All About Frac Sand – April 26, 2015

Today we talk about five things in the news last week:

  1. Titans of Industry Discuss the Meaning of Cheap Oil
  2. First Steps for Republican Response to Clean Power Plan
  3. House Science Committee Debates Fracking
  4. Joe Biden Reveals Quadrennial Energy Review
  5. Oklahoma Geological Survey Sees Man-Made Earthquakes

Our interview is with Taylor Chase, a frac-sand reporter at the Wisconsin Center for Investigative Journalism.

Click below to listen or find us on iTunes or Stitcher.

1.  Titans of Industry Discuss the Meaning of Cheap Oil

Last week was IHS CERA Week, which bills itself as “the premier annual international gathering of energy industry leaders, experts, government officials and policymakers, leaders from the technology, financial, and industrial communities – and energy technology innovators.”  The event is led by Daniel Yergin, who is a leading expert on the oil and gas industry.  The event is held in Houston and costs about $8,000 to attend, so it draws a fairly exclusive crowd.  Here is some of the biggest news coming out this year:

  • Oil Tycoons do not expect a quick return to $100 oil (Houston Chronicle) – “You’ve got to be ready to survive at $60 a barrel oil, maybe less,” Stephen Chazen, CEO of Houston-based Occidental Petroleum Corp., said Monday.
  • They may be more pessimistic than investors (Reuters) – But the financial community is already looking for the upside, buying up energy equities and plotting private equity acquisitions in a bet that the oil price cycle may turn more quickly than the industry expects.  “There is clearly a gap in view between the strategics and the financial community,” David Asmus, a Houston-based partner at global law firm Morgan Lewis, said…
  • U.S. shale leaders are skeptical about taking their success abroad (FuelFix) –  The best shale rock can only be found in volatile countries with unstable political regimes – in North Africa, the Middle East and Russia. In many regions outside the U.S., there’s no private mineral ownership, a factor that has driven the U.S. shale boom for the last six years, said Scott Sheffield, CEO of Pioneer Natural Resources, one of the biggest oil producers in the Permian Basin in West Texas.
  • Some want to step up on public relations (FuelFix) – Richard Kinder, CEO of pipeline giant Kinder Morgan, had the best line [on fighting back against environmentalists]: “We don’t do a great job of selling how important what we do really is. Sometimes I think we hide behind it like we’re selling cigarettes.”
  • Coal companies are not happy (Platts) – Peabody Energy’s outgoing CEO Gregory Boyce said…current energy policies address a perceived “environmental crisis,” but a lack of clean and affordable power is really a “human crisis,” and coal is “essential” to keep electricity costs low and power reliable and available.
  • The EPA does not really care that coal is mad (FuelFix) – “Let me be clear: There is no scenario, standard or compliance strategy I will accept where reliability comes into question,” EPA Administrator Gina McCarthy told industry executives at the IHS CERAWeek conference. “Period.” McCarthy’s pledge comes amid anxiety over the Obama administration’s push to sharply reduce carbon dioxide emissions from the power sector while rapidly expanding the use of cleaner-burning natural gas, wind and solar.
  • LNG exports are less of a hot topic (FuelFix) – The global crude collapse has erased much of the price advantage of U.S. gas that stoked the initial flurry of interest in building U.S. LNG export terminals.  Still, Cheniere Energy CEO Charif Souki said the demand for U.S. LNG remains strong, thanks in part to the oil bust.  International companies that sell LNG at a price linked to oil have no financial incentive to build new projects, limiting the number of competitors vying for a slice of the global market.
  • Oil exports are becoming a hot topic (FuelFix) – Harold Hamm, the CEO of Continental Resources, criticized the ban in a televised interview with CNBC before the afternoon talk: “Here we are thinking about lifting the sanctions on Iran and letting them export, and yet here we have sanctions in America that we can’t export our oil. What’s going on?”
  • Congress may take on some legislation (Sen. Lisa Murkowski (R-AK) press release) – If last year was the Year of the Report, this should be the Year of Legislation.  So I am announcing today – right here, right now – that I plan to introduce a bill that fully repeals our nation’s outdated export ban, while still preserving the emergency authority of the President.  Over the next few months, we will hold a series of hearings and markups.  Later this summer, we hope our work will advance to consideration on the Senate floor.

2.  First Steps for Republican Response to Clean Power Plan

Republicans began moving their response to the President’s proposed regulations on the greenhouse gas emissions from power plants.  The regulations are called the Clean Power Plan, and the Republican bill is called the Ratepayer Protection Act.  The bill moved through the House Energy and Power Subcommittee on a straight party-line vote, and Democrats were especially annoyed with voting on the bill on Earth Day.  The top Democrat on the panel, Rep. Bobby Rush (D-IL), wished Republicans a “happy flat-earth day.”

The bill has two main components.  First, it would put the rule on hold until the legal challenges are complete.  Rep. Morgan Griffith (R-VA) explained his concern that the rule is going to cause coal power plants to shut down years before the rule is struck down in the courts.  Therefore, Congress should act to hold off the regulation until legal challenges are complete.

Rep. Ed Whitfield (R-KY) explained the other main component of the plan, which is that governors would be able to essentially opt out if they have concerns about electricity rates or electricity reliability.

The Ratepayer Protection Act will go to the full Energy and Commerce Committee next week.  The subcommittee is made up of largely coal-country Republicans and environmentalist Democrats, so it will be interesting to see if the full Committee takes a different view.  The bill seems likely to pass the House, but will certainly not be signed into law by President Obama.

3.  House Science Committee Debates Fracking

On Thursday, the House Science, Space, and Technology Committee held a hearing entitled, “Hydraulic Fracturing: Banning Proven Technologies on Possibilities Instead of Probabilities.”  The witnesses were very friendly to the industry, and included:

  • A state regulator – Ms. Christi Craddick, Chairman, Railroad Commission of Texas
  • A scientist – Dr. Donald Siegel, Chair of Earth Sciences, Syracuse University
  • An industry supporter – Mr. Simon Lomax, Western Director, Energy in Depth
  • An environmentalist – Mr. Elgie Holstein, Senior Director for Strategic Planning, Environmental Defense Fund

The hearing seemed a little unfocused, with Members bringing up a range of different concerns.  Chairman Lamar Smith (R-TX) took the opportunity to blast the EPA.

Other members thought the hearing was focused more on local control.  Ranking Member Eddie Bernice Johnson (D-TX) said that she is happy for oil and gas drillers, but she argued local communities have a right to protect themselves.

Rep. Bill Johnson (R-OH) did touch on science, and discussed Donald Siegel’s findings that groundwater damage from hydraulic fracturing was minimal, if it even existed.

Most of the hearing was focused on various regulatory structures.  Rep. Marc Veasey (D-TX), for example, had a discussion with Christi Craddick about what local regulations are appropriate.

4.  Joe Biden Reveals Quadrennial Energy Review

Last week, the Department of Energy released its long-awaited Quadrennial Energy Review.

This detailed review of energy transmission was folded into a White House announcement, which made it part of an Administration-wide attempt to boost infrastructure spending.  It was even announced by Joe Biden himself.

5.  Oklahoma Geological Survey Sees Man-Made Earthquakes

A new report came out last week that continued to draw a link between some waste disposal wells and small earthquakes.  As the Oklahoman reported:

Using some of its strongest language to date, the Oklahoma Geological Survey said Tuesday the state’s ongoing earthquake swarm is “very unlikely to represent a naturally occurring process.”

The state survey said the suspected source of triggered earthquakes is the use of wastewater disposal wells that dump large amounts of water produced along with oil production.

Oklahoma Oil and Gas Association President Chad Warmington said more research is needed to see how disposal wells can be operated safely in the seismic areas.

“There may be a link between earthquakes and disposal wells, but we — industry, regulators, researchers, lawmakers or state residents — still don’t know enough about how wastewater injection impacts Oklahoma’s underground faults,” he said.

In a less sober assessment of the situation, Jon Stewart covered the story on The Daily Show.

Interview with Taylor Chase, Reporter for the Wisconsin Center for Investigative Journalism (Starts at 18:06)

Back in January, Senators Al Franken (D-MN) and Bill Cassidy (R-LA) had a little back and fourth over natural gas exports, and whether exports would have any benefit for Minnesota.  Sen. Franken said exports would not help his state, but Sen. Cassidy argued that natural gas production helps non-producing states as well.  For example, Sen. Cassidy said, Minnesota and Wisconsin have a thriving business in frac sand mining, which produces the sand that is used in hydraulic fracturing.

Frac sand mining is a relatively new business, and for that reason it does not have a very established group of regulators, reporters, and industry groups keeping up with it.  Some of the best reporting on the subject is coming from reporter Taylor Chase with the Wisconsin Center for Investigative Journalism.

Taylor grew up in Wisconsin and is currently an undergraduate at the University of Wisconsin.  She is studying broadcast journalism and political science, and is currently an intern at the Wisconsin Center.  The Center is a nonprofit that does investigative reporting and then partners with newspapers across the region to distribute the work.  The Center tries to focus on under-reported issues, like frac sand mining.

According to Taylor, Frac sand mining is primarily occurring in the Northwestern part of Wisconsin.  That is a rural area with mostly small towns and limited media coverage.  Wisconsin is America’s top frac sand producer, and sand mining is not new to the region.  It has been producing sand for decades, for glass production for example, but frac sand raises some unique concerns.  For one, the grains are different than what has been produced in the past.  Additionally, the rush for frac sand mining has drawn in a number of smaller operators that have come into conflict with communities.

Frac sand is covered by statewide regulations for “nonmetallic” mining, which typically covers low-risk operations like gravel mining.  Many feel that frac sand mining needs to have additional regulations.  Many local governments are seeking to regulate or ban frac sand mining.  Industry, in contrast, has argued that any new regulations should be focused at the state level.

Communities have raised concerns that frac sand mining can harm the air and the water.  On the air front, people are worried about silicosis.  That is a lung disease that is caused by inhaling tiny bits of crystalline silica, which is a component in most of the sand.  Silica is an established occupational hazard, and mine workers have to take precautions to protect themselves.  There is much less data, however, on how much risk is posed to nearby communities by fugitive dust.  Taylor said that data from Minnesota has suggested the mines are fairly safe, but it is not clear the situation is the same in Wisconsin.

Water is another concern, and again there is little research on the topic.  The potential problems are largely nontoxic.  Folks are primarily concerned about silt or sediment polluting rivers.  Sand also plays an important role in the ecosystem, and there is a worry that digging up too much of the sand will harm underground reservoirs.

Data is also limited on the positive side.  Taylor hears from miners that frac sand mining is creating jobs and boosting the local economy, but the benefits are hard to quantify.  She feels that much of the employment goes out of state.  Probably the biggest beneficiaries are the individual landowners.  Many farmers, for example, have struck it rich by being able to mine for sand on their land.  That does not always make the neighbors happy.

On the political side, Taylor said it largely comes down the way you would expect at the state level.  Republicans tend to be for mining and the industry, while Democrats tend to be more skeptical.  Locally, however, it is all over the place.  Conservatives might be against frac sand mining near their home, while liberals might want the right to mine on their land.  Many local politicians are accused of conflicts of interest because they are individually benefiting from mining.  On the other hand, many frac sand mining companies work closely with the government on environmental initiatives.

Taylor said that low oil prices have not changed the debate much.  The industry is seeing some layoffs, but it is holding strong.  The opposition to frac sand mining is unlikely to dissipate.  Most folks are upset about the actual industrial operation of mining and they are unlikely to be soothed by new data showing the mines are safe.

You can check out more of Taylor’s work at WisconsinWatch.org.  They seem to be particularly proud of this animation, which provides a great summary of the situation.

12 Things You Should Know about Frac Sand Mining in Wisconsin from WisconsinWatch on Vimeo.