Credibility of natural gas industry on the line at industry’s own conference
Tuesday, August 09, 2011 at 6:02 am
Two years ago, former Colorado Sen. Tim Wirth delivered stern words to members of the Colorado Oil and Gas Association at their annual conference: You blew it.
The natural gas industry could have been part of the climate bill called Waxman-Markey, he said, but in fact it was mentioned just twice in more than 900 pages of legislation.
Last year, drillers heard Robert Kennedy Jr. and others say: You will learn to like regulation. Through regulation, they said, will come public acceptance of natural gas for more plentiful use.
This year came exhortations for drillers to take steps necessary to gain public trust and confidence – something clearly lacking, as evident not only in the movie “Gasland,” an Oscar-nominated documentary sharply critical of gas drilling, but also in reporting by the New York Times.
A study from Cornell University has also tarnished the luster of the industry, arguing that natural gas drilling causes lifecycle emissions of methane, a greenhouse gas, equal to that of burning coal – a contention hotly disputed by drillers, who claim faulty data were used. They also vigorously challenge “Gasland,” a movie that didn’t let inconvenient facts disrupt its storyline.
Still, the onus is on the industry to prove itself – which it can only do by becoming more transparent, said speakers. The word “trust” was used at every turn.
“The natural gas industry has huge credibility problems at the moment,” Mark Brownstein, deputy director of the energy program for the Environmental Defense Fund, said at the conference.
That same day, the New York Times reported fresh news from West Virginia that challenged the insistence of geologists and industry leaders that hydraulic fracturing to gas deposits found at great depths has never damaged drinking water drawn from shallow aquifers.
Brownstein recounted a trip to New York’s Adirondack Mountains this summer where, he said, others repeatedly brought up hydraulic fracturing without him ever divulging what he does for a living. One of them, he said, was an evangelical Christian motorcycle rider from Texas.
“These aren’t folks getting their news from the New York Times or from the Huffington Post, yet the news they’re getting isn’t good,” said Brownstein.
That same essential message was delivered time and again during the three-day conference, both from those outside the industry and from a few within.
The tone was set by the first speaker, Colorado Gov. John Hickenlooper, who jabbed at the New York Times but said the industry needs to be more transparent, “to make it easier for the broad population to trust us.”
The royal “we” of Hickenlooper’s talk reflects that he was a petroleum geologist but also the simple bulk of natural gas drilling in Colorado. The industry contributes 6 percent of the state’s jobs and is responsible for 10 percent of the state’s economic activity.
Hickenlooper outlined plans by Colorado to require that all constituents used in hydraulic fracturing be divulged for each well site. The state will not require the proportions be reported, thus allowing companies an element of their proprietary “secret sauce.”
COGA, the industry association, and Hickenlooper also announced a new industry-sponsored plan to have third-party experts analyze water samples from underground sources both before drilling and three years after.
The reports will be publicly disclosed. COGA – the trade association – has enlisted members to participate, and those 20 companies have drilled 90 percent of the wells in the last 18 months. COGA, not the state, will administer the program, which is modeled on one employed for the last 10 years in the San Juan Basin south of Durango. COGA representatives said they believe that the scientific data of the third-party testers will be adequate to gain public trust.
Mike Choropolos, land program director for Western Resource Advocates, says the plans by COGA and the state government do not go far enough.
A petroleum geologist in his first career, Hickenlooper said he had read one of the New York Times reports critical of natural gas drilling out loud to his wife, Helen Thorpe, while in bed. “There’s no science here,” he reported complaining to her.
Democrats and gas drillers have long had a conflicted relationship. Even in the late 1980s, Wirth was promoting natural gas and was among the first to outfit his SUV with a natural gas burning kit. But many drillers remain wary of government. Tellingly, while there were no standing ovations for any speakers, a few people did spring to their feet after Bill Owens, governor from 2000 to 2008 and a self-described moderate but conservative Republican, pinned blame on the federal government for the loss of jobs.
“It is our friends in government who have made it virtually impossible to do anything new in this country,” he said.
“When is the last time we built a refinery in the Untied States?” asked Owens, who has had a long association with the oil and gas industry, both before be became governor and now as a member of the board of directors for several companies.
Citing a string of federal agencies, Owens charged that federal regulations have inhibited change, hampered productivity, and in the end have caused the export of jobs overseas. He concluded by noting cryptically that “elections will bring us back.”
But Democrats insist that more closely regulated drilling will, in the long run, serve the best interests of the natural gas industry, by increasing public trust, while displacing imported oil and also coal, which poses far worse pollution problems than natural gas.
“Obviously, red tape doesn’t help anybody, but some of the red tape exists because of these trust issues,” said Hickenloooper. He noted that the lag time for processing drilling permits has been reduced to 23 days, from a high of 70 days.
Former Gov. Bill Ritter, in whose administration the drilling regs were adopted, also spoke. “Tension might be too soft a word,” he said of the rocky relationship between his administration and oil and gas drillers. He acknowledged “some things that we could have done differently.”
But he didn’t back down from the regulations, continuing to insist that Colorado remains a template for other states. The regulations, he said, have resulted in clear burning fuel, extracted in ways that protect the environment, and is affordable to utility consumers.
The new rules continue to be blamed in places like Grand Junction for the slowed drilling of the last three years. Enactment of the new regulations and arrival of the recession were coincidental, but associated in the minds of many, he said. In fact, said Ritter, Colorado was second only to New Mexico among Rocky Mountain states in drilling rig counts as of three weeks ago.
During the boom that had Grand Junction and Rifle busy, the price of natural gas peaked at $13 per million Btu, before plummeting to $2. It’s now $4.43 at the Henry Hub in Louisiana, but the more difficult terrain in the upper Piceance Basin, northwest of Rifle, will require prices of $6.50 per million Btu, analysts say.
Noting the fuel-switching bill that will see coal generation in Denver and Boulder replaced by natural gas, Ritter said that Colorado now becomes the gold standard by becoming completely transparent in its drilling. “If you look at hydraulic fracturing, those problems are absolutely solvable,” he said.
Trust was also mentioned by Jim Martin, the Denver-based chief of Region 8 of the Environmental Protection Agency and a key official in the Ritter administration responsible for Colorado’s regulations.
“We have to find some space for dialogue, to find that pathway that allows us to develop the tremendous oil and gas resources in this country and region while at the same time instilling in the public the confidence necessary to allow that to occur.”
For Tisha Conoly Schuller, the director of COGA, the speaking lineup for the annual conference, called Energy Expo, is no doubt a tricky balancing act. Her constituency certainly is not of one mind.
“We don’t want to be an industry echo chamber,” she said before introducing a speaker from the Department of Energy. “We have to understand their perspectives, whether we agree with them or not.”
Occasionally, though, the same message came from speakers within the industry.
“There is such a thing as a social contract,” said George E. King, a Houston-based global technology consultant with Apache.
He labeled much of the criticism as “hysteria and hype,” but said that “You need to go out and talk about what you’re doing, and you need to do it in a polite manner.”
King and other speakers also described technological progress responsible for increasing extraction. Several decades ago, 1 percent of gas could be recovered from vertical wells. By the 1990s, that had increased to 2 percent, then 3 to 5 percent by 2002 — and now, in some cases up to 40 percent.
But one of the raps against the predicted natural gas bonanza of the last several years was the rapid depletion rate. In other words, wells declined production so quickly that more had to be sunk. King said that the new technology may lower that decline rate from 75 and 80 percent down to about 50 percent.
Drillers are also producing more gas from new formations very quickly. He said that it took 27 years to maximize production from the Barnett shale around Fort Worth. In other fields across the country, it’s just 2 to 3 years.
Water remains a crucial issue in natural gas drilling, and Apache has been reporting the ingredients of every fracking operation to a central groundwater monitoring database launched last year.
But as drilling expands, sheer volume of water has become an issue in places – such as in Texas and Oklahoma this year, where Apache has had to curtail some drilling for lack of water.
However, drilling often produces water, usually very salty, from the deep formations that also contain gas. King said Apache is experimenting with being able to take this produced water and, after treatment, using it for fracking purposes.
Still unclear as natural gas gains market share in energy, edging out coal, is the price stability. The price has been notoriously unstable, as witnessed by the swing from $13 to $2 per million Btu in recent years.
Susan Arigoni, vice president of fuels for Xcel Energy, said her company wants to see improved reliability of natural gas supplies, so that it can be counted on to produce electricity. Some of the uncertainty is due to the controversy about fracking and the response of regulatory agencies.
The division of Xcel that serves Colorado sees natural gas increasing from 27 percent of its fuel base to 38 percent by 2020. Coal will drop from 61 percent to 43 percent. Renewables will grow from 12 percent of the fuel mix to 19 percent.