Unconventional Natural Gas: The Fracking Debate. Sue Tierney. Analysis Group, Boston, MA

Transcription

1 Unconventional Natural Gas: The Fracking Debate Sue Tierney Analysis Group, Boston, MA Northeast Gas Association 2013 Sales and Marketing Conference Providence, RI

2 Overview My point of view A handful of contextual issues for thinking about unconventional natural gas Unconventional natural gas: what are the issues? Who cares about what? Looking ahead: critical success factors for natural gas Page 2

3 Setting the context for today s discussion My perspective Page 3

4 THE CONTEXT FOR UNCONVENTIONAL GAS Page 4

5 Reminders: The context for energy in the U.S. Most energy is supplied to consumers by private companies and quasi-public authorities/utilities, and delivered via markets Fossil fuel production: 30% on public lands But most energy resources come from private companies Electricity production 90% from investor-owned utilities and private power producers Electricity and natural gas end-use sales and customers 72% from investor-owned utilities and marketers Most sales of natural gas utilities are from private utilities Page 5

6 Reminders: The context for energy in the U.S. Patterns of energy investment, production, use are affected by: Millions of private decisions (producers, consumers) Policies of federal, state and local governments (legislatures, agencies, courts) in many domains energy policy, tax policy, environmental policy, land-use policy, R&D policy, utility regulatory policy and actions, state oil and gas conservation policy Very different resources and prices across regions Very long-lived capital in infrastructure systems Decisions regarding use of energy commodities tend to be separated from attitudes about macroeconomic, energy security, safety, env l impacts Page 6

7 Who cares about what with regard to energy? Consumer issues Small energy consumers Large energy consumers Users of gas as feedstock Producer issues Local communities with resources/production Companies in the energy business Government policy issues Localities States National Interest groups (env l, biz, other) Very different interests, with different intensities Page 7

8 Who cares about what with regard to energy? Different goals for energy Clean drinking water Jobs in Energy Sector Jobs in energydependent sectors Cheap, stable energy prices Local air quality Minimal local env l impacts Clean energy sources Geopolitical energy security Reliable energy supply Land payments Few community stresses Safe energy production Low GHG emissions from energy Trade policy Royalties on Public lands Page 8

9 Who cares about what with regard to energy? Consumer issues Small energy consumers Large energy consumers Users of gas as feedstock Producer issues Local communities with resources/production Companies in the energy biz Government policy issues Localities States National Interest groups (env l, biz, etc.) Clean drinking water Jobs in Energy Sector Jobs in energydependent sectors Cheap, stable energy prices Local air quality Minimal local env l impacts Clean energy sources Geopolitical energy security Reliable energy supply Land payments Few community stresses Safe energy production Low GHG emissions from energy Trade policy Royalties on Public lands Page 9

10 Unconventional Natural Gas THE ISSUES Page 10

11 The two sides of the debate The Industry Hydraulic fracturing refers to specific process No cases where HF has contaminated water Highly regulated activity by the states where regulation should remain Small risks, but need prudent development Continuous improvement and risk reduction should come from voluntary sharing of best practices Disclosure requirements should be voluntary Domestic natural gas is great for American jobs, the economy, the environment, national security Page 11

12 The two sides of the debate The Opponents Fracking refers to the entire life cycle of gas Shale gas extraction has contaminated drinking water supplies Regulatory rules and enforcement are inadequate; states are playing catch up and too cozy with industry Loopholes should be closed Disclosure should be mandatory The biggest risk is to water supply and water quality Greater extraction should wait more data and measurement The risks exceed the benefits; hold off on development until better regulation is in place Page 12

13 Local impacts Page 13

14 What the opponents say they are concerned about Water: contamination (fracking, drilling, spills, run-off, SDWA exemption) Water use/supply Air: Methane emissions (GHG); ground-level ozone precursors Noise Night light pollution Wildlife habitat disruption Seismic concerns Trucks, congestion on roads Secretiveness/non-disclosure Accidents, safety concerns Split estates and feelings of lack of control Uncontrolled human experiment (information gaps) Industrialization of the landscape Community disruption Rapid pace of change Impacts on renewables (low price of gas, locking in new fossil generation) Prospect of exporting a precious domestic resource for others Page 14

15 Northeast Gas Association Sales and Marketing Conference Production affecting so many parts of the U.S. Page 15

16 Significant private land ownership presence in the East Federal Public Lands Gas Production * DOI s Bureau of Land Management and Bureau of Ocean Energy Management May 15, 2013 Page 16

17 The footprint of unconventional gas: Northeast The Utica and the Marcellus Page 17

18 The footprint of unconventional gas: Northeast gdaily.com/15145/ marcellus-shalemap-an-investorsintroduction-to-themarcellus-andutica-shaleformations Page 18

19 Drill site Northeast Gas Association Sales and Marketing Conference Stored water Steel casing and cement Drinking water Borehole Local view: Unconventional gas drilling Hydraulic fracturing Horizontal drilling Page 19

20 Pennsylvania Example of active natural gas wells Page 20

21 Natural gas recent trends in U.S. Prices ($/mcf) Spring 2007: $7.87 June 2008: $13.07 Spring 2009: $4.08 Spring 2010: $4.42 Spring 2011: $4.09 Spring 2012: $2.01 Spring 2013 $3.50 Rig count: Early 2009: 1200 Mid 2011: ~800 Current: ~400 Production (Bcf/day) Early 2009: ~56 Mid 2011: ~63 Current: ~66 Navigant (NG Market Notes, Feb 2013); EIA (Henry Hub prices) March 5, 2013 Page 21

22 Drilling in Pennsylvania: example Page 22

23 August 2006: Carmichaels, PA 2006 \ Page 23

24 May 2008: Carmichaels, PA Page 24

25 May 2010: Carmichaels, PA Page 25

26 What are folks worried about? The need to keep drilling more wells Page 26

27 What are some folks worried about? Accidents A Marcellus Shale drilling rig in Marshall County, W.Va., caught fire June 7 when the drill hit a pocket of methane from an inactive coal mine. Seven workers were injured in the accident. Page 27

28 What are some folks worried about? Disruption of public lands Wharton township: sign on road near Susquehanna State Forest Page 28

29 What are some folks worried about? GHG emissions associated with life cycle of fuels * JISEA study: Life cycle GHG emissions of shale gas (Barnett) < 50% of coal ** CFR analysis: If methane leakage is < 5%, using more gas has lower emissions (and results in less warming) than slow coal transition WRI, 2012; preliminary findings Page 29 * Joint Institute of Strategic Energy Analysis (2/2013); ** Michael Levi, Council on Foreign Relations, CO2 Emissions from Gas-as-a-Bridge Fuel, 2013.

30 Disclosure policies Page 30

31 Water well testing (baseline) Page 31

32 Wastewater tracking Page 32

33 Pit liner requirements Page 33

34 Fluid storage approaches Page 34

35 Inspection resource (wells per inspector) Page 35

36 The risk of polarization: Public trust issues associated with shale gas development/production: Wide gap between perceptions on both sides Significant community impacts with intense development pressures Lack of transparent baseline data and info Co-mingling of standards with advocacy Stealth entry into communities land grab Industry is in a defensive posture, with slow and reactive responses to local concerns Further erosion of public trust = potential source of disruptive impact on industry s access to the resources Page 36

37 Moratoria or bans on fracking North Carolina passed law removing the ban: Page 37

38 Unconventional Natural Gas CRITICAL SUCCESS FACTORS Page 38

39 Shale gas development Bottom line: Realizing the benefits of shale gas will require greater attention to and mitigation of adverse environmental impacts Growing consensus about a sensible middle Page 39

40 SEAB Report Shale gas is a game-changing opportunity Areas of concern in developing the shale gas resource Water possible pollution of drinking water (methane, chemicals), water consumption, management of flow back water Air pollution GHG (methane), ozone precursors Community disruption during shale gas production Preservation of unique and/or sensitive areas Cumulative adverse impacts (traffic, noise, visual, odors, intensity) on communities and ecosystems, wildlife Perspective: Environmental Urgency. There are serious env l impacts underlying these concerns These impacts need to be prevented, reduced and where possible eliminated as soon as possible Absent effective control, public opposition will grow, thus putting continued production at risk Page 40

41 SEAB Report on Shale Gas Policy Recommendations Make better information about shale gas production operations more accessible No economic or technical reason to prevent public disclosure (except genuinely proprietary information) Ensure effective and capable regulation Especially regarding wellbore integrity, air emissions (local, methane), water supply and groundwater/surface water impacts, land-use impacts Peer reviews of state processes, adequate enforcement resources Creation of a shale gas industry production organization Page 41

42 What the experts say about the risks Resources for the Future Study of Risk Pathways Survey of experts: responses from 75 oil and gas representatives; 63 at universities and think tanks; 42 federal, state, and regional govt entities; 35 environmental and other NGOs. Experts asked to identify the risks associated with routine shale gas development activities. High-priority risks defined as those for which expert believes that government regulation or voluntary industry practices are inadequate. remarkable overlap for the most frequently cited risks by experts from different perspectives (Krupnik) RFF Expert Study on Risk Pathways, February 2013 Page 42

43 RFF Study: Development risks High consensus among experts risks to: - surface water - air quality and emissions - groundwater - habitat disruption The bottom line: There s still a lot of work to do (Krupnik: even the experts think so. ) RFF Expert Study on Risk Pathways, February 2013 Page 43

44 IEA s Golden Rules for a Golden Age of Gas Measure, disclose and engage Watch where you drill Isolate wells and prevent leaks Treat water responsibly Eliminate venting, minimize flaring and other emissions Be ready to think big Ensure a consistently high level of environmental performance Page 44

45 The sensible middle There are genuine environmental issues that must be addressed: Air emissions Methane leaks (contributing to climate change) with improved data Ozone precursors New EPA rules Fugitive emission Water issues: Water use/supply Water contamination (drilling, spills, runoff) Wastewater disposition EPA study underway Other concerns and issues: Cumulative impacts of industrial development: noise, traffic, lights Information gaps: emissions, disclosure, stealth entry Comparisons to other fossil fuels environmental impacts State regulators need to continue to improve regulation, inspections, enforcement Page 45

46 Susan F. Tierney, Ph.D. Managing Principal Analysis Group 111 Huntington Avenue, 10 th Floor Boston, Massachusetts Page 46