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An Accident Waiting to Happen | OnEarth Magazine

An Accident Waiting to Happen | OnEarth Magazine.

As oil trains derail across the United States, a windswept—and vulnerable—stretch of Montana’s Glacier National Park underscores the folly of transporting crude by rail.
by Elizabeth Royte  @ElizabethRoyte • February 20, 2014

The trains roll throughout the day, running east and west along the snow-blanketed tracks of northwestern Montana, dipping low along the southern edge of Glacier National Park. Boxcars, intermodal freight containers, and bulk cargo clamber up and then down the Continental Divide. Night falls, and yet another train emerges from the east, accompanied by a thin metal-on-metal shriek. First to appear are two locomotives, their headlights tunneling through the darkness, then 103 tanker cars, dull black with hymenopteran stripes. Inside the tankers are two and a half million gallons of light, sweet crude, freshly pumped from North Dakota’s Bakken shale formation.

At least one train slips off the tracks in this country every single day.

For more than a century railroads have hauled freight and people through this stretch of the Rockies. Glacier owes its existence, in fact, to the Great Northern Railway, which back in 1910 vigorously promoted the legislation that would establish a brand new national park, to which the railroad would soon be hauling wealthy visitors. Railroads, of course, are integral to U.S. commerce, and no one blinks when mile-long trains pass through small towns, big cities, and vast stretches of prairie, desert, and forests. Or at least they didn’t blink until recently, when shippers began to fill so many of those railcars with oil. In 2009, western crude filled a mere 8,000 tanker cars; in 2013, thanks to increased production in the Bakken, it filled 400,000.

The vast majority of America’s oil is still transported via pipeline, which is a significantly cheaper means of conveyance than rail. But building new pipelines to handle the glut of Bakken crude is expensive, time-consuming, and increasingly stymied by political opposition; by landowners unwilling to grant easements; and, if the pipeline crosses federal land, by heightened environmental review. Train tracks, on the other hand, already crisscross the nation, and freight railroads are now investing tens of billions of dollars on new locomotives, on the upgrading of track, and on so-called transloading facilities, where oil is either funneled into unit trains (which consist of 100 or more oil tankers) or pumped out of them and transferred to refineries, river barges, or ships. In 2013, 69 percent of Bakken oil traveled by rail; that percentage is expected to reach 90 percent this year.

But with that increase comes another—an increase in the risk of environmental catastrophe. According to the Federal Railroad Administration, at least one train, on average, slips off the tracks in this country every single day. Multiply the number of train cars carrying crude oil by 50, as we did between 2009 and 2013, and you multiply the odds of a leak, a major spill, or—worse—a massive explosion commensurately. And depending on where, when, and under what circumstances such an accident were to take place, the impact could range from manageable to utterly, epically devastating.

* * *

On a snowy day in January, I follow via automobile as the Burlington Northern and Santa Fe Railway climbs west out of the plains near the small town of East Glacier, in a part of Montana known for its wicked winds. Gusts of over 100 miles an hour aren’t uncommon here. Driving with a local resident, I note the remains of a porch that has blown off a house and into a tree, several steel posts bent 90 degrees by westerly gales, and a railroad-erected windscreen covering the train bridge over Midvale Creek. No trains have fallen off the bridge, but high winds have been known to blow boxcars off their tracks in other exposed stretches.

Photo: Joel Sartore

Pushed and pulled by two locomotives at either end, the oil tankers depart East Glacier, attain an elevation of 5,272 feet at Marias Pass, then begin their long descent, contouring along steep mountainsides, snaking through a series of wooden avalanche sheds, and curving around wetlands until they emerge, 60 miles west, in the equally tiny town of West Glacier. It’s all incredibly scenic—snow-brindled conifers, distant peaks, granite outcrops—and Amtrak tries as hard as it can to take advantage of the scenery by routing its Empire Builder passenger train through this corridor during daylight hours. Alas, there’s so much competition for rail space from oil trains these days (and, increasingly, coal trains) that the Empire Builder now has an on-time rate of less than 50 percent. Oil trains have similarly stalled the transport of North Dakota grain, causing its price to spike 20 percent. But when there’s enough light, those eastward-bound Amtrak passengers get to see, on their left, the peaks of Glacier National Park; on their right are the splendors of theFlathead National Forest, a 2-million-acre tract, half of which has been officially designated as wilderness.

“This is a particularly sensitive part of the world,” Mark Jameson, of the National Parks Conservation Association (NPCA), tells me, before ticking off its various designations: United Nations Biosphere Reserve; UNESCO World Heritage Site; hydrological apex of the North American continent; ancestral hunting grounds of the Kootenai, Salish, and Blackfeet tribes. “The park and the forest are major engines of the rural economy”—nonresidents spend more than $714 million in the region—“and these streams contain numerous species of concern, including the bull trout and the westslope cutthroat trout.”

As 2013 drew to a close, Jameson’s group began to ponder, for the first time, the repercussions of a nightmare scenario: What if a unit train were to derail here, spilling millions of gallons of oil into this unspoiled environment before bursting into flames and triggering a catastrophic explosion? Unfortunately, such a scenario isn’t so farfetched. Last July, 63 tankers filled with Bakken crude derailed and explodedin Lac Megantic, Quebec, killing 47 people and incinerating the center of the small town. Then, in November, 25 cars of Bakken oil derailed in an Alabama swamp: the ensuing explosion sent 300-foot flames into the sky and continued to burn for three days. In December a Bakken oil train collided with a derailed grain train in Casselton, North Dakota, spilling 400,000 gallons and burning for close to 24 hours while more than a thousand residents evacuated their homes in sub-zero temperatures. Since March of 2013, in fact, there have been 10 large rail-related spills of crude in the U.S. and Canada. Just two weeks ago, a southbound Canadian Pacific train leaked a trail of about 12,000 gallons of crude oil through nearly 70 miles of southeastern Minnesota.

Historically, crude oil has been placarded as a product with “low volatility,” the kind of oil that couldn’t be lit with a blowtorch. But in the wake of the Lac Megantic disaster, investigators determined that the crude coming out of North Dakota had a much lower flash point than other forms of crude, and posed a much more significant fire risk if released. (Missouri’s Department of Natural Resources is concerned enough about this risk, apparently, that the agency now requires the flaring of Bakken crude’s volatile compounds before it will allow barges to carry the stuff down the Mississippi River in that state.) The DOT-111 tankers that hold the oil are another problem entirely. Today, 85 percent of the 92,000 tank cars that haul flammable liquids around the nation are standard issue DOT-111s. For decades the National Transportation Safety Board has been warning that this type of tanker car, in particular, punctures easily. Last fall, the Federal Railroad Administration told the Petroleum Manufacturers Institute that it had found “increasing cases of damage to tanker cars’ interior surfaces,” possibly caused by “contamination of crude by materials used in fracking.”

Earlier this year the Association of American Railroads petitioned the DOT to impose new standards on tanker cars, including thicker head shields and improved valve coverings. But retrofitting or redesigning tankers to resist corrosion and puncture would cost the industry around $3 billion, remove cars from service in an already tight market, and take several years. Lobbyists for Canadian and U.S. oil producers have asked regulators not to rush into rules that could hurt their profits, preferring that they focus instead on addressing “track defects and other root causes of train accidents.”

* * *

The derailment of a unit train along Glacier National Park’s U-shaped southern boundary is what one might deem a low-risk proposition that nevertheless carries a high-hazard potential. The cold, clear waters of this corridor—where Bear Creek, key trout-spawning territory, joins the wild and scenic Middle Fork of the Flathead River—are pristine, and they support a lucrative rafting, kayaking, and fishing industry. “Once oil gets into moving water, there’s no cleaning it up,” says Scott Bosse, the Northern Rockies director of the conservation group American Rivers. “We saw this with the Yellowstone River [pipeline] spill of July 2011, where less than 1 percent of the 63,000 gallons of crude was recovered.”

 

“Once oil gets into moving water, there’s no cleaning it up.”

 

Residents of the canyon that runs between the park and the forest note that BNSF employees are a constant presence along the tracks, tweaking, upgrading, replacing, and surfacing the company’s investment. Despite their attentions, derailments along this stretch aren’t unknown: there have been 37 between 2000 and 2012—on the high end, compared with other Continental Divide railroad crossings. Some have involved strong winds; some are attributed to human error or equipment failure. According to one oil-train conductor based in North Dakota who asked to remain anonymous, BNSF pushes its employees hard. With so much traffic on the rails, he told me, “we’re working longer than the legal limit, and we’re sleep-deprived. Older and more experienced conductors and engineers are retiring, leaving us with young and inexperienced workers.” Another BNSF mechanic whom I met as he was ordering lunch at a roadhouse near Essex, Montana, told me that wet rails were a perennial problem. “Trains spin their wheels and dig holes in the track.” The grade, too, worried him. “It takes a lot to stop a train coming down from the Pass.”

* * *

So how would a worst-case scenario play out? Picture this: a unit train jumps the track just west of the Continental Divide. Cars tumble off the rail bed, bouncing and ricocheting off each other. Tankers puncture, oil spills and flows, and a spark detonates a massive explosion.

Then the phone rings in the Flathead County Office of Emergency Response, an hour and a half away in the town of Kalispell.

Photo: Loco Steve

Cindy Mullaney, deputy director of that office, explains what would happen next. “What we’d do is send the jurisdictional fire chief out to size up the situation: what have we got, where’s it going, which way is the wind blowing, and do we have ways to mitigate it,” she says. “If the spill is in the river, we have boom, absorbent pads, and sea curtains cached here in Kalispell. The road department has more of that stuff.”

When I ask her whether the geography of the corridor presents any specific challenges to emergency response, Mullaney replies matter-of-factly. “The biggest problem is that you’re on uneven ground,” she says. “A lot of it’s very steep and rocky. There’s a huge amount of snow in the winter. You throw a river in there, the avalanche danger, the limited communication capabilities, limited evacuation sites with a helicopter, the long distance from any type of resources, … it’s gonna be challenging, no doubt about it.”

Montana has six highly trained and well-supplied hazmat teams spread out around the state. The nearest to the Continental Divide, however, is 90 minutes away. Closer to the corridor are a handful of local fire departments that can respond more quickly but that must nevertheless rely on volunteers—most of whom lack up-to-date (or in some cases, any) turn-out gear, advanced training, and the right tools for containing spills or combating fires borne of hazardous materials.

Depending on where it happened and how high the winds were blowing, Charles Farmer, director of emergency services for Glacier County (just east of the Continental Divide), says that an accident in his area could be “devastating, catastrophic. We’d have no capabilities to handle it. We would organize an evacuation.” Ben Steele, East Glacier’s fire chief, answers in much the same way. “We’re not even close to having enough people to respond if there’s a spill,” he tells me. “We typically get only six or seven volunteers to respond. We haven’t had any training on hazardous materials.”

We talk about the Casselton and Lac Megantic unit train fires, which burned so intensely that responders couldn’t even count the number of cars that were going up in flames, right before their eyes, for more than a day. I ask Steele how he and his volunteers would manage such a situation. “We’d use the rule of thumb,” he tells me. “You hold up your thumb in front of your eye and you back away until the fire is completely hidden.” Meanwhile, a conflagration in the steep, windy canyon could rapidly spread over hundreds of acres. And a spill in the river, especially during the spring runoff season, “could pollute 1,000 miles of shoreline.”

* * *

Jeffery Mow has been the supervisor of Glacier National Park for fewer than six months, but he has special reason to worry about oil-related accidents. A lean man with a cheery, eager manner, he began his Parks Department career more than two decades ago in Alaska as a ranger, and then later a supervisor, in Kenai Fjords National Park. After the Exxon Valdez ran aground in 1989, Mow investigated the 11-million-gallon oil spill for the Park Service and the Department of Justice. (Oil washed onto the shores of both Kenai and Katmai National Parks.) Then, when theDeepwater Horizon gushed more than 200 million gallons of oil into the Gulf of Mexico in 2011, the U.S. Department of the Interior sent Mow to Louisiana to act as its incident commander. Despite massive billion-dollar cleanup operations in both locations, he says from behind his desk in the park’s West Glacier headquarters, “the legacy continues. The oil is still out there.”

Shortly after arriving at Glacier, Mow recalls, “several people brought it to my attention that, gosh, these are really long trains coming through here. That piqued my interest.” Soon afterward, he sat down with officials from BNSF, from whom he learned that he’d be seeing a minimum of one unit train a day—containing 3 million gallons of oil—and up to 10 unit trains a week. Mow also learned, to his dismay, that BNSF’s contingency plan for that oil was “their contingency plan for any other hazardous material they transport, which usually comes along in mixed loads.”

Photo: Loco SteveBut as Mow well understands, Bakken crude is no ordinary hazmat. BNSF recently hired a consultant to forge a detailed response plan specific to hauling crude through this region. Matt Jones, a railroad spokesperson, said it would include highly detailed maps of the entire route and strategies on how to deploy containment booms in the Middle Fork of the Flathead River or any other nearby body of water. For his part, Mow says he hopes that whatever form the new approach takes, it will entail simulations such as field and tabletop exercises that will allow local officials to rehearse their responses. “We want to have a robust ability to respond, and not try to figure out what we’re doing when we’re in the middle of it,” he says.

Park officials are also eager to learn if the railroad—which is already planning to spend $5 billion to expand capacity, maintain track, and buy locomotives and equipment in 2014—will be building any more avalanche sheds. Currently, eight of these structures have been erected to protect trains from the snow that regularly plummets down 40 separate avalanche paths within a 9-mile stretch. In 2004, threeavalanches derailed 119 empty rail cars and struck a commercial truck on the highway; a fourth narrowly missed cleanup crews. Between them, these avalanches shut down the tracks for 29 hours, creating a 70-mile backup of freight traffic.

Concerned with the ongoing potential for financial and human carnage, in 2005 BNSF requested permission from Glacier National Park to control avalanches using explosive charges and military artillery. But before the park could complete its own environmental impact study, the railroad withdrew its request. The environmental impact study went forward, however, and in the end rejected the use of explosives in favor of building new snow sheds. The cost: $5.4 million, amortized over a 50-year period. The railroad, “which had been concerned enough about train safety to propose bombing the national park,” according to the NPCA’s Michael Jameson, declined to build.

Regarding their decision, Mow simply sighs. “It’s not something we can force them to do,” he tells me.

* * *

I glance out the window of Mow’s office and take in the primeval forest of Douglas fir, aspen, birch, and lodgepole pine. A pair of bald eagles spirals over the southern end of Lake McDonald. Perhaps moved by the elemental beauty of the scene, Denise Germann, the park’s management assistant, jumps into the conversation. “This isn’t just a track moving to a destination,” she says, with some passion. “It’s a track moving through public land, going through pristine country. It’s going through land that has many different [values]—whether it’s recreation or economic or scenery or wilderness.”

She’s recapping, essentially, all that we’ve been discussing so far. And yet it bears repeating, since no plan of anyone’s devising can possibly guarantee safe passage through a high-risk corridor of a hundred or more oil-filled tanker cars a day.

Mow acknowledges her statement with a somber nod. And as he does, I can’t help but recall what Larry Timchak, the president of the Flathead Valley chapter of Trout Unlimited, told me at an earlier point during my trip to Montana.

“The probability of an accident over time,” he said, “ is 1.”

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Jean Laherrere uses Hubbert linearization to estimate Bakken shale oil peak in 2014  |  Peak Oil News and Message Boards

Jean Laherrere uses Hubbert linearization to estimate Bakken shale oil peak in 2014  |  Peak Oil News and Message Boards.

In his latest research on shale oil French oil geologist Jean Laherrere from ASPO France

http://aspofrance.viabloga.com/texts/documents estimates a Bakken shale oil peak in 2014.
He uses a Hubbert linearization to calculate a total of 2,500 mb to be produced
In global terms, a total cumulative of 2.5 Gb is just around 10% of annual crude production and 1.3% of daily production.
Well productivity in Bakken is stagnant at around 130 b/d for a couple of years now.
There has been a peak in the number of drilling rigs. A shift of the rigs curve by 2 years suggests a production peak in 2014.
Jean’s research is in line with that published by David Hughes in November 2013:

The 4 Big Dangers of Fracking

The 4 Big Dangers of Fracking.

By now you’ve likely heard that the U.S. is expected to overtake Russia this year as the world’s biggest producer of oil and gas. The surge in production comes from a drilling boom enabled by using hydraulic fracturing, or fracking, along with, in many places, horizontal drilling. These technologies have made previously inaccessible pockets of oil and gas in shale formations profitable.

But at what cost? Accidents, fatalities and health concerns are mounting. Here’s a look at what we’ve learned about the dangers of fracking in the last few weeks.

1. Exploding Trains

Another day, another oil train accident, it seems. On the night of January 7, a traincarrying crude oil and propane derailed near Plaster Rock in New Brunswick, Canada. A day later the fire continued as locals evacuated, unsure if they were being exposed to toxic fumes.

It’s a familiar story. 2013 went out with a bang in North Dakota when a train carrying crude oil from the Bakken shale derailed and exploded on Dec 30. The ensuing fireballs and toxic smoke caused the evacuation many of Casselton’s 2,300 residents.

Fracking has unleashed a firestorm of drilling in the Bakken (a rock formation under parts of North Dakota, Montana and Saskatchewan). The Casselton accident was the third rail accident in six months in North America involving oil trains from the Bakken (it’s unclear if the Plaster Rock train was carrying Bakken oil). The most horrific was the July derailment and explosion of a train that killed 47 people in the small town of Lac-Megantic in Quebec. The second occurred in Alabama in November.

All of this has grabbed the attention of the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration. “Crude oil produced in North America’s booming Bakken region may be more flammable and therefore more dangerous to ship by rail than crude from other areas, a U.S. regulator said after studying the question for four months,” wrote Angela Greiling Keane and Mark Drajem for Bloomberg.

That doesn’t mean shipments will stop, only that trains may be relabeled to say they are carrying a more hazardous cargo.

As Gordon Hoekstra wrote for the Vancouver Sun:

The significant increase in the transport of oil by rail, and the growing evidence that Bakken shale oil is proving itself to be a very explosive commodity, shows that regulations on both sides of the border are not adequate, said Mark Winfield, an associate professor at York University who researches public safety regulation.

Even Robert Harms, who heads North Dakota’s Republican party and consults with the industry, has called for a slowdown, according to Reuters.

2. Workers at Risk

Those who live along train routes aren’t the only ones facing safety risks from the oil and gas industry. NPR reports that accidents among workers in the industry are on the rise—bigtime. From 2009 to 2012 the industry added 23 percent more workers but “the hiring spree has come with a terrible price: Last year, 138 workers were killed on the job — an increase of more than 100 percent since 2009,” wrote Andrew Schneider and Marilyn Geewax for NPR . “In fact, the fatality rate among oil and gas workers is now nearly eight times higher than the all-industry rate of 3.2 deaths for every 100,000 workers.”

Last July, I visited a well pad in New Milton, West Virginia. The following day there was an explosion at the site injuring several workers, two of whom died from their injuries. In my time in West Virginia I met several workers on other sites who were bleary-eyed from long hours on the job.

Sure, jobs are good, but safe jobs should be a priority. Accidents happen in a dangerous industry, but they also increase when workers are kept on the job for too many hours or lack proper training or industry doesn’t follow safe practices.

3. The Accidents You Don’t Hear About

Trains bursting into flames usually (and rightfully) makes the national headlines—especially when fatalities occur. But smaller accidents happen daily that often fail to make it beyond local reporting, if that. Those who live in communities adjacent to the oilfields and gaslands keep their own tallies.

In Tyler County, West Virginia on January 2 an incident occurred on the Lisby natural gas well pad. The West Virginia Department of Environmental Protection press release said, “A tank ruptured and leaked fluids to surrounding grounds on the well site.”

“Ruptured and leaked” may be accurate, but more than an understatement. A tank filled with fracking fluid (although the WVDEP hasn’t been able to say for sure what exactly was in it) ignited and ended up across the well pad. “What we’ve been able to determine is that a tank ruptured during the flushing of frac lines,” said Thomas Aluise, spokesperson for the WVDEP. “Vapors formed from the fluids inside the tank and were somehow ignited, possibly by static electricity, but that has not been confirmed. As a result of the ignition and subsequent rupture, the tank was dislodged from its foundation.”

Does this photo look like the tank simply “dislodged?”

 

The tank held 50 barrels of fluid, some of which has leaked into soil, a neighboring property, and potentially into a nearby stream. The explosion happened 625 feet from the nearest house and one person at the site, a contractor who broke his ankle, was injured in the incident. The company, Jay-Bee Oil & Gas, is required to submit plans for soil and water sampling by January 14, which seems like quite a while to wait to take samples if chemicals are leaking into the ground or water sources.

Jay-Bee does not have a glowing corporate record. “The West Virginia Department of Environmental Protection has cited the company for 21 environmental violations since 2010, and the federal Occupation Safety and Health Administration has cited the company for 38 worker safety violations, “ wrote Gayathri Vaidyanathan for E&E. “The incident suggests that environmental and worker safety violations often go hand in hand.”

How many environmental and safety violations does it take before a company is shut down?

Accidents like this are common across oil and gas country. So are compressor station fires in PennsylvaniaNew YorkNew JerseyWyoming. Or truck accidents, as Food and Water Watch reports: “Heavy-truck crashes rose 7.2 percent in heavily fracked rural Pennsylvania counties (with at least one well for every 15 square miles) but fell 12.4 in unfracked rural counties after fracking began in 2005.”

The Centers for Disease Control reported that the top cause of fatalities in the oil and gas industry are motor vehicle accidents. “[W]orkers drive long distances on rural highways to travel to well sites. Often these roads lack firm shoulders and other safety features,” the agency reports. This puts not just workers at risk, but everyone on the road.

All these incidences won’t make national news, but collectively they add up for the residents who live nearby who may fear for their safety while on the roads or in their own homes.

4. Not So Good for Your Health

Findings presented at a recent meeting of the American Economic Association by researchers from Princeton University, Columbia University and Massachusetts Institute of Technology have made headlines. The researchers “looked at Pennsylvania birth records from 2004 to 2011 to assess the health of infants born within a 2.5-kilometer radius of natural-gas fracking sites,” reports Mark Whitehouse for Bloomberg.

“They found that proximity to fracking increased the likelihood of low birth weight by more than half, from about 5.6 percent to more than 9 percent,” writesWhitehouse. “The chances of a low Apgar score, a summary measure of the health of newborn children, roughly doubled, to more than 5 percent.”

The study has yet to be peer-reviewed, so let’s see how it fares. It does not implicate drinking water, however. The most likely culprit is air pollution. Oil and gas operations have been found to release volatile organic compounds (VOCs) and nitrogen oxides, which contribute to ground-level ozone.

So far no communities where fracking is occurring have done a comprehensive health assessment to see how residents may be at risk from activities related to increased oil and gas drilling. Is it time yet?

Fears of global oil crisis aired at Transatlantic Energy Security Dialogue. : Jeremy Leggett’s Triple Crunch Log

Fears of global oil crisis aired at Transatlantic Energy Security Dialogue. : Jeremy Leggett’s Triple Crunch Log.

Jeremy Leggett column in Recharge magazine: “We are betting our entire national economic life on the hope — indeed the expectation — that the fracking boom will continue until well into the 2020s, and that, at a rate and cost we desire, significant amounts of ‘yet to be discovered’ oil will somehow be found to meet the demand.”
“If any of that proves incorrect, we have no plan, no alternative, and have given no thought to how we would respond in such a case.”The speaker is national-security expert Lieutenant Colonel Daniel Davis, a veteran of four tours of duty with the US Army in Iraq and Afghanistan. I am not a military man, but I worry just as much about the energy security of my own country as he does about his. In the UK, the government, the civil service and most of the big energy companies seem perfectly content to replicate the grand gamble under way in the US.
On 10 December, Lt Col Davis and I convened video-linked gatherings in Washington and London of people who share our concerns about the risk of a global oil crisis. We also invited key people who don’t, but who were interested in probing beyond the propaganda that energy-policy discourse seems to attract these days. [Two powerpoints, and Agenda  / Participants / Transcript of first half are appended below.]
Those joining us included retired military officers, security experts, senior executives from a wide spectrum of industry and politicians of all the main parties, including two former UK ministers.
We began with a presentation by Mark Lewis, a former head of energy research at Deutsche Bank. With this background, you might expect Lewis to be a disciple of the conventional narrative of plenty in oil markets. Many of his peers are. But he suggested that three big warning signs in the oil industry point to a counter-narrative of impending problems for supply: high decline rates, soaring capital expenditure and falling exports.
The decline rates of all conventional crude-oil fields producing today are spectacular; the International Energy Agency projects output falling from 69 million barrels per day (bpd) today to just 28 million bpd in 2035. Current total global production of all types of oil is some 91 million bpd.
Consider the spending needed to try to fill that gap.
Capex for oilfield development and exploration has nearly trebled in real terms since 2000: from $250bn to $700bn in 2012. The industry is spending ever more to prop up production, and its profitability is reflecting this trend, notwithstanding an enduringly high oil price. Meanwhile, consumption is soaring in Opec nations. As a result, global crude-oil exports have been declining since 2005. It is difficult to conflate this data and not see an oil crunch ahead, Lewis concludes.
What of the recent addition of two million bpd of new oil production from American shale: the boom that has even been cast as a “game-changer” and a route to “Saudi America” by industry cheerleaders?
Geological Survey of Canada veteran David Hughes, who has conducted the most detailed analysis of North American shale of anyone outside the oil and gas companies, offered some sobering views on this. His data shows that spectacularly high early decline rates in existing shale gas and shale oil (more correctly known as tight oil) wells means high levels of drilling are needed just to maintain production. This problem is compounded because “sweet spots” become exhausted early in field development.
As a result, shale-gas production is already dropping in several key drilling regions, and production of tight oil in the top two regions is likely to peak as early as 2016 or 2017. These two regions, in Texas and North Dakota, comprise 74% of total US tight-oil production.
Like Lewis, Hughes believes that the oil and gas industry is leading the world by the nose towards an energy crisis.
In my book The Energy of Nations, I describe how military think-tanks have tended to side with those, like Lewis and Hughes, who distrust the cornucopian narrative of the oil incumbency. One 2008 study, by the German army, puts it thus: “Psychological barriers cause indisputable facts to be blanked out and lead to almost instinctively refusing to look into this difficult subject in detail. Peak oil, however, is unavoidable.”
This blanking-out extends to the mainstream media, which has enthusiastically echoed the mantras of the oil companies, to the extent that the very words “peak oil” have been positioned as a badge of baseless scaremongering.
We should never forget that in the run-up to the credit crunch, the financial incumbency deployed exactly the same PR tactics against those warning about the fragility of mortgage-backed securities.

Transatlantic Energy Security Dialogue: Agenda, Participants, Part One discussion edited transcript

The Three Witches: Decline rates, soaring capex, and falling exports. Presentation by Mark Lewis.

The “Shale Revolution”: Myths and Realities. Presentation by David Hughes.

Exclusive: Permit Shows Bakken Shale Oil in Casselton Train Explosion Contained High Levels of Volatile Chemicals | DeSmogBlog

Exclusive: Permit Shows Bakken Shale Oil in Casselton Train Explosion Contained High Levels of Volatile Chemicals | DeSmogBlog.

On January 2, the Pipeline and Hazardous Materials Safety Administration (PHMSA)issued a major safety alert, declaring oil obtained via hydraulic fracturing (“fracking”) in the Bakken Shale may be more chemically explosive than the agency or industry previously admitted publicly.

This alert came three days after the massive Casselton, ND explosion of a freight rail train owned by Warren Buffett‘s Burlington Northern Santa Fe (BNSF) and was the first time the U.S. Department of Transportation agency ever made such a statement about Bakken crude. In July 2013, another freight train carrying Bakken crude exploded in Lac-Mégantic, vaporizing and killing 47 people.

Yet, an exclusive DeSmogBlog investigation reveals the company receiving that oildownstream from BNSF — Marquis Missouri Terminal LLC, incorporated in April 2012 by Marquis Energy — already admitted as much in a September 2012 permit application to the Missouri Department of Natural Resources (DNR).

The BNSF Direct “bomb train” that exploded in Casselton was destined for Marquis’ terminal in Hayti, Missouri, according to Reuters. Hayti is a city of 2,939 located along the Mississippi River. From there, Marquis barges the oil southward along the Mississippi, where Platts reported the oil may eventually be refined in a Memphis, Tennessee-based Valero refinery.

According to Marquis’ website, its Hayti, Missouri terminal receives seven of BNSF Direct’s 118-unit cars per week, with an on-site holding terminal capacity of 550,000 barrels of oil.

Marquis was one of many companies in attendance at a major industry conference in Houston, Texas in February 2013, called “Upgrading Crude By Rail Capacity.” Its September 2012 Missouri DNR permit application lends additional insight into how and why BNSF’s freight train erupted so intensely in Casselton.

“Special Conditions”

Rather than a normal permit, Marquis was given a “special conditions” permit because the Bakken oil it receives from BNSF contains high levels of volatile organic compounds (VOCs), the same threat PHMSA noted in its recent safety alert.

Among the most crucial of the special conditions: Marquis must flare off the VOCs before barging the oil down the Mississippi River. (Flaring is already a highly controversial practice in the Bakken Shale region, where gas is flared off at rates comparable to Nigeria.)

It’s a tacit admission that the Bakken Shale oil aboard the exploded BNSF train in Casselton, ND is prone to such an eruption.

“Hazardous Air Pollutant (HAP) emissions are expected from the proposed equipment,” explains the Marquis permit. “There will be evaporative losses of Toluene, Xylene, Hexane, and Benzene from the crude oil handled by the installation.”

Benzene is a carcinogen, while toluenexylene and hexane are dangerous volatiles that can cause severe illnesses or even death at high levels of exposure.

Scientific Vindication

In a December 31 Google Hangout conversation between actor Mark Ruffalo, founder of Water Defense, and the group’s chief scientist Scott Smith, Mr. Smith discussed the oil samples he collected on a previous visit to North Dakota’s Bakken Shale.

“What I know from the testing I’ve done on my own — I went out to the Bakken oil fields and pumped oil from the well — I know there are unprecedented levels of these explosive volatiles: benzene, toluene, xylene,” said Smith.

“And from the data that I’ve gotten from third parties and tested myself, 30 to 40 percent of what’s going into those rail cars are explosive volatiles, again that are not in typical oils.”

In an interview with DeSmogBlog, Smith said Marquis Energy’s Missouri DNR permit application is in line with his own scientific findings, a vindication of sorts in the aftermath of the Casselton explosion.”We must work to better understand the risks involved with the transportation of unconventional crude oil, whether diluted bitumen or Bakken fracked oil,” Smith told DeSmogBlog.

“It all starts with scientifically and transparently understanding exactly what is in these crude oils, and working to set new safety standards to protect human lives and all waterways, wetlands, marshes and sensitive ecosystems.”

It may be the dead of winter in North Dakota, but the Casselton explosion has shined a bright light on the myriad serious threats of Bakken oil rolling down the tracks through the backyards of thousands of Americans. The industry’s secrecy about the explosiveness of this oil just went up in flames.

But how will the public react to the news that industry knew this could happen all along? With the Dec. 30 explosion in Casselton, and the deadly Bakken oil train explosion in Lac Megantic, Quebec last July, all North Americans ought to question the wisdom of extracting and transporting this highly dangerous oil.

Cold U.S. Temperatures Expected To Break Records As ‘Polar Vortex’ Blasts Midwest

Cold U.S. Temperatures Expected To Break Records As ‘Polar Vortex’ Blasts Midwest.

SIOUX FALLS, S.D. (AP) — The weather warnings are dire: Life threatening wind chills. Historic cold outbreak. Bitter cold temperatures.

Winter is normally cold, but starting Sunday tundra-like temperatures are poised to deliver a rare and potentially dangerous sledgehammer blow to much of the Midwest, driving temperatures so far below zero that records will shatter.

One reason? A “polar vortex,” as one meteorologist calls it, which will send cold air piled up at the North Pole down to the U.S., funneling it as far south as the Gulf Coast.

The temperature predictions are startling: 25 below zero in Fargo, N.D., minus 31 in International Falls, Minn., and 15 below in Indianapolis and Chicago. At those temperatures, exposed skin can get frostbitten in minutes and hypothermia can quickly set in because wind chills could hit 50, 60 or even 70 below zero.

Temperature records will likely be broken during the short, yet forceful deep freeze that will begin in many places on Sunday and extend into early next week. That’s thanks to a perfect combination of the jet stream, cold surface temperatures and the polar vortex — a counterclockwise-rotating pool of cold, dense air, said Ryan Maue, of Tallahassee, Fla., a meteorologist for Weather Bell.

“All the ingredients are there for a near-record or historic cold outbreak,” he said. “If you’re under 40 (years old), you’ve not seen this stuff before.”

Snow already on the ground and fresh powder expected in some places ahead of the cold air will reduce the sun’s heating effect, so nighttime lows will plummet thanks to strong northwest winds that will deliver the Arctic blast, Maue said. And there’s no warming effect from the Gulf to counteract the cold air, he said.

The cold blast will sweep through parts of New England, where residents will have just dug out from a snowstorm and the frigid temperatures that followed. Parts of the central Midwest could also see up to a foot of snow just as the cold sweeps in pulling temperatures to 10 below zero in the St. Louis area.

Even places accustomed to normally mild to warmer winters will see a plunge in temperatures early next week, including Atlanta where the high is expected to hover in the mid-20s on Tuesday.

“This one happens to be really big and it’s going to dive deep into the continental U.S. And all that cold air is going to come with it,” said Sally Johnson, meteorologist in charge at the National Weather Service in Sioux Falls.

It’s relatively uncommon to have such frigid air blanket so much of the U.S., maybe once a decade or every couple of decades, Maue said. But in the long-run the deep temperature dives are less meaningful for comparison to other storms than daytime highs that are below-zero and long cold spells, he said.

And so far, this winter is proving to be a cold one.

“Right now for the winter we will have had two significant shots of major Arctic air and we’re only through the first week of January. And we had a pretty cold December,” Maue said.

Cities and states are already taking precautions. Minnesota called off school for Monday statewide, the first such closing in 17 years, because of projected highs in the minus teens and lows as cold as 30 below. Milwaukee and Madison, Wis., students also won’t be in class Monday. North Dakota Gov. Jack Dalrymple urged superintendents to keep children’s safety in making the decision after the state forecast called for “life threatening wind chills” through Tuesday morning.

Sunday’s playoff game in Green Bay could be among one of the coldest NFL games ever played. Temperatures at Lambeau Field are expected to be a frigid minus 2 degrees when the Packers and San Francisco 49ers kick off, and by the fourth quarter it’ll be a bone-chilling minus 7, with wind chills approaching minus 30, according to the National Weather Service. Officials are warning fans to take extra safety measures to stay warm including dressing in layers and sipping warm drinks.

And though this cold spell will last just a few days as warmer air comes behind, it likely will freeze over the Great Lakes and other bodies of water, meaning frigid temperatures will likely last the rest of winter, Maue said.

“It raises the chances for future cold,” he said, adding it could include next month’s Super Bowl in New York.

US names six drone research sites – Americas – Al Jazeera English

US names six drone research sites – Americas – Al Jazeera English.

FAA does not currently allow commercial use of drones, but it is working to develop guidelines by 2015 [AFP]
The US has named six states that will develop test sites for drones, a critical next step for the move of the unmanned aircraft into domestic skies.The Federal Aviation Administration (FAA) does not currently allow commercial use of drones, but it is working to develop operational guidelines by the end of 2015, although officials concede the project may take longer than expected.

Drones have been mainly used by the military, but governments, businesses, farmers and others are making plans to join the market.

Many universities are starting or expanding drone programmes.

Alaska, Nevada, New York, North Dakota, Texas and Virginia will host the research sites, providing diverse climates, geography and air-traffic environments, Michael Huerta, the FAA administrator, said on Monday.

At least one of the six sites will be up and running within 180 days, while the others are expected to come online in quick succession, Huerta said.

The growing US drone industry has critics among both conservatives and liberals.

Giving drones greater access to US skies moves the nation closer to “a surveillance society in which our every move is monitored, tracked, recorded and scrutinised by the authorities”, the American Civil Liberties Union declared in a report last December.

Huerta said his agency is sensitive to privacy concerns involving drones. Test sites must have a written plan for data use and retention and will be required to conduct an annual review of privacy practices that involves public comment.

While selecting the sites, the FAA considered geography, climate, ground infrastructure, research needs, airspace use, aviation experience and risk. New York’s site will look into integrating drones into the congested northeast US airspace.

Nevada offered proximity to military aircraft from several bases.

In choosing Alaska, the FAA cited a diverse set of locations in seven climatic zones.

“These test sites will give us valuable information about how best to ensure the safe introduction of this advanced technology into our nation’s skies,” Anthony Foxx, US transportation secretary, said in a statement.

 

Massive Fireball From North Dakota Oil Train Derailment Caught On Tape | Zero Hedge

Massive Fireball From North Dakota Oil Train Derailment Caught On Tape | Zero Hedge.

*NO INJURIES REPORTED FROM BNSF TRAIN FIRE IN NORTH DAKOTA

train has derailed west of Casselton, North Dakota just before 2:20 p.m. Monday. As Valley News Live reports, several area emergency teams are on scene and are setting up an incident command center. Emergency crews are urging people to stay inside and a code red alert has been sent out to residents in a two mile radius of the accident. The Casselton Fire Department says a Burlington Northern Santa Fe train is involved. An unknown number of cars derailed, but Valley News Live reports is told one bulk oil car is on fire and toxic black smoke is being released.

The explosion:

Valley News Live – KVLY/KXJB – Fargo/Grand Forks

More images…

DEVELOPING: Emergency crews on scene of train accident with large fire in Casselton, North Dakota: pic.twitter.com/2rjSTFe6OI

— ABC News (@ABC) December 30, 2013

NEW PHOTO: Fireball or explosion from a train derailment near Casselton, North Dakota @KyleJohnsonVNL pic.twitter.com/lDSrLern9X

— NewsBreaker (@NewsBreaker) December 30, 2013

NEW PIC: Rising plume of smoke at train accident in Casselton, North Dakota via @missjenreads @MicahGrimes pic.twitter.com/GDRXZgitQp

— NewsBreaker (@NewsBreaker) December 30, 2013

Train oil tanker explosion in North Dakota 20 miles west of Fargo .. pic.twitter.com/rO2y0uonUS

— Ed Schultz (@WeGotEd) December 30, 2013

RIGHT NOW! Another explosion at the train derailment. @WDAYnews pic.twitter.com/5eagtWhjoX

— PzFeed Top News (@PzFeed) December 30, 2013

#BREAKING: reports: A 2nd #TrainDerailment – near #Fargo North Dakota – Photo from WDAYTV – pic.twitter.com/6OJKf2qE2l

— Mark Day (@1310MarkDay) December 30, 2013

 

peak oil climate and sustainability: When will US LTO(light tight oil) Peak?

peak oil climate and sustainability: When will US LTO(light tight oil) Peak?.

The rapid rise in oil output since 2008 has the mainstream media claiming that the US will soon be energy independent.  US Crude oil output has increased about 2.8 MMb/d (56%) since 2008 and about 2 MMb/d is from the shale plays in North Dakota ( Bakken/Three Forks) and Texas (Eagle Ford). My modeling suggests that a peak from these two plays may be reached by 2016, other shale plays (also known as light tight oil [LTO] plays) may be able to fill the gap left by declining Bakken and Eagle Ford output until 2020, beyond that point we will see a rapid decline.

US Light Tight Oil to 2040

fig 1

There are two main views:

  1. There will be little crude plus condensate (C+C) output from any plays except the Bakken/Three Forks in North Dakota and Montana and the Eagle Ford of Texas.
  2. The other LTO plays will come to the rescue when the Bakken and Eagle Ford reach their peak and keep LTO near these peak levels to about 2020 with a slow decline in output out to 2040.
Where are these “other LTO plays”?  There are a couple of these in Oklahoma and Texas (in the Permian basin, Granite Wash, Mississippian basin), the Appalachian, the Niobrara in Colorado, and others (see slide 17 of the USGS presentation link below).  Is it possible for these LTO plays to offset future declines in the Bakken and Eagle Ford?  I hope to answer that in this post.
When doing my modeling of the Eagle Ford, I needed an estimate of the technically recoverable resource(TRR) for that play.  The April 2013 USGS Bakken Three Forks Assessment roughly doubled their earlier assessment of that play (mostly this was due to not including the Three Forks in their earlier assessment.)
see slide 17 at the USGS Bakken/Three Forks Assessment presentation.
   In light of this I decided to increase the earlier (1.73 Gb) Eagle Ford estimate of undiscovered technically recoverable resources(TRR) from the USGS by a factor of 2.3 to 4 Gb.  To determine total TRR, the proved reserves and oil already produced need to be added to the undiscovered TRR, in the case of the Eagle Ford output to the end of 2011 was only 0.1 Gb and proved reserves were about 1 Gb (check the EIA data on the change in proved reserves since 2009 in districts 1 and district 2 of Texas):

So for the Eagle Ford estimated TRR would be 4+1=5 Gb.

For the North Dakota Bakken undiscovered TRR is 5.8 Gb, 2.2 Gb of proven reserves, and 0.5 Gb of oil produced for a Total TRR of 8.5 Gb. See my previous post for more details.

For the rest of the US we can deduct Bakken (7.38 Gb), Eagle Ford(1.73 Gb), and Alaska(0.94 Gb) from the US total (13 Gb) which leaves about 3 Gb, now assume that a reassessment by the USGS increases this by a factor of 2.3 to 7.2 Gb, then add the Montana Bakken/Three Forks (1.6 Gb) and reserves from the Permian basin and other plays (1.3 Gb) to get 9.2 Gb for a TRR estimate for US “other LTO”(Total LTO minus [North Dakota Bakken/Three Forks plus Eagle Ford play]). Total TRR for all US LTO is 22.7 Gb. (I have assumed LTO from Alaska’s North Slope will not be produced.)

For the North Dakota Bakken/Three Forks and Eagle Ford plays we use the following economic assumptions to find the Economically Recoverable Resource (ERR):

OPEX (operating expenditure) is $4/barrel, royalty and tax payments are 24.5 % of wellhead revenue, annual discount rate is 12 % (used to find the net present value[NPV] of a well over its 30 year life). Transport costs are $12/barrel for the Bakken and $3/barrel for the Eagle Ford.  Well costs are 9 million for the Bakken in Jan 2013 and fall by 8% per year to 7 million in 2016 and for the Eagle Ford well costs are $8 million in Jan 2013 and fall 8% per year to $6.5 million in mid 2017.  Real oil prices follow the EIA’s 2013 Annual Energy Outlook reference case to 2040 and then continue to rise at the 2030 to 2040 rate to the end of the scenario.  All costs and prices are in May 2013$ so they are real prices rather than nominal prices.
The concept of ERR is discussed in detail in the Sept, 2013 post after figure 3.

Figure 1

fig 2
I will use the Eagle Ford play as my template because it has ramped up much more quickly than the Bakken, this is a very optimistic scenario and it is unlikely that there will be greater output from US LTO than the scenario I will present.

The underlying assumptions are:
-the average well will look like the average Eagle Ford well
-ramp up of additional wells will be slow until the peak of combined Bakken and Eagle Ford output
-in 2015 the Bakken and Eagle Ford peak and reach break even levels of profitability by 2016
-in response to reaching break even the number of new wells per month added in both the ND (North Dakota) Bakken and the Eagle Ford are reduced substantially.
-new wells added in the other US LTO plays ramp up as the rate that wells added to the Bakken and EF are reduced
As before we adjust the decrease in new well EUR (both when it begins and how long it takes to reach its maximum) so that the TRR matches our estimate of 9.2 Gb.  In this case the EUR starts to decrease in July 2018 and reaches its maximum monthly rate of decrease of 2.37 % in June 2020. The “other LTO” peaks in 2020 at about 2 MMb/d.
To determine ERR we make identical economic assumptions as our Eagle Ford case above except that we assume transport costs are $5/barrel on average ($3/barrel in EF case).

Figure 2

fig 3

When we combine our North Dakota Bakken/Three Forks, Eagle Ford, and “other LTO” models we get the following chart:

Figure 3

fig 4

This scenario is indeed optimistic, but not nearly as optimistic as the EIA’s scenario for LTO in the 2013 Annual Energy Outlook.  For comparison I computed the ERR for 2013 to 2040 for my US LTO scenario, it was 17.6 Gb over that period, the EIA scenario has a total output of 24.5 Gb over the same period, 40% higher output than an already optimistic scenario.  My guess is that reality will lie between the blue curve and the green curve with the most likely peak around 2018+/- 2 years at about 3.1+/- 0.2 MMb/d.

Dennis Coyne

 Appendix Bakken and Eagle Ford Details
I am still working on this section, check back for details
Using the USGS TRR estimates as our guide we assume new well estimated ultimate recovery (EUR) eventually decreases as the room for new wells in the most productive areas (the sweet spots) starts to run out.  If new wells are producing an average of 450 kb over 30 years before this decrease begins, we assume at some point, say June 2014 the new well EUR starts to decrease maybe by 0.4% per month, the rate of decrease continues to increase for 18 months so that after 18 months the new well EUR is decreasing at a monthy rate of 7.2 %.

fig 5

fig 6

US Energy Independence: Another Pipe Dream, Says Analyst

US Energy Independence: Another Pipe Dream, Says Analyst.

by Andrew Nikiforuk, originally published by The Tyee  | TODAY

Tank cars offload crude, likely from the North Dakota Bakken formation. Photo by Roy Luck. Creative Commons licensed.

One of Canada’s top energy analysts has warned investors and geologists that “the shale revolution” will not meet conventional expectations as a so-called game-changer in energy production.

Speaking at the Denver meeting of the Geological Society of America and later at Queen’s University and an energy conference in Toronto, David Hughes challenged the assumptions of industry cheerleaders by spelling out startling depletion rates for high-cost unconventional shale and tight oil wells.

“The shale revolution has been a game-changer in that it has temporarily reversed a terminal decline in supplies from conventional sources,” said Hughes in both talks given in late October and early November. “Long-term sustainability is questionable and environmental impacts are a major concern.”

The geoscientist, who now lives on Cortes Island, has studied energy resources in Canada for four decades, including 32 years with the Geological Survey of Canada as a coal and natural gas specialist.

After reviewing data from unconventional oil wells, Hughes found that these difficult and high-cost operations deplete so rapidly that between 47 to 61 per cent of oil from plays like the Bakken, the first major tight oil play developed, is recovered within the first four years.

Hughes noted that the Bakken and Texas’ Eagle Ford plays, which currently produce two-thirds of U.S. tight oil and are supposed to take the country into energy independence territory, will actually peak in production by 2016 or 2017.

Incredibly, most tight oil wells, such as in North Dakota’s booming oilfields, will become “stripper wells” (producing less than 10 barrels a day) and be ready for abandonment within 11 to 24 years.

Shale no panacea

Shale gas wells follow a similar decline profile. In Louisiana’s Haynesville play and Pennsylvania’s contentious Marcellus fields, producing wells decline by as much as 66 per cent after the first year.

More than 3,500 wells have been drilled in the Haynesville play, which in 2012 was the top-producing shale gas play in the U.S., yet production is falling owing to the 47 per cent yearly field decline rate. The current price of gas is not high enough to justify the 600-plus wells needed annually to offset the steep field decline (each well costs between $8 to $10 million).

HaynesvilleGraph2_600px.jpg

Data from Drilling Info/HPDI.

“The shale revolution has provided a temporary respite from declining oil and gas production, but should not be viewed as a panacea for increasing energy consumption… rather it should be used as an opportunity to create the infrastructure needed for a lower energy throughput to maximize long-term energy security,” warned Hughes.

Hughes also told investors that they can no longer ignore the real and high-cost environmental issues associated with hydraulic fracturing, including high water consumption; groundwater contamination; methane leakage; land fragmentation; air pollution and property devaluation.

“There has been a great deal of pushback by many in the general public, and in state and national governments, to environmental issues surrounding hydraulic fracturing,” he said.

Quebec, Labrador and Newfoundland have declared moratoriums on the technology of high-volume horizontal hydraulic fracturing. In addition, Canada’s largest private sector union representing a high percentage of energy works hascalled for a national moratorium.

Although the number of gas-producing wells in Western Canada has reached an all-time high of 230,000 wells, actual gas production has been in decline since 2006.

Hughes also noted that the quality of shale oil and gas plays varies greatly. A few are prolific because they have sweet spots, he said. These special zones are targeted first and lead to an early rise in production followed by a decline, often within five years or less.

As a result, 88 per cent of shale gas production comes from just six of 30 plays, while 70 per cent of all tight oil production comes from two of 21 plays: North Dakota’s Bakken and Texas’ Eagle Ford.

Bad omens for BC

Rapid depletion rates, high capital costs and low market prices do not bode well for British Columbia’s much-hyped plans to export shale gas to Asian markets via a liquefied natural gas (LNG) system that currently does not exist.

“In terms of B.C., the well depletion will be similar. All of the fields outside of the Horn River and Montney plays are in decline,” Hughes told The Tyee in an interview.

“The province would have to nearly quadruple gas production just to satisfy the demands of five LNG terminals.” As many as 12 terminals have been proposed for B.C. “It’s a huge scaling problem.”

The government of Premier Christy Clark has championed LNG development as the province’s new economic miracle by subsidizing geoscience, roads and water for shale gas companies.

It has also lowered royalties. Income from shale gas peaked in the province in 2006 at more than $2 billion and has since fallen to less than $400 million, excluding government subsidies.

BCGasRoyaltyGraph1_600px.jpg

Data: BC Ministry of Finance, Economic and Financial Review and Budget 2013.

The Business Council of British Columbia whose executive council includes representatives from Encana and Kinder Morgan, supports accelerated LNG development on the grounds that global markets will likely not need the gas in the future: “Overall, there is sufficient evidence in the marketplace to suggest that, if the current LNG contract window closes before B.C. is able to secure final investment decisions, there would be potentially lengthy delays before B.C. and Western Canadian natural gas would have another LNG export opportunity.”

Hughes told investors that the shale gas revolution follows a predictable life cycle.

A land-leasing frenzy follows discovery. Then comes a drilling boom, necessitated by lease requirements, which locates, targets and depletes the sweet spots. Gas production grows rapidly and is maintained “despite potentially uneconomic full cycle costs.” (Production provides cash flow even though the well may not have been economic in its own right).

After five years, fields such as the Haynesville reach middle age. At that point geology takes over from technology, and it takes progressively more wells to offset field declines as drilling moves out of sweet spots to lower quality areas.

‘It’s all in the red’

Due to depressed natural gas prices, the shale gas industry has written down billions of dollars worth of assets and refocused drilling on more lucrative liquid rich formations. Other companies have lobbied strongly for government subsidies for LNG exports.

Rex Tillerson, CEO of Exxon Mobil, a multi-billion dollar shale gas investor,exclaimed last year that the industry was making no money: “It’s all in the red,” he said.

Royal Dutch Shell has written down $2 billion in shale assets and even put its Texas Eagle Ford properties up for sale. Meanwhile, one of its senior executives has complained that the industry has “over fracked and over drilled.”

Encana, one of the largest holders of shale gas real estate in B.C., has sold off many assets and laid off 20 per cent of its workforce due to poor investments in uneconomic shale gas plays.

The company pioneered the transformation of landscapes across the West, with industrial clusters of wells combining horizontal drilling with multistage hydraulic fracturing. The 10-year-old mining technique blasts large volumes of water, sand and toxic chemicals into dense rock formations up to two miles underground.

Hughes, head of Global Sustainability Research Inc., will be one of the experts addressing the Transatlantic Energy Forum in Washington, D.C. on Monday. The forum brings together energy and climate change experts from both sides of the Atlantic Ocean.

 

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