Hydraulic Fracturing – Outlook for the Next Four Years

Hydraulic Fracturing – Outlook for the Next Four Years

Remarks by Marianne Horinko, President, The Horinko Group
WWEMA 40th Annual Washington Forum | Washington, DC| April 24, 2013

Building on THG’s landmark 2012 report, Hydraulic Fracturing: Guidebook on the Current and Future Environmental, Regulatory, and Legal Challenges, Marianne Horinko recently presented at the Water & Wastewater Equipment Manufactures Association’s 40th Annual Washington Forum to discuss the environmental challenges hydraulic fracturing presents, the state of regulation and litigation governing its practice, and opportunities for technology providers in finding safe solutions for reducing its environmental impact.

Since the formation of The Horinko Group in 2008, my team has been closely tracking many energy sectors and considering their economic viability, energy security, and environmental impact.  Before I delve too far into hydraulic fracturing and the related environmental, regulatory and legal challenges, I believe it is important to describe the energy landscape as a whole, while sharing some key facts and insights that I’ve gained along the way.

Renewable energy is undoubtedly an important sector and one which we would, of course, like to see succeed.  In 2012, wind, solar, geothermal, and hydropower accounted for almost 15% of energy production in the United States.  Each suffers from intermittency and location issues, as well as extensive capital requirements.  Mixed public-private investment might ameliorate these roadblocks.

Biofuel production has been on the rise since the establishment of the first renewable fuel standard (RFS) in the Energy Policy Act of 2005.  The RFS program has since been expanded, and at the same time, biofuels have become the subject of the “food versus fuel” debate.  Biofuels are still necessitated by the RFS program and Clean Air Act regulations that require the use of reformulated gasoline, so their development continues.

Nuclear energy production has also been on the rise since 2005.  Concerns associated with waste disposal and safety, especially following the Fukushima disaster, has brought into question the future of its growth.

Petroleum continues to be central to our country’s energy resources.  Despite challenges, domestic crude oil production has risen steadily since 2009 and this Administration has committed to safe and responsible expansion of crude oil production.  New fuel economy standards, coupled with new production technologies, have resulted in a rise in domestic oil reserves.  The course of offshore oil production was altered and its future became more uncertain following the BP oil spill.

Shale and tight oil, two additional forms of domestic hydrocarbons, are accessed using the same technologies used in natural gas extraction.  Tight oil development has contributed to the reversal of more than two decades of declining U.S. oil reserves.  Both shale and tight oil represent a growing role for domestically produced hydrocarbons in meeting our nation’s energy demands.

This brings us to the primary focus of today’s discussion – natural gas.  Natural gas production, especially shale gas, has seen a significant rise in recent years with the improvement of directional drilling and hydraulic fracturing technologies.  The Energy Information Administration has estimated that U.S. natural gas reserve volumes are equivalent to a 93-year supply at current consumption rates.

Increased shale gas production and the extraordinarily low prices of natural gas that this production has brought about have had enormous economic impacts – job growth, decreased reliance on costly liquefied natural gas imports, and enabling LNG exports.  Industries and homeowners stand to gain from the lowered cost and increased price stability.

Given the growth and expected future impacts of natural gas, The Horinko Group conducted a study this past fall to look at the current environmental, regulatory, and legal issues tied to hydraulic fracturing.

Environmental impacts and health issues associated with shale gas are still being investigated.  There are unintended consequences in every step of the process to the air, water, and climate.  With regards to water, potential groundwater contamination has received the most public attention, but wastewater management, and water withdrawal volumes may be more notable concerns.

Turning the focus to the regulatory landscape, it is clear that rapid growth in the natural gas industry (estimates suggest that 11,400 new wells are being drilled each year) makes pragmatic regulation, permitting, and enforcement difficult.  The U.S. is gradually working to resolve this.

Natural gas development activities fall under a host of federal state and local regulations, but are for the most part regulated at the state level.  This framework opens the door for inconsistencies in the level of environmental protection across different states.  This is true of water withdrawal limits, recycled water usage standards, and wastewater management requirements.  Each of these components of the gas extraction process is regulated at the state level.  Therefore, operations in different states vary in their degree of protectiveness of the surrounding water resources.

There has been some federal activity to address these discrepancies.  In October 2011, EPA initiated a rulemaking process to address wastewater concerns from shale gas development when water is disposed of via treatment facilities.  New standards are expected to be published for comment in 2014.  EPA has also been investigating the impact of hydraulic fracturing on drinking water sources in a multi-year study.  These results are also due out in 2014.

With regard to the legal landscape, litigation has escalated concerning aquifer contamination, disposal of wastewater, and property rights.  Many of these cases allege a causal connection between hydraulic fracturing and water contamination.  Thus far, the majority of these cases has reached settlement agreements or has been dismissed.  Emerging scientific evidence is informing decision-making where specific regulations are absent, and the legal precedent is certainly still developing.

Our study concludes that the economic potential that the development of U.S. natural gas supply holds is undeniable.  Unconventional reserves have led to job creation, decreased energy costs, reduced dependence on foreign resources, and if exported, could come to bear on the balance of trade and improve our nation’s international negotiating position.  It is also generally agreed upon that natural gas for electricity generation is a cleaner burning fuel, with fewer air pollutants and greenhouse gas emissions, than coal power.

The risks of these practices, however, are yet to be fully known.  The lack of concrete information has led to public distrust, restrictive regulation, litigation, and, in some cases, outright bans.  For these results to be avoided, and for protective practices to become widespread, industry must be proactive in self-regulation and sensitive to concerns.

In particular, focus must be placed on finding and implementing innovative methods or technologies for minimizing impact on water resources and reusing wastewater generated.  Advanced water treatment technologies have emerged and recycling of drilling water is taking place on some sites.However, not much has changed, as it is often more cost effective for drillers to continue using traditional wastewater disposal methods or employ the least expensive treatment methods.  There exists an opportunity for technology manufacturers to innovate around these issues, partner with industry players, conduct pilot projects, and develop solutions that can be scaled across this rapidly growing industry.

Given the promise of hydraulic fracturing and horizontal drilling and their proven contributions to our nation’s energy supply, these technologies must be explored with a renewed commitment to safe, environmentally sound development.

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