New York Gets Fracking
Marcellus Acquifers
New York State’s Department of Environmental Conservation released recommendations on hydraulic fracturing on July 1, 2011 designed to remove the moratorium on use of the technique for recovering oil and natural gas from the Marcellus and Utica Shales that underlie the state.
Concerns had been raised about the impact of fracking on drinking water in New York, and the recommendations are designed to respond to that concern by prohibiting surface drilling within 2,000 feet of public drinking water supplies; on the state’s 18 primary aquifers and within 500 feet of their boundaries; within 500 feet of private wells, unless waived by landowner; in floodplains; on principal aquifers without site-specific reviews; and within the Syracuse and New York City watersheds.
What’s left after all those limitations, you ask?
According to NYDEC more than 80 percent of the Marcellus Shale where oil and gas drilling is viable would are still accessible under these recommendations with permits that assure drillers meet the recommended guidelines.
NYDEC’s draft Supplemental Generic Environmental Impact Statement reviewed the experience and regulations in other states and got 13,000 public comments in considering real or imagined impacts.
The NYDEC says its fracking recommendations are ‘the most comprehensive measures in the country to protect not only drinking water but land, air and environmentally sensitive areas’.
Why New York is Lifting its Fracking Moratorium?
The bottom line is simple, while environmental activists may hate hydraulic fracturing for making more fossil fuel available economically, the potential for economic recovery, growth and job creation from the rapidly growing investment in unconventional oil and gas is very real. New York does not want to miss out of the jobs, tax revenue and economic growth that the resurgence of America’s domestic energy production is producing.
Nothing concentrates the mind of politicians nearly as well as the near term prospect of being left out of a good news story. Not even the US EPA has found reason to object to hydraulic fracturing. The practice has been used since the 1980’s with little evidence of adverse impact.
The benefits are, on the other hand, real and tangible and green—as in dollars and jobs and tax revenue!
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America’s E&P Mojo is Back!
America’s domestic E&P mojo is Back thanks to American technology and our potential for E&P domestic energy growth from unconventional oil and natural gas plays here at home. The question is whether the Government will tolerate such an unqualified success without smothering it in new regulations.
North Dakota is currently the fourth largest producer of oil in the United States and has been setting new production records almost every month. At the end of 2010 oil production had grown to 342,000 barrels of oil per day (BOPD). The key impediment to even faster growth is the oil pipeline and transport infrastructure limits.
The North Dakota Department of Mineral Resources updated its estimate of recoverable oil in 2008 and 2010 based upon better E&P data and now believes there are 4.0-6.3 billion barrels of recoverable reserves in North Dakota’s Bakken and Three Forks formations alone. And there are additional oil plays including the Lodgepole, Tyler, and Spearfish that are yet to be explored for development.
Stop and think about that for a moment. At the current actual oil production rate of 350,000 barrels of oil per day (BOPD) at the current price of WTI Cushing oil of $112.43 per barrel (4/27/11) North Dakota alone is reducing oil imports by $39.3 million per day or more than $14.4 billion per year annualized.
Energy security we can believe in!
We know from experience with unconventional oil and gas production that it will not always be this way in North Dakota and pother plays as the horizontal drilling technique is effective in extracting the ribbons of oil and natural gas but the size of the plays is typically smaller than the huge conventional oil play pools found in the Gulf of Mexico or Alaska. But studies done by the North Dakota Industrial Commission and Mineral resources Department suggest the Peace Garden State has an undeveloped resource base as large again as that found in Western North Dakota suggesting at least an additional ten to twenty years of intense drilling and development, followed by several more decades of continued petroleum production.
America’s Unconventional Oil and Gas Transformation Underway
Combine the resource potential of North Dakota with those of similar oil plays in other states and it adds up to enough domestic energy production potential to fuel America’s energy transformation. The US EIA reports that US oil production declined in all but one year from 1986 to 2008 and increased in both 2009 and 2010 caused primarily by the increase in deepwater developments in the Federal Gulf of Mexico in 2009 and by the growth in horizontal drilling programs in U.S. shale plays in North Dakota portion of the Bakken formation in 2010. In the Bakken and other shale formations horizontal drilling and hydraulic fracturing have refocused on oil production instead of shale gas production because of higher oil prices and low gas prices thus increasing oil production. Baker Hughes rig count data shows a pronounced trend toward oil horizontal rigs from less than one-third of oil-directed rigs in September 2008. Since then horizontal oil rigs have tripled to about 46% of all rigs.
And then there is Unconventional Gas
US EIA’s Annual Energy Outlook 2011, says there is 2,552 trillion cubic feet (Tcf) of potential natural gas resources in the US. Unconventional natural gas from shale resources are 827 Tcf of this resource estimate, more than double the EIA estimate published last in the AEO2010. Based upon the 2009 rate of U.S. consumption (about 22.8 Tcf per year), that is enough natural for 110 years of use. EIA expects these unconventional gas estimates to grow and other potential oil and gas plays are explored and validated.
Higher oil prices reflect the global tradable market for oil as a commodity. Lower domestic natural gas prices reflect the reality that natural gas trades primarily as a regional commodity. There was a time not long ago when energy experts expected LNG to transform natural gas into the same globally priced commodity as oil. Russia, Qatar and others even considered forming an LNG cartel like OPEC to fix prices for natural gas.
What changed?
American technology demonstrated the potential for horizontal drilling and hydraulic fracturing to unlock the potential of previously uneconomic shale oil and gas plays. North Dakota and Texas were the laboratories for these new technologies and now they are the domestic powerhouses of unconventional oil and gas production.
But the success of this disruptive technology could be undermined by NIMBY restrictions out of fear of groundwater contamination or government restrictions on unconventional oil and gas from the piling on of new regulations. The oil and gas industry needs to ‘get real’ about fracking fluid disclosure and best practices to reduce the risks and mitigate the need for Federal intervention.
But the government also needs to get it priorities straight and recognize that the potential from unconventional oil and gas is a game changer that gives America a competitive advantage today. If the US restricts the use of horizontal drilling or fracking the rigs and expertise working at home today in America will just go elsewhere in the world and America will be stuck with higher imports, higher prices and a weaker economy.
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Peak Oil Blowout!
The concept of peak oil has been around for decades in the imagination of those who either fear —or wish—that the days of successful E&P of the black liquid are waning. Peak oil advocates argued that we have already reached the point where the most oil able to be produced from the easy to find sources has been reached and we can expect to see steady declines in new oil discoveries—-ergo—get thee off the black stuff and onto cleaner options.
The political correctness of peak oil helped it grow in popularity among both the ‘chattering classes’ and the ‘political classes’ because it reinforced their environmental views.
I am not opposed to renewable energy nor cleaning up the environment, but in the real world where I live and work “sustainability” means I can continue to afford to use the product and live the lifestyle I have chosen without harassment or breaking the law.
Yes, I know, I am making fun of the peak oil true believers.
But admit it, they have it coming. Most of us know enough about science and the scientific method to realize that just because Al Gore says there is ‘incontrovertible evidence’ of global warming does not make it so. And just because The Oil Drum says we reached the stage of peak oil in 2008 and it is irreversible—does not make it so.
That is why it was SO DELIGHTFUL to read in an authoritative source none other than The Oil Drum that a new high in liquid production has been reached. The problem for The Oil Drum was this report was written January 2011 for a period including November 2010! And worse, the report was confirmed by both IEA and OPEC. Oh Mon Dieu!
“Both the IEA and OPEC came out with new monthly reports recently. And both report that oil production in November 2010 exceeded the previous high month of July 2008 (back when oil was over $140). Probably the difference is within the margin of error, and in any case the third agency (the EIA) won’t weigh in for a few months.”—-The Oil Drum January 5, 2011
I’ll take that as an admission of error on the peak oil notion.
So what?
So the problem with the peak oil concept is that it relied on the old school view of oil and gas E&P where vertical drilling in search of vast pools of oil was the stuff of petro-dreams. Today most of the new prospects for such oil come from non-OPEC countries in places of large potential and larger risks like Africa and deep water off-shore Brazil. No doubt we will find it there, but meanwhile, the real story of the oil and gas future is in unconventional sources that use horizontal drilling and hydraulic fracturing to search for the ribbons of hydrocarbons once thought uneconomic to produce the old style conventional ways. They were right then, but not today.
Even better news is that unconventional oil and gas apparently can be found in many places around the world from North America where it is transforming the energy business despite the best efforts of our government to prevent domestic oil and gas production from growing to China that so desperately needs new domestic sources of energy that it is now importing coal from the US that we will not allow to be used here to the EU where Russian gas always carries a risk greater than any OPEC price gouge.
It is time for the US to have an energy policy driven by a reasonable balancing of economic and environmental considerations and focused on sustainable economic growth not a failed policy of picking winners based upon the political correctness of fuels.
Drill, North Dakota! Drill!
The growth of unconventional oil and gas in North America in recent years is an energy success story. In 2009, North Dakota edged out Louisiana to claim bragging rights as the fourth ranking oil producing state.
Lynn Helms, Director of the state Department of Mineral Resources, reported in his April 2010 newsletter that if sweet crude oil prices hold at current levels North Dakota could produce 350,000 barrels of oil a day by late 2011.[1] That level of production would be nearly double the production which previously was limited by the lack of export facilities to get the oil and gas to market. February 2010 results showed record production of 261,000 barrels per day. Natural gas production also hit record levels at 280,589 MCF/day.
Investors see the potential for unconventional oil and gas and have pumped capital into expanding North Dakota’s shipping capacity from 189,000 barrels per day to nearly 400,000 barrels per day. This is enough to handle the expected production growth for the next two years.
A Sweet Spot in America’s Economic Growth
This is one reason unemployment in North Dakota is the lowest of any state. Every $1 increase in the price of oil brings the State $9.3 million in additional tax revenue and that multiplier effect of spending from workers, capital investment in equipment and the growth in earnings. The Bismarck Tribune reported that the spread between North Dakota Sweet Crude and the NY MERC price had closed to within ten percent.[2] Before the infrastructure improvements expanding shipping capacity that spread had been as much as twenty-eight percent keeping North Dakota Crude prices depressed.
So what?
While the Nation debates health care reform that is expected to raise health care costs, stimulus spending expected to raise taxes, and deficits expected to raise inflation, a quiet revolution is going on in places like North Dakota exploiting new technology and competitive energy markets to reduce America’s dependence on imported oil and natural gas. Every day North Dakota saves America $22 million in imported oil wealth transfer (at today’s average crude price of $82.98).
The good news is that what is happening in North Dakota is spreading to other parts of the country from the Rockies to Pennsylvania, from North Dakota to Texas putting America’s technology to work solving America’s energy problems.
[1] https://www.dmr.nd.gov/oilgas/directorscut.pdf
[2] http://www.bismarcktribune.com/news/opinion/editorial/article_368931c4-514a-11df-b75f-001cc4c002e0.html
