Jun

16

Can Government Make a Disaster From Nothing at All?

June 16, 2009 | 2 Comments

IHS Global Insight of Massachusetts under a contract from the American Petroleum Institute has rolled out its report about the consequences of a Federal takeover of the regulations from states overseeing the oil and gas well finishing process called “hydraulic fracturing.”

Before we start, hydraulic fracturing is packing water, some solvents, and strong sand and special chemicals into the rocks thousands of feet down so that oil and gas can flow back out.  It’s a kind of miniature, slow motion cracking of the rocks much further out from the little well hole.  One could also call it an explosion, but it takes hours, running into days to build up the pressure, to get some cracking and pack the sand into the fissures.  It turns a little hole into solid rock into a hole in lots of little rocks.

It’s just critical to keep this technology in use and further development.

Hydraulic fracturing has a 50 year history beginning with quite simple pressure buildups to today’s highly sophisticated multi directional wells in rocks that only a half decade or so ago were considered hopeless repositories of petroleum.  Today, using hydraulic fracturing a well or even a set of wells can release huge quantities of natural gas.  This can easily be seen in the natural gas price at the home meter to fertilizer for food and investments in even more production.  In the coming months more technology is coming and is being blended with technology that looks into the earth to guide where more effort should be applied.

All that, the potential and the world’s lowest prices of natural gas for Americans are at risk from a disaster of rearranging (and adding) regulations.  The Federal proposal is so bad that the amazing situation of business preferring a single regulatory framework over 50 regulations from the states is not preferable.  Yup, government can make a disaster from nothing at all, which isn’t amazing at all.

The matter is a fully Democrat sponsored attempt to place regulations of the Safe Drinking Water Act thousands of feet down below any source of water for human use.  The bills, a House version and the Senate versions are very similar, which cautions one to realize this is a concerted attempt to subvert the existing framework of petroleum operations and regulations into a whole new field of bureaucratic interference.

Just to make things worse, the Feds propose not to unify regulations; they want to ADD a Federal layer.  IHS Global Insight’s study, “Measuring the Economics and Energy Impacts of Proposals to Regulate Hydraulic Fracturing,” predicts the number of new U.S. wells drilled would plummet 20.5 percent in the first five-year period.  That would potentially reduce natural gas production by about 10 percent from 2008 levels by 2014, a mere 5 years out.

Remember the last marginal buyer’s impact on prices?  Carving off 10% of supply isn’t going to be cheap for heating homes, running business and industry or generating electricity.  Someone is passing put stupidal capsules in D.C.

There are problems, to be sure. In the fight last month the Ground Water Protection Council released a study that finding regulation of oil and gas field activities, including hydraulic fracturing, is best accomplished at the state level where regional and local conditions are best understood and where state regulators are on hand to conduct inspections and oversee specific operations like well construction, testing and plugging.

The Ground Water study is an excellent piece to grasp what’s been going on and raises the issue about why the Feds are digging here for more power anyway.  The history and background discussed go far to understand the process and that a few states are behind.

Is it serious?  If you live over a leaking well it is, but those aren’t so common as many would have us believe.  What is an issue is the control and enforcement of the law on the books.  Some states do lack enough oversight.  Arguments over who is to pay for control and cleanup is usually in the domain of lawyers consuming time and often more money than the clean up.  Drives people nuts, understandably, but is more regulation and economic costs the answers to the problems?

Today in the U.S., where over 95 percent of wells are routinely treated using fracturing, the impact of eliminating hydraulic fracturing on production would be “permanent and severe,” the IHS report notes.  The production slippage would be significant.  Part of the new regulations is to restrict the types of materials used to fracture rock.  You and I both know better than to think any Congressperson(s) can better decide what’s appropriate to use.  But IHS has figured that the proposed regulations would impact gas production falling 4.4 trillion cubic feet or 22 percent, while oil production could slip 400,000 barrels per day or 8 percent.  These are major numbers, tearing out more than the marginal buyers, driving prices to unpredictable new highs.

API President Jack Gerard said, “More than one million wells have been completed using this technology. Unnecessary regulation of this practice would only hurt the nation’s energy security and threaten our economy.”  That’s public relations nicety comment.

In raw numbers the study found elimination of the use of hydraulic fracturing would be catastrophic to the development of American natural gas and oil, with a 79 percent drop in well completions, resulting in a 45 percent reduction in natural gas production and a 17 percent reduction in oil production by 2014.  Those are real American jobs.

Everyone world wide would be affected.  Today the U.S. is a very small importer of natural gas.  The proposed bill would certainly change that forcing the U.S. into the world natural gas market in a big way.  No one, other than some special interests, injured parties frustrated at state responsiveness and a raft of natural gas exporters stands to gain.  And the last ones to benefit would be the injured Americans, anyway.  Just imagine the resentment of the world at the U.S closing in even more production.  This is a way past being a stupid proposal.

But in the end the IHS report is a model, but it’s formed up from real numbers from a solid historical database asking trends from the elimination of components.  Not a particularly complex or difficult problem. “When 95% of current wells could not be drilled the impact would be” isn’t real hard to grasp.  Debating over even double digit errors still leaves the economy in a huge disaster.

The geothermal folks better wake up on this too.  Hydraulic fracturing is going to become important in the geothermal field soon.

So I have to ask myself, what are the side effects from stupidal capsules? Sleeping better, better vigor and health, ah, making more money?  There’s a motive in there begging for a journalist’s investigation.  It won’t happen, it’s too incredible to believe to start with, but it is a proposed bill.  Yup, government can make a disaster from nothing at all.  Just pass around some campaign money and stupidal capsules.


Comments

2 Comments so far

  1. Matt on June 16, 2009 5:31 AM

    This kind of stupidity is not accidental. The Govt regulators consistently work to discourage drilling and push up the price of oil.

    Without government intervention – the price of gas at the pump would still be under a dollar a gallon.

  2. lawyer on January 15, 2010 11:31 PM

    Hi,

    Really Fantastic post, just found This blogpost feed from Digg upcoming New Story Section. Great post & Very useful for all of us.

    Keep it up!
    David

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