When Wieslaw Radzieciak took office as the mayor of Lesniowice in the gently-rolling farmland of southeastern Poland 26 years ago, the Soviet garrisons that dotted the county were a stark reminder of which superpower was in control.

The signs of Russian occupation have vanished but over the past year a new superpower has moved in, its presence spelled out on the distinctive logos plastered on the trucks used by U.S.-based oil services company Halliburton.

It’s all part of Poland’s ambitious goal to exploit Europe’s biggest estimated deposits of shale gas. Beginning in 2014, Warsaw wants to tap an estimated 5.3 trillion cubic meters of recoverable reserves of gas – enough, according to the U.S. Energy Information Administration, to supply Poland with more than 300 years of its domestic energy needs.

But the shale gas push is about more than energy. Poland wants to break its reliance on Russian energy and reduce Moscow’s power over Europe. That is one reason why Warsaw has welcomed U.S. oil majors such as Chevron, Exxon Mobil, Conoco and Marathon, even though it risks igniting tensions with Russia.

“If this thing comes true, if the American technologies deployed here at some point are really able to produce this gas, then this means a winning situation for the whole of Europe really,” Radzieciak said in an interview in his small office filled with sports trophies, banners from local teams and a large map of Poland on the wall. “It would create more competitiveness on the gas market, which is now dominated by Russia, and one side would not be able to force anything unilaterally anymore.”

Western European capitals are just as eager as Poland to diminish Russian influence over supplies. Russia currently supplies 25 percent of deliveries to the European Union. Daniel Yergin, a Pulitzer-prize winning author and energy historian who included a chapter on shale gas in his latest book “The Quest,” sums up Warsaw’s thinking: “They’re motivated to develop it economically and they’re motivated to develop it politically.”

But Russian officials, publically at least, dismiss the challenge, arguing it will prove Russian gas is cheap.

“Oh, we’re so thrilled that they are starting to produce shale gas!” Sergei Komlev, head of contract structuring at Russia’s state-controlled Gazprom told Reuters last week. “Look, we do not believe in this myth of shale gas, that it is cheap gas. It is not true.”

There is one good practical reason Poland has turned to U.S. companies to unlock its huge shale fields: American firms dominate shale gas technology.

The breakthrough came in 2003 when independent U.S. drillers, led by Devon Energy Corp, combined drilling at once-impossible angles, known as horizontal drilling, with hydraulic fracturing, or “fracking” – an older technology in which shale rock is cracked open by chemical-laced water blasted underground along with sand to prop the cracks open.

The United States produced 4.87 trillion cubic feet from shale gas in 2010, up from virtually nothing in 2000 according to the U.S. Energy Information Administration. The agency estimates shale gas will account for about 46 percent of U.S. natural gas production in 2035 — an encouraging sign for Poland and other eastern European nations exploring unconventional gas.

But the torrid pace of shale development has also sparked a public backlash in the United States and elsewhere over fears that fracking pollutes groundwater and may cause earthquakes. Similar worries have led to a ban in France and Bulgaria and suspension in Britain. Fracking is also the subject of public debate in Germany.

A European Union study commissioned study found in January that EU law was enough for now to regulate shale gas exploration, although changes might be needed once Europe enters the development phase.

In Poland, so far, energy security concerns have trumped environmental worries. In comparison with countries such as Britain or Germany, the green movement is less powerful in coal-reliant eastern Europe. A late 2011 poll found that 73 percent of Poles backed developing shale while

only four percent opposed exploiting the unconventional gas.

A short drive outside Lesniowice, workers at a Chevron-operated well-head keep a massive drill running 24 hours a day in search of the natural gas trapped in rock deposits.

“I have no worries at this stage, the technology seems 100 percent safe,” said mayor Radzieciak, who estimated that potential revenues from shale could mean a more than 10-fold increase of his office’s current annual budget of 10 million zlotys ($3.15 million). “People here are more opposed to wind farms than this.”

A Poland awash in gas could mean dwindling revenues and further loss of influence in a region Moscow once controlled with an iron fist. Are Russian officials too dismissive of the threat?

Moscow, some diplomats and oil analysts say, believes that Poland’s weak infrastructure, among other problems, will slow the country’s ability to exploit its gas.

“They are aware of the dangers,” one Western diplomat said. “But they really don’t believe shale will happen in Europe.”

That could be why Gazprom felt confident enough to cut supply to Europe during the recent cold snap.

Others say Russia is only too aware of the shifting dynamic. Poland’s investment in shale gas since 2009 has already shifted the terms of trade, according to Robert Hormats, the U.S. under-secretary of state for economic, energy and agricultural affairs. One obvious change: Russia and Poland renegotiated Poland’s gas contract last year at terms very favorable to Warsaw.

Amy Myers Jaffe, an energy policy expert at the Baker Institute at Houston’s Rice University, sees rival gas sources as a factor behind Russia’s April deal with Exxon in which state-run Rosneft brought in the U.S. giant to accelerate its development of deepwater Arctic oil and gas.

Other analysts say Poland and other rivals were not a factor in that deal.

A Baker Institute report showed that Russia’s market share of European gas fell from about a quarter to a fifth in the decade to 2010, partly due to increased use of natural gas diverted from the over-supplied U.S. market.

“Especially in gas, countries like Russia that were slow to the mark are losing market share and are going to lose more market share,” she said. “There’s a finite market which is going to go to shale, because I can do that quickly, and it doesn’t require a $10 billion (LNG) installation where I have to put all that money at risk.”

Poland currently relies on coal for most of its energy needs; natural gas, most of it Russian, accounts for about 13 percent of its supply. That gives Poland more leverage over Russia than is sometimes apparent.

“The last thing they (Moscow) want is anything that upsets their monopoly on gas,” said William Perry, a former U.S. secretary of defense after a trip to Moscow to discuss nuclear proliferation. “I think it’s fair to say that they are very concerned about it.”

The Russian Energy ministry declined to comment.

Much needs to be done in Poland if it is to wean itself off Russian supplies. Any boom will require thousands of skilled workers to build and operate wells and construct the roads and pipelines required to transport gas westward.

“For Poland to move forward . the key thing is going to be the scale-up,” said John Claussen, Chevron’s country manager for Poland.

One incentive for outside investors is the fact that gas prices in Europe are more than two times higher than in the United States. And with long-term contracts in Europe and Asia tied to oil prices, shale gas remains attractive despite worries about a weak economy that could cap future demand.

Poland’s government has so far granted more than 100 exploration licenses, and hopes the eight currently active wells prove that extracting gas is viable-though the first two have so far been disappointing. [ID:nL5E8D74ST]

Malgorzata Maria Klawiter, an official from near Gdansk in northern Poland, remains optimistic. Gdansk has distributed 89 concessions covering about 85 percent of the region. In total, licenses cover 58,565 square kilometers, or some 18 percent of Poland’s land.

Polish Deputy Foreign Minister Beata Stelmach said the next step is to enact legislation needed to attract investors and give them assurances they will see returns for exploration that can cost hundreds of millions of dollars.

“If we move to production level, then Poland’s international position can change from a gas importer, to producer, or maybe eventually even exporter,” Stelmach said. “This changes not only the domestic situation by improving energy security, but also strengthens the competitiveness of our country.

“Our Gazprom contract runs until 2022 and let’s until then move within the framework of this contract. But, at the same time, we have to keep our fingers crossed to develop the shale gas project.”

John Buggenhagen, the Warsaw-based exploration director for San Leon energy, said that while other former Soviet-bloc nations such as the Czech Republic, Hungary and Ukraine are exploring similar developments, it is Poland that offers the most promise.

“Look at the history of Poland,” Buggenhagen told a recent shale gas conference in Warsaw. “We are only 23 years from the fall of communism and we are in an energy rush with a country that has been reliant on coal and on supplies from the east.”

At Chevron’s site outside Lesniowice, head of drilling Tim Nowak and his crew are doing all they can to make that happen. The site is a hive of activity with trucks owned by Halliburton parked in the lot, and drill parts and pipe casings strewn across the ground. The low rumble of the drill drones on in the background.

Nowak acknowledges the challenges of creating an industry from the ground up. But as he guides a tour around the first of Chevron’s five exploratory wells in Poland, he remains positive. “Right now Poland is an exciting place to be,” he said.

Michael Kahn and Gabriela Baczynska reported from Lesniowice and Braden Reddall from San Francisco; with additional reporting by Melissa Akin and Vladimir Soldatkin in Moscow; Editing by Simon Robinson, Richard Mably and Sara Ledwith.

Source: Reuters

With talk of Greece holding the future of the world’s economy in its hand and the U.S. looking for a solution to global financial problems, Bloomberg says shale gas could reignite the American economy – and therefore have a huge global impact on world finances.  It’s a long piece – but it’s worth a read:

In late 1998, Chesapeake Energy Corp., an independent natural-gas producer based in Oklahoma City, exemplified an industry in decline.

The company’s stock price had fallen over two years from above $34 a share to 75 cents. Its market value tumbled 93 percent, to $72 million. “They’re running up a down escalator,” Michael Spohn, an analyst at Petroleum Research Group, said.

When Aubrey K. McClendon, Chesapeake’s chief executive officer and co-founder, announced he might sell the company, there was little interest, Bloomberg Businessweek reports in its Nov. 7 edition.

Falling gas prices had reduced the value of Chesapeake’s reserves from $2.1 billion to $661 million. “We’d had higher highs than others in the industry; then we had lower lows,” McClendon said with characteristic insouciance. “In this business, it’s good to have a short memory and thick skin.”

Good thing he didn’t sell. Thirteen years later, Chesapeake’s market value exceeds $18 billion. Its shares sell for about $28, up 8 percent this year. The company’s 120-acre neo-Georgian corporate campus bustles with construction crews building new office space. Its workforce has grown 30 percent in a year, to 12,200, and its recruiters have 700 jobs to fill. “The United States,” McClendon boasts, “has the capacity to become the Saudi Arabia of natural gas.”

A tall man who wears his wavy silver hair long by CEO standards, McClendon, 52, exudes the confidence of someone who’s certain he’s seen the future. Exploitation of newly accessible supplies of gas embedded in layers of what’s known as shale rock, he predicts, will help revive domestic manufacturing and change the terms of debate about global warming. “It’s a new industrial renaissance,” he said.

Diverting Billions

You’d expect that kind of exuberance from a man with everything to gain from seeing his vision made real, but it’s not just independent drillers such as Chesapeake that are talking big. ConocoPhillips is investing $2 billion in gas in 2011, up from $500 million two years ago.

Other multi-national oil giants, such as Exxon Mobil Corp. and Royal Dutch Shell Plc, are likewise diverting billions into domestic shale gas projects. “We believe so strongly in natural gas that it’s a major portion of our portfolio,” Conoco CEO James J. Mulva told an audience at the Detroit Economic Club in September.

Last month, the potential for U.S. shale gas spurred Kinder Morgan to acquire rival pipeline operator El Paso Corp. for $21.1 billion. It also drove the proposed $4.4 billion purchase of Brigham Exploration Co. by Norway’s Statoil ASA.

Cheaper Gas

Encouraged by the availability of inexpensive and cleaner domestic gas, some electric utilities are replacing their coal- burning capacity with gas-fired units. Energy-intensive manufacturers of chemicals, plastics, and steel are beginning to bring home operations that they exported years ago.

“We believe natural gas must be part of any discussion on strengthening our country’s long-term economic health,” Mulva said in Detroit. “It should also be part of any discussion on improving energy security, protecting the environment, and, yes, creating jobs.”

On the economic potential of the nascent shale revolution, even some career environmentalists sound impressed, if cautious. “This thing is a potential game-changer,” said Fred Krupp, president of the New York-based Environmental Defense Fund (EDF). Shale production in the U.S. has increased from practically nothing in 2000 to more than 13 billion cubic feet per day, or about 30 percent of the country’s natural-gas supply.

Cleaner Than Coal

That proportion is heading toward 50 percent in coming years. The U.S. passed Russia in 2009 to become the world’s largest producer of natural gas. An Energy Dept. advisory panel on which Krupp sits estimated in August that more than 200,000 jobs, both direct and indirect, “have been created over the last several years by the development of domestic production of shale gas.”

At a moment of 9.1 percent unemployment nationally, additional decently paid work is just one potential benefit. “Natural gas burns cleaner than coal, emits less in the way of greenhouse gases, and avoids mercury and other pollutants from coal,” Krupp points out. “So this could be win-win, if–and this is a big ‘if’ — we do it the right way.”

Geologists have known for generations that immense, deeply buried shale formations contain copious reserves of methane, or natural gas, which can be burned efficiently to make electricity and run factories. Until recently, however, industry lacked the tools to get at shale gas profitably.

Casing Protects Wells

In the early 2000s, the combination of two existing techniques led to a breakthrough. One method is horizontal drilling. The other is hydraulic fracturing, or “fracking,” a scary-sounding and controversial process involving the high- pressure pumping of millions of gallons of chemical-laced water deep underground to create cracks in shale rock and release trapped gas.

When in 2007 environmentalists began raising reasonable concerns about fracking, industry executives responded with a dismissive, “Just trust us“ — ensuring that skeptics would trust them less. Just in case concern didn’t turn into panic on its own, the industry for years took the additional step of refusing to disclose the chemicals it uses in fracking.

Lost amid the suspicion and recrimination was a potentially more constructive discussion over improving industry standards for drillers’ concrete-lined steel casing, which, when installed correctly, has successfully insulated wells from drinking water.

Safe and Profitable

Now, though, there’s some surprising good news: Despite all the vituperation on both sides, some people from business and environmental circles are quietly at work in Texas, New York and Washington on guidelines that should ensure a safe, profitable gas revival.

The Environmental Defense Fund, for example, is drafting model state regulations with Southwestern Energy Co., a producer based in Houston. The collaboration is rooted in the recognition that the choice between polluting fossil fuels and pristine alternatives is not simple. For the foreseeable future, the U.S. has to burn a whole lot of something to produce power.

The nation now gets 45 percent of its electricity from coal, 25 percent from natural gas, 20 percent from nuclear, 7 percent from hydro, and 2 percent from wind. Solar barely registers. With current technology, wind and solar probably can’t reach into double digits, let alone bear the bulk of the load.

Bridge Fuel

If you want to continue to turn on the lights with the flip of a switch, the real short-term choice is whether to stick with the current mix or replace a substantial amount of coal capacity with less dirty natural gas.

John Podesta, former chief of staff to ex-President Bill Clinton, argues for the latter option. Now head of the Center for American Progress in Washington, Podesta writes on the liberal think tank’s website that natural gas can serve “as a bridge fuel to a 21st century energy economy that relies on efficiency, renewable sources, and low-carbon fossil fuels.” Exploring where that bridge will lead should be one of the country’s most important economic priorities.

Like petroleum, natural gas is a hydrocarbon, a product of decomposed organic material that simmered underground for hundreds of millions of years. Simple in structure–one carbon atom and four hydrogen atoms–gas has a convoluted history in the U.S.

In the 1970s, federal price restrictions contributed to underproduction and shortages, leading to wintertime shutdowns of Midwestern schools and factories. Utility executives and consumers came to view natural gas as unreliable.

Attractive Alternative

A titanic political fight during the Carter Administration ended in a bizarre compromise: price deregulation combined with restrictions on burning gas to generate electricity. (The coal industry, it should be noted, sponsors a long-established and adroit K Street lobby.) By the 1990s, the limits on using natural gas for power had been eased, and new turbine technology made gas an attractive alternative to coal.

Furious construction of gas-fired power plants ensued, only to be followed by dismay: Gas supplies were not expanding apace. At the turn of the 21st century, some natural-gas basins were nearly tapped out, and once again many utilities, homeowners, and energy-intensive manufacturers dismissed domestic gas as a sucker’s bet.

It might have stayed that way if not for the stubbornness of a Texan named George P. Mitchell. The son of an immigrant Greek goat herder, Mitchell worked his way through Texas A&M University in the late 1930s waiting tables and repairing clothes for students.

Mitchell’s Influence

After World War II, he went into the oil and gas business in Houston, working from a tiny office above a drugstore. All through the ‘80s, Mitchell pondered geological studies showing that gas could be found not only in conventional reservoirs but also in deeper, denser “unconventional” shale formations.

Shale is where gas is actually created. Energy men call it “the kitchen,” where hydrocarbons “cook,” and where large amounts of gas remains trapped. Mitchell wondered: Why not drill all the way down to the kitchen? His exploration company probed the Barnett Shale, a slab sprawling 7,000 feet beneath Dallas and Fort Worth. Competitors scoffed.

“We were running low on gas, and I had to find another reservoir somewhere,” Mitchell, now 92, told Bloomberg News. “So I said let’s drill a well and see what this thing is about.”

He invested his faith and capital in hydraulic fracturing, which had been introduced in rudimentary form in the late ‘40s. Injected at enormous pressures and in huge volumes, fracking fluid creates narrow cracks in the shale. Sand diffused in the fluid stays behind and props open the cracks, allowing gas to flow out and up through the well.

Horizontal Drilling

“Mitchell Energy,” the industry consultant Daniel Yergin writes in his new book, The Quest: Energy, Security, and the Remaking of the Modern World, “cracked the code.”

In 2002, after 60 years in the business, George Mitchell decided to cash out. Devon Energy Co., a better-capitalized independent in Oklahoma City, acquired his company for $3.5 billion.

Devon brought to the Barnett a knack for horizontal drilling. Improvements in equipment controls and measurement methods allowed its crews to drill down and then turn the gnawing diamond-tipped bit sideways. Drillers penetrate the shale laterally rather than just vertically. This exposes more of the surface area of the formation to extraction and enables multiple wells to be created from each drill pad.

Shale Stampede

Devon could not keep the field to itself. Rivals rushed in to lease tracts in Texas, Arkansas, Louisiana, and Oklahoma. Following geologists’ amazingly precise three-dimensional subterranean maps, the drillers went as far east as the Marcellus Shale, a formation that extends below Western New York State, over into Pennsylvania, and all the way down to West Virginia and Tennessee. Few people outside the industry noticed, but a shale stampede was under way.

After almost selling his company during the late-’90s doldrums, Aubrey McClendon dramatically switched strategy and wagered Chesapeake’s future on shale. (A few years later, he lost much of his personal fortune during the financial crisis of 2008 before gaining it back.) Today, Chesapeake is the most active driller of new wells in the U.S., with 177 rigs in operation.

It is the country’s second-biggest overall producer of natural gas, behind only ExxonMobil, which announced in late 2009 that it would join the gas rush by buying XTO Energy for $41 billion. Anadarko Petroleum Corp. is the third-largest producer, followed by Devon.

Haynesville Play

McClendon is descended from a prominent Oklahoma oil family, the Kerrs of Kerr-McGee fame. Prospecting is in his DNA. In 2003 he instituted what he called his “land rush plan”: Chesapeake borrowed heavily and bought leases in the Barnett, some of them in built-up parts of the Dallas-Fort Worth metro area. At midnight after the jets stopped arriving at Dallas/Fort Worth International Airport, workers drilled next to the quiet runways. In 2005, McClendon’s geologists discovered gas in a rich shale play in Northwest Louisiana and East Texas called the Haynesville. (Shale projects are commonly referred to as “plays.”)

Also in 2005, Chesapeake paid $2.2 billion for the second- largest gas producer in Appalachia, becoming the biggest presence in the Marcellus play. McClendon, who got his start in the business as a “land man,” or oil and gas lease broker, built a one-of-a-kind database of millions of property records from obscure county courthouses. The digitized trove has allowed Chesapeake to beat rivals to the doorsteps of landowners whose farms or backyards sat atop buried shale gas.

Margin Calls

A runup in gas prices–to nearly $14 per thousand cubic feet in mid-2008–made McClendon look like a genius. A few months later, he seemed less smart when the economy imploded, dragging down the price of energy and of Chesapeake’s stock (which fell from a high above $69 a share in July of that year to $11 in December).

McClendon personally had borrowed against his large individual holdings to buy yet more company stock. When the bottom fell out, he was hit with margin calls that forced him to liquidate a big chunk of his investments.

Like most entrepreneurs in the up-and-down energy business, McClendon takes occasional setbacks in stride. It helps to have a loyal board of directors. In 2009, the Chesapeake board gave the CEO a $100 million pay package. The company also paid him $12 million for a collection of 19th century maps he owned.

Better Than Coal

Why the well-timed company largesse? McClendon, citing pending shareholder litigation over his pay, answers guardedly. He was properly rewarded for his work during 2008, he said, and received an appropriate “retention package” to ensure his remaining as CEO.

As for the maps, he said he had paid out of his own pocket for years to decorate the halls and conference rooms of the company, and it was time for Chesapeake to make him whole. The company denies any impropriety. On Nov. 1, the litigation was settled, and McClendon agreed to rescind the map sale and repay Chesapeake the $12 million, plus interest.

Today, he has assets valued at more than $1 billion, including a 19.2 percent stake in Oklahoma City’s National Basketball Assn. franchise, the Thunder.

Burning natural gas for power, McClendon proudly points out, results in about half the equivalent carbon dioxide emissions of coal. Such observations, however, have not kept him from becoming a target of activists who are trying to shut down fracking — and have succeeded in some places, such as New York State.

Shale Gas Welcomed

Environmentalists, McClendon believes, should feel much more warmly toward him. He readily acknowledges that human activity contributes to global warming. “Why take a chance,” he said, “when we can reduce our carbon emissions through consuming more natural gas and less coal and oil?” It’s in his pecuniary interest to hold that opinion, of course.

Many residents of Louisiana, Oklahoma, and Texas–places accustomed to oil and gas development–welcomed the “shale gale” and its accompanying jobs, packed cafés, land royalties, and rising local tax revenue. The reaction was far more mixed in New York and Pennsylvania, despite the latter’s history of oil and coal exploration.

In the Northeast, some residents objected to heavy truck traffic and rural vistas marred by towering steel rigs and murky wastewater pools. Even more intense were concerns about the effects of shale drilling on drinking water supplies. Some homeowners complained that after gas operations began, well water started tasting bad and children fell ill.

Industry Defends Fracking

Activists raised questions about whether the chemicals in fracking fluid were contaminating drinking water with benzene, methanol, and other dangerous substances. In 2008, Businessweek published an article by the nonprofit journalism organization ProPublica that identified episodes of water contamination near (although not all definitively caused by) gas activity in seven states: Alabama, Colorado, Montana, New Mexico, Ohio, Texas, and Wyoming.

In 2010, New York stopped issuing permits for fracking to give environmental authorities there time to study the situation.

Hit with pollution lawsuits, Chesapeake and other producers denied that fracking caused water contamination. For one thing, the companies said, the procedure typically takes place a mile or more below drinking water aquifers and is isolated by massive layers of impermeable rock.

According to the industry, drillers had done more than a million frack jobs going back to 1948 without proof of widespread pollution problems. Drillers also pointed to a study of fracking released in 2004 by the U.S. Environmental Protection Agency that supports their position.

Film’s Impact

O.K., environmentalists said, so what chemicals are you mixing into fracking fluid? That’s secret, the industry answered.

“That was a very, very stupid answer,” said Jim Gipson, a spokesman for Chesapeake. “In this country, if you tell people you’re keeping secrets from them, they will naturally assume you are doing something wrong.”

The producers blame the furtiveness on big drilling contractors, companies such as Halliburton Co., that actually devise and inject the frack fluid recipes. The contractors insisted that their recipes were safe, but deserved confidentiality as proprietary trade secrets.

The industry’s conduct fueled protests in New York and Pennsylvania, which adopted as their manifesto Gasland, a documentary that made its official debut in January 2010 at the Sundance Film Festival, went on to air on HBO, and was nominated for an Academy Award. The film memorably showed homeowners near drilling operations lighting their tap water on fire and complaining about contaminated waterways.

Fracking Dangers Overstated

While Gasland raised relevant questions, it overstated the dangers related to drilling shale gas. It suggested rampant water contamination caused by gas operations. In contrast, a study by researchers at the Massachusetts Institute of Technology released earlier this year found about 20 reported cases of groundwater contamination between 2005 and 2009.

Some of these problems were traced to flawed cement used in well construction, though not to the fracking process itself. Pennsylvania and other states have since toughened drilling construction standards.

Flammable tap water is a real phenomenon in some areas, albeit a rare one. It’s caused by methane seeping into household wells, and it can happen regardless of whether gas drilling is going on nearby. The challenge in tracing the source of methane seepage is that the gas can occur naturally and contaminate water without any industrial activity. (Not that anyone would want an incendiary kitchen faucet, but methane gas in water isn’t toxic, and it evaporates quickly.)

Methane Occurs Naturally

This August, Josh Fox, Gasland’s director, accompanied a woman named Natalie Brant when she testified before a hearing on fracking held by members of the New York State Senate. Brant, whose family lives south of Buffalo, testified that before the state’s moratorium on fracking went into effect, several of her eight children developed headaches and nosebleeds, which she attributed to nearby gas drilling. “We’re constantly worried about our children and if they’re going to come down with cancer or other illnesses because of what they’ve been exposed to,” she said. State environmental officials have said that methane occurs naturally in well water in Brant’s part of the state, and that the gas turned up in other water wells in the area before drilling began.

New Casing System

Chesapeake’s McClendon (whose company wasn’t specifically implicated by Brant) said claims such as Brant’s, compelling though they may seem, aren’t based on hard evidence pointing to hydraulic fracturing. But in a speech in September at a conference in Philadelphia, he acknowledged a series of “limited gas migration incidents in Pennsylvania in the past three years.”

One of those led state regulators to impose a $900,000 fine on Chesapeake for polluting drinking water in Bradford County. “These incidents were not related to fracking,” McClendon said. Instead, they were caused by faulty well casing. “Only a couple dozen homeowners claim to have been affected,” he said. “And more importantly, the industry worked closely with Pennsylvania’s Environmental Protection Dept. officials to implement an updated and customized casing system that has been effective in preventing new cases of gas migration. Problem identified. Problem solved.”

McClendon has a tendency to exacerbate hostilities by belittling his antagonists. At the Philadelphia conference he described protesters’ “vision of the future” in these derisive terms: “We’re cold, it’s dark, and we’re hungry.”

Fracking Chemicals Disclosed

Such condescension notwithstanding, Chesapeake and other natural-gas producers have made concessions. Overcoming some of the concerns of their contractors, Chesapeake and other producers (and the contractors themselves) have begun to disclose the chemical additives used in fracking. An industry- sponsored website, www.fracfocus.org, allows companies voluntarily to report the additives on a well-by-well basis.

“We just decided to do what we should have done from the start,” said Chesapeake’s Gipson. Disclosure isn’t universal yet, but it’s headed in that direction. Arkansas, Texas, and certain other gas-producing states have enacted legal requirements for full disclosure as a condition of continued fracking.

At fracfocus.org, visitors will find that some of the stuff in fracking fluid is definitely not what you’d want in your water glass. Ingredients may include hydrochloric acid (initiates cracks), methanol (inhibits corrosion), glutaraldehyde (kills bacteria), and ethylene glycol (winterizes product).

Accidents Are Rare

Frack fluid is typically 98 percent to 99.5 percent water and sand, with the additives making up the remainder, according to the industry. When the nasty stuff passes by any drinking water supply, it is supposed to be contained securely within at least two layers of steel casing and two layers of heavy-duty cement.

No one disputes that there can be problems if there are flaws in the steel or concrete. The industry said such accidents have been exceedingly rare.

The 2011 MIT study estimates that between 2005 and 2009 there were some 50 incidents nationwide involving a variety of gas drilling mishaps: groundwater contamination, surface spills, offsite disposal issues, air quality problems, and well blowouts. To provide guidance on how to reduce gas drilling risks, the DOE set up its seven-person shale committee.

Sniping, Distrust

The EDF’s Krupp sits on the panel, which is chaired by John M. Deutch, a Director of Central Intelligence during the first Clinton Administration. Other members include the consultant and historian Yergin and several scholars and former regulators.

Despite Krupp’s participation, some environmentalists have written off the DOE committee as an industry-influenced rubber stamp. These critics note that Deutch, a professor at MIT, holds a directorship on the board of Cheniere Energy, a Houston-based liquefied natural-gas company, and formerly served on the board of Schlumberger Ltd., a major drilling contractor.

Even Krupp “has his own connections to the industry,” Dusty Horwitt, senior counsel at the Environmental Working Group, a nonprofit in Washington, said in a radio interview in May.

The sniping reflects distrust of the pragmatism Krupp embraces. A 57-year-old lawyer by training and the son of a New Jersey businessman who recycled rags and cardboard, Krupp heads a nonprofit that promotes the use of market forces to protect the environment.

August Report

He regularly takes flak from harder-line activists who oppose his willingness to work with industry. His “industry connection” to shale gas consists of having hired as a senior policy adviser a former employee of the Texas Independent Producers and Royalty Owners Assn.

After conferring with the Sierra Club, the Natural Resources Defense Council and other nonprofits, Krupp had considerable influence on the 41-page preliminary report the DOE committee released in August.

The paper calls for mandatory state-enforced disclosure of fracking ingredients, stricter standards on conventional air pollution created by shale operations, and additional research on underground methane migration and greenhouse gas releases associated with gas drilling. The panel persuasively explains the need for government inspection of casing and cementing and for more careful disposal of wastewater that comes up from wells.

The report doesn’t address the sticky question of whether the EPA should be given more authority over gas drilling. At present, state agencies regulate the industry. Gas executives grimace when asked about the EPA being given responsibility for permitting their operations.

Fracking’s Exemption

“There’s no evidence the states aren’t doing the job adequately,” said Henry J. Hood, Chesapeake’s senior vice- president and general counsel. “The EPA doesn’t have the manpower or the state-by-state expertise.”

Some environmentalists angrily stress that in 2005 Congress made explicit that another federal law, the Safe Drinking Water Act, doesn’t cover fracking. The exemption certainly reflects the strength of the oil and gas lobby, but with a U.S. House of Representatives controlled by anti-regulatory Republicans, the chances of getting the provision reversed at this point are exactly zero.

Debating it is more of a distraction than anything else and obscures that the EPA has authority to take action against gas drillers and producers that violate the Clean Air and Water Acts. Rather than drawing another bull’s-eye on the EPA’s back, a savvier approach would be to use the DOE report as a blueprint for broadly framed principles that state officials enforce vigorously.

Education Needed

Smart industry executives should accept tough standards as the cost of resolving environmental anxiety. In January 2010, one such corporate leader, Southwestern Energy’s executive vice- president and general counsel, Mark K. Boling, picked up the telephone and called Scott Anderson, the Texas-based EDF gas expert whose industry experience makes him suspect in the eyes of some fellow environmentalists. Southwestern traces its roots to an Arkansas gas concern incorporated in 1929.

Boling, a former partner with the Houston law firm Fulbright & Jaworski, has spent his entire legal career promoting the interests of oil and gas clients. Now, he said in an interview, those interests include demonstrating that fracking is safe. “It’s not enough to say we’ve been fracking for 60 years and no one has proved there’s a problem,” Boling adds. “We’ve got to get out there and educate, encourage better regulation, and pick up our performance in every aspect.”

Working Out Differences

Boling’s phone call to Anderson produced a cautious series of negotiations leading to a 37-page draft state regulatory code for gas operations. “Our idea is not that this should be adopted word for word by any state,” Anderson explains. “This is not one size fits all. Instead, it’s an attempt to show what a responsible producer and a responsible environmental organization consider best practices. It’s something to work toward.”

A dozen other gas producers have been shown the draft, and many offered comments, which have been incorporated, said Anderson. “What we’re working on are mostly very technical underground issues that have technical solutions,” he said. “Fracturing should be safe, if it is done properly. We have a ways to go, but this is a good model for working out our differences.”

The incentives for working out those differences are compelling. In New York, where local opposition to fracking remains strong in some communities, Governor Andrew M. Cuomo inherited a permitting moratorium on the procedure imposed by his predecessor, David A. Paterson. Since taking office in January, Cuomo has encouraged the drafting of more stringent rules.

Jobs at Stake

Released for public comment in September, the proposal would allow fracking subject to rules suited to New York’s geology and regional politics. It would prohibit drilling within 2,000 feet of public drinking water supplies or 500 feet of the state’s 18 primary aquifers. Drilling within the watersheds that provide unfiltered water to New York City and Syracuse would be banned altogether.

Even with these and many other restrictions, the Cuomo plan would make more than 80 percent of the Marcellus Shale within New York viable for drilling, said Joe Martens, the state’s commissioner of environmental conservation. “Our most conservative estimate is that we could add more than 13,000 jobs, direct and indirect,” Martens said. “The higher estimate is nearly 54,000 jobs.”

Fracking’s Economic Benefits

That kind of boost could bring struggling towns in Western Upstate New York back to life. “Right across the border in Pennsylvania,” Martens said, “we can see the jobs and tax revenue that can come with shale gas.” Assuming that New York regulators receive the resources to enforce the proposed toughened rules and effectively protect water supplies, he said, “New Yorkers deserve to get the same [economic] benefits.”

The potential for creating jobs goes beyond the bereft former farm towns of rural New York. Every day, Dow Chemical alone uses the equivalent of 700 million cubic feet of gas and ethane (a natural gas derivative).

That’s as much as all of Australia consumes on a daily basis. More plentiful domestic gas supplies now priced at around $4 per thousand cubic feet have allowed Dow to announce multibillion-dollar expansions of facilities in Louisiana and Texas, according to Executive Vice-President James R. Fitterling.

Impact on Dow

“We expect to employ up to 1,300 workers per project to construct our two new propane dehydrogenation units and a new ethylene cracker,” he told an energy conference in Houston on Sept. 26. “We also expect between 400 and 500 new, long-term Dow jobs to operate and maintain the facilities.” That’s just one chemical company.

Some electric utilities are overcoming their deep-seated uneasiness over natural gas to shift parts of their operations from coal to gas. The switch is inviting because many coal- burning facilities are antiquated, and the country already has large amounts of more modern, underused natural-gas utility capacity (a holdover from overbuilding in the late 1990s.)

The coal industry is fighting fierce rear-guard battles to prevent the move to gas. But a variety of federal antipollution rules taking effect in coming years will provide an additional reason to consider gas. Power companies in 15 states, including California, Florida, and Pennsylvania, have recently announced expanded use of natural gas, often at the expense of coal, according to America’s Natural Gas Alliance, a trade group.

Steady Power

“We need to find a way to take advantage of this historic opportunity to cut back on burning coal, which is the worst energy option,” said the EDF’s Krupp. And he said that as an advocate of more wind- and solar-generated electricity. The best way to exploit renewable power on a large scale is to use it in conjunction with natural-gas plants. Gas-fired generation ensures steady power when the wind isn’t blowing or the sun isn’t shining. “Done the right way,” Krupp said, “there’s just a lot to be said for natural gas.”

Source: Bloomberg

Realm Energy International has announced it has mailed out the information circular to its shareholders, with respect to the details of the proposed acquisition of Realm Energy, by San Leon Energy Plc.

You can read details of the release by clicking on the link below.

News from Realm Energy International Corporation

Evidence was provided on the popular CNBC show Mad Money this week, that shale fields are generating big business and huge job opportunities.  Host Jim Cramer was told that Halliburton plans to hire thousands of people – mostly to work on shale extraction in North Dakota:

Energy company Halliburton plans to hire 11,000 workers in North America in 2011, a top executive told Cramer Wednesday.

Jim Brown, president of Western Hemisphere, said many of the new hires will be sent to North Dakota’s oil-rich Bakken shale, which is one of the largest oil finds in U.S. history and where Cramer broadcast a special episode of “Mad Money” on Wednesday. Brown said Halliburton is currently hiring across the board–from MBAs to unskilled workers.

“If you have a willingness to work and an aptitude to learn with a high school education, within a year-and-a-half to two years, you can become a front-line supervisor. That job will pay $125,000 to $130,000 a year,” Brown said. “It’s a tremendous opportunity. You gotta come to North Dakota, but what we’re doing here, we’re replicating across the nation.”

Source: CNBC’s Mad Money

There’s a big difference between developing conventional oil and gas and unconventionals, according to James Elston, Director of Palladian Energy Advisory, former CEO of Realm Energy International - this posting from Natural Gas for Europe follows the Wall Street Journal post earlier this week, about the labour force in Poland.

“The great contrast with conventional O&G exploration,” he explained, “is in a general O&G field you can drill a few wells and you can produce out of those wells with no intervention for a very lengthy period and therefore the returns can be very high, correspondingly the investment level is very low. And once the rig has come and gone, that is it really for the field.

“So there’s not a great deal of investment that goes into a local area – you have people staying in hotels for the couple of months it might take to drill a well, and another couple of months for the surface facilities, and then they go.”

He said things were quite a bit different at unconventional drilling sites, where personnel and affluence were around to stay. In his recent presentation at one of Europe’s premier energy conferences, Flame, Mr. Elston highlighted the associated benefits of developing unconventional gas.

“The difference really is that with shale oil and gas, you have to drill a great deal of wells and you have to do that continually over decades and the effect that has is really continual injection of money through the value chain in various ways,” he said.

According to Elston, security of supply is one very likely benefit; he said he was a bit skeptical about lower gas prices from unconventionals development.

Still, he continued by listing the benefits. Jobs, for one.

“Certainly in America, many hundreds of thousands of jobs are generated – probably even millions of them are generated by the shale gas phenomenon. And it’s not just for a year or two; this is a generational thing. This lasts and will last decades, so you’re going to have people at various levels within the shale gas business around the world really working their entire lives in particular regions, in support of the value chain.”

He continued: “You have substantial, well-paid, generational job opportunities – this isn’t just some quick bubble that comes and goes and you have to make your money on it while you can, like in a property boom. This is substantial, well-paid generational opportunities in rural areas, which means you don’t need to go to a city to earn a good living.”

Royalty revenues, he said, were also a great windfall.

“In America these go to the landowners, while in Europe all minerals are owned by the government, so royalties go to the government at the local or say state level as in Germany,” he explained.

“In France they have an interesting thing where royalties are split within various different levels of governments and you have the situation, oddly enough in the Paris basin, where you have local areas that don’t have property taxes, or that are effectively minimized off the royalties by one or two oil wells.

“So, royalties can be real, be they going to the local or national levels, and of course they’re paid from day one of production,” said Elston.

Corporate tax revenues, according to him, were generated from producers, service companies and suppliers developing a shale play.

“And perhaps even more importantly,” he said, “given the very high level of this taxation in Europe, payroll taxes – your personal taxes and, more importantly, the national insurance contributions, social security, which you don’t see on your payslip because they’re paid by your employer. These numbers are quite enormous.

“And as you can imagine you’ve got generational job opportunities: people are employed for their entire careers and they’re paying very substantial payroll taxes – this is a tremendous revenue stream for governments, even ignoring the tax take directly from oil and gas.”

Elston said there were also multiplier effects on the rest of the economy. He cited studies done on the Fort Worth region for the Barnett shale, which showed benefits, multiplier effects on the economy, and how many people were employed from drilling operations. “There are multiplier effects from massive investment going into a local region that benefit most everybody.”

“And I think perhaps last of all there are gains for pensions funds and other investors in the value chain investing in little companies like Realm, big companies like Exxon, or the many many service companies that come and work on the businesses: civil engineering contractors doing things to do with preparing well pads, or digging trenches for pipelines. There’s just a large amount of investment going in where profits can be made and investors can be rewarded.”

He contended that governments at local and national levels would see substantial cash flows from this business, which would help maintain living standards in Europe.

Elston said developing unconventionals could have a profound effect upon rural areas within Europe.

“If you look at the Lower Saxony area in Germany, its finances could do with an injection of money,” he offered as an example. “Royalties in Germany go to the state, so it really helps with employment and investment. It’s nice to have something happening in the countryside beyond farming, alternative choices of employment.

He added: “And these are well paid jobs; if you work in the onshore business in Europe, you make a lot of money.”

Initially, he said he thought a fair number of teams of people would be moving over from North America in terms of fracking, which wasn’t commonly available in Europe.

“Given the cost of doing that, Halliburton, Schlumberger, Weatherford will be very keen to train local people in quantity from day one, and they’ll just take people from the technical schools and universities, or perhaps Poles who’ve worked in Britain doing various things. They’ll train them up over a period of years and the intention will be to have localized workforces in all plays very quickly, as it’s more cost effective as well as being more politically acceptable than having a lot of people moving in form North America,” explained Elston.

Considering Poland was likely to be first place on the continent where shale gas was developed, perhaps Poles would comprise the first indigenous unconventionals workforce in Europe, he surmised. Having experienced the huge Polish workforce in the UK, he said no one would underestimate the ingenuity, rapid learning and work ethic of Poles, who might eventually be found working in France’s unconventional plays.

Source: Natural Gas for Europe

EIA data shows that China holds the world’s largest shale reserves at approximately 1,275 tcf of technically recoverable shale gas. The country currently does not produce any gas from its shale reserves commercially, but it has recently launched a tender for local companies to explore four shale blocks.

Asia and the Middle East contribute to 13% of our $57 price estimate for Halliburton, 14% of our $89 price estimate for Baker Hughes and 29% of our $105 price estimate for Schlumberger.

China’s Growing Gas Demand
China is the world’s largest energy consumer and the second largest importer of oil. The country is looking to double its gas share of total energy demand to 8% by 2015 – necessitating a 20% annual increase in gas usage over the next five years. ^[3] With the growing demand for gas driving imports exponentially, China is now looking to tap into its local shale reserves. Presently, China imports 11.4 bcf of natural gas, representing 21% of its gas demand. With demand outstripping production growth, the share of imported gas is only expected to increase in the future.

Technological Bottlenecks
The present tender for four shale blocks in southern China was seen by analysts at Cambridge Energy Research Associates as an attempt to access reserves and understand the feasibility of their extraction. ^[3] China National Petroleum Corp. took 11 months to complete the country’s first shale well while players such as Baker Hughes claim that they can complete well drilling in 16 days.

To work across the technological bottlenecks, Chinese companies have formed joint ventures with players such as Royal Dutch Shell and Chesapeake Energy seeking to gain access to technology. CNOOC, China’s largest offshore oil and gas producer, forged two multi-billion dollar deals with Chesapeake over the last year to gain access to the company’s expertise in extracting gas from shale deposits.

Oilfield services firms such as Halliburton, Baker Hughes and Schlumberger have played a large role in making shale extraction economically feasible in the U.S., and adoption of their technology in foreign markets such as China can result in a significant upside potential for the revenues of these firms.

Source: Forbes

Work on Chevron Polska’s initial shale gas exploration drilling program is expected to begin in the fourth quarter and the contract award is for three years, with extension opportunities. Halliburton services to be provided will include drilling services, mud logging, cementing, coiled tubing, slickline services, well testing, completion and hydraulic fracturing. Halliburton will support the project with project management services.

“Halliburton is committed to delivering the same industry-leading expertise and service for shale gas projects in Europe as we are delivering every day in North America,” said Brady Murphy, Halliburton senior vice president, Europe/West Africa Region. “We have invested early in Poland, and we have the people and the technologies in place to support this growing market.”

Source: Halliburton

Realm Energy and Halliburton Consulting began their collaboration in 2009 with an emphasis on European basins. During this initial effort, Realm Energy, supported by Halliburton, targeted ten discrete sedimentary basins in four European countries for evaluation.  The collaboration identified key prospect trends and Realm successfully acquired 650,000 gross acres and has 4.4 million acres under government application of contiguous tracts of land over significant shale resources.

“Realm Energy is now moving into an operational phase with our European leasehold and will contract with Halliburton to leverage their extensive shale-development knowledge, gained from their significant presence in the North American market,” said Realm Energy Chairman, Craig Steinke. “We could not have achieved the quality of our European portfolio without the help of Halliburton’s consulting organization; this is why we have expanded our collaboration to assess and rank shale resources globally.”

Source:  Realm Energy

The feature speaks extensively to the many innovations being made, including the recycling of fluids utilized, the cleaning of produced and backflow water, and the adaption of non-toxic mixtures, such as Halliburton’s CleanStim or Trican´s EcoClean.

To read the full article, visit OilWeek.com.

Seeking Alpha contributor Kent Moors published a very informative article on shale gas today:

Last week, there was a meeting on shale gas that was standing room only. That’s hardly major news these days, as producers, consumers, environmentalists, analysts, regulators, and, oh yes, investors all focus upon the new major player in the energy market.

Except this meeting took place in The City – London’s financial district.

This may come as a surprise. After all, the way the European Union structures its energy pricing makes it more difficult for companies to make a profit.

On the other hand, rising dependence on imported gas (especially from Russia) does not sit well with Brussels.

Domestic shale gas, therefore, is increasingly regarded as the solution.

It will not eliminate the need for imports. But it may well allow Europe to renegotiate terms on pipeline contracts. And that’s more than enough to accelerate the interest in shale gas.

Gas in Europe, the Middle East, North Africa, Asia…

Now, the U.K. itself has some possible shale plays, but that nation has barely even begun to estimate the possibilities.

Elsewhere in Europe, the development has advanced beyond the discussion stage. Production is underway in Sweden (Alum), Hungary (Makó Trough, Szolnok), Austria (the Vienna Basin),and Germany (Lower Saxony).

But the real breakthroughs are likely to come from five major plays in Poland, three in France, and Ukraine – where there may actually be more shale gas potential than the rest of Europe combined.

This is taking place elsewhere, too. Geologists tell us there is more shale in MENA (Middle East and North Africa) countries than anywhere else in the world.

Saudi Arabia had ignored its natural gas until recently. Now, that kingdom is involved in an energetic pursuit of both freestanding gas and shale.

In addition to the Saudis, substantial shale gas is expected elsewhere in the Middle East – especially Syria, Iraq and Jordan.

I have already talked to a delegation from Morocco on their oil and gas shale opportunities (“Shale Gas Initiative Brings Morocco to My Doorstep,” December 13), and Algeria, Tunisia, and Libya have high prospects, as well.

However, the main global target these days is China.

There, the government has already committed to emphasizing gas as the future for electricity production. The attempt is to wean the country from its reliance on polluting, low-quality coal as fuel for power generation.

The Global Leader in Shale

Wherever you are in the world, the primary advantage in the development of shale gas is its ability to satisfy a larger portion of domestic energy requirements from local or regional production. Natural gas is also a rising source for the industrial and petrochemical applications that are essential for economic development.

The downside, of course, remains the environmental impact and water quality considerations.

Hydraulic fracking is the technology used to break open the rock and release the gas, and it employs large amounts of water. That, coupled with the chemicals used in the process, result in a fear of releasing toxic substances in flowback.

The U.S. is the global leader in shale gas (and oil) technology – both in extraction and in addressing the environmental consequences.

There are more than two dozen producing shale gas basins in the American market, along with several additional huge plays in Canada.

In response to the explosion of international interest in shale gas, the U.S. Department of State (DOS) launched the Global Shale Gas Initiative (GSGI) in April 2010.

The organization seeks to provide expertise and advice to developing countries worldwide on the exploitation of shale gas and its economic, policy, and market ramifications.

One of the reasons for the GSGI is the opportunity it presents American companies to profit from shale gas development elsewhere in the world.

Certainly, producers are interested…

Who’s Positioned to Profit

In addition to those leading the shale gas production list – such as Chesapeake Energy Corp. (NYSE:CHK) – major oil companies have used M&A to move into the sector.

Exxon Mobil Corp. (NYSE:XOM) acquired XTO, and Chevron (NYSE:CVX) absorbed Atlas Resources to target shale gas. XOM has an immediate reason, since it is already involved in several European shale plays.

Others, such as Shell (NYSE:RDS.A), Total (NYSE:TOT), Statoil (NYSE:STO), as well as the Chinese majors CNOOC Ltd. (NYSE:CEO) and Sinopec (NYSE:SHI), are farming into already-producing basins or joint venturing with experienced major producers.

There are certainly opportunities for the investor to make some profit for what the operators are doing. Yet the main advantage may well come from the technical side.

Here, the current leaders in shale gas applications remain the largest oilfield service (OFS) companies: Halliburton Co. (NYSE:HAL), owner of the patent on the primary frac technique, and Schlumberger Ltd. (NYSE:SLB), the worldwide leader in OFS.

The most significant potential for investor interest will be with those companies developing improved drilling techniques, non-chemical fracking processes, and larger-horsepower pumping equipment. Each of these categories becomes more essential as the number of shale gas wells grows – bringing renewed environmental concerns right along with it.

It has been less than a decade since the combination of horizontal drilling and fracking made the exploitation of shale gas profitable. In the interim, an initial stage of technical improvements has reduced the cost of production.

Another stage of improvements is now necessary, both to address the declining pricing of gas in the U.S. market (resulting from the rapidly increasing volume coming from shale development) and the need to make the process safer for the environment.

Currently, a number of small companies are rising to the challenge with advances in equipment, pumping techniques, and water treatment. This is going to be the next great example of the entrepreneurial spirit.

And it will receive a major boost from what is now happening elsewhere in the world.

Source: Kent Moors, Seeking Alpha