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State Regulation of Hydraulic Fracturing April 12, 2011

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1 State Regulation of Hydraulic Fracturing April 12, 2011
Aurana Lewis, MEM Nicholas School of the Environment Bill Holman Director of State Policy Nicholas Institute for Environmental Policy Solutions

2 Our Mission To help decision makers create timely, effective and economically practical solutions to the world’s most critical environmental challenges We engage faculty & students at Fuqua School of Business, Duke Law, Nicholas School of the Environment, Pratt School of Engineering and Sanford School of Public Policy.

3 Dan River Basin Deep River Basin US Energy Information Admin with Dan River and Deep River Basins added to show location and size.

4 US Energy Information Administration
This graph shows production.

5 Shale Basins in North Carolina
Chatham Lee Reid, J.C and R. C. Milici, 2008 US Geological Survey and NC Geological Survey are completing a resource assessment in Spring 2011. NCGS has estimated 59,000 acres may have gas resources. (See Last Slide for ‘Natural Gas Well Types’) Vertical wells have an average spacing of 40 acres per well, single wells per pad, estimated: 1,475 wells vertical wells: 2-3 acres per well, estimated 3,687 acres disturbance. (using 2.5 acre avg.) Horizontal wells have an average spacing of 640 acres per well, multiple wells per pad, estimated: 92 well Multi-well horizontal pads: 4-6 acres per pad, estimated 461 acres disturbance (using 5 acres avg.) Source: NY State Draft Supplemental EIS: Chapter 5 Natural Gas Development Activities and High Volume Hydraulic Fracturing The exploratory wells have been drilled primarily by private companies. The report is from the USGS, based on “previously unpublished organic chemistry data” from “87 samples from 28 drill holes.” This report was published in 2008, Reid and Taylor came out with a new map in 2010 reviewing the information from the Sanford and sub-basin and the Deep River Basin, but it is not available online. Moore Reid, J.C. and R.C. Milici “Hydrocarbon Source Rocks in the Deep River and Dan River Triassic Basins, North Carolina”

6 States Take the Lead Limited federal role due to executive and congressional actions Industry prefers state regulation State experience with conventional oil & gas development predates national environmental laws Interstate Oil & Gas Compact Commission -- STRONGER

7 Shale Gas Production Well Pad and Road Construction Drilling
Hydraulic Fracturing Production/ Partial Well Pad Reclamation Re-Fracturing/ Well Closure This slide depicts activities associated with development. Producing shale gas is an industrial process.

8 Well Pad and Road Construction
Time: 7 – 28 Days (Bradford County, PA) Lease the mineral rights Choose a location 3 – 5 acres Determine restricted areas Obtain appropriate permits Follow state and local setback requirements Construct well pad Engineer well pad and roads Plan for chemical and waste storage onsite /prevent spills and leaks Control sediment and erosion Manage stormwater Horizontal drilling generally requires a larger well pad than vertical drilling. This also may extend the time for some of these steps. Mostly, the multi-well pads are drilled and fractured several times so the middle steps (drilling and fracturing) multiply over several times before reclaiming part of the well pad. Thompson Bros, “Nexen Well Pad 9111 and Access Road.”

9 Drilling Drilling, either vertical or horizontal
Time: 21-24 Days (Chesapeake Energy) Drilling, either vertical or horizontal Construct casing for groundwater protection Store drill cuttings Granberg, A “Anatomy of a Gas Well”

10 Hydraulic Fracturing Withdraw freshwater
Time: 2 – 5 Days 40 – 100 Hrs (Pumping) Withdraw freshwater Transport chemicals and proppants to site Mix and inject high pressure solution into the well Collect, store and dispose of flowback water and wastes New York Department of Environmental Conservation, 2009 “Draft Supplemental Generic Environmental Impact Statement on the Oil, Gas and Solution Mining Regulatory Program, Chapter 5”

11 Partial Well Pad Reclamation
Production/ Partial Well Pad Reclamation Time: 7-10 years (Harper, 2010) Produce gas Process gas to remove water Compress and pipe gas to processing plants Collect and dispose of produced water and wastes Reduce the size of the well pad Remove well equipment Close pits and tanks storing waste fluids Reclaim a portion of the well pad Veil, J “Water Management Technologies Used by Marcellus Shale Gas Producers”

12 Re-Fracturing/ Well Closure
Well re-fracturing 7-10 years after initial hydraulic fracturing Impacts similar to original fracturing Well Plugging Plug well to prevent gas releases, surface contamination, and groundwater contamination Restore site Well re-fracturing would require similar amounts of equipment, water and chemicals as the initial fracturing process. d6eb&mt=application/pdf&url= d6eb%26attid%3D0.1%26disp%3Dsafe%26realattid%3D289e aefeb_0.1%26zw&sig=AHIEtbRXCf_jQNWHGnpKm2N0RYutsbdUHQ Source: Harper, J. and Kostelnik, J. “The Marcellus Shale Play in Pennsylvania.” ref: Dewitt, 2008.

13 Cost Estimates for Production
Well Costs in the Millions Royalties Finding and Development Cost (per Mcfe) Haynesville $7.20 25% $1.48 Marcellus $4.50 15% $1.26 Barnett $2.80 $1.41 Fayetteville $3.10 17% $1.50 Colony Granite Wash $6.25 20% $1.37 TX PH Granite Wash $1.18 Average $4.71 The finding and development costs cover exploration. I am unclear whether these well costs cover production costs. The royalties are paid to the mineral rights owner, whether private or the state. Mcfe = million cubic feet IOC = International oil companies. Several of the shale gas producers are being acquired by international oil companies (ExxonMobil and StatOilHydro). Chesapeake sold 32.5% stock to StatOilHydro, and XTO energy was bought by ExxonMobil. Kulkarni, P “Arrival of IOCs and increasing legislative interest signal critical mass for Marcellus” ref. Chesapeake Energy

14 Public Health & Environmental Concerns
New demand for surface and groundwater resources Sedimentation & erosion from pads, roads & pipelines Wastewater treatment and disposal Leaks and spills Potential groundwater contamination Potential air emissions Management of solid, hazardous and radioactive wastes Reporting requirements Plugging wells “Adaptation in Fractured Appalachia” Hannah Wiseman Villanova Environmental Law Journal 2010 “NC’s Natural Gas Reserves: Are We Ready for the Boom” John Noor UNC Law Student April 5, 2011

15 State & Local Concerns Permit and inspection fees Expertise Royalties
Financial assurance Local zoning? State role? Local role? Property rights of neighbors Truck traffic Terms of leases

16 Water Quantity DOE National Energy Technology Laboratory “Modern Shale Gas Development in the United States: A Primer”

17 Water Usage Data for 494 Haynesville (TX-LA)
Shale Gas Wells Typical Aquifer – Keithville Compactor Fracturing Source Aquifer – South Camp Water Stats Two separate sets of information, both in the the Haynesville Shale: 1) Welsh gives average water usage in the Haynesville to give a sense of all water usage across the different wells using data from both TX and LA. 2) Lewis and Hanson studied water usage in two aquifers in the Louisiana Haynesville : Keithville Compactor and South Camp. Oct 2009 – Aug 2010 Average Water Use per Well – 4,828,464 gallons Source: Welsh, 2010 “Creating Successful Community Partnerships – Carrizo-Wilcox Aquifer Collaboration in Louisiana” Source: Lewis and Hanson, “A Watershed Approach”

18 Water Quality Fracturing Fluids
Total Estimated Chemical Usage/Fracture: 14,700 gallons Actual chemical mixture considered proprietary by gas companies. Some states, such as WY, OH and Delaware River Basin Commission, require release of specific chemical mixture. Most gas companies have disclosed their fracture fluid chemicals to EPA and States. EPA, “Draft Hydraulic Fracturing Study Plan”

19 Health Effects from Hydraulic Fracturing Chemicals with CAS Numbers
Cardio. and Blood Endocrine Disruptors Ecological Mutagen Cancer Other Percent of Total Reviewed Chemicals Skin, Eye and Sensory Organ Gastrointestinal and Liver Brain and Nervous Sys. Respiratory Immune Kidney CAS = Chemical Abstract Service, a division of the Am Chemical Society Source: Colburn, T “Natural Gas Operations from a Public Health Perspective”

20 Water & Air Quality Well casing and cementing are critical to prevent groundwater contamination by migration of methane and other pollutants and to prevent explosions Harrison, S “Evaluating System for Ground-Water Contamination Hazards Due to Gas-Well Drilling on the Glaciated Appalachian Plateau”

21 Water Quality Constituents in Flowback Water
EPA Drinking Water Quality Standards Min Median Max Units TDS (Brine) 1530 93200 337000 mg/L NA Metals* Barium 0.553 661.5 15700 2 mg/L Strontium 0.501 821 5841 Radiation Alpha Radiation 22.41 1414.5 18950 pCi/L 15 pCi/L Beta 9.68 1395 7745 Organics Benzene 15.7 479.5 1950 ug/L 5 ug/L Etylbenzene 3.3 53.6 164 700 ug/L Touluene 2.3 833 3190 1000 ug/L Xylenes 16 487 2670 10,000 ug/L From 56 flowback samples taken from PA and WV * These are the metals limited by the PA DEP These are picked from a much larger table of chemicals. Note only 56 samples. The PA Dept of Environmental Protection is regulating these two metals, barium and strontium, with the TDS level. NYSERDA, "WATER-RELATED ISSUES ASSOCIATED WITH GAS PRODUCTION IN THE MARCELLUS SHALE"

22 Water & Air Quality Prevent spills and leaks
Pits Lining Failures Pit overflows Incompatible liner/fluid storage Volatile chemical releases Tanks Tank leaks Incompatible chemical storage Secondary containment failure Pedler, 2010 Allegheny Defense Project; Lustgarten, 2009, Propublica

23 Air Quality Issues Fugitive Emissions Dehydration Vehicles Flaring
Engines Pits Venting Particulate Matter x Dust Hydrogen Sulfide Ozone o Carbon Monoxide Nitrogen Oxides Sulfur Dioxide VOCs BTEX PAHs Methane x = Directly Emitted Emission o = Indirectly Generated Emission Earthworks 2010 “Sources of Oil and Gas Air Pollution”

24 Wastewater Treatment High Total Dissolved Solids
>100,000ppm Not removed during treatment High Naturally Occurring Radioactive Material (NORM) Not tested during disposal Not fully removed during treatment TDS = total dissolved solids Policy question: treat, dispose of on-site or truck to wastewater treatment plants. Chloride Sulfate TDS 500 mg/L (TDS Limit) TetraTech, 2009 “EVALUATION OF HIGH TDS CONCENTRATIONS IN THE MONONGAHELA RIVER”

25 Underground Injection Wastewater Disposal
Most common disposal method Possible risks of seismic activity Arkansas, Texas, 2008 Ohio, 1986 NC General Statute (b) prohibits the discharge of any wastes to the subsurface or groundwater of the State by means of wells. 15A NCAC 02C .0213 US DOE, 2009 “Modern Shale Gas: a Primer"

26 Recycling and Reuse of Wastewater
Commonly used in the Barnett Shale, TX, Fayetteville Shale, AR and Marcellus Shale, PA Energy intensive Limits truck travel by treating on site Concentrates Radioactivity Rigzone Staff, 2010 “Water Treatment Key to Hydraulic Fracturing's Future”

27 Local Regulation by Ft Worth
Exposure to contaminates Air Emissions Noise and light Scenic Effects Truck Traffic The Barnett Shale in Texas produced about 2 trillion cubic feet of gas in 2010.  This is just under ½ of the 4.5 trillion cubic feet of gas produced in 2010. City of Fort Worth, 2010 “City of Fort Worth Gas Wells”; Fort Worth City Managers Office, “Environmental Impacts of Gas Drilling”

28 Local Impacts: Trucks Requires between 4,300 to 6,500 truck trips per well Damage to roads & bridges Emissions & dust Congestion Heavenrich, S. Oct 06, “FrackWaste Truckers Rack up 959 Safety Violations in Three Days” “Our look at Road Damage from heavy truck traffic”

29 Leasing & Royalties for Property Owners
Avg. Lease Length Early Leasing Level Leasing Level Year Bonus (per acre) Royalties Royalities New York 3-5 years 1999 $5 12.50% $3,000 15%-20% Pennsylvania 5-7 years 2002 $12 $2,900 17%-18% West Virginia --- 2007 $1,000-$3,000 16%-18% Texas 2000 $1,000 20%-25% $10,000-$20,000 25%-28% Congressional Research Service: Note these are the levels for private land owners. Levels are slightly different for state lands (both higher and lower) Andrews, A, et al “Unconventional Gas Shales: Development, Technology, and Policy Issues”

30 Selected State Responses to Hydraulic Fracturing
Colorado 2009 – House Bill 1292 regulates hydraulic fracturing impacts. Ohio 2010 – Senate Bill 165 Amendments made to many of Ohio’s oil and gas regulations to include provisions for hydraulic fracturing. Pennsylvania July Changes to well casing and cementing rules to prevent blowouts and contamination. June 2010 – Limits for total dissolved solids, barium, strontium, chloride and sulfate in wastewater. Nov Changes to erosion and sediment control plans for sites greater than 5 acres. Wyoming June 2010 – Updates oil and gas regulations to require identification of hydraulic fracturing chemicals Amendments also include handling of well stimulation fluids The industry has developed rapidly. States have struggled to keep up, but States have taken the lead in regulating hydraulic fracturing. Most states with shale gas resources have existing oil and gas industries and expertise with oil and gas exploration & development.

31 Alabama Arkansas Louisiana Texas New York
2000 – Extensive changes to oil and gas regulation, partly to regulate hydraulic fracturing in coal bed methane wells. 2007 – Passed the rule Hydraulic Fracturing of Coal Beds Arkansas Added rule B-19 “Requirements for Well Completion Utilizing Fracture Stimulation” 2010 – Moritorium on injection disposal, extended and expanded in Jan 2011 Louisiana 2009 – Order No. U-HS laid out rules regarding urban development of Haynesville Shale 2009 – Oil and Gas amendment encouraging the reuse of flowback and produced water Texas 2001 – Fort Worth sets city ordinances regarding natural gas production in the city area. New York Generic Environmental Impact Statement on Oil and Gas Solution Mining Regulatory Program Revised Draft Supplemental Generic Environmental Impact Statement in 2010 2011 Maryland General Assembly is debating a moratorium on fracking and a study.

32 North Carolina Law Oil & Gas Conservation Act of 1945
Permits vertical drilling Prohibits horizontal drilling Establishes Permit $50/well $5000/well $0.005/mcf (1000 cubic feet) Article 27, NC GS Permit fees, bonding, and private & state royalties in other states are much higher. State regulation of oil & gas development in most states is receipt supported. Most NC counties levy higher permit fees for domestic wells than $50.

33 Policy Options Study economic and environmental advantages and disadvantages of developing shale gas in North Carolina USGS/NCGS Resource Assessment, Spring 2011 Learn from other States, the industry, EPA, and the public States are primary regulators of this industry Develop a comprehensive regulatory program/avoid inefficient, fragmented regulatory program

34 Policy Options 2010 UNC-CH-Duke Water Allocation Study recommended a moratorium on water withdrawals for shale gas until the Division of Water Resources completes hydrologic models for the appropriate river basins to ensure that water withdrawals will not adversely impact other water users Collect baseline data before development

35 Resources for States State Review of Oil and Gas Environmental Regulations (STRONGER): Hydraulic Fracturing Guidelines, 2010 America Petroleum Institute (API) releases : Hydraulic Fracturing Operations - Well Construction and Integrity Guideline, 2009 Water Management Associated with Hydraulic Fracturing, 2010 Practices for Mitigating Surface Impacts Associated with Hydraulic Fracturing, 2011 US Environmental Protection Agency (EPA) Potential Impacts of Hydraulic Fracturing on Drinking Water Resources – due 2012 State Review (STRONGER) was formed in 1999 to strengthen state regulation of hydraulic fracturing. The process started in 1988 between the EPA and Interstate Oil and Gas Compact Commission (IOGCC). In 1998 the EPA decided to continue to exempt oil and gas production waste from federal regulation, but worked to strengthen state oil and gas regulation. EPA has recently started a study. Funding was set aside in the 2010 fiscal year. The draft of the EPA study plan was released in February EPA’s study takes a cradle to the grave approach to water use during hydraulic fracturing, but is limited to ‘the relationship between hydraulic fracturing and drinking water resources.’ EPA plans to finish its study in 2012.

36 Contact Information Bill Holman Director of State Policy Aurana Lewis, MEM

37 Extra slides follow

38 Federal Statues: Clean Water Act CERCLA
Prevents discharges of oil and gas waste to waters of the US with a permit CERCLA Holds drilling companies accountable for all non-petroleum or natural gas pollution on site Hazardous Materials Transport Act and Hazardous Materials Transportation Uniform Safety Act Regulates the transport of hazardous fracturing chemicals to the site Endangered Species Act Functions when working on federal land Would you like a second slide showing federal exemptions? Yes

39 Local Land Use Issues Restricting well development in scenic areas
Requiring stormwater management plans Requiring erosion control plans Setting well spacing requirements Mandating setbacks Residences Water bodies Road ways Setting Noise and Light Standards: Setting hours of operation in urban areas State policy goals could include: protection of public health and the environment, safe development of the resource, increasing the use of cleaner fuels for heating, power generation and transportation, and protection of the property rights of neighboring property owners Comprehensive regulation could include: collection of baseline data before drilling, water withdrawal permit, wastewater discharge permit, well construction permit, including identification of nearby wells and closing abandoned wells, sediment & erosion control permit, stormwater permit, waste management permit, air pollution permit, spill response plan, truck traffic, road construction, training for drillers, financial assurance, etc.

40 Water Quality Issues: AR, CO, LA, OH, PA, WY
Pit and Tank Storage Set standards for construction Ensure compatible fluid or volatile compound containment Spill Prevention* Require spill prevention and containment pollution plans Identify chemicals used in hydraulic fracturing Well casing and cementing Identify and test surrounding water wells before and after fracturing* Require reporting of well casing and cementing logs * Not required in all States

41 Water Quantity and Disposal Water Management Plans: Ex: Delaware River Basin Commission
Fresh Water Report Obtain water use permit Identify sources Create Invasive Species Control Plan Submit hydrologic report (groundwater) Obey Pass-by flow guidelines Record volumes delivered Identify water conservation efforts Waste Water Storage Store only in enclosed tanks Test for chemical constituents Waste Water Report Obtain waste disposal permit from approved facility Address all wastewater produced on site Record produced wastewater volumes Record locations and volumes of disposal

42 Hydraulic Fracturing Reporting
STRONGER Recommendations: Identification of contaminate migration pathways Several states require identification and pre-testing of surrounding wells Reporting should be required before and after hydraulic fracturing operations Notification should allow time for state oversight of operations Reporting should include Identification of the materials used Aggregate volumes of fracturing fluids Proppant used Continuous logs of fracture pressures

43 Areas for Regulatory Consideration:
Truck Traffic Consideration Air Quality Emissions Gas Production Diesel Equipment Usage Fugitive Emissions Chemical Transport Considerations Leasing Issues

44 Multiple Horizontal Well Pad
Well Types: Horizontal Well Spacing: 640 Acres Disturb: 3-5 Acres Vertical Well Spacing: 40 Acres Disturb: 2-3 Acres Multiple Horizontal Well Pad Spacing: 640 Acres Disturbance: 4-6 acres Well Spacing Information from: Source: NY State Draft Supplemental EIS: Chapter 5 Natural Gas Development Activities and High Volume Hydraulic Fracturing DOE National Energy Technology Laboratory “Modern Shale Gas Development in the United States: A Primer” StatOilHydro, “Multiple Well Pad Illustration”

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