The increasing focus on finding ways to depend less on foreign energy sources, coupled with the huge shale plays now available to U.S. and Canadian energy producers, is good news for the valve industry. However, with gas prices at near-record lows and lingering questions about the environmental impact of fracturing, challenges lie ahead.
The recent increase in shale gas production in the U.S. and Canada, made possible largely by technological advances, has meant access to reserves nearly impossible to tap a mere five years ago. For energy producers, as well as valve, actuator and control manufacturers and distributors, this access creates potential for profitable exploration. For consumers, it means a relatively inexpensive source of clean energy not subject to the whims and vagaries of politically unstable countries.
Still, while low natural gas prices are a boon to consumers and utilities, those lower prices have created a real challenge to producers over the past year. As of mid-February 2012, prices were hovering around $2.50 per thousand cubic feet, necessitating cutbacks in the Marcellus shale area and making it less viable to drill in more remote locations like Haynesville and Barnett. Several companies have recently announced intentions to either reduce the number of new wells drilled or reduce production at operating wells.
However, prices that go down will eventually come up, and with them, production rates will rise. In the meantime, unconventional natural gas producers and those who supply the industry continue to develop more efficient exploration and production methods, engineer more robust materials and implement special practices that balance economic viability with environmental responsibility.
So what challenges does this lucrative industry face?
Economics and Water Use
Mike Romano, global market manager, Unconventional Oil and Gas, Tyco Flow Control, says that the recent drop in gas prices is one of the most significant challenges to unconventional gas production today.
He points to the decoupling of gas from oil prices.
“Spot prices have dropped from around $12 per million British Thermal Units (BTU) in 2008. Now they’re at $2.50. Oil went down from $130 to $70 per barrel, but came back up to $100. Before, when gas or oil prices went up, the other followed, but when shale gas came into play, the prices started going in different directions.”
Why did this happen? Romano says because of lower demand caused by the financial crisis compounded by dramatic growth of gas production through new technologies.
Another challenge to the industry today is water management. Hydraulic fracturing for a typical horizontal shale gas well takes about 4.5 million gallons of water. Detractors of fracturing have accused producers of depleting the drinking water table even though companies such as Chesapeake and Encana have made it a practice to steer away from potable water use. In addition to using untreated water from rivers, creeks, lakes and groundwater, they use discharge water from industrial or city wastewater treatment plants. The fracturing industry also has adopted the practice of reusing frac water to lower consumption of new sources.
While the overall mix of water sources depends on the region, the costs associated with transporting water in and out of a site can be as much as $1 per barrel, a sizeable incentive to reduce water use and recycle whenever possible.
In addition to the water source controversy, the fluid used in the fracing process, which is comprised of water, sand and some chemicals, must be extracted from the well and either recycled or disposed of through proper channels. Surface water discharges of this flowback are regulated by the National Pollutant Discharge Elimination System program under the Environmental Protection Agency (EPA), which requires flowback to be treated before discharge into surface water or underground injection be treated before its discharge. Underground injection of flowback is regulated by either EPA’s Underground Injection Control (UIC) program or a state with primary UIC enforcement authority.
The problem was compounded recently when increased underground injection of frac wastewater was blamed for causing earthquakes near Youngstown, OH. Environmentalists used what happened to call for broader federal regulation and drilling moratoriums. What effect this will have on continued development is yet to be seen.
In a recent interview on ValveMagazine.com, Chris Tucker, team lead, Energy in Depth (EID), pointed out that public perception is a major challenge facing the shale gas industry. [EID is a research, education and public outreach campaign launched by the Independent Petroleum Association of America in 2009. Tucker was interviewed for an article posted Feb. 9, 2012].
While valve manufacturers, producers and pipeline operators seek ways to reduce emissions, improve safety and reduce the environmental impact of hydraulic fracturing and natural gas transport, opponents have gone to great lengths to malign these efforts. EID addresses this issue through media education and public outreach programs, but negative publicity remains a constant battle.
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