Shale Plays & the Natural Gas Revolution

From the shale reservoirs of Eagle Ford in Texas and Marcellus Shale in Pennsylvania to the huge Haynesville Shale in Louisiana, Texas and Arkansas, oil and gas companies from all over the country are expanding their natural gas production in what many are calling a natural gas boom. New drilling methods and new technology is allowing before-unreachable reservoirs of natural gas in deep shale layers of the earth to be tapped into and extracted. Natural gas has become the hot topic, not only in the oil and gas industry but also among landowners, environmentalists, government agencies, lawmakers and the media.

Natural gas has been a source of energy in the U.S. since the early 19th century and its potential as a heating source was clearly demonstrated by the invention of the Bunsen burner by Robert Bunsen in 1885. Before the 1990s conventional wisdom held that natural gas supplies were limited to sandstone and carbonate rock formations that were permeable (able to transmit fluids) and reachable through conventional, vertical drilling. Shale formations, known to contain organic hydrocarbons were considered limited in their production potential, being deeper and much less permeable. Exploration and production in these shale deposits was technically challenging and therefore cost prohibitive to successful production.

However, several developments over the past decades have ushered in a revolution in the industry’s ability to tap into these reservoirs of natural gas trapped in large, shale-rich areas all over the country. The most significant development is the use of unconventional horizontal hydraulic fracturing, or fracking, for short. Fracking itself (a method of creating or widening fractures or fissures inside rock or sediment using water, sand and other additives at high pressures to expose and extract the maximum amount of resource available) is not a new technique. It has been used in the industry for decades. However, conventional fracking was limited to vertical exploration in which multiple well pads must be created to maximize both exploration and production. Today, drillers have the ability to curve the drilling path and continue drilling as much as 10,000 feet horizontally, drastically extending the amount of resource reached by one well. Combined with fracking, this allows before-unattainable resources to be extracted. “Horizontal drilling increases the rate of extraction. It can turn a dry oil well into a producing one,” explained Rodney Dartez, COO of Platinum Energy Solutions as he spoke about the fracking boom on his drive home to Lafayette, Louisiana.

Dartez also explained that with horizontal fracking, many drill wells can be built on one well pad, increasing the area of underground exploration and production with a smaller footprint on the land above. At the Haynesville Shale in Louisiana, Encana Natural Gas is completing up to six wells per pad with hopes to raise that number to 12.

For many, this revolution in energy production represents a miracle cure for our country’s energy future. “It’s going to revolutionize the whole world,” prophesied Dartez. The industry’s projections of future production and reserves of natural gas are staggering. Still a depletable fossil fuel, natural gas is known to be significantly greener than oil or coal. Domestic production of such an energy efficient, clean burning and abundant fuel could usher in a new era of energy independence for the U.S. Economically, the boom has already created jobs, personal and corporate income and tax revenue to municipalities and states. However, like most things that seem too good to be true, critics and doubters have presented some compelling arguments why shale natural gas may not be the miracle it seems to be.

THE PRODUCTION BOOM

In 1996 U.S. shale gas wells produced .3 Tcf (trillion cubic feet) of natural gas, 1.6% of the country’s gas production. By 2006 the U.S. produced 1.1Tcf of gas, 5.9% of the country’s production. In 2008 reserves of natural gas in the U.S. was estimated by the U.S. Energy Information Administration (EIA) to be about 2.02Tcf, 35% higher than just two years prior and 71% higher than 2007’s estimate. In 2011, the EIA changed its projection of technically recoverable shale gas from 35.3Tcf to 82.7Tcf. Gas production from shale is projected to go from being 14% of gas production in the U.S. to 45% by the year 2035. There are some 20 shale reservoirs in play around the country with more being discovered or explored every day. Clearly a boom is afoot.

HAYNESVILLE

If shale is the hot topic in gas recovery, Haynesville is the hot topic in shale. The attention on Haynesville began with a drill by Cubic Energy in November 2007. The following March Chesapeake Energy announced to the world that it had completed its own Haynesville Shale gas well and the rush to Haynesville ensued, changing the lives of the area’s citizens.

The reservoir known as Haynesville Shale is a mature, Jurassic formation deposited some 150 million years ago in a shallow, offshore environment. The black, organic-rich shale, located about 2 miles or about 10,500 feet underground is thought to be more permeable than most shale formations. It covers about 9,000 square miles of Northwest Louisiana, South Arkansas and East Texas. Estimates of its recoverable reserves are as much as 6.5Bcf (billion cubic feet) per well. According to the U.S. Energy Information Administration (EIA), Hayneville is producing about 5.5Bcf a day. It is considered by many to be the largest natural gas resource in North America. The economic impact of the shale discovery and ongoing production has yet to be fully measured. For some landowners it has meant millionaire status with $1.3 billion in lease and royalty payments in Louisiana in 2009 alone, according to a study by the Louisiana Oil and Gas Association. The same study estimated an increase of 57,637 new jobs in Louisiana and an increase of $10.6 billion in new business sales in the state. More recently the school system in DeSoto parish is raising teachers’ salaries and building new school buildings while property taxes decrease, while neighboring parishes are struggling to keep afloat. As further evidence of the economic impact and national attention gained from Haynesville, The Daily Beast ranked Shreveport 20th in the nation in best cities to move to for recent college graduate and Forbes ranked the area as the 7th best place for jobs in any mid-sized metropolitan area in the country. Clearly shale gas production has had a large economic impact on the Haynesville area.

The boom in Louisiana may not be over. According to Dartez the Tuscaloosa Marine Shale, a 200 x 40 mile area, between Alexandria and Lafayette and extending to the borders of Mississippi and Texas, is the next potentially hot shale play with companies already acquiring lease agreements from landowners.

ADVANTAGES OF NATURAL GAS

While natural gas is an expendable fossil fuel like coal and oil its affect on the environment is significantly lower. Natural gas emits significantly fewer harmful chemicals into the atmosphere than coal when combusted. It releases almost no particulate emissions, eliminating concerns over air quality and smog. While coal-firing plants produce sludge that is a danger to the environment, natural gas plants produce no such by-product. A key to the country’s potential gas-inspired energy revolution is the conversion of the country’s transportation from gasoline and diesel to natural gas. An important step in this process is to use natural gas-powered vehicles in the exploration, production and transportation of natural gas. Some have argued that the “dirty” energy needed to produce natural gas, may outweigh its environmental benefits. However, converting the transportation and energy requirements of the production from oil and goal to natural gas would significantly change that equation. Transportation in general is a major cause of environmental damage, accounting for most of our country’s contribution to air pollution. Vehicles currently fueled by compressed natural gas (CNG) emit 20-30% less carbon dioxide, 70-90% less carbon monoxide and from 75% to 95% less nitrogen oxide. If our transportation of goods and materials were converted to natural gas run vehicles, the nature of our environmental impact would change dramatically. Natural gas cost 1/3 less than conventional gas at the pump and 42% less than diesel. Dartez theorized further that a reduction in the cost of fuel could be followed by a reduction in the costs of food, goods and services. A revolution indeed.

The use of natural gas vehicles (NGVs) has already begun and most consumers might be surprised at the number of NGVs in use today. As of 2010 there were 12.7 million NGVs in use worldwide. In 2009 there were about 265,000 NGVs in use in the U.S. These consist mostly of mass transit municipal buses and other government vehicles. However, corporations are increasingly uses NGVs and car manufacturers such as Ford, Honda Volkswagen, Suzuki and many others have NGVs available and are developing the technology further. As of 2011, the U.S. had about 3,500 public and private natural gas fueling stations, placing this country 6th in the world in the number of natural gas fueling stations.

In Lafayette, Louisiana five new buses fueled by compressed natural gas (CNG) were unveiled on September 14, 2011. The city plans to use the $2.1 million buses for the next twelve years and a temporary CNG fueling station is weeks away from completion with a permanent station planned to be open to the public. The buses were paid for with matching local and federal funds obtained through grants from the Federal Transit Administration Formula Grant and the American Reinvestment and Recovery Act.

NATURAL GAS AS NATURAL SECURITY

Both the Bush and Obama administration have shown support for shale gas exploration and development, the increased use of NGVs and the continued development of the infrastructure needed to continue the natural gas revolution. Oil and gas companies have taken advantage of economic incentives as they compete over shale play. The increasing natural gas reserve is seen by many geopolitical analysts to be a major advancement in the country’s quest to end its dependence on foreign oil and its need to import natural gas. A large reserve would also enable the U.S. to fight energy monopolies and political leveraging by other countries that once had monopolies on energy resources while allowing the U.S. to be a source of energy for allied countries. The benefits of shale gas in the U.S. has been touted as a game-changer for our country in its geopolitical power struggles with unstable, yet energy-resource rich nations.

With the plethora of benefits of natural gas recognized, it’s easy to see why so many are singing the praises of shale exploration and natural gas usage. It would seem to be a miracle cure for so much of what ails our country. It has environmental advantages, promotes economic growth and could lead to energy independence. It sounds too good to be true and like most things that seem to good to be true, the increase in shale exploration and production has its share of major issues. Not everyone is singing the praises of this shale gas boom.

PROBLEMS, CHALLENGES AND OPPOSITION

While any type of exploration and drilling has its dangers, the new technique of hydraulic, horizontal fracking is facing doubt and opposition by landowners, residents, environmentalist and scientists who charge that the process itself is inherently dangerous to the groundwater and air surrounding drill sites.

Citizens have given anecdotal testimonies that include sick and dying animals, cats losing hair, strange smells and flammable water, dramatically shown in the now infamous movie, “Gasland” by Josh Fox. These dramatically portrayed incidences have sparked a never-ending flow of debunkers on both sides of the debate, hashing out their alternative versions of facts back and forth through the media and websites.

One of the main issues of debate is whether or not the fracking done in the shale layers can actually cause chemicals and/or contaminated water from the fracking to seep up into aquifers, wells and groundwater supplies. Additionally, some people living near well sites have complained about air contamination from leaking natural gas. The possibility of site-leakage brings up other issues, in addition to the possible health affects to nearby residents. A study by scientist from Cornell University claim that 3.6-7.9% of the methane produced by shale-specific natural gas production escapes into the air through venting and leaks that occur over the lifetime of the well, with most of the leakage occurring at the time of the drilling and extraction. They claim that this is a 30% higher rate of methane-escape than produced by extraction of natural gas from conventional sources. Methane is the main component of natural gas and a powerful greenhouse gas with a greater global warming potential than carbon dioxide.

Another concern is leakage from pipelines, storage facilities and within the well itself. In 2007 a casing failure in Bainbridge, Ohio allowed natural gas to leak into a nearby residential drinking well, causing an explosion. While these types of accidents can happen with any dangerous industry, the shear increase in numbers of wells could cause an increase in accidents. Industry insiders may point to these types of accidents as rare, the oil spill in the Gulf of Mexico in April of 2010 is a case study in how seemingly small mistakes and accidents, like casing failures can lead to disastrous results.

So far there has been no conclusive, scientific evidence that links water or air contamination specifically to the shale drilling or the process of fracking itself. However this may only be due to the absence of a comprehensive, nation wide, scientific, independent study and the slow response of short-staffed and underfunded protection agencies on either the state of federal level.

Horizontal fracking requires a lot of water. Each fracking operation requires up to 5 million gallons of water or more. Sand and other chemicals are blended into the water to prevent equipment damage, to aide in the flow of the water, and to expand and hold open the fractures. While 90-99% of the liquid is water and sand, the leftover 1-10% are chemicals used in special cocktails formulated for each well or site. There are at least 500 different types of chemicals used and many are contaminates and carcinogenic. The chemical make-up and amount of water used is a source of fear, concern and opposition to horizontal hydraulic fracking. Reluctance by some companies to reveal the chemicals they are using has fueled the flames of fear and paranoia. Dartez, a 30-year veteran of the industry paints a different picture as he describes his company’s experience out in the field. “The chemical most commonly used in fracking is guar gum. Most of our chemicals are green and we are working towards making them all green,” he said. Guar gum is made from guar beans and has water-thickening properties. It is a common ingredient in foods such pastries, milk, cheese and sauces. Dartez also made light of the controversy over the disclosure of chemicals in use since the industry is already required to carry Material Safety Data Sheets (MSDS) at every step of the process. “We can’t move anything down the highway without our MSDS,” he explained. His company, he said has no problem disclosing the chemicals it uses and he doesn’t see why any other gas and oil industry company should not disclose the chemicals they use in fracking.

In a world of ever-increasingly limited supplies of clean drinking water, many question the wisdom of using so much fresh water. In addition, once the operation is complete, most of the water is absorbed in the shale and the rest must be recovered, treated and disposed of. Critics question the long-term safety of so much contaminated water being left in the earth, even if it is 7-10,000 feet below the water table. Of course the treatment of the wastewater is another concern as many water treatment facilities are not necessarily equipped to treat water with these types of contaminates, some of which are naturally occurring radioactive materials in the shale itself.

Another concern is over-confidence in the U.S. supply of natural gas. In 2011 the New York Times reported that officials inside the EIA were not as confident in its reports of shale gas abundance as their official report concluded and many questioned the impartiality of the contributors to the report, some of whom have oil and gas companies as major clients. There is a fear that oil and gas companies may be exaggerating their production estimates.

While many industry insiders have written off these concerns as paranoia, fear, misinformation or ignorance about the method of horizontal fracking, the industry is not turning a blind eye to the reality of the public-relations challenge to continued exploration. A company called American Business Conferences is holding a summit this October in Houston, Texas titled, “Media and Stakeholder Relations: Hydraulic Fracturing Initiative 2011,” with the tagline, “Working Together As An Industry To Leverage Mass Media, Social Media and Community Support To Overcome Public Concern Over Hydraulic Fracturing.” The summit includes speakers from gas and oil companies now participating in the major shale plays around the country such as Chesapeake Energy and Cabot Oil and natural gas industry-lobbying groups such as Energy In Depth. Clearly the public’s concerns have the attention of the industry. Asked about the publics concerns over shale drilling Dartez replied, “The public needs to open their eyes and realize that there is more to this technique than is currently being portrayed in the media.”

Ultimately the shale gas boom may prove to be a true paradigm shift in the way this country plans its energy future. The oil and gas industry is faced with either some very real and very serious public health concerns or a very real and very serious public relations problem or perhaps a little of both. The industry will need to meet this challenge with transparency, dedication to safety and best practices and a willingness to compromise on the issue of increased regulation. We’ve seen all too often what can happen when deadlines and profits are higher priorities than public safety. Our government will need to balance its desire for energy independence with its dedication and responsibility to oversight. Natural gas may well be a miracle for our country and the world population. Only time will tell if natural gas fulfills its potential as the life changing energy source of the future with unseen ripple waves of consequences that go beyond how we heat our homes and what we put in our cars to our role as an energy and power broker in the world.