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Original article URL: http://bridgemi.com/2012/09/drooping-natural-gas-prices-slow-rush-to-frack/

Economy & competitive position/Quality of life

Drooping natural gas prices slow rush to ‘frack’

Two years after oil and gas companies spent a record $178 million for the right to drill on state land, the rush to tap deep deposits of natural gas using a controversial drilling technology known as “fracking” still has momentum in Michigan.

Even the Chinese government has joined the pursuit of what could be large deposits of deep shale natural gas in Michigan.

But the pace of this new gas rush is nowhere near that seen in other Great Lakes states.

The future of fracking and natural gas prices will have a direct impact on budgets across Michigan. About 80 percent of Michigan homes are heated with natural gas, the state says. Natural gas also powered 11 percent of the state’s electricity generation in 2011, up from 8 percent in 2009, according to federal figures.

The first two wells to successfully produce natural gas from a layer of shale rock called the Utica-Collingwood formation came on line earlier this year. Canadian-based Encana Corp. owns both wells.

“The Encana wells are pretty good producers,” said Hal Fitch, chief of the Michigan Department of Environmental Quality’s Oil, Gas and Minerals Unit.

The DEQ has approved 26 other Utica-Collingwood wells; 14 other permit applications are pending, according to state records.

State map of fracking permit sites

By comparison, 1,400 such wells were drilled last year in Pennsylvania alone. An Ohio report says 2,300 such wells could be drilled in that state in the next three years.

Previous coverage

Modern gas rush stirs controversy in Michigan (July 13, 2011)

Major energy firms target Michigan for gas (July 13, 2011)

Quiet settles over environmental debate at Capitol (Oct. 27, 2011)

In an ironic twist, the amount of drilling elsewhere is tempering activity in Michigan. Fitch and industry officials said the only thing slowing Michigan’s modern gas rush is the low price of natural gas. Widespread use of fracking in 30 other states has created a glut of natural gas in the U.S., which has driven down prices.

“The market and prices are the biggest drivers in oil and gas exploration,” Fitch said. “If prices go up, I think we’ll see an increase in drilling.”

But the federal Energy Information Administration said in August that it expects gas consumption to increase less than 1 percent in 2013. And with supplies on the uptick, EIA expects prices to dip next year.

All wells drilled into the Utica-Collingwood formation, which is about two miles underground, use hydraulic fracturing, or fracking, to release natural gas and oil trapped in the shale. To frack a well, drillers bore a hole about two miles down and up to two miles horizontally. They then pump several million gallons of water mixed with sand and thousands of gallons of sometimes toxic chemicals into the borehole, which resembles a capital L, under extremely high pressure. The intense pressure fractures the shale and allows natural gas and oil to flow to the surface.

Encana spokesman Doug Hock said the company’s wells in Kalkaska County are promising because both have produced methane, ethane and propane. Some power plants burn methane, ethane is used to make plastics and propane is widely used to heat rural homes.

“We’re encouraged by what we’ve seen to date,” Hock said.

He said Encana plans to drill two more Utica-Collingwood wells in Kalkaska County and three others in Crawford County.

The prospect of large deposits of natural gas under Michigan has attracted huge investments by the oil and gas industry, prompted lawsuits from property owners who fear fracking will contaminate drinking water wells and triggered an effort to put a fracking ban moratorium on the 2014 statewide ballot.

Oil and gas companies already have spent more than $435 million for the right to drill for oil and natural gas on state and private lands in Michigan, according to state and industry data.

Forbes magazine recently reported that China’s government-controlled energy company, Sinopec, invested $2.5 billion in a joint venture with Oklahoma-based Devon Energy. Devon has permits to drill two Utica-Collingwood wells in Roscommon County and is seeking another state permit to drill in Missaukee County; the company also is drilling oil and natural gas wells in Gladwin County, according to state officials.

Fracking = more gas

Use of fracking is cited by the EIA as a driver in 12 straight years of increases in proved natural gas reserves in the U.S.:

http://www.eia.gov/naturalgas/crudeoilreserves/ 

Meanwhile, state and federal agencies are investigating whether two of the nation’s largest natural gas producers — Encana and Oklahoma-based Chesapeake Energy — committed anti-trust violations by conspiring to hold down prices paid for oil and gas properties in Michigan.

A series of reports by the Reuters news organization claimed that emails between executives at Chesapeake and its Canadian rival, Encana, showed the companies colluded to hold down prices on oil and gas properties.

Both companies have denied any wrongdoing, but have acknowledged that the U.S. Department of Justice and Michigan Attorney General’s Office are investigating the antitrust allegations.

State officials wouldn’t comment on the investigation.

Fracking has been linked to pollution incidents nationwide. A Duke University study published this summer found that fracking puts drinking-water supplies in Pennsylvania at risk by creating pathways that allow naturally occurring contaminants to migrate into water supplies. That study has come under harsh criticism from the oil and gas industry and a scientist on the National Academy of Science’s review panel.

The U.S. Environmental Protection Agency is studying whether fracking poses safety threats and should be more tightly regulated.

Fitch said the oil and gas industry has safely fracked thousands of wells in Michigan over the past 50 years.

Most of those wells were drilled into Michigan’s Antrim formation, where gas deposits are found at a depth of about 1,000 feet deep, according to state records. Until recently, drillers in Michigan had never extracted natural gas from the Utica-Collingwood, which is between 10,000 feet and 12,000 feet underground. The greater depth requires injecting 100 times more water and more chemicals than are used in an Antrim well, according to state records.

About 25 percent of the fracking fluid remains in the well. The rest is hauled away and discarded in deep disposal wells.

Jeff Alexander is owner of J. Alexander Communications LLC and the author of “Pandora’s Locks: The Opening of the Great Lakes – St. Lawrence Seaway.” He’s a former staff writer for the Muskegon Chronicle.

12 comments from Bridge readers.Add mine!

  1. Lance Weyeneth

    It’s rather disingenuous to see Mr. Fitch claim we’ve been “fracking” in Michigan for 50 years… I challenge and encourage any visitor to view an Antrim well then visit one of two Collingwood wells currently operating in Excelsior Township, Kalkaska County, just south of M-72 off Sunset Trail…

    This isn’t your grandparents derrick on the family “40″…

    1. Jeff Alexander

      Thanks for your comments, Lance. The article makes clear that modern fracking goes far deeper and requires using 100 times more water and more chemicals than previous fracking techniques. Please see the last three paragraphs of the article, which read:

      Fitch said the oil and gas industry has safely fracked thousands of wells in Michigan over the past 50 years.

      Most of those wells were drilled into Michigan’s Antrim formation, where gas deposits are found at a depth of about 1,000 feet deep, according to state records. Until recently, drillers in Michigan had never extracted natural gas from the Utica-Collingwood, which is between 10,000 feet and 12,000 feet underground. The greater depth requires injecting 100 times more water and more chemicals than are used in an Antrim well, according to state records.

      About 25 percent of the fracking fluid remains in the well. The rest is hauled away and discarded in deep disposal wells.

      Thanks for your interest.

      Jeff

    2. Duane

      Lance,

      If by ‘fracking’ you mean using a high pressure hydraulic breaking down of the honycomb formation where the hydrocarbons are located to facilate the collection through a well pipe. I will offer that one of Michigan’s larger employers was providing that specific service around the country back in the 1960s. They had even develop specialized vehicles that would go to a well site to provide the service and then drive on to another well site.

      It may not have been on the specific site you are concerned with but the activity and expertise resided here in Michigan over 50 years ago. That company has since sold off the service business and the technology has most liely evolved but they did fracture wells to faciliate the collection of hydorcarbons.

  2. Lee Smith

    The author of this story has missed the point..

    It is significant though that in spite of present low natural gas and natural gas liquid prices, companies are continuing to drill and frack in Michigan.

    Where modern fracking has been successful, the process typically starts with a few wells that locate the most favorable rocks and fracking techniques and then expands from the drilling of a few wells in a year to the drilling of hundreds in a year.

    Encana or Devon or Chevron or Rosetta or some other company, with their continued drilling programs, could bring in a well in the Collingwood or the A-1 Carbonate in Michigan that does yield significant quantities of natural gas liquids or oil. Should this key liquids-rich well be drilled, companies could proceed to drill and frack even more than those 1,700 wells that Encana says they have identified.

    The above comments are a few sentences from an article I wrote that was published this past Sunday in the print edition of the Midland Daily News.

  3. Big D

    I’m shocked to hear that these wells produce Propane. I thought propane was only available as a by-product of refining (fractional distillation) of crude oil. That was the explanation for why natural gas prices have plummeted yet propane prices have skyrocketed. If you’re a rural resident, you are PO’d like me.

    When will propane prices become reasonable? Obviously, there isn’t adequate competition. Why is that?

    1. Matt

      D-I-S-T-R-I-B-U-T-I-O-N. You are right about it and Yes it sucks

  4. LINDA SUNKLE-PIERUCKI

    The larger issue here may be the one nobody will talk about: natural gas prices are at record lows-and our utility bills at ever-increasing highs. Instead of high-cost/low-return ‘renewable’ wind or solar, why arent we replacing decommissioned coal-fired generating plants with natural gas? For that matter, why are we removing dams that could be repaired and retrofitted with new high-efficiency hydro turbines? We could be meeting goals for renewable energy sources and at the same time removing and replacing coal generation with cleaner natural gas.Then it might make sense to have this ‘fracking’ discussion. Until then, this is rather an exercise in irrelevancy.

  5. Brett Meyer

    I can’t believe that the tone of this article is “drill baby drill.” Fracking has devastating environmental implications, namely the pollution of our groundwater. These companies should invest 178 million dollars in alternatives to meet our rising electricity and heating demands in Michigan. We could power the state with wave tech in the Great Lakes and heat/cool our homes with geothermal. No pollution. This is big business and would be a boon for our state economy. Jobs, r&d, patents, technology — you name it.

    1. Jeff Alexander

      Thanks for your comments, Brett. I wrote the article and I strongly disagree that it has a “drill, baby drill” emphasis. This is a news article that objectively presents both sides of a very controversial issue. The article makes clear that fracking has caused many problems in other states. If newly fracked well in Michigan cause environmental problems, I will write about those. The point of this article was to show that the oil and gas industry (here and in China) is intensely interested in fracking for deep shale gas reserves in Michigan. The only thing holding them back is low gas prices.

    2. Duane

      Brett,

      What are the devasting impacts that you are concerned about. We have a long history of the practice and if there have been specific events that have done damage then we should be asking the involved companies how they are addressing the risks that have been associated with past events.

  6. Paul

    Hey Duane, is your water supply dependent on a drilled well system either individually or as part of a city? If so, how about we invite Encana or Chesapeake Energy to drill a couple hundred wells around you and FRACK the hell out of the area? If your water and air remains sweet, all well and good, but if not, enjoy your gas.

    Hal Fitch is a shill for BIG OIL and GAS, and RIO TINTO’s sulfide mining. Guess where he will be going when he retires from “state service”.

    1. Duane

      Paul,

      I really don’t care how Fitch makes his living, I do prefer that it be legal. But the fact is that he is accurate that ‘Fracking’ has been going on for decades.

      I believe the smarter way to look at and address the problem is identify the concerns, especially those that have actually happened, and ask how the drillers and their customers will prevent or mitigate them. If the have no ideas then stop them. However, if they have proven methods then why not let them drill. Do you want the energy, have you been benefiting from that type of energy, will we benefit from that type of energy?

      There are many risks that have proven very harmful and yet people have learned how to control or mitigate them so why shouldn’t that be considered for this problem?

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