Daily Archives: May 4, 2011
Currently, the President and some Members of Congress are calling for an end to the dual capacity credit, which allows American energy companies to deduct a portion of foreign taxes they pay from their U.S. tax bills, and to the firms’ ability to take a domestic manufacturing deduction allowed under Section 199 of the Tax Code. Both of these provisions are available to nearly all American businesses. However, President Obama and Congress are only seeking to repeal them for energy companies.
SOURCE National Taxpayers Union
Less than a decade ago, natural gas prices in the United States were among the highest in the world. However, in the last five years, domestic natural gas reserves have grown 30 percent due to technological advances in the use of hydraulic fracturing, a drilling method that is coupled with directional drilling to access underground reservoirs of oil and gas. This technological breakthrough had an immediate impact on natural gas prices, causing them to plummet and remain low to the present time.
Despite this important stride toward future U.S. energy security, hydraulic fracturing has come under attack. As the newest cause célèbre of fossil fuel foes, hydraulic fracturing was notably featured in the 2010 movie Gasland, which dramatized the allegation that hydraulic fracturing had been the cause of groundwater contamination. Understandably, these reports have caused much public consternation, and have prompted both regulators and legislators to contemplate whether hydraulic fracturing should be subject to additional federal regulation. But are they accurate?
What is hydraulic fracturing?
While the controversy over hydraulic fracturing is new, hydraulic fracturing itself is not. First used in 1947, hydraulic fracturing has been employed in more than a million wells to extract more than 7 billion barrels of oil and 600 trillion feet of natural gas from deep underground shale formations. Geologists have long known that shale rock formations contain large amounts of natural gas and oil, but the fossil fuel resources were trapped in layers of rock and could not easily be extracted.
During the initial phase of the fracturing operation, a well is drilled vertically underground to a point past the deepest aquifer containing fresh groundwater. At this stage, the operator inserts steel surface casing down the length of the drilled hole, then pumps in cement to create a barrier of cement and steel between the groundwater and the well bore. The well is then drilled further down into the underground shale formation, where the operator detonates charges in order to create spaces in rock pores to release oil and gas. To create additional fissures, fracturing fluids are injected into the formation at high pressure, which contain additives such as sand to keep the fissures open and the hydrocarbons flowing.
Additionally, horizontal drilling provides more exposure within a formation than a vertical well—six to eight horizontal wells drilled from only one well pad can produce the same volume as sixteen vertical wells. This use of multi-well pads significantly reduces the overall infrastructure needed for an operation, such as access roads, pipelines routes, and production facilities, thereby minimizing disturbances to the habitat and impacts to the public. The figure below demonstrates how horizontal drilling is employed:
Is it safe for groundwater resources?
Two studies conducted by the Environmental Protection Agency (EPA) and the Ground Water Protection Council (GWPC)—the national association of state ground water and underground injection agencies whose mission is to promote the protection and conservation of ground water—found that there have been no confirmed incidents of groundwater contamination from hydraulic fracturing. This is particularly noteworthy in consideration of the fact that approximately one million wells have been hydraulically fractured in the United States. Furthermore, according to the Interstate Oil and Gas Compact Commission (IOGCC)—the multi-state governmental agency representing states’ oil and gas interests—each IOGCC member state has confirmed that there has not been a case of groundwater contamination where hydraulic fracturing was attributed to be the cause.
Despite this, much ado has been made regarding the use of hydraulic fracturing fluids and their potential to contaminate groundwater. Fracturing fluids consist predominately of water and sand—98 percent or more in a typical fracturing solution—while the rest is made up of high-viscosity chemical additives designed to maximize the effectiveness of the fracture job. Many of the additives consist of common household compounds, and while you certainly wouldn’t want to go out of your way to drink them, the EPA concluded in a 2004 study that the additives are not considered harmful to human life or the environment in the capacity they are used. Additionally, the formula for each fracturing fluid used in a drilling operation must, by mandate of the Occupational Safety and Health Administration, be disclosed at each drilling site, and a coalition of state groundwater and oil and gas regulators recently launched the Frac Focus Chemical Disclosure Registry to allow companies to voluntarily disclose the content of fracturing fluids used at individual well sites. Within 10 days of the site’s launch, 32 companies disclosed chemicals used at 388 wells. For a table of common additives, please see: http://www.energyindepth.org/frac-fluid.pdf.
Furthermore, stringent state and federal regulations on well design and construction ensure that fracturing fluid additives do not migrate upward into active or treatable water reservoirs. As aforementioned, groundwater is protected during the process of hydraulic fracturing by steel and cement casing that is installed when the well is first drilled to isolate groundwater resources. Operators have a further interest in ensuring that fractures are sufficiently well removed from underground water resources, as the penetration of a water table above a formation could render the oil and gas resources unusable.
After a fracturing job has been completed, the majority of fracturing fluids are recovered from the well and recycled in a closed system for future use. Surface disposals of fracturing fluid are subject to the federal Clean Water Act, requiring treatment for any potentially harmful substances prior to discharge, or the federal Safe Drinking Water Act if disposed in an oil and gas injection well.
How much shale gas do we have?
The U.S. has an abundant amount of natural gas. The Energy Information Administration estimates that the U.S. has in excess of 2,119 trillion cubic feet (Tcf) of technically recoverable natural gas, enough to power the U.S. for 88 years at current rates of consumption. Unconventional resources, like shale gas, account for 60 percent of the onshore recoverable resources, representing an enormous advancement in the United States’ future energy outlook. In fact, half of the gas consumed today was produced from wells drilled within the last 3.5 years.
Most of the natural gas consumed in the United States is produced domestically—approximately 89 percent in 2010—and much of this supply comes from Texas, Wyoming, and Oklahoma. However, shale gas is present in many of the lower 48 states, in shale plays or basins. The map below shows the approximate geographic locations of major producing or prospective gas shales:
Source: Ground Water Protection Council, Modern Shale Gas Development in the United States: A Primer
The economic impact of this vast resource cannot be understated. In 2008, after breakthroughs in hydraulic fracturing yielded access to unconventional gas deposits, the wellhead price of natural gas plummeted from nearly $8 per thousand cubic feet to $3.67 per thousand cubic feet. In 2009, the United States was the world’s largest natural gas producer, and of the 24.1 Tcf of natural gas that Americans consumed in 2010, just 2.6 Tcf, or 11 percent, was provided from net imports.
In addition to keeping prices low for American consumers—who get 24 percent of their electricity from natural gas—increased domestic production also creates jobs and generates royalties for residents, cities, and school districts. For example, a recent study estimates that in 2009, the development of the Marcellus Shale created 44,000 new jobs in Pennsylvania, and added $389 million in state and local revenue, over $1 billion in federal tax revenue, and almost $4 billion in value added to the state’s economy.
Who should regulate?
In its study “State Oil and Gas Regulations Designed to Protect Water
Resources,” the GWPC found that all oil and gas producing states currently have regulations in place to provide protection for water resources during oil and gas exploration and production. Enacting national regulations for these activities would not only be duplicative and costly for states to implement, it would indicate a fundamental disregard for states’ expertise in managing their own natural resources. Common sense dictates that states, with field operations, are in a better position to evaluate the hazards of a drilling operation than federal agencies whose operations are removed from the circumstance.
This is not to say that no federal regulations apply to hydraulic fracturing. Operations are subject to a number of federal statutes, including the Clean Water Act, Safe Drinking Water Act, the National Environmental Policy Act, and the Emergency Planning and Community Right-to-Know Act.
Recent attempts to portray hydraulic fracturing as a dangerous, unregulated practice are misleading at best. When done within the set parameters of the numerous state and federal regulations that govern safe drilling practices, hydraulic fracturing has the potential to provide the United States with an abundant supply of clean-burning natural gas for years to come. Rather than trying to reinvent the wheel with new federal mandates, regulators should defer to states who can tailor and apply regulations to suit their specific circumstances.
Policy decisions on hydraulic fracturing will have significant ramifications for our future energy security. According to the National Petroleum Council, up to 80 percent of natural gas wells drilled in the next decade will require hydraulic fracturing; one can only imagine the bureaucratic nightmare that would ensue upon granting the federal government with even more oversight of each operation. Indeed, the notion that the federal government would need to regulate on a well-to-well basis seems all the more incredible when juxtaposed with the industry’s excellent safety record. As aforementioned, there has not been a single confirmed incident of groundwater contamination arising from hydraulic fracturing since the practice began in 1947.
Instead of bringing an already well-regulated practice under the yoke of the EPA, the federal government should refocus its efforts upon maintaining access to affordable, domestically produced energy. In a time of rising gasoline and food prices, American families cannot shoulder a hit on another essential commodity—nor should they be expected to.
A Floating Production Storage Offloading (FPSO) like this one will be used in the Gulf of Mexcio to handle production from Petrobras‘ Chinook-Cascade project in the deep-water Gulf of Mexico. (Photo: Petrobras)
by Brett Clanton Posted on May 3, 2011 at 3:55 pm
After a series of delays, Brazil’s Petrobras should finally begin production by mid-year at two deep-water fields in the Gulf of Mexico, Jose Orlando Azevedo, president of Petrobras America said today.
The Brazilian oil giant, which received final clearance for the project in March from U.S. regulators, is awaiting a final investigation report on an accident at the site the same month, he said.
The report will determine the root cause of an incident in which an 8,000-foot pipe running from a giant production ship to the sea floor became detached. The pipe, known as a riser, was connected to a well in the Chinook field located about 165 miles offshore Louisiana in an area of the Gulf known as Walker Ridge.
Petrobras plans to develop Chinook and the nearby Cascade field from a huge Floating Production Storage and Offloading vessel, or FPSO, marking the first time such a system has been used in the U.S. Gulf. But the project has been repeatedly postponed.
“The report is supposed to be issued at the end of May,” said Azevedo after a press conference at the 2011 Offshore Technology Conference. “We need to understand what really happened so that we can gather the final solutions so we can avoid this in the future.”
Then, the company should be ready to start production at the fields, by “the middle of the year” or “end of summer,” he said.
Petrobras is one of the largest leaseholders in the Gulf of Mexico, with 187 exploration blocks. The Cascade-Chinook project is its first major project in the U.S. offshore region.
At the press conference, Petrobras CEO Jose Sergio Gabrielli said his company is not ready to expand further in the Gulf before doing more work in the acreage it already controls.
The company is also busy developing massive “pre-salt” oil discoveries offshore Brazil in recent years. The country’s oil production now surpasses its domestic demand by 500,000 barrels per day, Gabrielli said, and is poised to grow significantly higher.
Asked how big of an oil trading partner he sees the U.S. becoming over time, Gabrielli said, that is not up to Brazil or even the United States.
Under the American system, oil companies determine how much crude they buy or sell. “The U.S. does not value strategic alliances,” Gabrielli said. “That’s a big problem for the U.S., not for us.”
- Petrobras Discovers Oil at Tucura Well, Campos Basin, Offshore Brazil (mb50.wordpress.com)
- Brazil: Petrobras Agrees Contracts for 26 Drilling Rigs (mb50.wordpress.com)
With the development of the ‘Northern Light’ drilling derrick an alternative solution is provided based on proven and well known industry technologies to contractors and shipyards worldwide. The fully integrated derrick includes the drillfloor and substructure and can be transported, delivered and installed as one turnkey unit either from a shipyard or from NLI’s construction yard.
The derrick consists of a box beam structure with a collapsible/retractable top part to pass bridges. Pipes, cables and elevator all run inside the derrick legs, allowing for a sheltered environment, reduced maintenance costs and increased safety. As such, the derrick is very suitable to be upgraded for arctic operations.
This new derrick design uses conventional drilling equipment readily available in the market, but because of its lay-out offers a clean drillfloor and much more operational flexibility as three operations can be simultaneously performed. This is achieved by having the BOP and riser string handling outside of the derrick as is the case for X’mas tree deployment. Stand / casing building is performed within the derrick.
Integrated derrick offers clean drill floor and advanced safety and maintenance
- Norway: Bourbon Offshore Takes Delivery of Ulstein PX105 Design PSV (mb50.wordpress.com)
- Ulstein SOC 5000 Vessel Design Wins Nomination for Prestigious Award in The Netherlands (mb50.wordpress.com)
- Ukraine: JSC Shipyard Zaliv Completes SX 134 Shipbuilding Project for Ulstein (mb50.wordpress.com)
- Ulstein Heavy Lift Design nominated for prestigious Dutch Innovation Award (gcaptain.com)
Platts – A long-standing embargo imposed by the United States on Cuba could make it more difficult to clean up potential oil spills as the Caribbean nation prepares to drill in deep water 50 miles from the shores of Florida, according to the head of an international drilling trade group. Lee Hunt, the president of the International Association of Drilling Contractors (IADC), made his comments to Platts Energy Week (http://www.plattsenergyweektv.com/), the independent, all-energy television news and talk program airing Sundays in the United States.
Hunt said that the U.S. embargo on Havana has required drillers there to use second-hand equipment to avoid buying it from U.S. companies. “The impact of the embargo has to do if something goes wrong, and what kind of resources can be mobilized to cap or stem the flow of a runaway well or to contain a spill.”
Cuba has been a target of a U.S. embargo since 1962. A subsequent U.S. law allows foreign companies working with Cuba to use only 10% U.S.-made equipment, or face sanctions on their operations in the United States.
Spanish-owned Repsol plans deepwater drilling off the Cuban coast later this year using a drilling rig built in China specifically to avoid the embargo.
“What the contractor has had to do is shop around its used inventory to locate a piece of equipment that falls outside the restrictions of the embargo, so the embargo, in effect has forced the drilling contractors working in Cuba to go to second-level equipment,” Hunt said.
Hunt’s comments come a little more than one year after the anniversary of the 2010 Macondo well blowout in the Gulf of Mexico resulted in the worst oil spill in U.S. history. A report from the Interior Department found that human failure was the primary cause of the disaster, but that a malfunctioning blowout preventer was a major contributing factor to the magnitude of the spill.
“It is unnerving that as we work here in the Gulf of Mexico with the Department of Interior and the [Bureau of Ocean Energy Management, Regulation and Enforcement] that as we seek the gold-plated standard for the United States, the impact of the embargo is to force our neighbor, drilling very, very close to our shores, to go into a secondary market for parts, service and supply.”
Cuban officials have been very supportive of drilling safety, Hunt said. “What we are hearing from Cuban officials is a great deal of respect for the various regulatory schemes in the world, and in particular the new ones emerging in the U.S.,” Hunt said. ‘They are attempting to follow what can be communicated as best practices.”
The interview with Hunt was shortly before the U.S. announced it would allow the Cuban officials to attend a conference in Trinidad next month sponsored by the U.S.-based IADC to discuss Cuba’s deepwater drilling plans. Permission from the United Sates was required because IADC is a U.S. group and the embargo prohibits U.S. citizens from meeting with Cuban officials. The full interview may be accessed here.
As plans for deepwater drilling ramp up off the Cuban coast, the presence of a delegation from Havana including the country’s top drilling regulator would mark the first time they have discussed that drilling in an international forum. The IADC hopes to use the forum to discuss international best practices with Cuban officials.
In a segment entitled “Iraq Plays Catch-up on Oil,” Platts Baghdad-based correspondent Ben Lando reported on Iraq’s race to rebuild its oil infrastructure and play a bigger role in oil and natural as markets.
In this week’s Energy Watch segment, Platts Energy Week featured Devon Energy’s William Whitsitt, executive vice president for public affairs, on the topic of a new national database on fluids used in shale gas drilling. Whitsitt spoke about his company’s participation in a new voluntary database. Platts Gas Daily Associate Editor Bill Holland offered an update on the latest developments in the Marcellus Formation, the rich shale gas region that stretches from New York to West Virginia.