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05 21, 2013 by The Times-Picayune
The explosive expansion of drilling of natural gas and oil wells in shale deposits in the United States and Canada using a directional drilling method dubbed “fracking” may have spawned a $30 billion per year expansion of the waste disposal business, waste and investment industry executives were told Monday.
Oil and gas fracking represents a $200 billion-a-year capital investment, and the companies doing the drilling are spending between $20 billion and $30 billion on waste disposal, said Michael Hoffman, managing director at Wunderlich Securities, during a seminar on waste management investment on the first day of the WasteExpo 2013 Conference and Exposition in New Orleans.
Producers drill wells straight down between 1,500 feet and 15,000 feet deep to reach shale rock, which has oil and natural gas embedded in it. The wellhole is then curved to a horizontal position and extended as much as a mile into the formation. Small explosions are set off to fracture the surrounding rock, while a high-pressure mix of water, sand and chemicals is pumped into the horizontal passage to help release the gas.
In Louisiana, 2,205 such wells have been drilled and are producing natural gas in the Haynesville Shale formation near Shreveport, with each well costing between $8 million and $10 million to drill, according to state officials. Another 232 wells are awaiting completion, are in the process of being drilled, or are permitted in the Haynesville formation.
Another 16 producing wells have been drilled in the Tuscaloosa Marine Shale formation, which cuts across the center of the state. The formation underlies St. Tammany, Washington, and Tangipahoa parishes and the parishes surrounding Baton Rouge.
Elsewhere, fracking is being used in the Marcellus Shale formation that stretches across Ohio, Pennsylvania, West Virginia and parts of Virginia, in several shale formations in Texas and in shales found in North Dakota and Wyoming.
The fracking process uses an estimated 136 billion gallons of water a year in the United States and Canada. Once used, the water must be treated and reused, or disposed. The drilling also produces other waste products, mud and rock.
The oil and gas exploration and production industry is exempt from the stringent federal regulations governing hazardous waste. But repeated concerns about the effects of fracking have resulted in increased regulation in many states, and the federal government is considering similar restrictions.
Restrictions similar to U.S. hazardous waste rules already govern fracking operations in Canda, said John Gibson, chief executive of the Tervita Corp., which makes $1.6 billion a year disposing of drill cuttings, drilling mud and other wastes in Canada and the United States, and another $3.5 billion a year transporting oil by pipeline from wellheads to larger pipelines.
“Canada has a tougher regulatory environment, but I believe the U.S. will evolve,” he said. Hoffman agreed, adding that it’s in the best interests of waste management companies to have stringent rules in place, which will help direct business to them.
“There’s clearly a need to manage an increasingly complex waste stream, in part because of the change in drilling technology going from a vertical approach to a horizontal is yielding a significant increase in the volumes coming at us, and more complex volumes of wastes,” he said.
Jason Wangler, another Wunderlich analyst, said the demand for increased regulation is in part the result of the location of shale beneath populated areas. “The old saying was, ‘Wherever oil is is where people aren’t,’ because it’s usually in places where nobody wants to live,” Wangler said.
But then the Marcellus Shale was targeted by drillers in Ohio and Pennsylvania, and the response by residents got the drilling companies moving to support increased regulation, he said.
“You’re moving into areas where people don’t know how big a drilling rig is. They don’t know how many trucks go through every day,” he said. “We’re seeing more environmental movements and the companies are trying their best to adjust to this, especially the larger ones, to effectively keep their names out of the paper.”
The companies want to be seen as good environmental stewards, Wangler said.
The federal government seems poised to develop a moderate approach to regulation, led by President Barack Obama, said Kevin Book, managing director of ClearView Energy Partners LLC, which tracks energy regulations. “We’re seeing the maturation of the political fracking revolution,” Book said.
The first new federal fracking restrictions govern fracking on federally owned lands and were issued last week by the Bureau of Land Management; Book said they include hints about the direction that the Environmental Protection Agency may take in the next two years as it rolls out its own rules governing fracking.
Those rules include provisions governing intellectual property and trade secrets that were taken from Colorado state regulations. Book said he expects other states to follow the lead of Colorado, Pennsylvania, Texas and Louisiana in developing their own fracking regulations before the feds do.
Meanwhile, Gibson expects states and the U.S. government to look north to Canada for some regulatory changes. A year and a half ago, Alberta, Canada, eliminated “land farming” of oil-field wastes, a practice where the wastes are sprayed over open land and allowed to break down naturally.
But Gibson also sees a need to increase regulation as fracking becomes more expansive, especially the abandonment of wellholes after they no longer produce oil or gas. “We’re going to have to see a focus on abandonment to be able to insure well integrity inside the circle of fracking,” he said, “so that as I flow fluid down this hole, it doesn’t flow across and up an adjacent hole into an aquifer.”
Gibson also warned that federal and state regulators aren’t nimble enough to keep up with changes in fracking technology. “We need regulations that are dynamic and adaptable,” he said.
But Gibson said 90 percent of his customers “really, truly believe in the social license to operate.”
“And so, no matter what the regulation is, the good customers … are going to exceed the regulatory requirement in order to insure they have the right to practice their profession of drilling wells and producing natural resources,” he said.
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