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Friday, September 5, 2014

Question authority

How big are US shale gas resources?

The US Energy Information Administration in this brief and in its 2014 Annual Energy Outlook says the US has abundant shale gas resources. Indeed, the latter report increases estimates of cumulative production of natural gas from 2012 to 2040 by about 11% compared to last year's outlook. Much of that is driven by record-setting production from the Marcellus, for which private analysts issue glowing projections.

Others think differently.

This provocative piece in Forbes claims that estimates of US shale gas resources are severely inflated, and that the bubble will pop sooner than expected, leading to an energy crisis. This one suggests caution on natgas exports, for many of the same reasons.

Who's right?  There's clearly a lot riding on the answer.

Thursday, September 4, 2014

Shale energy development will face water stress

A new report from World Resources Institute analyzes potential commercial shale resources worldwide and shows that limited water availability could pose challenges to their development.

Limited availability of freshwater could become a stumbling block for rapid development of shale resources through hydraulic fracturing. 
(The) report analyzes for the first time water availability in each shale play (prospective areas within the shale formation where gas and oil could be commercially extracted) for 11 countries: Algeria, Argentina, Australia, Canada, China, Mexico, Poland, Saudi Arabia, South Africa, the United Kingdom, and the United States.
This report reveals that lack of water availability could curtail shale development in many places around the world:
  •  38 percent of shale resources are in areas that are either arid or under high to extremely high levels of water stress;
  • 19 percent are in areas of high or extremely high seasonal variability; and
  • 15 percent are in locations exposed to high or extremely high drought severity.
Eight of the top 20 countries with the largest tight oil resources face arid conditions or high to extremely high baseline water stress where the shale resources are located; this includes China, Libya, Mexico, Pakistan, Algeria, Egypt, India, and Mongolia.
In general,
shale-energy production is vulnerable wherever surface or groundwater is limited. As water demands increase, other water users like farms and homes around these plays face higher competition for water. This could potentially spur water conflicts for the 386 million people who live on land above shale plays, particularly in regions where changes in precipitation and temperature could alter water supplies.
China has the world’s largest commercially viable shale gas resources. But over 60 percent of those resources are in areas with high water stress or arid conditions...
In the US, shale development faces these water availability constraints, according to WRI: 
  • Over 35 percent of U.S. shale resources are located in areas that are either arid or under high or extremely high baseline water stress.
  • For the most part, shale plays in the west (Texas, Colorado, and California) are located in areas of higher competition for water than those located in the more water-abundant east.
  • For the western plays, agriculture is the dominant water user across 80 percent of the area. In the east, the dominant water user is industry.
  • Most U.S. plays are in areas at least partially subject to high or extremely high baseline water stress and arid and low water use.
  • Ten plays...sit atop aquifers that are being withdrawn at rates that far exceed their natural recharge rate. 
I'd add another complicating factor- the industry's rapidly growing thirst in the Marcellus play.

WRI identifies these business risks: 
  • Increasing demand and competition for freshwater, which could potentially lead to uncertainty in regulatory changes that could cause financial, regulatory, and reputational risks to companies. 
  • In plays with very high levels of competition for freshwater…accessing water might represent additional costs to operators and financial risks, particularly in areas where depleted groundwater resources are already facing high demand from irrigated agriculture… 
WRI offers four major recommendations:
  • Conduct water-risk assessments to understand local-level water availability and reduce business risk.
  • Engage with local regulators, communities, and industry to learn as much as possible about existing water demands, and hydrological and regulatory conditions in any river basin, while increasing transparency around shale development.
  • Ensure adequate water regulations and participatory legislative processes to guarantee water security and reduce regulatory and reputational risks.
  • Minimize freshwater use and practice corporate water stewardship to reduce impacts on water availability.
Water availability is obviously a huge threat to shale gas development. But it's not the only water-related risk or cost facing the industry - by a long shot.

Wednesday, September 3, 2014

Marcellus analysis: immense profit - and environmental impact

Global energy, mining, and minerals analyst and consulting firm Wood Mackenzie has looked at the next two decades of Marcellus natural gas development and  found profit - and peril.

WM projects $90 billion of potential net revenue – the value of marketed gas less development costs.

Although rig counts have fallen across the Marcellus since early 2012, we can see that improved efficiency and a renewed focus on the play's core sub-plays have led to on-going growth.
Well results are improving, with estimated ultimate recovery (EURs) in the top areas increasing by approximately 10% since 2013, thanks to the use of longer laterals and high-volume completions.
As such, we have raised our forecast of 2020 output from 14 bcfed to 20 bcfed [a 43% increase] and estimate that the Marcellus will soon account for nearly 25% of total US shale gas supply.
Drilling and completion costs typically range from US$6 million to US$9 million across the sub-plays…
WM also predicts that the top 20 operators will drill 25,000 wells through 2035 - at radically higher rates of resource consumption. According to this article by Natural Gas Intelligence, WM ominously finds that:
Water usage had increased substantially in [southwestern Pennsylvania]. Operators there used a median average of about 4 million gallons per well in 2009 (with a range of 2-6 million gals/well), but by 2013 the median had increased to about 10 million gals/well (7-13 million gals/well). In [northeastern Pennsylvania], median water usage increased from less than 5 million gals/well in 2009 to about 7 million gals/well in 2013.
The expanded use of proppant was also noteworthy in both areas. In [southwestern Pennsylvania], the median use of proppant increased from about 1 million pounds of sand per well in 2009 to about 12 million pounds in 2013. [Northeastern Pennsylvania] usage of proppant increased from about 5 million pounds of sand per well in 2009 to about 13 million pounds in 2013.
The increases in water and proppant use are dramatic.  The implications of those 2 statistics - beyond drastically increased water stress - are dramatic increases in chemicals used, similar increases in truck trips, air pollutionroad damage, and accidents. And vastly more wastewater, injection disposal, NORM and TENORM, and hazardous waste.

In short - sharply greater risks and cumulative impacts.

And all of that, and the activity from those projected 25,000 wells, is before refracking is factored in.

Even with increasing efficiency, can this $90 billion of Marcellus net value be extracted under business-as-usual conditions that require dramatically increased resource consumption, risks, and impacts? Or is that $90 billion of net value the key to unlocking the business case for more sustainable shale gas extraction?  

Tuesday, September 2, 2014

PA drilling waste reports vastly understated

This Pittsburgh Post-Gazette article is a must-read. 

It reveals the very disturbing fact that the volume of drilling-related waste that's being sent to landfills from unconventional natural gas production in Pennsylvania is being vastly under-reported by operators. The huge discrepancy was discovered when company filings were compared to reports - characterized as "accurate" by state officials - that landfill operators file with the state.

It's too early to tell what the source of the discrepancy is. But multiple companies appear to be involved. It could be a systems error.  If the discrepancies prove to be deliberate, that's another matter entirely.

Either way, this problem must be fixed - fast.  Cradle-to-grave tracking of every load of drilling waste should be mandatory. It's another example of the adage that what isn't measured (accurately, at least) can't be managed. And hazardous drilling waste must be very carefully managed.

The Post-Gazette continues to do excellent reporting in the public interest.