Barnett Shale

One company's solution to reducing emissions

Hy-Bon, a Midland-based company that has been in the business of vapor recovery since 1952, has a simple solution to the problem of emissions from the water tanks and other production equipment that dot the Barnett Shale these days. The company makes a canister filter that it says can capture 80 percent of low-pressure emissions, condensing heavier hydrocarbon vapors until they drip back into the tank. It says the filter media lasts six months before it needs to be replaced. The issue is particularly  timely give the Environmental Protection Agency's issuance last week of new air pollution rules related to hydraulic fracturing and natural gas production.

-- Jim Fuquay

Natural gas oversupply -- two perspectives

Everybody agrees there is a current glut of natural gas in the U.S., but not everybody agrees on the right response to it. About 2,000 industry members attending the Hart Energy conference in Fort Worth on Wednesday heard one producer and a consultant advocate pursuing numerous measures to boost demand, including exports, while a big user, Dow Chemical, cautioned against the use of government subsidies to accelerate new demand, such as natural gas-fueled vehicles and coal-to-gas switching at electrical utilities. Ken Bromfield, U.S. commercial director at Dow, said his company just committed $4 billion to new facilities, including a new ethylene plant in Louisiana, based on abundant natural gas supply and low prices, which he said give U.S. chemical producers and manufacturers a big advantage over European and Asian competitors. Rather than push exports of liquefied natural gas (LNG), Bromfield said, "I'd rather export it as value-added products." John Harpole, president of Mercator Energy and a consultant who said he works with both buyers and sellers of natural gas, countered that there's enough gas to do all of the above and still keep prices relatively low.

Several participants agreed that producers have not been inclined to sign long-term contracts at today's $2 price level, the lowest in a decade, although Harpole said he thinks producers' willingness to deal long-term is growing as it appears the glut will prove longer-lasting. David Hill, vice president of Natural Gas Economy at Encana, said a big user that wants to lock in supply at low prices can do so by committing the money to take an interest in production, as one steel company has done. "It's happening," Hill said of such arrangements. The conference ends today.

-- Jim Fuquay

Citizens' group, but not city, finds high emissions at Colleyville drill site

A group of Colleyville and Southlake residents said Tuesday it conducted tests recently at a Barnett shale well site in Colleyville that showed emissions at unhealthy levels. Air tests conducted in early February, when Titan Operating hydraulically fractured seven wells, showed one compound, carbon disulfide, over the state's threshold for short-term health impact on Feb. 1 and 2, according to reports from the group and the Earthworks Oil & Gas Accountability Project. Levels of two other compounds, benzene and naphthalene, were over the state's long-term limits only on Feb. 2. None of the chemicals exceeded health limits during another test Feb. 9, according to Earthworks' posted results. Earthworks posted the test results and other analysis on its web site here: www.earthworksaction.org//library.

The City of Colleyville also hired a testing company during the activity. It found no emissions above its threshold levels. The city posted those results here.

Read the Star-Telegram's developing report on the results here.

KTVT-Channel 11 posted a report on the tests here. 

-- Jim Fuquay

XTO's Williams says industry at "decisive moment"

Low natural gas prices are lifting the U.S. economy even as "many citizens are asking questions" about environmental impacts, producing "a decisive moment" in the nation's energy policies, XTO Energy's CEO Jack Williams told an industry meeting in Fort Worth today. Industry needs to continue to pursue more disclosure, such as the FracFocus website listing chemicals used in wells around the country, further monitor wells after drilling and completion and address new issues such as earthquakes near oil and gas operations to meet those concerns, Williams said. He applauded President Barack Obama's support for an "all of the above" solution to meeting U.S. energy needs, while asserting that "sound energy policies do not pick winners and losers" or include "punitive tax policies."

Williams said a similar picture exists in much of the rest of the world, where oil and natural gas shale deposits are providing relatively common. Today's low prices present a challenge to the continued development of natural gas, he said, but XTO will continue parent Exxon Mobil's historical long-term approach to development. He said XTO has completed 16 acquisitions since Exxon bought it nearly two years ago.

-- Jim Fuquay

Pennsylvania drought having limited impact on drilling

Much of Texas recently received much-needed relief from its severe drought. but now Pennsylvania is in a dry spell, and Marcellus Shale operators are having to cope. Reuters reports that one producer says it has reduced drilling, but won't say how much, while others say they're finding the water they need to continue. The story is here.

-- Jim Fuquay

Could Oncor be hit by woes at parent Energy Future Holdings?

Ever since a couple of big investment groups led a buyout of TXU Corp. in 2007, the new company, Energy Future Holdings, has tried to show that it has isolated its regulated utility, Oncor Electric Delivery, from the company's unregulated operations. Critics of the $44-billion deal had worried that if EFH got in financial trouble it would somehow come back to Oncor, a move that could hurt ratepayers. Now Business Week writes that if bond investors' sentiments are any clue, the so-called "ring-fencing" around Oncor might not be exactly rock-solid.

The story, frankly, is deep slogging. But here's a useful nugget:

• "The (Public Utility Commission of Texas) placed two restrictions on the size of dividends Oncor could pay its parents. The first constraint, which expires at the end of the year, stipulates that cash distributions don’t exceed adjusted cumulative net income; the second requires the regulated unit to maintain a capitalization ratio of 60 percent debt to 40 percent equity."
•  The article then quotes a Feb. 27 report by James Hempstead, an analyst at Moody’s: "We believe elements of the ring fence are beginning to show signs of pressure as Oncor is placed into a more meaningful role in assisting both Energy Future Holdings and Texas Competitive Electric Holdings with their interest and debt service obligations."

Here's a link.

-- Jim Fuquay

Texas electricity rates rising?

On Sunday the Star-Telegram took a look at state officials' efforts to assure adequate electricity supply this summer, which included raising the peak price that can be paid to generators during periods of high demand. Taking a cue from a recent Barclays Capital report, we pointed out that electricity futures prices for 2013-2014 showed a rise starting in February in anticipation of the higher price cap. Wednesday, Reuters also linked rising futures prices for Texas power with the regulatory moves. Their story is here.

-- Jim Fuquay

EPA air emissions rules for drilling start to emerge

The Environmental Protection Agency's new rules aimed at reducing pollution related to oil and gas drilling are expected to be officially released today, but some details are becoming available. For one, the industry has until 2015 to comply with requirements to use "green" completions and other practices to capture or prevent emissions. Bloomberg has an early report here.

-- Jim Fuquay

Reuters: McClendon got $1.1 billion in unreported loans

Chesapeake Energy CEO Aubrey McClendon took out $1.1 billion in loans secured by his 2.5 percent interest in thousands of wells the company has drilled over the years, Reuters reported, citing state deed filings. The news service said experts who reviewed the documents said the loans "raise questions about whether McClendon's personal financial deals could compromise his fiduciary duty to Chesapeake investors." McClendon and Chesapeake told Reuters they disagree. McClendon told the news service that "there are no covenants or obligations in my loan documents or mortgages that bind Chesapeake in any way."

The story is here. Forbes has a typically cheeky account here.

-- Jim Fuquay

A light at the end of the tunnel?

Way back in 2008, analysts at Barclays Capital observed that all this natural gas coming out of the Barnett Shale was great, but the prospect of even more gas coming from developing shale fields could be a problem in light of sluggish demand. The financial crisis was just taking hold, industrial demand was soft, and Barclays suggested there could be a bit of a supply/demand mismatch developing. (Here's a story the Star-Telegram published at the time: Download Too much gas)

Now Barclays has a new report suggesting the current gas glut just might not be endless. Summer will be a sad story, especially if the country's natural gas storage tops out. But by year's end gas could be at $3 per million Btu, analysts say, with $3.25 projected for 2013. No producer will likely throw a party over that news, but Barclays also says "there is more upside than downside risk to this outlook." Gas should continue to displace coal for electricity generation, low prices this year are idling gas drilling rigs faster than expected and supply will eventually fall, perhaps by about 1 billion cubic feet a day in 2013. All in all, gas could be back to $4 by 2015, Barclays figures.

-- Jim Fuquay