Fracking Market Continues to Grow: Despite New Regs, HF Market Expected to Reach $64 Billion by 2017

HBW Resources: Ollison Hydraulic Fracturing Report

Below is a summary prepared by Bo Ollison, HBW Resources’ Senior Director of Policy, of publicly available activities currently underway at the federal, state and international levels that could impact the use of hydraulic fracturing for oil and gas development.  HBW Resources is monitoring these activities to ensure that responsible and feasible policies based on sound science are advanced.

Highlights

  • Ohio Department of Natural Resources plans to propose new draft rules in the coming weeks.
  • A new rule has taken effect that requires all oil and gas well operators in Oklahoma to report the chemicals used in hydraulic fracturing.
  • Energy Corporation of America and China Shenhua Energy Company subsidiary Shenhua America Holdings Corporation announced that the two companies have entered into a 50/50 joint venture to develop 25 natural gas wells in Greene County, PA.
  • LyondellBasell announced that its methanol plant at Channelview, Texas, was placed into service in the fourth-quarter 2013 to take advantage of low-cost natural gas from shale formations.
  • Wyoming Gov. Matt Mead (R) proposed allocating $3 million to pay for plugging the hundreds of abandoned drilling wells and reclaiming the land around them.
  • Natural gas prices rose steadily on the spot market in the latter part of 2013.
  • The global hydraulic fracturing market will grow from estimated $31 billion in 2011. This value is expected to increase from $40 billion in 2012 to $64 billion by 2017.
  • A new natural-gas processing plant is operating in eastern Ohio. The $375 million Hickory Bend cryogenic processing plants at New Middletown in Mahoning County began operations on Dec. 31.
  • Production results from Ohio’s horizontal shale wells for the third quarter of 2013 have been released by the Ohio Department of Natural Resources. The 245 wells produced 1,332,477 barrels of oil and 33,606,075 Mcf (1,000 cubic feet) of natural gas.
  • Livingston County (MI) Democrats want the county Board of Commissioners to take a stand against potential hydraulic fracturing in the county.

States 

State Legislative Update: Please see the linked spreadsheet for an updated listing of state legislation dealing with hydraulic fracturing.

California
California lawmakers are calling on Gov. Jerry Brown to impose a moratorium on the drilling process known as hydraulic fracturing. California is at work crafting regulations to govern hydraulic fracturing, or fracking, in which well operators blast a potent mix of chemicals and water underground to shatter energy-trapping rock formations. The new guidelines will set up a permitting system, require more groundwater testing and force companies to disclose information about where they plan to frack and what chemicals they will use. Those forthcoming regulations are the product of a new law passed last year. Senate Bill 4, by state Sen. Fran Pavley, (D, District 27) was less stringent than other proposed fracking measures that would have halted the practice outright. I think almost everyone walked out of session feeling unsatisfied, so we want to make sure there is accountability on this industry,” said Assemblyman Marc Levine (D, District 10) who last year carried an unsuccessful fracking bill. Given concerns about the impacts of fracking on groundwater and public health, Levine said, he and three other Assembly members have sent Brown a letter asking for a statewide ban on fracking “until health and environmental concerns are addressed.” Levine said he hoped the governor would defer continued fracking operations until regulators have finished the year-long process of laying down new fracking rules.

Public input on a proposed environmental impact report being prepared for statewide oil and gas well stimulation activities, better known as hydraulic fracturing, will be taken next week in Santa Maria. The California Department of Conservation will host a public meeting from 3 to 7 p.m. Monday, Jan. 13, in the Santa Barbara County Supervisors Hearing Room, 511 E. Lakeside Parkway. For more information, please contact us.

Colorado
Activists behind local fracking bans that passed in four counties in Colorado in November have formed the Colorado Community Rights Network to work on an amendment to the Colorado state constitution that would appear on the ballot in November. Organizers plan to finish language for the ballot initiative in the next week or so, after which they would have to collect signatures to get it on the ballot. 86,105 valid signatures would need to be presented to the Colorado Secretary of State’s Office — to qualify the measure for the November ballot.

Michigan
Livingston County Democrats want the county Board of Commissioners to take a stand against potential hydraulic fracturing in the county. State law doesn’t empower county or local governments to or place a moratorium on the practice. It only requires notification of drilling-permit applications to municipalities with 70,000 or more people and to county officials. County Democratic Party chair Judy Daubenmier said county officials could take separate action, including asking the county clerk to announce drilling-permit applications to local governments and setting up a “clearinghouse of information” on ordinances townships could pass to regulate drilling sites. Daubenmier noted Conway Township’s pursuit of model ordinances crafted by Traverse City-based For Love of Water. FLOW’s ordinance package includes regulation of work hours, noise levels and disposal of wastewater, she said. She called on the county government to draft model hydraulic-fracturing ordinances local governments could follow; host a FLOW meeting in the county; and instruct the county’s emergency responders to consult with other communities to be best prepared in cases of spills or accidents on drilling sites. For more information, please contact HBW Resources.

New York
Environmental groups opposed to natural gas drilling using high-volume hydraulic fracturing plan to make a lot of noise at the Empire State Plaza this week. They plan to form a quarter-mile-long line of sign-waving, chanting protesters along the underground Concourse between the Capitol and the convention center where Gov. Andrew Cuomo is giving his State of the State address.

Ohio
Summit Midstream Partners will be acquiring Blackhawk Midstream’s equity interest in Ohio Gathering Company and Ohio Condensate Company. Ohio Gathering owns, operates and is developing significant midstream infrastructure in southeastern Ohio consisting of a liquids-rich natural gas gathering system, a dry natural gas gathering system and a condensate transportation, storage and stabilization facility in the core of the Utica Shale play. Ohio Gathering is supported by fee-based gathering agreements and acreage dedications from producer customers that are actively developing Utica Shale positions throughout Harrison, Guernsey, Belmont, Noble and Monroe counties in Ohio. Ohio Gathering’s customers currently include Gulfport, Rex Energy Corp., PDC Energy, Inc. and other producers in the Utica Shale play. Ohio Gathering’s liquids rich gathering system serves as a critical inlet to MarkWest Utica EMG’s Cadiz and Seneca processing complexes, the largest integrated rich-gas processing and fractionation facilities in the Utica Shale.

More than 331 shale wells have been drilled in Ohio since a state law was enacted in 2012 that requires the state to create rules to govern how these fracking sites should be built. The Ohio Department of Natural Resources plans to propose draft rules in the coming weeks to set standards for the sites that drilling companies are clearing, leveling and fencing off to house drilling rigs and fracking equipment. The sites generally are 4 to 5 acres. The rules will set requirements for such things as fresh-water storage and stormwater and erosion controls. They are among several new regulations regarding Utica shale drilling and fracking that officials plan to advance this year. Also expected are rules for recycling plants, fracking-waste disposal wells and spill protections for oil- and waste-storage sites.

The city of Marietta could put extra cash in its coffers by leasing some municipal properties to a company planning to use hydraulic fracturing to drill for natural gas in the area’s Marcellus and Utica shale formations. James Vuksic, CEO of MNW Energy LLC in Marietta told members of city council’s lands, buildings and parks committee that 35 acres of city property could be included with a block of surrounding lands for lease to Protege Energy III, a Tulsa, Okla.- based oil and gas company. Vuksic said MNW is working with about 200 area landowners to put together a 6,000- to 7,000-acre block of properties in Washington County where Protege could set up horizontal drilling operations to extract natural gas from nearly a mile below the earth’s surface. “The company is leasing property for gas and oil drilling, and will pay $4,750 an acre, plus a 17.5 percent royalty based on any product they retrieve from the well,” he said. “The drilling would be 200 feet above the Marcellus-about 4,800 feet down.” For more information, please contact us.

A new natural-gas processing plant is operating in eastern Ohio. The $375 million Hickory Bend cryogenic processing plants at New Middletown in Mahoning County began operations on Dec. 31, Pennant Midstream announced. “We are excited to announce this milestone,” said Chad Zamarin, chief operating officer of NiSource Midstream Services and president of Pennant Midstream. “As producers bring wells online and are able to flow gas to the facility, Hickory Bend will be capable of processing up to 200 million cubic feet per day. This achievement contributes to increased shale production in the Appalachian Basin and is not only critical to unlocking the potential of the Utica shale play in Ohio, it is furthering economic development in the Mahoning Valley.” NiSource Midstream Services LLC operates Pennant Midstream, which is jointly owned by Harvest Pipeline (an affiliate of Hilcorp Energy Co.) and NiSource Midstream Services (part of the Columbia Pipeline Group). The Hickory Bend gathering system includes about 55 miles of 20- and 24-inch wet gas-gathering pipelines, as well as the cryogenic natural gas processing plant, which separates dry natural gas from natural-gas liquids. The liquids will be transported via a 38-mile pipeline to a fractionation facility in Ohio’s Harrison County. The core-gathering pipelines will support delivery of more than 600 million cubic feet per day, officials said. Pennant Midstream is planning to add two additional processing units to the processing plant that sits on 90 acres. It will handle natural gas from Hilcorp wells plus other drillers in eastern Ohio and western Pennsylvania. Zamarin said that the company is encouraged by the development of the Utica play. “We are making a long-term investment in midstream infrastructure in Ohio that, in the end, could equal over $1 billion,” he said in a statement. For more information, please contact HBW Resources.

Production results from Ohio’s horizontal shale wells for the third quarter of 2013 have been released by the Ohio Department of Natural Resources (ODNR). The report lists 285 wells, 245 of which reported production results. Forty wells reported no production as they are waiting on pipeline infrastructure. The 245 wells produced 1,332,477 barrels of oil and 33,606,075 Mcf (1,000 cubic feet) of natural gas. Of those 245 wells:

  • The average amount of oil produced was 5,439 barrels.
  • The average amount of gas produced was 137,168 Mcf.
  • The average number of days in production was 55.

The highest producing oil well was the Gulfport Energy “Boy Scout” well in Harrison County at 41,617 barrels of oil during 70 days of production. The highest producing gas well was the Gulfport Energy “Stutzman” well in Belmont County at 1,249,739 Mcf during 89 days of production.

A group of anti-fracking activists announced that they have submitted more than the necessary number of signatures to put a fracking ban proposal before city of Athens voters in May. A similar proposal was rejected by the Athens County Board of Elections in August after an objection was raised by a group of Athens residents. “The Bill of Rights Committee turned in a total of 871 signatures to Athens Deputy Auditor Laura Kreider at City Hall Friday afternoon, Jan. 3, in support of an initiative petition intended for the spring primary election ballot,” a news release sent by BORC spokesperson Dick McGinn announced. A minimum of 550 valid signatures had been required to place the measure on the spring ballot. The city Auditor’s Office is required to hold the petitions for 10 days before submitting them to the elections board for review. City Auditor Kathy Hecht has previously said that the Board of Elections will then determine the validity of the signatures and also hold them for 10 days. The board must then decide to certify the signatures 90 days before the May primary election.

Oklahoma
A new rule taking effect with the new year requires all oil and gas well operators in Oklahoma to report the chemicals used in hydraulic fracturing. Previously, only operators of horizontal drilling wells were required to disclose fracking chemicals. That rule took effect at the beginning of 2013; the new rule is an extension of that. Operators must report fracking chemicals to FracFocus.org, or to the Oklahoma Corporation Commission, which will add the information to FracFocus.org on behalf of the operator. FracFocus.org went live in 2011, and many operators began voluntarily reporting chemical makeup at that time.

natural gas pipeline operated by Oneok exploded near Milfay, Oklahoma, the company has confirmed. The fire is no longer burning and no injuries or damage to surrounding structures have been reported, according to a spokesman for the company. The pipeline runs from Depew, Oklahoma to Edmond, Oklahoma. Officials are on the scene, the spokesman said. The capacity of the pipeline is not known and the company did not know when the pipeline would be able to return to operation. For more information, please contact us.

Pennsylvania
Officials with Energy Corporation of America and China Shenhua Energy Company subsidiary Shenhua America Holdings Corporation announced that the two companies have entered into a 50/50 joint venture to develop 25 natural gas wells in Greene County, PA over the next 18 months. According to ECA CEO John Mork, Shenhua will contribute the first $90 million towards drilling the wells and ECA will be the operator of the properties. Any remaining capital expenditures will be split evenly between the two companies. For more information, please contact HBW Resources.

The state of Pennsylvania asked the state Supreme Court to reconsider its December decision that struck down parts of an oil and gas law. The Pennsylvania Supreme Court voted 4-2 in mid-December saying key provisions in Act 13, a 2012 law that governs oil and gas drilling, is unconstitutional. In a state known for its shale gas bounty, the decision broadened the rights of local governments to restrict the controversial fracking process within their city limits, dealing a blow to oil and gas interests. The state is asking the Supreme Court to remand the case to a Pennsylvania court for further evidence, exhibit and testimony gathering. The state Department of Environmental Protection is also asking the court to reconsider its decision, saying its duty to protect public parks falls under provisions struck by the December decision. Seven municipalities and the Delaware Riverkeeper Network had challenged Act 13 in 2012, alleging it violates the state’s constitution.

Texas
LyondellBasell announced that its methanol plant at Channelview, Texas, was placed into service in the fourth-quarter 2013 to take advantage of low-cost natural gas from shale formations. The unit had been out of service since 2004 due to the rising cost of natural gas, the key feedstock for methanol production. “The methanol plant re-start is the first in a series of U.S. Gulf Coast projects by LyondellBasell to take advantage of the natural gas price advantage that we enjoy from shale gas,” said Patrick Quarles, senior vice president, Intermediates and Derivatives.  “The methanol plant project and our other significant debottleneck projects will bring new capacity into our system earlier and at substantially lower cost than constructing entirely new facilities.”

The economic impact of oil and gas activity in West Texas will rise to $20.5 billion by 2022, supporting 30,500 full-time jobs and pay $1.8 billion in wages and salaries, according to a December 2013 report by the University of Texas at San Antonio’s (UTSA) Institute for Economic Development. Oil and gas activity in plays such as the Cline shale and Wolfberry plays will generate $701 million in state revenues in 2022, including $334 million in severance taxes, creating close to $9.4 billion in gross regional product and contributing approximately $664 million in local government revenues.

B/E Aerospace, a producer of aircraft interiors, is spending a total of $265 million on a pair of Texas companies that offer oil-and-gas services in the Eagle Ford Shale. Wellington, FL based B/E is acquiring Houston’s LT Energy Services, a provider of rental equipment, and Wildcat Wireline, a wireline-services provider based in Marshall, officials say. The deals, expected to close in the first quarter, continue B/E’s expansion into the oilfield equipment rental, logistics and services sectors. For more information, please contact HBW Resources.

Utah
This spring, Red Leaf Resources Inc. plans to begin building the first commercial-scale oil shale production facility to operate in the United States in 30 years. The Utah Division of Water Quality last month granted Red Leaf a long-awaited water discharge permit, clearing the deck for the company’s large oil shale demonstration project in the Uinta Basin. The project had been delayed by concerns that it might pollute local water supplies. The Salt Lake City-based company is proposing to use its EcoShale technology to develop Utah’s plentiful supply of oil shale. The procedure entails mining and crushing the kerogen-rich oil shale and dumping it into a massive clay-lined pit. A single rock capsule will be almost a half-mile long and 300 yards wide. Once sealed, the encased rock will be heated to 700 degrees Fahrenheit over a period of weeks to convert the solid kerogen into oil, natural gas and condensate. Red Leaf successfully tested the technology in a 2009 smaller-scale demonstration project. Now company officials hope to prove the process can be scaled up for commercial production. They predict that the upcoming demonstration project will produce more than 300,000 barrels of oil, with an initial output estimated at 10,000 barrels a day. Red Leaf predicts that its Utah state trust land leases could contain up to 600 million barrels of recoverable oil. The large-scale demonstration project is targeted for completion in July 2015. The company must acquire a second water permit before moving to the next stage of broad-scale oil shale development. For more information, please contact us.

Wyoming
Hundreds of abandoned drilling wells dot eastern Wyoming like sagebrush, vestiges of a natural gas boom that has been drying up in recent years as prices have plummeted. The companies that once operated the wells have all but vanished into the prairie, many seeking bankruptcy protection and unable to pay the cost of reclaiming the land they leased. Recent estimates have put the number of abandoned drilling operations in Wyoming at more than 1,200, and state officials said several thousand more might soon be orphaned by their operators. Wyoming officials are now trying to address the problem amid concerns from landowners that the wells could contaminate groundwater and are a blight on the land. This month, Gov. Matt Mead proposed allocating $3 million to pay for plugging the wells and reclaiming the land around them. And the issue is expected to be debated during next year’s legislative session as lawmakers seek to hold drilling companies more accountable. “The downturn in natural gas prices has forced small operators out of business, and the problem has really accelerated over the last couple of years,” said the governor’s policy director, Shawn Reese. “Landowners would like their land to be brought back to a productive status and have orphaned wells cleaned up.” For more information, please contact us.

National
The average price of gasoline could fall by 10 cents next year, according to the consumer gasoline information website GasBuddy.com. That would push the yearlong average below $3.40 gal for the first time since 2010 when motor fuel averaged $2.78 gal for the year.  Booming oil production at U.S. shale plays shielded the country from big spikes in crude prices this year, even as international conflicts in the Middle East slowed the flow of oil several times. That, GasBuddy said in a recent report, could drive gas prices lower next year, as well. At the upper end of the price scale next year, drivers in Texas and much of the southern U.S. could pay between $3.50 and $3.64 for a gallon of regular. Nationally, that figure could reach $3.83 per gallon, according to GasBuddy. GasBuddy expects other trends to take hold in 2014, as well:

  • U.S. gasoline imports could drop to the lowest point since 2000 and exports will probably increase.
  • Diesel will likely remain refiners’ favorite product, more profitable and pricier at the pump than regular gasoline.
  • And as a national boom in oil production starts to impact crude prices, oil industry lobbyists may push the federal government to allow crude exports.

Natural gas may not be burning up the market. But, after a lengthy price slump, it appears to be on the rebound. Gas prices rose steadily on the spot market in the latter part of 2013, hitting a mid-December high of $4.44 per thousand cubic feet (Mcf). By comparison, the commodity lingered below $2 per Mcf in spring 2012. That didn’t happen, of course. Many exploration and production firms simply turned their attention away from the Eagle Ford’s gas-rich south to focus on oil and gas liquids in other parts of the formation. While the thriving gas output from domestic shales such as the Eagle Ford helped drive the price declines, federal researchers say long-term demand looks healthy. The Energy Information Administration projects natural gas production will hit 37.5 trillion cubic feet (Tcf) per year by 2040, a 56 percent increase over 2012. While residential demand for that gas is likely to remain soft, EIA says industrial users and electric generators are expected to drive big demand increases. So will increasing use of natural gas in the transportation sector. “The increase in supply will satisfy higher growth in both domestic consumption and exports,” researchers wrote in the agency’s 2014 Annual Energy Outlook. For more information, please contact HBW Resources.

The Obama administration should immediately end an “antiquated” ban on exporting U.S. crude, Sen. Lisa Murkowski (R, AK) said. Otherwise, Murkowski warned, the U.S. soon could be confronted with supply disruptions and price increases tied to the growing mismatch between Gulf Coast refineries geared toward processing heavy crudes and the light, sweet oil flowing out of American fields. “There will come a time when we will have an unsustainable glut of this light crude,” Murkowski predicted in a speech at the Brookings Institution. “Failing to renovate the crude oil export architecture could very well lead to disruptions in supply and production.” Imposed after the oil embargo in 1975, the existing ban already permits waivers for crude exports that are in the “national interest.” Existing exceptions allow exports to Canada as well as foreign sales of oil produced in Alaska’s Cook Inlet, some heavy crude produced in California and oil transported through the Trans-Alaska Pipeline System. But those limitations don’t match today’s energy reality, Murkowski said, noting the oil and gas now flowing out of hydraulically fractured wells in North Dakota, Texas, Pennsylvania and other states. “The rules of engagement on energy trade were written long ago for a now bygone world in which scarcity, not abundance, was the prevailing mindset,” Murkowski said. “We must modernize the regulations that govern energy exports, demonstrating to the world that we are committed to leading on issues of energy, the environment and trade.”

In at least four states that have nurtured the nation’s energy boom, hundreds of complaints have been made about well-water contamination from oil or gas drilling, and pollution was confirmed in a number of them, according to a review that casts doubt on industry suggestions that such problems rarely happen. The Associated Press requested data on drilling-related complaints in Pennsylvania, Ohio, West Virginia and Texas and found major differences in how the states report such problems. Texas provided the most detail, while the other states provided only general outlines. And while the confirmed problems represent only a tiny portion of the thousands of oil and gas wells drilled each year in the U.S., the lack of detail in some state reports could help fuel public confusion and mistrust. The AP found that Pennsylvania received 398 complaints in 2013 alleging that oil or natural gas drilling polluted or otherwise affected private water wells, compared with 499 in 2012. The Pennsylvania complaints can include allegations of short-term diminished water flow, as well as pollution from stray gas or other substances. More than 100 cases of pollution were confirmed over the past five years. For more information, please contact us.

The climb in domestic crude production has created a dilemma for both lawmakers and the White House, who are facing new pressure from oil companies to relax the nation’s 38-year-old ban on exports of the unprocessed product. The current restrictions — born in the aftermath of the oil embargo of the 1970s — benefit some domestic refiners, who are selling record amounts of gasoline and other refined products to foreign customers. But their gains are coming at the expense of oil producers who face the prospect of dropping domestic prices for the commodity, as the U.S. produces more light sweet crude than it can handle. “If we wouldn’t have had this massive, huge increase in the development of oil and natural gas, we wouldn’t be having this discussion; we’d still be living in the shadows of the 1970s,” said Charles Drevna, head of the American Fuel and Petrochemical Manufacturers. “This is a good problem to have.” Consider that the U.S. exported some 2.6 million barrels of finished petroleum products each day in 2012, according to the government’s Energy Information Administration, more than double the 1.2 million barrels logged daily in 2007. Meanwhile, there is a growing glut of light, sweet crude that is unearthed in the U.S., and barred from export. Many U.S. refineries, particularly along the Gulf Coast, were designed to process heavier supplies from Venezuela, Saudi Arabia and Canada, and while some have adapted to handle more of the light, sweet domestic product, bigger changes are unlikely soon. “It’s all about getting the oil to market,” said Ed Hirs, an energy economist at the University of Houston. Where crude exports may be constrained, “a refinery manager in Beaumont has a choice: He can sell to a gas station here at the corner of 610 and Westheimer, or he can sell it to a gasoline station in Tokyo or Dubai.” Sen. Lisa Murkowski (R, AK) is set to officially launch the Capitol Hill debate over crude exports on Tuesday, with a white paper and speech touting the economic benefits of selling U.S. energy abroad. But Obama administration officials, major oil company executives and newspaper editorial boards all have been addressing the issue recently. ConocoPhillips and ExxonMobil did it first, with executives telling a Houston audience and the Wall Street Journal that it was time to end the export ban. Then, last month, Energy Secretary Ernest Moniz suggested that the crude export ban deserves re-examination “in the context of … an energy world that is no longer like the 1970s.” For more information, please contact HBW Resources.

According to a new market research report, “Hydraulic Fracturing Market by Resource & Well Type – Global Trends & Forecasts up till 2017”, Global hydraulic fracturing market will grow from estimated $31 billion in 2011. This value is expected to increase from $40 billion in 2012 to $64 billion by 2017, with 10% CAGR during the same period. North America is expected to lead the global hydraulic fracturing production market in terms of hydraulic horse power supplied by the year 2011

survey of Americans’ attitudes toward the use of hydraulic fracturing to access natural gas and oil found that half of those surveyed knew little or nothing of the issue – and those that did were split almost evenly on whether to support it. Fracking has become an increasingly important and contentious issue in many parts of the United States and throughout the world, as the push to acquire new sources of energy intensifies. Yet the survey of more than 1,000 citizens found “an American populace that is largely unaware of and undecided about this issue,” the authors say. Results of the survey and corresponding study have been published in the journal Energy Policy by researchers at Oregon State University, George Mason University, and Yale University. It was funded by the Surdna Foundation, the 11th Hour Project, the Grantham Foundation and the V.K. Rasmussen Foundation. “It isn’t really unusual for lay audiences to be uninformed about specific technical issues such as fracking,” said Hilary Boudet, a public policy expert at Oregon State University and lead author on the study. “And when you get into issues of oil and gas exploration, or other contentious areas, the public gets conflicting information from the different sides that have vested interests in the outcomes. “The fact that half of the people we surveyed know little if anything about fracking suggests that there may be an opportunity to educate the American citizenry in a non-partisan way about this important issue,” she added. “The question is who will lead that discussion?” The national survey found that opponents of fracking were more likely to be women, hold egalitarian world views, read newspapers more than once a week, and associate fracking with environmental impacts. Supporters of fracking tend to be older, hold a bachelor’s degree or higher, are politically conservative, watch television for news more than once a week, and associate fracking with economic or energy supply benefits. For more information, please contact us.

BASF has doubled its investment in its U.S. plants to an average $1 billion a year in 2012 from about $500 million a year in the decade to 2010. It also has earmarked about $4 billion in capital spending in the U.S. through 2017. The lure: cheap electricity and natural-gas prices. Thanks to discoveries of shale-gas in Texas, North Dakota and Pennsylvania, the U.S. price of natural gas is about $4.30 a million British Thermal Units, about one-third of the price paid by German industry. Germany’s push to phase out nuclear for renewable energy has lifted electricity prices this year to 14.87 euro cents a kilowatt hour, about twice the price in some parts of Texas. The U.S. economic rebound and cheap energy is luring new investment from businesses ranging from Egypt’s Orascom Construction Industries SAE, which plans a $1.4 billion fertilizer plant in Iowa, to South Korea’s Hankook Tire Co., which plans to break ground next year on its first U.S. factory, an $800 million investment in Tennessee.

Chile
A new energy market report, “Chile Oil & Gas Report Q1 2014″ has recently been published. According to the report, Chile’s small resource base makes the country heavily dependent upon imports to satisfy demand and promote economic growth. This will persist in spite of some long-term upside potential stemming from the country’s shale gas prospects. In the meantime, imported liquefied natural gas will play a greater role in energy security. The report also says that if Chile is to address the mismatch between supply and demand for hydrocarbons in the country, its best hope lies in exploration taking place in the Magallanes region in the south of the country. Indeed, the advent of technology capable of extracting oil and gas from shale formations has given Chile reason for optimism over the long term, with EIA estimates suggesting that the Magallanes region may contain up to 2.4bn barrels of technically recoverable shale oil and condensate and 1.36trn cubic meters of shale gas.

China
The world’s top energy consumer is home to what is believed to be the world’s richest reserves of shale gas – 19% of the global total, compared to 13% in the United States. But China’s efforts to play on its geological advantage to lessen its dependence on fuel imports will be hampered by limited expertise and water supply, one of the key ingredients of the mixture of sand and chemicals pumped into the ground to fracture shale formations. “Shale gas will not play a substantial role in the Chinese energy mix,” wrote Francisco Quintana, a senior economist at Asiya Investments, a marketing and advisory firm owned by Kuwait China Investment Company. “Technical issues like lack of water, depth of the gas deposits, proximity to urban areas and lack of technological skills make exploitation extremely expensive.” Beijing has high hopes for shale. According to the US Energy Information Administration, China holds 1,115 trillion cubic feet of recoverable shale gas reserves, dwarfing the US’ 665 trillion. Last year, China drew less than 1% of its domestic gas production from shale, compared to 39% in the US and 15 per cent in Canada, according to the EIA. Royal Dutch Shell, which is spending US$1 billion a year on developing Chinese unconventionals including shale gas, has also faced obstructions from local village blockades.

Russia’s state gas company, Gazprom, has been discussing a planned deal with China’s CNPC for so many years that many started doubting it would ever happen. But now an agreement is within reach. Negotiations have picked up steam in recent months, paving the way to a deal that could not only help satisfy China’s energy demand for many years to come but also transform Gazprom. Both Chinese and Russian sources say the two sides are getting close to a pricing arrangement that would allow the gas to arrive in eastern Chinese markets at about $13 per million British thermal units. That would translate into $10-$11 per mBtu at the Chinese border – a price that suits both Chinese and Russian calculations. China has long insisted that it will not pay Gazprom much more than the $9 per mBtu it pays for gas from Turkmenistan, and that the piped gas must be cheaper than liquefied natural gas. For Gazprom, the key is that the huge investments necessary in a new pipeline system linking new gas fields in eastern Siberia to a planned liquefaction terminal in Vladivostok for shipments to several Asian customers, must pay off. It therefore calculates its China price by deducting from the benchmark price for LNG in Asia – currently between $16 and $17 per mBtu – the cost for transportation to a regasification terminal at the importing country, the liquefaction cost and the transport to the Chinese border. The Chinese side is quick to point out it no longer needs the Gazprom gas as much as it did when negotiations began a decade ago. China has now constructed alternate gas pipeline links with central Asia and Myanmar. LNG terminals already import shipped gas and more are in the works, to take gas from Qatar, Australia and even Russia itself.

Israel
Noble Energy’s first deal to export natural gas from Israel shows that surrounding Middle Eastern countries may be the most lucrative market to unload massive reserves of an offshore field called the Leviathan. Analysts applauded the Houston oil and gas producer’s $1.2 billion deal to provide 4.75 billion cubic feet of natural gas to a Palestinian power company over two decades, after production begins in late 2017. Noble “can actually make better returns selling gas to Palestine and Jordan than exporting gas to Europe because the upfront investment is miniscule in comparison,” said Fadel Gheit, an analyst with Oppenheimer & Co. “It would take only a few miles of pipeline to send gas to Jordan, a fraction of the cost” of building liquefied natural gas export facilities, he said. It was the first time Noble and its Israeli partners on the Leviathan project have signed away any amount of gas from the massive field, which in 2010 was the largest offshore discovery of the past decade with reserves of 19 trillion cubic meters of gas. The price tag of the Palestinian deal implies that Noble got a higher price for the natural gas than expected, at about $7.15 per 1,000 cubic feet of natural gas compared to an anticipated $6.25 per 1,000 cubic feet, analysts with Tudor Pickering Holt & Co. wrote. For more information, please contact HBW Resources.

Pakistan
Shahid Khaqqan Abbasi, Pakistan’s Minister of Petroleum and Natural Resources, and Paolo Scaroni, CEO of Eni, met in Karachi to discuss the company’s projects and activities in the Pakistan. The two representatives discussed the need of enhancing the domestic gas production by tapping the vast potential of Pakistan, particularly in the exploitation of shale gas and ultra-deep offshore exploration. The Pakistani minister recounted the measures implemented by the government to attract investment to find new energy resources and expressed the government’s resolve to institute appropriate policy where such action is needed. Further cooperation between Eni and the Pakistan NOCs was also emphasized. Eni has been active in Pakistan since 2000 and is the largest oil and gas producer among the foreign companies operating in the country. In 2012, the company’s hydrocarbon equity production averaged approximately 57 000 barrels of oil equivalent per day. For more information, please contact us.

Poland
The Polish government’s decision to prioritize the acceleration of shale gas exploration has been welcomed by operators frustrated at more than two years of regulatory uncertainty. That uncertainty combined with red tape and disappointing drilling results significantly slowed exploration in 2013. Just 12 wells were completed last year, compared with 24 in 2012. In November 2013, Polish Prime Minister Donald Tusk fired his environment minister Marcin Korolec in a cabinet reshuffle saying he was frustrated at the pace of exploration. Minutes after being sworn in, Korolec’s replacement, Maciej Grabowski, said accelerating exploration would be his priority. Industry’s main concerns about the proposals are the lack of a guarantee that exploration license holders, who are investing millions of dollars to verify reserves, will be able to convert that license into a production license. The other is a plan to create a state-owned company, NOKE, which can take minority stakes in all future production licenses.

Saudi Arabia
Saudi Arabia’s Prince Alwaleed Bin Talal, a billionaire businessman and nephew of Saudi King Abdullah, said the production of shale oil and natural gas in the United States and other countries, primarily done through fracking, is a real competitive threat to “any oil-producing country in the world,” adding that Saudi Arabia must address the issue because it is a “matter of survival.” New shale oil discoveries “are threats to any oil-producing country in the world,” said Prince Alwaleed in an interview with The Globe and Mail. “It is a pivot moment for any oil-producing country that has not diversified. Ninety-two percent of Saudi Arabia’s annual budget comes from oil. Definitely it is a worry and a concern.” Alwaleed also commented that many Saudi leaders did not comprehend the threat posed by oil and natural gas production from shale. However, he said he would use his influence to keep pressing the issue.

United Kingdom
British shale gas production will cut energy bills, according to a major survey of leading City fund managers. In a boost for shale explorers and consumers alike, a poll of 200 fund managers with a collective $10 trillion (£6 trillion) in assets under management reveals widespread confidence in the potential of UK shale gas. The research, conducted by Capital Spreads, reveals that 59% of fund managers believe shale will lower the cost of energy, compared with 36% who say it is unlikely to make any impact. Some 48pc say it will lead to a slight cut, while 11pc say it could see energy costs fall “significantly lower.” For more information, please contact HBW Resources.

The UK is continuing to edge closer to realizing the potential of its domestic shale gas resources. In mid-December 2013, the UK government published a report, “the Strategic Environmental Assessment for Further Onshore Oil and Gas Licensing” (the SEA), as part of the UK’s procedure for assessing the environmental effects of future onshore oil and gas licensing. The SEA was commissioned by the UK government and carried out in preparation for the next licensing round for onshore oil and gas exploration and production (being the 14th such round) in the UK under a “Draft Licensing Plan.” Pursuant to the Draft Licensing Plan, the UK government is considering a total area of 100,000 square kilometers for future licensing. The SEA sets out the potential environmental and economic effects of further onshore oil and gas exploration and production activity in the UK, including shale oil and gas production, by comparing a “low activity” and a “high activity” scenario. The “high activity scenario” assumes that a considerable amount of shale gas (4.32 to 8.64 trillion cubic feet) would be produced during the 2020s; a level of production which would satisfy around 25% of the UK’s estimated demand for natural gas for the decade. Under this scenario, up to 2,880 wells would be drilled each year and the SEA envisages “likely significant positive effects” for the economy, jobs and communities, with boons for both employment (an estimated 16,000-32,000 full-time jobs may be created, representing an increase of 3.5 to 7% in employment supported by the UK oil and gas sector) and local economies (which will benefit from initial contributions of £100,000 per fracking site and a further 1% of the revenue from each well over its lifetime, meaning a total of £1 billion could be paid out to local communities across the UK).

The UK government is ready to open an area the size of Wales for shale drilling next year, doubling the space available for exploration. A licensing round for onshore oil and gas exploration will offer as many as 150 blocks covering about 20,000 square kilometers (7,700 square miles), Simon Toole, head of licensing at the Department of Energy and Climate Change, said. There are about 170 onshore licenses currently. The UK is offering lower taxes to boost drilling as North Sea reserves decline. An area stretching from England’s east to the northwest, known as the Bowland Basin, may hold as much as 1,300 trillion cubic feet of gas, according to the British Geological Survey. That’s enough to meet demand for almost 50 years at an extraction rate similar to fields in the U.S., where a shale-gas boom has propelled it to the world’s top producer. For more information, please contact us.

Additional Information

For additional information, please contact Bo Ollison with HBW Resources.  His contact information is below.

Bo Ollison
HBW Resources
2211 Norfolk Street, #410
Houston, TX 77098
Tel: 713-337-8810
E-mail: bollison@hbwresources.com
Web: http://www.hbwresources.com
Twitter: @BoOllison

HBW Resources Contact Information

If you have any general questions, please contact us anytime. Previous versions of the HBW Ollison Hydraulic Fracturing Report and other reports can be viewed on the Intelligence Tab on the HBW Resources website at: https://hbwresources.com/intelligence/.  Hope you all have a great day.

Thanks,

Michael Zehr
HBW Resources
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