02 April 2012 00:00 [Source: ICB]
As fracking activity soars in the US, so does the need for specialty chemicals, but there are still concerns over the environmental impact of the process
Demand for specialty chemicals for drilling US shale basins has doubled in the past five years and the size of the sector is expected to increase to $6.7bn by 2015, according to industry analyst Michael Richardson with US-based market research firm The Freedonia Group. The demand for such specialty chemicals was worth about $2.5bn in 2005, and $4.2bn in 2010.
Despite protests, research shows no direct link between fracking and water pollution
"It is a growing industry," says attorney Julie Adams with Sedgwick. "We're looking at 25% or better of our national energy coming from shale gas, and development of shale gas requires hydraulic fracturing." Adams works on energy issues at Sedgwick, an international litigation and business law firm. The firm's energy practise advises on matters including drilling, downhole losses, land use and defense of environmental and toxic tort class claims.
"There is an immense amount of growth in [hydraulic fracturing] activity in the US and a couple of changes in hydraulic fracturing technology have had a multiplier effect on demand for a long list of chemicals in these fluids [for hydraulic fracturing]," explains Richardson.
The chemicals are used in well stimulation, a method for opening new flow channels in the rock surrounding the production well. They also create "artificial lift" to help bring the gas and liquids to the surface.
The average hydraulic fracturing job uses about 5m gallons of water and "proppants", such as sand and ceramics particles. The chemical mix makes up, on average, 0.5% of this mix, or 2,500 gallons per well.
"In terms of chemicals, there is a significant amount of specialized products used in drilling operations," Adams says. "Think about all the chemicals required for every stage of oil and gas production."
Recent technology for hydraulic fracturing employs a multi-stage fracturing system, rather than simply blasting millions of gallons of water and millions of pounds of sand full force, adds Richardson. "It has taken a somewhat more careful approach, with more targeted and more refined techniques to control the nature of fracturing and optimize well activity."
Richardson explains that operators fracture in stages numbering from 12 to 20. Each stage uses less water, proppants and chemicals than the former process of making one large blast into the well bore. The large number of stages for blasting the chemicals into the well bore, however, adds up to exponentially higher chemical demand. Well count has not significantly risen in the US, however, demand for stimulation chemicals has doubled because of the multi-stage fracturing process, he says.
Oil services specialists Schlumberger, Baker Hughes and Halliburton lead the oilfield chemicals market, accounting for about 40% of US sales in 2010, the Freedonia study reports. Baker Hughes' fourth quarter conference call said its customers reported a planned increase in capital spending for 2012 on hydraulic fracturing.
Natural gums, polymers, acids and surfactants used in well stimulation fluids will likely register the fastest demand because of the expansion of well stimulation technologies and sustained growth in shale development, notes Richardson. These chemicals are the raw materials for finished products used in hydraulic fracturing. The price of guar gum has doubled recently.
Attorney Michael Joy with Reed Smith says the growth in chemicals demand from oilfield operations has largely gone unnoticed, most likely because of the timing of the shale boom. Reed Smith is a global law firm that includes an energy and natural resources industry-specific practice group to focus on oil and gas development, including shale basins. It handles a number of domestic and global energy accounts.
"Production of shale [gas] is a relatively new phenomenon that began to spread in 2008, and, as it happens, was timed with a major recession," Joy notes. During this time, the US economy was in a downward curve. Overall demand for the chemicals for traditional uses was likely heading down, while chemical demand from the oil and gas production sector gave the industry a boost. Accordingly, this projected seemingly flat chemical demand overall, he says.
FRACKING SAFETY STUDY
The increased use of chemicals in the oilfield has met with opposition to hydraulic fracturing, most prominently regarding the potential impact on the groundwater supplies. Researchers at the University of Texas set out to separate fact from fiction on claims of groundwater contamination from hydraulic fracturing, concluding there is no direct link, according to Energy Institute associate director Charles Groat. Groat led this research project.
The study showed no direct connection between hydraulic fracturing of shale formations and contamination of groundwater sources. The research included faculty members from across the University of Texas.
"I think the public can be relieved that the hydraulic fracturing itself isn't tied to groundwater pollution. However, there are other paths for fracturing fluids and flow back and produced waters to get into groundwater," adds Groat.
Many problems accredited to hydraulic fracturing are risks that apply to all oil and gas drilling operations, such as faulty casing or poor cement jobs. Contamination can be traced to above-ground spills or mishandling of waste-water produced from shale drilling, which is not specific to hydraulic fracturing, says Groat.
"Our goal was to provide policy makers a foundation for developing sensible regulations that ensure responsible shale gas development," Groat adds. "We've tried to separate fact from fiction."
The groundwater table is 300-700ft (90-200m) below the surface. The cement casing for the well hole goes down 1,500 feet to more than 2,000 feet and the chemicals are not used until the cement casing is in place, says Joy.
Analyst Anne Keller with Midstream Energy Group says the environmentalists and the industry will take the study in different ways. "Environmentalists could take this as saying that the oil industry needs to continue to act in a safe and environmentally responsible manner," Keller says. "An oil and gas operator, in particular the companies that operate fracking businesses, would say the results clear the fracking technique from blame."
The study focused on reports of ground-water contamination in the Barnett Shale in north Texas; the Marcellus Shale in Pennsylvania, New York and portions of Appalachia; and the Haynesville Shale in western Louisiana and northeastern Texas.
Most states with hydraulic fracturing and shale activities are discussing and passing statutes requiring disclosure of the chemicals used in the drilling process, says Adams. "It became clear that the [Environmental Protection Agency] EPA and the states were going to require some disclosure so it was important that the industry work with the government and consumers so the appropriate level of regulation would be implemented, without being onerous and without it impeding on development of shale gas."
FracFocus.org is an industry initiative for manufacturers and processors to report information about the chemicals used in specific wells freely, says attorney Gail Wurtzler with Davis, Grahams & Stubbs. "[The public] is pretty sure something is being hidden in trade secrets that the public should know," says Wurtzler. She says making a big deal of this issue shows the "lack of knowledge the ordinary person has of the oil and gas drilling process and of general chemistry."
FracFocus.org was meant to allay public fears about hydraulic fracturing. More than 45 operators are participating on the website, which provides readily searchable, voluntary information on chemicals, while respecting industry trade secrets. Revealing the chemicals and the percentage of each used for the well does not reveal the trade secret, Adams says.
"It's a bit like telling you all of the ingredients that go into a beautiful French confection and thinking that if you know all the ingredients then you're going to be a French baker."
In regulating the chemicals for hydraulic fracturing, many states have adopted Frac-Focus. In February, Texas passed legislation requiring all oil and gas operators in the state to record information on FracFocus. Texas, Colorado, Montana, New Mexico and Louisiana have legislation requiring operators to track downhole hydraulic fracturing chemicals in the oilfield on FracFocus.org.
Other states require more specific information, such as concentrations of chemicals, well stimulation design, identification of geological formation and depth, trade name of the chemicals, groundwater protection plans, chemical supplier and water management plans.
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