Executives Fret that Public Relations Problems Could Kill the Shale Revolution

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The decision this week by Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, The Netherlands) to site a cracking unit atop the Marcellus Shale is another milestone demonstrating the significance of gas in shale formations, speakers told a KEMA conference in Denver on Tuesday. "They're bringing Texas to Pennsylvania," David Carroll, president of the Gas Technology Institute (GTI) (Chicago, Illinois), told about 100 attendees at KEMA's fourth annual "Utility of the Future Leadership Forum."

But Carroll added, "Shale has two Achilles Heels: public perception and waste-water handling." His comments were echoed by other gas-utility executives speaking at a panel discussion on Tuesday.

Gas from shale formations has transformed the U.S. natural gas resource base, adding enormous new supplies and helping keep gas prices low. For more information, see May 2, 2011, article - U.S. Natural Gas Resource Base Grows, Keeping Prices Low.

"Shale is the big thing right now," said Kenneth DeFontes Jr., president and chief executive of Baltimore Gas and Electric Company (Baltimore, Maryland), a unit of Constellation Energy Group Incorporated (NYSE:CEG) (Baltimore). "Everyone's betting on shale to keep gas at $4" per million British thermal units (MMBtu), DeFontes told Industrial Info. "$4 gas is what killed Calvert Cliffs Unit 3," a proposed nuclear plant that was being developed by another unit of Constellation. For more on that issue, see the October 15, 2010, article - Constellation Energy Exits Calvert Cliffs Unit 3, Stunning Industry and Potentially Slowing Nuclear Renaissance.

The shale revolution could be slowed, or stopped, "if one driller makes a mistake near New York," Bill Moody, vice president of gas resources for Southwest Gas Corporation (NYSE:SWX) (Las Vegas, Nevada), told the KEMA conference. Craig Wagstaff, senior vice president of Questar Gas Company (Salt Lake City, Utah), a unit of Questar Corporation (NYSE:STR) (Salt Lake City), commented, "The worst driller will create a public relations nightmare for everyone."

Another executive, James Torgerson, president and chief executive at UIL Holdings Corporation (NYSE:UIL) (New Haven, Connecticut), told the conference: "Hydraulic fracturing poses a public relations issue, and a potential environmental issue. I think the big companies operating in shales will treat wastewater properly. The real risk is with smaller operators who may cut corners by not cementing wells properly."

Speakers on the panel made general references to recent instances where Oil & Gas Producers operating in the Marcellus Shale were fined for environmental violations. Last month, Pennsylvania levied a $1 1 million fine on Chesapeake Energy Corporation (NYSE:CHK) (Oklahoma City, Oklahoma) for natural gas drilling violations in the Marcellus Shale. Most of that fine stems from contamination of drinking water supplies in Bradford County, in northern Pennsylvania. The state's Department of Environmental Protection (DEP) blamed improper concrete casings of several wells for allowing natural gas to seep into drinking-water supplies. In one instance, gas visibly bubbled to the surface of the Susquehanna River. The incidents occurred in Tuscarora, Terry, Monroe, Towanda and Wilmot townships.

Also, in December 2010, Cabot Oil & Gas Corporation (NYSE:COG) (Houston, Texas) agreed to pay $4.1 million to residents in the northern Pennsylvania town of Dimock, where private water wells were contaminated with methane gas. Cabot also agreed to pay a fine of $500,000 in that case.

In another development, New York Attorney General Eric T. Schneiderman last week sued five federal agencies, including the U.S. Environmental Protection Agency (EPA) (Washington, D.C.), for failing to enforce provisions of the National Environmental Policy Act (NEPA) that apply to hydraulic fracturing, according to an article in American Metal Market's online news service. In the suit, Schneiderman argues that the federal government must "follow the facts and understand the public health and safety effects posed by potential natural gas development."

Properly performed, the hydraulic fracturing process poses no threat to groundwater, insisted the executives who spoke at the KEMA event. They noted that drinking-water supplies typically are found several hundred feet under the surface, while hydraulic fracturing typically takes place several thousand feet beneath the surface. In the hydraulic fracturing process, large volumes of water, chemicals and proppants like sand at injected at high pressure into a well to shatter the shale and release the gas.

The executives noted that New York and Pennsylvania are assessing the environmental impact of hydraulic fracturing, and Maryland recently announced it wants to open its own investigation of the practice. The U.S. EPA also is conducting its assessment of the science behind hydraulic fracturing. Major news organizations like "The Wall Street Journal," "The New York Times," CNN, and "The Philadelphia Inquirer" have carried news stories on public concern about the environmental impacts of hydraulic fracturing.

Carroll of the Gas Technology Institute told Industrial Info his organization has increased its safety training for companies operating in shale formations. He also welcomed the entry of large national oil companies and super-major oil companies into the Marcellus Shale: they would bring environmental expertise and best practices in safety. Asked if the industry was doing enough to calm an anxious public about the safety of hydraulic fracturing, Driscoll said, "probably not."

"Safety and supply are the two biggest issues for any gas utility," Southwest Gas' Moody said. "Eventually, the science on hydraulic fracturing will win, if we don't have problems on the surface" with wastewater treatment and disposal. "But remember, in today's world, perception is reality and facts are negotiable.

"What we really need is to see is an executive drink the treated hydrofracking wastewater" to convince the public that it poses no environmental danger. "It might taste a little like dishwater, but that's a small price to pay."

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