At first glance, it looks too good to be true: huge, untapped sources of clean burning natural gas right here in the U.S. It’s not easy, or cheap, to extract : the science and engineering associated with estimating reservoir and production capacities, not to mention extracting the gas, is still an evolving art. Nonetheless, pioneering U.S. oil and gas companies are now realizing some outsize returns on their shale gas investments.
As is true when it comes to extracting and processing any energy or natural resource for mass human consumption, the resulting shale gas comes at a cost, not only in dollars and cents, but to the environment. In order to facilitate and maximize the flow of gas, extraction techniques require a lot of water and hydraulic pressure to fracture the shale formations. To aid the process, various forms of grit and lubricating chemicals are mixed in.
Water rights and usage have been debated and fought over throughout the history of the West. Recent increasingly dry and drought conditions are exacerbating concerns, and now all this has residents in prime shale gas production areas, as well as environmental watchdogs increasingly concerned about the effects shale gas drilling has on water quality, aquifers and watersheds.
Shale Gas Pioneer & Leading Player
Founded in 1989 with a $50,000 investment, Chesapeake Energyhas grown into an enterprise valued at some $50 billion, in large part to management’s recognition and ability to successfully invest in and develop prospective shale gas resources. The company produces some 4.5% of U.S. natural gas supply and in this year’s second quarter produced more than any other U.S. producer.
Chesapeake posted a $1.65 billion net loss during this year’s second quarter as excessive volatility in gas and oil prices hit the market value of the company’s hedges, which are marked to market. Discounting this and other one-time charges, adjusted net income came in at $479 million for the quarter as compared to $342 million a year ago – clearly big business with some equally big risks.
Management recognized earlier than most that conditions were auspicious for exploring and developing unconventional natural gas resources. It has assembled a large and diversified portfolio of producing and prospective shale gas properties that stretches from west Texas into Louisiana, Oklahoma and Arkansas and up on through Appalachia into western New York State.
The Fort Worth Barnett Shale
Centered in north Texas’s Forth Worth and Tarrant and Johnson counties, the Barnett Shale is where pioneering oil and gas companies such as Chesapeake Energy have tested and continue to prove new exploration, drilling and extraction methods and techniques that enable them to identify and get at the natural gas contained in shale formations.
Chesapeake is the second-largest Barnett Shale gas producer. In an August 1 Platts’ article Chesapeake CEO Aubrey McClendon reportedly told analysts that the company has extended its estimates of its Barnett Shale gas fields’ production life and peak production. It now forecasts production to peak at 6.0-6.5 billion cubic feet per day in 2012 as opposed to previous estimates of 5 Bcf/d in 2009.
Touting the Benefits of Natural Gas
In addition to being Chesapeake’s CEO, McClendon is the founder and chairman of the American Clean Skies Foundation. On July 30 he sat before a House sub-committee to discuss the immediate role natural gas can play in solving the nation’s energy crisis.
McClendon’s testimony revolved around three big advantages and benefits of natural gas: its abundance in the U.S. and Canada, its affordability, and cleaner emissions.
A recently published estimate of potential natural gas reserves by researchers at the Colorado School of Mines indicates that U.S. natural gas reserves total as much as 1,525 trillion cubic feet – a 75-year supply. Adding prospective reserves in Canada increases that to 120 years. Natural gas deposits are also widespread: some 22 states are producing at present.
Per BTU equivalent, natural gas prices are around 60% those of oil while the cost of heating homes with natural gas is less than half that of those using electricity. As a transportation fuel, compressed natural gas is around $2.00 cheaper than gasoline, he pointed out.
Environmentally, McClendon noted that natural gas is cleaner by far than coal or oil: carbon dioxide emissions are half that of coal and contain low levels of nitrogen and sulfur dioxide, as well as nearly no mercury or particulates. He also noted that drilling for natural gas leaves a small environmental footprint, adding that innovative pad drilling promises to further reduce its surface impact.
But at What Cost to Water Resources?
That’s not the whole story, however, according to local residents, reporters and environmentalists. Each shale gas well on average requires some 4.5 million gallons of water, and there can be many wells at a single site.
Hundreds of trucks transport water into drilling sites. They then truck the recovered water, with grit and chemicals mixed in, back out for disposal. How is it disposed of? Well, it‚Äòs difficult to find an answer and Texas reportedly has no regulations covering it.
Documented reports of contaminated well water are growing, as are indications that the water table in the Fort Worth area is falling. Both are mortal threats to farmers and ranchers, as well as the region’s general population, and they’re not the only mortal risks associated with shale gas drilling and production, topics which will be explored further next week in Part Two.