bleak future, so if things don't change, we can expect to see a growing number of sacrifice zones of various types. There may not be too much hope of changing this situation, but there is, I think, some hope. One of the reasons I think there is hope is that over the last five years the anti-fracking choir has grown a LOT. The other reason I think there is hope is that history teaches us that are times when supposedly lost causes can triumph, provided enough people are willing to believe in the possibility of change.

      Our nation desperately needs a viable (i.e. no lies or dreams) and just (i.e. everyone shares the pain) energy policy. The fact that in 2013 we lack such a policy is a national disgrace. At this point, I would be very surprised if that changed through a top-down effort: the top is, as I said, insulated from the worst effects of the mess. So I guess it's up to everyone else, which is why I think it's important to add more voices to the choir, one blog, one article, one voice at a time.

      Delete
    4. Awesome Mary. I'm getting this sinking feeling that our politicians and their friends on any side don't really like planning, regulation and things such as preventative maintenance. It lessens the mystery and that's where all the money is at. Then when a problem occurs, it's big and with big problems comes big ad hoc and expensive emergency solutions. Industry seems to roll the dice. Finance doesn't pay for it. Governments can't pay for it in actual dollars since they are broke. Engineering loves this since projects fall under expedited response - so cost isn't tracked all that closely. Lawyers get their cut. So those in and around where the problem occurred are stuck. The oil and gas well fields of northern Colorado are an example of this. This laissez faire model gets exposed usually after something like a biblical scale flood. My guess is that residents and farmers will pick up a chunk of the tab.

      Delete
    5. Yes, and also....I'm getting the sick feeling that in many ways the problem is a class problem. If shale gas development were concentrated in wealthy areas and water wells in those areas had been contaminated, I really doubt that the EPA would be stepping away from its investigations into how that contamination occurred.

      Too often, the people in power do not have to live with the consequences of their mistakes--and I'm not talking just about shale gas. The rest of us are expected to bail out the mistake-makers so the mistake-makers can go merrily back to the business of making more costly mistakes that they don't have to pay for.

      Delete
    6. Mary,
      From a previous discussion we had on getting the word out and tapping into New York States populous policy experts (i.e. volunteers):

      http://www.prwatch.org/news/2013/09/12254/frackswarm-harnessing-power-anti-fracking-movement-valuable-web-resource

      http://frackswarm.org/

      Delete
  3. This comment has been removed by the author.

    ReplyDelete
    Replies
    1. [The comment below is identical to the one I deleted, except that the comment below contains one extra sentence that I should have included in the initial comment.]

      "Hang’s analysis...drew sharp criticism from industry and regulators who dismissed it as overblown. A few hundred cases, they said, represents a negligible proportion of the tens of thousands of wells drilled through New York’s history."

      Let's assume, for the sake of argument, that the industry is correct, and that we really are talking about just a few hundred cases out of tens of thousands. HOW IS THAT OKAY? When you're sitting around in the boardroom calculating which options are going to maximize profit, it may seem just fine. When it's your family's water well that's been ruined or your family's house that's exploded it's not so fine.

      Industry exists to make a profit, but there has to be accountability or innocent bystanders get eaten up in the process. Right now there is precious little accountability in fossil fuel industries. This is really nothing new: The model is to make mincemeat of the areas that provide fossil fuel so that everyone else can go blithely about their business. What's happened with shale gas is that the areas likely to become mincemeat are so large and so full of people who thought they were reasonably safe that fossil fuel's ugly business-as-usual model is now in the spotlight. And that is a good thing not just for individual citizens in the mincemeat regions, but for the nation as a whole and for democracy. Because if ordinary citizens don't matter--if those "few hundred cases" can be ignored--then democracy is a sham. Let's keep the spotlight shining.

      Delete