Producers face an "aggressive and well-orchestrated effort" by lawmakers and other policymakers to "mischaracterize and demonize" the use of hydraulic fracturing (hydrofracing) technology to develop gas shale, an independent producer official said last Wednesday during the inaugural hearing of the House Natural Gas Caucus.
"Sophisticated hydraulic fracturing frees the natural gas for production. Without it, none of the expectations of shale would be realistic. This technology has been in use for over 60 years, more than a million times, about 35,000 times each year now," Bruce Vincent, current vice chair and incoming chair of the Independent Petroleum Association of America (IPAA), told the caucus, which is co-chaired by Rep. Tim Murphy (R-PA), whose district includes part of the emerging Marcellus Shale play, and Democratic Rep. Dan Boren of Oklahoma, a long-time gas producing state.
"Throughout that history no pattern of failure that harms the environment occurred. Clearly the movement of thousands of gallons of water and tons of sand under high pressure can pose a risk. But throughout the 60 years of experience with fracturing, state well construction and drilling regulations have effectively protected drinking water supplies from fracturing's environmental risks," Vincent noted.
"Why, then, do we see fracturing drawing the attention it does today? Those who seek to inhibit or prevent the development of natural gas recognize the linchpin role that fracturing plays in shale production. Because new shale development will occur in areas that have less familiarity with natural gas production, these opponents have resorted to baseless allegations of environmental harm -- frankly -- to frighten local communities. They have taken damage incidents proved to be unrelated to fracturing and repeatedly spread them throughout the country, alleging they are caused by fracturing."
But there are some who would argue that point. In September a hydrofrac lubricant was spilled three times over a one-week period at a Cabot Oil & Gas Corp. drilling site in Susquehanna County, PA. The Pennsylvania Department of Environmental Protection (DEP) issued notices of violations, and allowed the producer to resume its hydrofracing operations earlier this month after it complied with the terms of a Sept. 24 order (see NGI, related story; Sept. 28).
Under the DEP order, Cabot had to update its pollution prevention plan outlining where waste would be treated and how pollutants would be prevented from entering the state's waterways. Cabot also had to submit an engineering study.
And the U.S. Environmental Protection Agency (EPA) in August reported that at least three contaminated water wells near Pavillion, WY, contained a hydrofrac chemical used by natural gas drillers (see NGI, Aug. 31). Traces of other contaminants, including gas, oil and metals, were reportedly found in 11 of 39 wells tested since March in the Wind River Basin area.
Bills have been introduced in the House and Senate that would subject hydrofracing to federal regulation under the Safe Drinking Water Act of 1974 (see NGI, June 15). Hydrofracing, which is used in almost all oil and gas wells, is a process where fluids are injected at high pressure into underground rock formations to blast them open and increase the flow of fossil fuels. Some chemicals that are known to have been used in hydrofracing include diesel fuel, benzene and industrial solvents.
Vincent also told the House caucus, which currently has about 40 members, that the Obama administration's proposed tax code changes targeted at domestic gas producers "would dramatically reduce independents' ability to develop new production and maintain existing wells.
"The overall consequences of these [tax] proposals on independents include a reduction in new drilling by 25% to 40% affecting new wells -- when half of today's U.S. natural gas comes from wells drilled in the last four years -- and the loss of 20% of American oil production and 12% of American natural gas production."
Producer officials estimated that the Obama administration proposals call for more than $80 billion in new taxes for the oil and gas industry over the next 10 years (see NGI, Sept. 14). An estimated $30 billion of the proposed tax hikes would be aimed directly at producers, while several indirect tax hike proposals -- such as reinstatement of the EPA's Superfund tax, repeal of last-in-first-out accounting and reform of the international tax policy -- would push the tax burden up even further for producers. The additional tax revenue from oil and gas would be earmarked for renewable fuels and other alternative energy sources.
In addition, Vincent said the IPAA is concerned about legislation regulating the over-the-counter derivatives market. "As 'end-users' in the commodity markets, independent producers hedge their production volumes for two, three or more years to provide predictable cash flow and therefore predictable investment in new production. Much of this year's drilling activity is being done because of higher revenues resulting from hedges from earlier years when natural gas prices were higher.
"The structure of new commodity legislation could inhibit or effectively preclude independents from using this important cash management tool," he told the House caucus. Two House committees have passed legislation that would exempt "end-users," such as producers and major natural gas consumers, from having to clear/trade derivatives that are used to hedge commercial risk (see related story).
Like the IPAA, the American Chemistry Council (ACC) applauded the efforts of Murphy and Boren in creating the natural gas caucus. "We support the bipartisan efforts of Reps. Boren and Murphy to educate their colleagues on the benefits of natural gas and the need for its continued domestic exploration and production," the ACC said.
"We believe recent news of natural gas supply discoveries, largely from unconventional sources such as shale gas, is positive for the U.S. manufacturing sector. ACC has long supported efforts to increase U.S. natural gas supplies so that prices can be globally competitive. However, we urge Congress to balance calls to legislate greater natural gas demand with steps that will create a long-term, sustainable, affordable, adequate and accessible supply of natural gas," the council said.
It noted that chemistry companies will need a "stable, affordable and diverse" supply of natural gas for help in creating the "lower-carbon economy of the future."
Not to be outdone by their House counterparts, Sens. Mary Landrieu (D-LA) and Saxby Chambliss (R-GA) last Thursday announced the creation of a bipartisan natural gas caucus in the Senate.
While the announcement came one day after Murphy and Boren formally launched the House Natural Gas Caucus, the Senate caucus was not in response to the new House caucus, said Landrieu spokesman Aaron Saunders.
"We've been planning this for quite some time," he told NGI. Saunders further said Landrieu and Chambliss, who will be co-chairs of the Senate caucus, have not yet recruited other senators. That "will come in the coming days and weeks." The House caucus currently has approximately 45 members, according to a spokesman for Murphy.
"The caucus will serve to investigate and debate the economic and national security implications of the new-found abundance of natural gas in the United States," Landrieu said. The combined economic impact of natural gas development, exploration, production and usage to the U.S. economy was $385.5 billion in 2008, she noted.
"I'm pleased to join Sen. Landrieu in creating this caucus. It is my hope that we can start a serious conversation in the Senate about our nation's energy policy," Chambliss said.
R. Skip Horvath, president of the Natural Gas Supply Association, applauded the creation of a Senate caucus for natural gas. "We're pleased to see this important bipartisan effort recognizing the unique role natural gas plays in the country's long-term future.
"Natural gas [is]...produced in 33 states, provides nearly half of all energy consumed by households and businesses and accounts for four million American jobs. By conservative estimates, we have at least another century's worth of supply. Natural gas is the key to our country's energy future."
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