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Study: Federal Hydrofracing Regs Would Slice Gas Output

Federal efforts to restrict or eliminate the hydraulic fracturing (hydrofracing) of wells would have a major toll on domestic oil and natural gas production, according to a new study commissioned by the American Petroleum Institute (API).

The study, which was conducted by Lexington, MA-based IHS Global Insight, examines the impact of three scenarios on future production: 1) elimination of hydrofracing; 2) a restriction of the fluids that are used in hydrofracing; and 3) implementation of additional federal Underground Injection Control (UIC) compliance regulations on top of state and local regulations that currently govern the practice.

If hydrofracing were eliminated, there would be a 79% drop in completions of oil and natural gas wells in the next five years, the study said. As a result, natural gas output would be cut 45%, or 9.1 Tcf, relative to the reference case in 2014 (20.4 Tc), while oil production would fall 17%, or 0.85 million b/d, relative to the 2014 reference case of 4.87 million b/d.

The declines would continue, with a 23% reduction in oil production and 57% drop in gas production from the reference case expected by 2018, according to the study. Because of the "increasing reliance on unconventional resources, where over 95% of wells are routinely treated using fracturing, the impact on production would be permanent and severe," it said.

The reductions would be less severe under the fluid restrictions scenario. By 2014, a change in fluid options for hydrofracing was expected to reduce natural gas production by 22% to 16 Tcf from 20.4 Tcf. Oil production would fall by 0.4 million b/d, or 8%, while wellhead revenues would slip by $48 billion, or 15%, the study noted.

Implementation of UIC compliance regulations on oil and gas drilling would lead to a 20.5% reduction in new wells drilled over the five-year period, and a 10% loss of natural gas production during that period, according to the study. "Given the tenuous balance between supply and demand, a loss of 2.1 Tcf (6 Bcf/d) would result in more imports of pipeline natural gas and LNG [liquefied natural gas]," it said.

Hydrofracing involves the injection of fluids into wells at extremely high pressures to crack open underground formations and stimulate the flow of oil and gas. More than 90% of oil and gas wells in the United States employ hydraulic fracturing.

Along with the loss of production, the study projects that under the "no fracing scenario" there will be an increasing toll on the U.S. economic performance through 2014 that will be sustained through 2020. It forecasts that real gross domestic product (GDP) will be lower by $374 billion than in the reference case and employment will fall by 2.9 million jobs.

Under the IUC compliance scenario, the study sees the economic impacts also rising through 2014, as real GDP and employment both drop 0.5% below the reference case. In 2014, the real GDP is $84 billion less than in the reference case, and there are 635,000 fewer jobs. The fluids restrictions scenario forecasts that both the real GDP and employment picture will take a greater hit -- $172 billion less than the reference case and 1.3 million fewer jobs, respectively.

The federal deficit also would expand in each of the restricted hydrofracing scenarios, with the deficit increasing by $139 billion in 2014 in the "no fracing scenario," by $66 billion in the fluid restriction scenario and by $32 billion in the UIC compliance scenario, the study found.

Additional federal oversight of hydrofracing is not necessary, said the API, which represents major producers. The Ground Water Protection Council in May released a study that found regulation of oil and gas field activities, including hydrofracing, is best accomplished at the state level where regional and local conditions are understood and where state regulators are on hand to conduct inspections and oversee specific operations like well construction, testing and plugging, the institute said.

Efforts currently are under way in Congress to increase tighten the regulation of hydrofracing. The House last month voted out a spending bill that calls on the Environmental Protection Agency (EPA) to examine the risks of hydrofracing to the nation's drinking water (see NGI, June 29).

Rep. Maurice Hinchey (D-NY), a proponent of federal regulation of hydrofracing, sees this as the first step in closing the loophole that exempts hydrofracing from the Safe Drinking Water Act of 1974 (SDWA), which seeks to protect the public water supply from toxic contamination. The oil and gas industry is the only industry exempted from complying with the SDWA.

Producers contend that hydrofracing does not harm public drinking water and that stripping them of this exemption would stunt natural gas production, particularly from shale gas plays. The Energy Policy Act of 2005 clarified that hydrofracing was not intended to be regulated under the SDWA.

Hinchey joined two other House Democrats last month in introducing a bill that would require oil and natural gas producers to disclose to the EPA the chemicals they use in their hydrofracing processes (see NGI, June 15).

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