Water use becoming a bigger issue in fracking

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December 8, 2011

(Wall Street Journal; Dec. 6) - Water has always been a concern for 65-year-old Joe Parker, who manages a 19,000-acre cattle ranch in South Texas. "Water is scarce in our area," he says, and a scorching yearlong drought has made it even scarcer. What especially concerns him are the drilling rigs that dot the landscape. Each well using hydraulic fracturing requires about six million gallons of water to break open rocks and release oil and natural gas.

To date, criticism of fracking has focused mainly on concerns that the chemicals used in the process could contaminate underground aquifers. Oil industry officials regard that issue as manageable. The biggest challenge to future development, they say, is getting access to sufficient water. It isn't just an issue in Texas. North Dakota, another big source of oil from fracked wells, is concerned about the industry depleting aquifers and has threatened to sue to free up water held by an Army Corps of Engineers dam.

Oklahoma, too, is struggling to cope with the industry's thirst. Last year, Louisiana passed a law to regulate what it called the industry's "unprecedented use of enormous amounts of water" that, if unchecked, has the "potential for chaos and conflicts." In northern British Columbia, which has plenty of water, officials have required companies extracting natural gas to install expensive equipment to recycle water used for fracking.

Oil companies have long been exempt from most Texas state water rules and permitting requirements, but the state has begun to take a fresh look at the industry's ability to drill water wells wherever they have acquired rights to extract oil and gas. "The No. 1 issue is water," says David Porter, a Republican member of the Texas Railroad Commission, which regulates the oil industry and is seen as generally pro-development. "Everyone is concerned about water."

Federal panel warns industry to
address environmental concerns

(The Associated Press; Dec. 7) - The final report from a federal panel on natural gas drilling warns that the industry and the government need to do more to address environmental concerns. The panel was convened by Energy Secretary Steven Chu. Subcommittee Chairman John Deutch, a Massachusetts Institute of Technology professor, warned in a statement that "environmental issues need to be addressed now - especially in terms of waste water, air quality, and community impact."

The report noted the panel believes that "the development of shale gas is one of the biggest energy innovations, if not the biggest, in several decades" and that the resource has reduced energy costs and created hundreds of thousands of jobs. But on several issues the report said progress to date is less than the panel had hoped.

"If action is not taken to reduce the environmental impact accompanying the very considerable expansion of shale gas production expected across the country - perhaps as many as 100,000 wells over the next several decades - there is a real risk of serious environmental consequences and a loss of public confidence that could delay or stop this activity."

ConocoPhillips says U.S. LNG exports
could face political opposition

(Dow Jones; Dec. 7) - ConocoPhillips is studying North America's potential to export natural gas, but it isn't high on its priority list and any rush to build terminals on the U.S. coast could face opposition from Washington, Al Hirshberg, the company's senior vice president, planning and strategy, said Dec. 7.

Shale gas is continuing to depress U.S. gas prices and some forecasters are predicting U.S. producers will want to liquefy gas for export to earn higher prices. Hirshberg said he expects some gas to be exported from the U.S., but he doesn't expect the country to become a major player in the global export market in the near term. "Five years from now Queensland will be a major spot on the map, as well as Western Australia in terms of LNG export, and the U.S. Gulf coast won't be, that's my prediction."

Conoco is among a host of big oil companies planning to build about a dozen LNG projects in Australia to feed a projected surge in demand for cleaner-burning fuels from Japan, South Korea and rapidly industrializing economies like China. Hirshberg said it could be in the U.S. government's interest to limit gas exports, as the current shale gas boom is assisting a fragile economy by keeping energy prices low.

Shell looks at options for selling
its rising natural gas output

(Bloomberg; Dec. 6) - Shell is weighing options for its rising North American natural gas output including exports and making liquid fuels, Chief Executive Officer Peter Voser said. Shell will double North American gas production in the next three years to the equivalent of 400,000 barrels of oil a day as output from shale deposits rises. The producer may channel gas into chemical production, an export project in Canada and a program to use the fuel to power trucks, the CEO said.

"It's about the right time to look for further options. We are really looking at the usage of gas in a much wider way in North America." Natural gas will overtake crude oil to account for more than 50% of Shell's global production next year, driven in part by the development of shale gas fields in Texas and Pennsylvania. "This percentage goes up over the next years to come as most of our projects are actually gas projects," Voser said.

"Given our huge gas reserves in the U.S. we are looking at a possibility to actually build a gas-to-liquids plant." Shell invested about $19 billion in its Pearl gas-to-liquids plant in Qatar to make transportation fuel. It's the company's largest project to date.

Chesapeake sets a record for
lease filings in Ohio county

(Akron Beacon Journal; Dec. 6) - It was a record-setting day Dec. 5 in Stark County (Ohio) Recorder Rick Campbell's office. Oklahoma-based Chesapeake Energy filed 1,046 leases for natural gas and oil drilling.

The one-day filing represented the number of leases typically filed in a full year in Stark County, Campbell said. "There's no doubt, the gas and oil companies are here to do business," he said. Chesapeake also filed nearly 300 leases Dec. 2 in Portage County. How much money might be involved in leasing bonuses Chesapeake paid to landowners is not part of the paperwork filed with his office, Campbell said.

The filing of that many new leases by Chesapeake Energy could position Stark and Portage counties to be players in development of the Utica shale in eastern Ohio. Activity currently is centered largely in Carroll County. Chesapeake offered no explanation why the company submitted the 1,046 leases at one time, Campbell said, nor any advance warning.

Ohio to monitor drilling activity for earthquakes

(WNWO TV, Toledo, Ohio; Dec. 7) - New state monitoring equipment will help determine whether earthquakes in northeast Ohio are caused by the disposal of brine used in natural gas drilling and hydraulic fracturing.

"(The department) is very closely monitoring and will continue to monitor the seismic events in the Youngstown well area," said Deputy Director Andy Ware of the Ohio Department of Natural Resources. "This equipment will be able to provide us with immediate reporting and accurate analysis of an event's epicenter."

Ware said four new seismographs have been set up in the Youngstown area, which has seen eight minor earthquakes this year. The latest was a 2.1-magnitude quake that occurred Nov. 25 just a few blocks from a brine injection well. Brine pumped underground by the well is a byproduct of fracking.

Exxon predicts gas will take top spot
for U.S. electrical power by 2025

(Wall Street Journal; Dec. 8) - Natural gas will replace coal as the leading fuel for generating electricity in the U.S. by 2025, when it will also become the world's No. 2 overall fuel source thanks to its abundance and a drive for cleaner-burning energy, according to the latest long-term outlook from ExxonMobil.

The closely watched study, set to be released Dec. 8, forecasts that global energy demand will grow about 30% by 2040 as the world population climbs to nine billion from seven billion. Natural gas will overtake coal as the second-largest fuel source overall, ranking behind oil and powering everything from electrical plants to home-heating systems. The report doesn't predict energy production or forecast prices.

ExxonMobil said coal use will continue to grow through 2025 around the world, primarily in developing nations such as China and India and the African continent, because economic growth will be fastest in emerging nations. But thereafter coal use will start to drop, for the first time in history, according to the study. Key drivers in that expected drop in coal use will be growing demand for fuels that produce fewer greenhouse gases and a decline in China's population expected after 2030.

Taiwan signs up to buy more LNG from Qatar

(Agence France-Presse; Dec. 6) - Taiwan's state-owned CPC Corp. Dec. 6 signed a 20-year LNG contract with Qatar's RasGas to buy an average 200 million cubic feet of gas a day. The sales and purchase agreement was signed by Taiwan's sole importer of LNG and RasGas on the sidelines of the 20th World Petroleum Congress in Qatar.

The delivery of LNG will start in 2013 and will be in addition to gas already under contract for 2012 to 2016. The agreement is the second with CPC, following a 2008 deal for RasGas to deliver an average 400 million cubic feet of gas per day for 25 years.

Qatar's Energy Minister Mohammed al-Sada said the agreement is a "continuing demonstration of RasGas's capabilities and flexibility to meet market demand." Qatar has the capacity to process almost 10 billion cubic feet of gas into LNG daily.

Japanese utilities join together to buy Australia LNG

(Platts; Dec. 6) - Japan's Inpex signed a sales and purchase agreement Dec. 6 with a consortium of five Japanese utilities for the off-take of half of the volume from the proposed Ichthys LNG project in northern Australia. The 15-year deal covers more than 500 million cubic feet of gas a day starting in 2017.

The sales and purchase agreement means Inpex and its partner in the Ichthys project, Total, have buyers for all the LNG to be produced from Ichthys, with around 70% of the volume destined for Japan. A final investment decision whether to proceed with construction is expected mid-January. The project is estimated at $25 billion. In addition to LNG, the project is expected to produce 100,000 barrels a day of condensate.

Inpex and Total signed deals Dec. 6 with Tokyo Electric Power Co., Tokyo Gas, Osaka Gas, Kansai Electric and Kyushu Electric. Kunio Nohata, senior general manager of Tokyo Gas' gas resources department, said the decision to participate in the buyers' consortium was based on the belief that it would help to bring the project online. The Ichthys gas resource (13 trillion cubic feet) is offshore Western Australia, but the liquefaction facility would be built onshore in Darwin.

Bank economist says Australia
LNG project will find investors

(ABC Australia; Dec. 7) - A senior economist says he expects Inpex will have no trouble securing investors for its planned multibillion-dollar LNG project in Darwin. The Japanese company announced Dec. 6 that it has already sold all of its projected output from the proposed operation.

A final investment decision on the project is expected next month. Macquarie Bank senior economist Brian Redican said investors are likely to view the project as a low-risk venture. He said a surge in oil prices in recent years means Inpex is in a strong position to secure investors. "Because petrol prices and energy prices are so high, they are actually extraordinarily profitable at the moment," he said.

"In particular, the gas sector is again very attractive because it is able to obtain those long-term sales contracts," he said, adding that interest in LNG is based on the need to generate electricity. "That is not very variable," he said. "Whether the economy is booming or if the economy is in recession you still need to turn on your lights, you still need to light your roads, and that provides a very stable form of income."

Wood Mac sees U.S. LNG as competitor for Australia

(The Wall Street Journal; Dec. 7) - Australian gas exporters had better watch out - there's a new kid on the block. The U.S. could emerge as a major competitor to Australia's burgeoning gas-export market, challenging the viability or expansion plans of close to a dozen Australian LNG projects, according to Noel Tomnay, head of global gas at international energy consultancy Wood Mackenzie.

Traditionally an importer of gas, the U.S. is experiencing a domestic supply glut owing to heavy investment in the production of shale gas. That's depressing U.S. gas prices and prompting some companies to investigate the potential of terminals on the U.S. coast geared for export to take advantage of higher prices abroad.

"We're of the view that North America will have 20 million tons of LNG capacity (about 2.6 billion cubic feet per day) maybe as early as 2018," Tomnay said. "Consequently, that will remove potential market share for Australian LNG projects." The existence of potential rival LNG suppliers underscores the need for Australian ventures to get their projects delivered on time and on budget to capture near-term demand.

Shell sees opportunity to expand
Sakhalin LNG production

(Bloomberg; Dec. 7) - Shell said its Sakhalin venture with Gazprom, Russia's natural gas export monopoly, needs to expand fast to sell LNG to Asia at maximum profit. There's a window of opportunity in the Asia Pacific from 2015 to 2020, Harry Brekelmans, the head of Shell's Russian unit, told reporters Dec. 7 in Moscow. The market will tighten after that with additional LNG volumes coming from Australia.

Shell, Gazprom and Japanese partners Mitsui and Mitsubishi are considering investing in a third processing train at the Sakhalin-2 LNG plant to add capacity. Demand for LNG has soared in Japan, South Korea and other Asian markets after an earthquake and tsunami led to the Fukushima nuclear disaster and boosted Japan's need for other fuels.

The Sakhalin project is in a position to capture this demand window, Brekelmans said. The group will have to resolve how to supply natural gas for any additional train it seeks to build.

Canadian review panel delays report
on Enbridge oilsands pipeline

(Calgary Herald; Dec. 7) - The joint review panel hearing submissions on the controversial Northern Gateway oil pipeline to the B.C. coast will take a year longer than expected to deliver its final report. In a projected schedule released Dec. 6, the three-member federal panel said it "would anticipate releasing the environmental assessment report in the fall of 2013 and its final decision on the project around the end of 2013."

That's a year later than expected, confirmed Annie Roy, panel spokeswoman. The panel is to begin community hearings in Kitimat, B.C., on Jan. 10, listening to testimony from registered interveners first, followed by statements from others. There are 4,300 interveners, Roy said.

Calgary-based Enbridge is pursuing the $5.5 billion, 725-mile pipeline that would transport up to 525,000 barrels per day of crude from Alberta's oilsands and oilfields to oceangoing tankers. The line would help alleviate Canada's reliance on the United States as its only major market for oil.

First Nation opponents of
pipeline deal take over band office

(PostMedia News; Dec. 5) - Gitxsan First Nation opponents of their band's ownership deal with Enbridge on the controversial $5.5 billion Northern Gateway oil pipeline have taken over their chiefs' treaty office in the northwest B.C. town of Hazelton. The doors of the office were boarded up with plywood Dec. 5 after the paid negotiators of the deal refused to step down, Gitxsan hereditary chief Larry Patsey said.

Last week's announcement that the Gitxsan had signed on as an ownership partner in the embattled pipeline project sparked outrage among leaders and members of the impoverished community who say the deal was made without their support or consultation.

Opponents have set up a task force to map out their next steps. The dispute hinges on the role of the Gitxsan's traditional governance model that vests decision-making power in hereditary chiefs who head up 65 family houses. Supporters say the pipeline deal was done properly with the support of the traditional family system. But opponents said the decision on Enbridge did not follow traditional law.

Obama tells Canadian minister
Keystone decision will take time

(PostMedia; Dec. 7) - President Barack Obama pushed back Dec. 7 against Canada's complaints over the proposed Keystone XL oilsands pipeline, bluntly telling Prime Minister Stephen Harper that his administration will decide the long-delayed project's fate on its own timetable and not succumb to pressure for a speedier ruling.

Speaking at a news conference with Harper in Washington, Obama also threatened to reject efforts by congressional Republicans to pass legislation forcing a decision on the $7 billion pipeline within 60 days. "I think the prime minister and our Canadian friends understand that it's important for us to make sure that all the questions regarding the project are properly understood, especially its impact on our environment and the health and safety of the American people," Obama said.

The Keystone XL pipeline from Alberta to the Texas coast has become a source of friction between Harper and Obama over the past year. But that tension became more pronounced last month when the U.S. announced it would delay a final ruling on whether the project could proceed until after the 2012 presidential elections. Last week, Harper said he was concerned that politics had infected the decision-making process.

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