INSIGHT: US natgas facing new legislative threat

11 June 2009 16:00  [Source: ICIS news]

Proposed US drilling rule could cut natgas output sharplyBy Joe Kamalick

WASHINGTON (ICIS news)--Energy producers and chemical makers were alarmed this week as Congress took up legislation that many fear could severely retard domestic US natural gas production and essentially shut down promising and vast reserves of shale gas.

The alarm was triggered on Tuesday with introduction of companion bills in the US Senate and House called the Fracturing Responsibility and Awareness of Chemicals (FRAC) Act.

If passed, the legislation would bring a longstanding and widespread oil and gas well development process known as hydraulic fracturing (“fracking”) under the jurisdiction of the 1974 Safe Drinking Water Act (SDWA).

That jurisdiction in turn would give the Environmental Protection Agency (EPA) regulatory control over the use of hydraulic fracturing, which has long been regulated by multiple state agencies.

Natural gas producers - along with chemical makers and other gas-dependent manufacturers - worry that EPA control of fracking would create a regulatory nightmare and convoluted permitting process that could raise gas production costs, reduce gas output, chill capital investment in shale gas development and open litigation floodgates - all at a time when US gas demand is expected to grow exponentially over the next decade.

“It would be pretty catastrophic to the natural gas industry,” said Jeff Eshelman, spokesman for America’s Natural Gas Alliance (ANGA), an industry trade group.

“It would have tremendous impact in particular on shale gas production, which is the future of our gas industry and supplies,” Eshelman said.

The American Petroleum Institute (API) warned that the FRAC Act, if passed, could result in a 45% reduction in domestic US gas production and a 17% cut in oil output by 2014.

Hydraulic fracturing involves high-pressure injection of water, sand and chemical additives underground to free oil and natural gas from deep rock formations. 

It is used to wring the last drops of oil and volumes of natural gas from conventional drilling operations, playing a role in completion of about 90% of US oil and gas wells.

And, along with the recent advances in horizontal drilling capability, hydraulic fracturing is essential to development of vast domestic gas reserves locked in otherwise unproductive shale formations.

“Hydraulic fracturing is a safe, proven, 50-year-old technology that is critical to developing the natural gas used to heat homes, generate electricity and create basic materials for fertilizers and plastics,” said API president Jack Gerard.

The US petrochemical industry and downstream chemical producers are heavily dependent on natural gas as a feedstock and energy fuel.

Paul Cicio, president of the Industrial Energy Consumers of America (IECA), warned that the FRAC Act would impede domestic production of natural gas, saying the industry group is “very concerned”.

IECA member companies, which include major chemical manufacturers, worry that EPA restrictions on fracturing would retard gas production just as other pending federal policies are poised to boost gas demand many-fold.

Cicio cited the energy and climate control legislation now pending in Congress that would, among other things, force electric utilities to abandon carbon-intensive coal to fire their generators.

“The Waxman-Markey Climate legislation will result in significant new natural gas demand by the power sector because no reliable low carbon energy options - such as new nuclear capacity and carbon-capture technology - will be available for at least ten years,” Cicio said.

“Natural gas is the only reliable low-carbon option for power generation,” Cicio said, noting that even renewable energy capacity additions, solar and wind power, require constant gas-powered backup generation.

“Natural gas demand for power generation grew by about 30% from 2000 to 2008 - without the pressure of a carbon cap,” Cicio noted.  “With a carbon cap, demand will go through the roof.”

Increased demand combined with natgas production restraints under the FRAC Act would drive prices significantly higher, perhaps pricing gas-dependent US domestic petrochemical production out of the market.

Senator Bob Casey (Democrat-Pennsylvania), Senate sponsor of the bill, said the FRAC Act is needed because private water wells in his state and elsewhere have been contaminated by natural gas and chemical additives used in fracturing.

However, Energy In Depth, an oil and gas industry coalition, argued that in more than a half-century of hydraulic fracturing, “not a single case of hydraulic fracturing-related contamination has been documented by federal or state government analyses”.

Chris Tucker, a spokesman for Energy In Depth, cited EPA’s own 2004 study that found that fracturing posed no threat to underground water supplies.

Representative Diana DeGette (Democrat-Colorado), principal sponsor of the bill in the House, is said to want to attach the FRAC Act to the broader energy and climate control bill now pending in Congress.

DeGette charged that hydraulic fracturing uses diesel fuel and benzene in the water mix. But Tucker contends that diesel fuel and benzene have not been used in the process in many years and that the additive chiefly used now is guar, an emulsifier also found in ice cream and peanut butter.

The chemical additives used in fracturing increase the viscosity of water, making it more gel-like, and make up as little as 0.1% of the water and sand mixture injected into wells.

Tucker said that if passed, the legislation essentially would shut down much of US domestic oil and gas production while EPA added staff and wrote regulations to initiate its enforcement role over hydraulic fracturing.

“EPA does not have the staffing or regulatory capability to even accept - much less review and process - what would be thousands of fracking applications each month,” Tucker said, “so the result would be to shelve hydraulic fracturing for a couple of years.”

Long term, he said, the delays and uncertainty involved in an EPA permitting process for fracturing would chill investment in US domestic oil and gas development.

Chuck Stanley, chief executive of Questar Corporation, a major natgas producer and distributor, said the FRAC Act “clearly would mean diminished domestic supply and higher costs to all classes of gas consumers - and this at a time when natural gas holds the promise of an energy foundation for the future”.

Some estimates of domestic shale gas plays suggest that those hard rock formations hold enough natgas to meet annual US gas consumption needs for decades and beyond.

But those shale gas wells cannot be produced without hydraulic fracturing, Stanley said.

To discuss issues facing the chemical industry go to ICIS connect

By: Joe Kamalick
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