Range Resources Corp. says the testing results it has provided to U.S. EPA about methane in water wells surrounding its operations outside Fort Worth, Texas, show that it is drilling responsibly.

"All of the water is consistent with historical water quality in that region, which is further evidence that Range never caused any impacts in Parker County," said company spokesman Matt Pitzarella.

Range agreed to do the testing as part of an agreement with EPA so the agency would drop water pollution charges leveled at the company. EPA had charged that the company's wells were leaking methane gas into two homes in Parker County, just west of Fort Worth.

EnergyWire obtained the data from EPA through a Freedom of Information Act request. They indicate that methane is present in the water coming from many of the wells, but not at dangerous levels. Range contends drinking water wells in the area had methane in them before it began drilling there.

The "action level" for methane in water is 10 micrograms per liter. None of the results provided by the company Range hired for the testing was higher than 5 mg/l.

"These particular values are not dangerous levels," said Rob Jackson, a Duke University scientist who has been examining methane in groundwater near drilling sites.

Al Armendariz brought the high-profile case in December 2010 as the Dallas-based director for EPA's Region 6, which includes Texas and surrounding states. He resigned about a month after the case was dropped in late March (Greenwire, April 30, 2012).

His emergency order also accused state oil and gas officials at the Texas Railroad Commission of failing to protect their residents.

Range denied the accusations. The gas found in the water wells is thermogenic methane, the type of gas that companies drill for. But scientists for Range said that it had a different carbon fingerprint from the Barnett Shale gas that Range was producing in the area.

Officials at the Texas Railroad Commission backed the company.

Landowners turned to EPA after they said they weren't getting help from the state. The landowners' complaints to the state revealed in August 2010 that one of the wells had "bradenhead pressure," an indication that gas could be seeping into the space behind the production casing. Range did another test in October 2010 that satisfied Railroad Commission officials that the well had mechanical integrity.

In dropping the case, EPA and the Justice Department said government officials wanted to shift away from litigation to a "joint effort" involving more testing. As part of the settlement, Range agreed to do much of the testing it would have been required to do under the emergency order.

The settlement called for Range to conduct four sets of tests, spaced evenly over the course of a year, on local water wells, looking for methane, benzene and other substances.

Jackson reviewed two of the reports at the request of EnergyWire. He said what has bothered him is that the ratio of methane to other hydrocarbons like benzene in the samples is indicative of deep thermogenic gas. He also said he has been unable to find data showing the gas signature of the formation where Range and the Railroad Commission say the gas came from, the Strawn formation.

"For me, that's still a gap," Jackson said.

In October, Armendariz said he still believed that Range contaminated the well.

"The best available data that I was presented by my staff indicated that that driller's natural gas was ending up in a private drinking water well," Armendariz told a conference of environmental journalists meeting in Lubbock, Texas. "I've not seen, and when I withdrew our enforcement action I didn't see, anything to the contrary."

He added at the time that he had not seen any of the results of the testing Range agreed to do under the settlement.

At the time, EnergyWire had requested the test results from an agency spokeswoman. The FOIA request was filed after Armendariz's remarks. Attempts to reach Armendariz to discuss the results were unsuccessful.

Armendariz's remarks drew a terse letter from Range attorney David Poole, who was honored for his work on the case by the Dallas-Fort Worth chapter of the Association of Corporate Counsel (EnergyWire, Oct. 25, 2012).

"You have chosen to publicly make false comments about Range and we must insist that you cease from making further false and disparaging comments against Range," Poole wrote to Armendariz, who now works for the Sierra Club in Texas. Armendariz didn't publicly respond to Range's letter.

To see a copy of the results, click here.

The future of Canadian oil sands hinges on finding new markets that can help the heavy crude escape competition with tight oil supplies from the United States, according to a new report.

The assessment, authored by consultant IHS CERA with input from Canadian oil sands players, underscores constraints and delays that could drag down the growth trajectory of oil sands development, including competition with U.S. shale oil production that has a lower greenhouse gas footprint and is better linked to export markets.

"Tight oil is reshaping opportunities for oil sands in the United States and prompting Canadian industry and governments to seek new sources of demand in the United States, offshore and elsewhere in Canada," the report says.

Describing tight oil sourced from shale, tight sands and tight carbonites as one pillar and oil sands as the second in a "great revival" of North American crude production, the report notes that they nonetheless compete in certain markets and have interconnected pricing.

U.S. tight oil is currently selling at a discount in the Midwest, where it is trapped by transportation constraints, hurting the price that Canadian exporters can get for comparable synthetic crude derived from the oil sands, the report says. While those constraints are expected to clear up as new pipelines are completed, U.S. prices generally could remain below world rates due to strong domestic supply.

That poses a problem for Canadian producers whose markets are more severely limited by a lack of pipeline routes either to Canadian tidewater or to the U.S. Gulf Coast for export. The study says the difference between North American and global crude prices could reach $3 or more per barrel over the coming years, giving oil sands producers a strong incentive to seek new markets.

Walking a fine line between framing the North American trading partners as competitors or colleagues, the study says the United States will continue to be the largest market for oil sands crude, even as tight oil outpaces the oil sands in production.

Canadian producers see exports via the Gulf Coast as the most important non-U.S. outlet for expanded markets, it says, though delays in permitting the Keystone XL pipeline make that uncertain. They are also pushing for a pipeline west through British Columbia to the Pacific, the Northern Gateway project, thought that has met with similar local resistance and delay.

In the United States, Canadian producers are looking to California's refineries, many of which are configured to handle heavy oil sands crude, according to the report, as a largely untouched market. But the state's Low Carbon Fuel Standard could derail sale contracts there if it penalizes the fuel for its higher greenhouse gas intensity.

Other countries could similarly penalize oil sands crude if Canadian greenhouse gas emissions soar as a result of production, the report notes.

"Considering the scale of growth, expected price discounts for crude oil and North America, and uncertainty around the timing of future pipelines, Canada needs options," IHS CERA concluded.

Encana CEO out

Despite the challenges ahead for the oil sands industry, companies heavily concentrated in natural gas face challenges now.

On Friday, Canadian energy company Encana Corp. announced that President and CEO Randall Eresman was stepping down after 35 years with the company.

Encana pared down its oil assets in 2009 to focus on natural gas but has suffered financially from the low gas prices that came with the production boom.

"After a highly successful 2012, Encana is once again financially and operationally very strong, and well positioned to execute on its plans to rapidly transition to a more balanced commodity portfolio," Eresman said in a statement that highlighted the company's assets in oil and natural gas liquids.

Click here to download the IHS CERA report.

NEW YORK -- Those with a hyper-close eye on politics in the Empire State believe a signal may have been sent last week that shale development is coming when a key upstate county official moved to establish an Office of Energy Development.

The county in question is Broome County, which borders Pennsylvania in the western neck of New York and is thought to be rich in natural gas deposits. Many see the move as a way to set the stage for hydraulic fracturing, or fracking.

Broome County Executive Debbie Preston, a Republican, announced that Margaret Scarinzi is her choice to run the new office, assuming the department is approved Thursday by the Broome County Legislature.

Some have said that in tapping Scarinzi, formerly an economic development coordinator of the Broome County Industrial Development Agency, Preston -- a proponent of fracking -- has shown cards suggesting that shale gas drilling is on the way. That would be news to most observers of the state process in Albany, where Gov. Andrew Cuomo's administration has been reviewing a fracking moratorium for more than four years and by most accounts still hasn't made a decision.

Many expect Cuomo, a Democrat, to either lift the moratorium or retain it any day, even if he failed to mention the controversial subject during his State of the State address last week. Still, Preston denies the office is exclusively about fracking and said she expects the office to launch a "multiyear" sustainability program for the county.

"If and when the governor and [environmental regulators] approve safe natural gas drilling, the office will offer assistance to involved parties, but until that day comes (or doesn't) there are many specific energy-related missions," Jim Worhach, communications coordinator for Preston, said in an email.

Katherine Nadeau, director of water and natural resources programs at Environmental Advocates of New York, said she hopes Preston is telling the truth about plans for renewable energy development. As for fracking, she said any inclinations to prepare the way are misguided.

"Any motive to advance fracking before the science is complete and Gov. Cuomo determines whether or not it's even safe would be extraordinarily premature," she said. "However, there is enormous potential for this office to set a precedent statewide and nationally if the work undertaken is focused on energy efficiency, renewables and bringing our energy infrastructure into the 21st century."

Kate Sinding, an attorney at the Natural Resources Defense Council, acknowledged that some elected officials in Broome County have been out in front of the issue from the pro-drilling end for years. But she added that "many of their constituents remain extremely concerned about the environmental and health risks that fracking represents."

"Should the governor decide to finalize a fracking program for the state, litigation from all sides is a virtual certainty," she said. "Against that backdrop, Ms. Preston's actions are aspirational, nothing more."

The comments came as a rift within the environmental community about fracking continues to be a factor in New York. Yesterday, the New York League of Conservation Voters said in its policy agenda for the forthcoming session in Albany that it would support limited horizontal drilling as long as it is safe and conducted away from sensitive watersheds (Greenwire, Jan. 14).

Another emerging curveball is the state of the Legislature in Albany. A small group of Senate Democrats calling itself the Independent Democratic Conference cut a power-sharing arrangement with Republicans recently, and the IDC appears to be uniformly against drilling.

Richard Schrader, legislative director in Albany for NRDC, said fracking "will be one of several issues that could be divisive" under this power-sharing arrangement.

"As a practical matter, with Democrats sharing the majority leadership and, presumably, chairing some key committees, the overall Senate leadership should be more moderate than it has been in recent years and inclined to seek further protections," he said.

The Broome County votes on the energy office and how to fund it are scheduled for Thursday.

The California state Senate voted unanimously yesterday for Mark Nechodom to head the state agency in charge of oil and gas permitting and pending regulations that cover hydraulic fracturing.

Lawmakers had grilled Nechodom on the Department of Conservation's approach to regulating fracking, asking him in last week's confirmation hearing whether he thought companies injecting water and sand into the ground to release oil and gas should have to disclose the chemicals they use (Greenwire, Jan. 10).

Nechodom's answer, delivered Friday, satisfied state Senate President Pro Tem Darrell Steinberg (D) as well as other lawmakers. Nechodom said in a letter that he would work with the Legislature to strike a balance between protecting trade secrets and publicly disclosing the use of potentially harmful chemicals. He said he would also consider adjusting the state's draft regulations, issued last month, to require more than 10 days' notice before well operators start fracking.

"The Department will keep health and safety as our first priority as we develop the regulations," he wrote.

"For purposes of at least our Rules Committee enquiry in assessing the qualifications as well as the direction of the director of this department, I am satisfied," Steinberg said ahead of the vote.

Some environmentalists are wary of the draft regulations, which propose requirements for well construction, wastewater management and chemical disclosure. They would require drillers to report the ingredients of fracking fluid on the industry-funded website FracFocus, and they would allow trade secrets to be disclosed to health professionals only if a patient is thought to have been exposed to hazardous chemicals (EnergyWire, Dec. 19, 2012).

There are at least two bills already introduced this session that address fracking. Sen. Fran Pavley's (D) S.B. 4 would require companies to disclose the composition of fracking fluids to the state, while Rep. Bob Wieckowski's (D) A.B. 7 would require drillers to notify the state at least 30 days before beginning fracking.

"The proposal in the draft regulations is clearly inadequate," Pavley said. "DOGGR [Department of Oil, Gas and Geothermal Resources] has stated that they can't take trade secret information without being given the authority to do so. We want to provide DOGGR the statutory authority to have access to the information used in hydraulic fracturing."

Environmentalists agreed that the regulations need more work. "There are a lot of things that are missing that we're going to be asking about in the coming weeks," said Damon Nagami, senior attorney with the Natural Resources Defense Council. "We're definitely going to be active to try to move legislation to fill any holes that may not be covered by the regulations."

Still, groups praised Nechodom and his expertise in science and natural resource policy.

"He's a good communicator; he's bringing good tools and background," said Bill Allayaud, Environmental Working Group's director of California governmental affairs. "The problem is DOGGR needs a change of culture."

"Just saying public health and safety will come first doesn't make it so," Allayaud said. "The true test will be, what do the regulations actually end up doing and saying?"

Environmental Defense Fund cited Nechodom's work on environmental markets while at the U.S. Agriculture Department.

"We look forward to working with him on innovative programs to manage California's working lands and natural environment," said EDF's West Coast political director, Lauren Faber.

Industry representatives cheered the appointment. "Mark has, we think, done a very good job being very open and transparent, and very inclusive in how he's been running the department," said Tupper Hull, spokesman for the Western States Petroleum Association.

Hydraulic fracturing has sparked a two-front battle over Wyoming's water supply, environmentalists say.

First, there is quantity: Fracking sends millions of gallons of water -- a prized commodity in the West's limited water system -- underground to churn up oil and gas. Next, quality: Questions remain about whether chemicals pumped downhole can seep into groundwater.

Though drillers have dismissed such concerns as overblown, researchers at the Powder River Basin Resource Council want state officials to consider measures to ensure groundwater protection.

"This analysis makes it clear that Wyoming must embark on a proactive and thorough program to bring our water management systems up to date," said Bob LeResche, an author of the report. "We need to apply existing statutes to guard, conserve and recycle our groundwater from cradle to grave."

First on the list of recommendations, the environmentalists called on the state to create a "water budget" for major aquifers. State officials would carry out a comprehensive groundwater inventory program, which would estimate the volume of water needed for oil and gas production and determine where that water would be drawn from, based on available water and aquifer recharge rates.

Control zones would be considered for aquifers that have already dipped in recent years. In parts of Campbell, Converse and Johnson counties, for example, groundwater withdrawal has been too quick for replenishment to catch up.

The resource council also recommended a robust effort to analyze, inspect and plan for wastewater from fracking operations. During well fracturing, chemical-laced water mixes with underground particles, eventually resurfacing as a hazardous mix that can include sodium, chloride and arsenic compounds, and naturally occurring radioactive material (EnergyWire, Sept. 6, 2012).

That wastewater is then recycled, treated or blasted back underground in a separate disposal well for permanent storage. The Wyoming group called on the state to begin tracking the transport and disposal of that wastewater and hire more inspectors to check for spills and illegal dumping. It also recommended that the governor appoint a task force to make sure all existing disposal wells are in good condition and project how many additional wells the state can manage.

Rounding out the list of seven recommendations, the environmentalists pushed for a well plugging program that helps to identify abandoned wells, a task force to evaluate waste disposal facilities, and a multiagency analysis of wastewater recycling and reuse.

The group emphasized that the state should work with the oil and gas industry to find solutions to questions of water contamination and availability.

"We should invest in analysis, regulation and perhaps infrastructure that will allow the energy industry to take advantage of profitable new production techniques but also minimize conflicts with Wyoming's continued need for careful stewardship of our scarce groundwater," LeResche said.

Wyoming Gov. Matt Mead (R) believes "protecting water resources is a priority," according to a statement from his office, and is open to considering the Powder River Basin Resource Council's ideas.

"There will almost certainly be several initiatives regarding water in Governor Mead's soon-to-be-released energy strategy," spokesman Renny MacKay said in an email. "That is a fluid strategy that will be continually updated over the coming years and Governor Mead looks forward to hearing more about this report and its recommendations."

John Robitaille, vice president of the Petroleum Association of Wyoming, said the council's recommendations would be redundant because the state already adequately monitors oil and gas producers' water usage and disposal. And oil and gas industry representatives maintain that hydraulic fracturing does not put groundwater at risk because well bores are fractured so far below the water table.

Wyoming is the site of state and federal investigations into groundwater contamination near the Pavillion oil field. An early report from U.S. EPA found some fracking fluids in deep monitoring wells but none in drinking water. Though the investigations are ongoing and the findings have been challenged, the EPA data were enough to rattle some public confidence in fracking (EnergyWire, Dec. 7, 2012).

HOUSTON -- The nation's largest oil and natural gas storage and transportation provider said it will make a major investment to expand this city's port and refined products export capacity.

Kinder Morgan Energy Partners LP, a division of Kinder Morgan Inc., announced yesterday that it will spend around $170 million to acquire land and build new facilities at its Houston Ship Channel terminal. The announcement marks Kinder Morgan's latest large investment in Houston's ports, after it broke ground last year on a new liquids storage hub that will add 50 distillate and black oil tanks along the channel. The company is also spending millions to expand existing infrastructure located in the east Houston suburb of Galena Park.

For this latest move, Kinder Morgan says it is partnering with an unnamed refining company to build 1.2 million barrels' worth of liquid storage capacity. Company representatives said the deal involves the purchase of 42 acres of land on which 10 high-volume storage tanks will be built.

Kinder Morgan also said it will build a new ship dock at the port as part of this new project. The dock will be able to service up to eight ships a month for an adjacent refinery and four ships per month for Kinder Morgan's own terminal, increasing the port's ability to send refined products like diesel to major demand centers in Latin America and around the world.

Kinder Morgan Terminals President Jeff Armstrong said in a release that the investment is needed to alleviate growing congestion caused by rising refined product export volumes. Six of the tanks to be built will be able to hold 150,000 barrels each, and the remaining four will be 75,000-barrel-capacity tanks.

Last month Kinder Morgan took on a partner for an even larger project under development at the Ship Channel.

TransMontaigne Partners LP announced that it had spent $79 million to purchase a 42.5 percent stake in Kinder Morgan's Battleground Oil Specialty Terminal Co. LLC (BOSTCO), a project to build a new black oil terminal at the port. BOSTCO will be used to handle feedstock fuels, liquid distillates and other products used for bunker fuel or in other applications.

The much larger BOSTCO project will involve 50 tanks capable of storing more than 6 million barrels of liquids. TransMontaigne Partners told investors the BOSTCO project will cost about $425 million to build but "will be well positioned to capitalize on increasing exports of petroleum-related products" from the Houston region.

Customers are also helping Kinder Morgan finance much of these massive new expansion projects.

In July, the company announced that oil and gas supermajor BP PLC had agreed to pay for about 750,000 barrels' worth of new liquids storage capacity Kinder Morgan is adding to its Galena Park facilities. Kinder Morgan puts the estimated cost of that separate project at $75 million.

Some of the poorest counties in Texas are getting a big financial boost from drilling projects in southern Texas.

The boom in development stems from increased use of horizontal drilling and hydraulic fracturing, or fracking -- the process of blasting sand, water and chemicals into the ground at high pressures to extract previously inaccessible pockets of oil and gas. In opposing the boom, environmental groups have cited potential air quality issues and groundwater pollution associated with the drilling process.

The sudden uptick in well-paid field jobs in southern Texas, near the giant Eagle Ford Shale oil and gas formation south and east of San Antonio, is contributing to the burgeoning local economies. Average per-capita incomes in counties with Eagle Ford Shale wells permitted or in production jumped 13.6 percent between 2008 and 2011, according to data from the Department of Commerce's Bureau of Economic Analysis.

Per-capita income rose just 1.3 percent in Texas as a whole during the same period, which included the recent recession.

Signs of the Eagle Ford boom were everywhere in regions affected by drilling, from a preponderance of "help wanted" signs to crowded hospitality and service markets.

Chris Kemp, hospitality manager for Cotton Logistics, a Katy, Texas-based company that provides worker housing throughout the shale play, said even food service jobs offered as much as $15 an hour.

"This is an opportunity that didn't exist before, and it's open to everyone," he said.

Kemp was unemployed for a year and a half before finding work at Cotton Logistics, so he thanks activity around the Eagle Ford for his new career. "It's another job that wasn't here before," he said.

But for people working on fixed salaries or in fields outside the energy industry, the recent boom has driven up prices and caused financial stress, with rents running nearly double what they were three years ago.

"Their income is not changing -- it's a burden on them," said LaSalle County Judge Joel Rodriguez Jr. "It's a burden to be in a rental home" (Hiller/Yerardi, Fuel Fix, Jan. 12). -- BS

A consortium of pipeline operators spearheaded by Plains All American Pipeline LP has announced it will spend an estimated $1 billion on rail projects in the coming year. By contrast, Warren Buffett's Burlington Northern Santa Fe LLC, America's biggest railroad, spent only $400 million on rail depots in 2012.

Energy companies have used new rail terminals to ferry cheap shale oil from the interior United States or Canada to the coasts for refining. With international oil trading roughly 20 percent higher than domestic supplies, refineries stand to profit from shipping in local crude via rail rather than importing it.

Several major pipeline projects are predicted to come online in the next few years, allowing some companies to switch to the cheaper mode of transporting crude. However, analysts predict that railways' flexibility -- more tracks spell more possible destinations for producers -- means locomotives will haul crude for years to come.

Oil producers and refiners, including Devon Energy Corp. and Irving Oil Corp., say they are switching from renting rail capacity to purchasing railways outright to meet rising output from Alberta's oil sands and the Bakken shale play in North Dakota.

"If a refiner in Philadelphia is paying $110 for Nigerian crude and could replace it with cheap Bakken crude, they'll be willing to pay up to $109.99 to replace that," said Bradley Olsen, an analyst with Tudor Pickering Holt & Co. in Houston.

Olsen added that about 1 million barrels a day of rail-unloading capacity is being built in the United States -- more than double the current level of shipments (Lee/Penty, Bloomberg, Jan. 14). -- BS

A new technology has emerged to replace a seemingly clear-cut commodity: sand.

Oil producers have long relied on sand to help pry open previously inaccessible pockets of oil and natural gas trapped in shale rock. But now ceramic beads are pushing their way into the hydraulic fracturing process as a way for drillers to increase productivity.

Recent use of the tiny beads -- called ceramic proppant -- has not calmed drilling and fracking critics' concerns over the environmental safety of the process, which still includes shooting chemical solutions down well bores at high pressures.

But research has shown that the beads hold up better under pressure and are more effective at breaking through rock, compared with standard sand collected from Wisconsin and the upper Midwest. And although ceramic proppant is considerably more expensive, some industry experts have touted its potential long-term benefits.

"If they frack with sand and the well dies within a few months because the sand all crushed, that's a bad investment," said Jon Olson, associate professor of petroleum engineering at the University of Texas, Austin.

Although overall growth has been rocky, many new companies have joined the sand business over the past few years, seeking to capitalize on the nationwide fracking boom. Recent technology has also spurred development of ceramic proppant. One such product, developed using nanotechnology in a Rice University lab, is being marketed by Houston-based company Oxane Materials.

"It's always nice to say we predicted the future," said Andrew Barron, a Rice chemistry professor who helped design Oxane's proppant. "We were in the right place at the right time as the market grew" (Jeannie Kever, Fuel Fix, Jan. 14). -- BS

Norway's leading oil authority expects 2013 will see a decline in oil production for Europe's second-biggest producer, although numbers could bounce back once new fields come online in the next few years.

The Norwegian Petroleum Directorate has forecast a 5 percent drop in production for this year, despite industry optimism about the 2010 discovery of the huge Johan Sverdrup field in the North Sea. The oil body also projected that exports would rally, then hold steady at 2012 levels until 2017.

The news comes amid a general downward spiral for Norway's energy sector, which has shrunk from all-time highs about a decade ago in response to the changing global energy landscape. Booming oil and natural gas extraction in the United States and Iraq have contributed to a global supply glut.

"Nobody can say the supply isn't sufficient," International Energy Agency head Maria van der Hoeven said last week.

Norway can no longer count itself among the top 10 global crude oil exporters, according to consulting firm Wood Mackenzie. Nevertheless, oil and gas exports still form the backbone of Norway's economy.

Although oil exploration and exports are waning, Norway expects record investment in its oil companies this year, estimated at $37.5 billion.

Bente Nyland, head of the NPD, maintained that the industry is "performing well."

"One word is repeated often, and that's the word 'boom,'" she said (Kjetil Malkenes Hovland, Wall Street Journal, Jan. 11). -- BS

In a recent open letter to President Obama, the Clean Air Task Force highlighted a series of climate policy recommendations that could help the United States achieve its 2020 emissions reduction goals without the need for congressional intervention. During today's OnPoint, Conrad Schneider, advocacy director at the Clean Air Task Force, discusses the letter and explains what he believes should be done in the transportation sector, on innovation and in the exploration of natural gas to further the United States' climate goals. Today's OnPoint will air at 10 a.m EST.