Drooping natural gas prices slow rush to 'frack'

Two years after oil and gas companies spent a record $178 million for the right to drill on state land, the rush to tap deep deposits of natural gas using a controversial drilling technology known as "fracking" still has momentum in Michigan.

Even the Chinese government has joined the pursuit of what could be large deposits of deep shale natural gas in Michigan.

But the pace of this new gas rush is nowhere near that seen in other Great Lakes states.

The future of fracking and natural gas prices will have a direct impact on budgets across Michigan. About 80 percent of Michigan homes are heated with natural gas, the state says. Natural gas also powered 11 percent of the state’s electricity generation in 2011, up from 8 percent in 2009, according to federal figures.

The first two wells to successfully produce natural gas from a layer of shale rock called the Utica-Collingwood formation came on line earlier this year. Canadian-based Encana Corp. owns both wells.

"The Encana wells are pretty good producers," said Hal Fitch, chief of the Michigan Department of Environmental Quality’s Oil, Gas and Minerals Unit.

The DEQ has approved 26 other Utica-Collingwood wells; 14 other permit applications are pending, according to state records.

State map of fracking permit sites

By comparison, 1,400 such wells were drilled last year in Pennsylvania alone. An Ohio report says 2,300 such wells could be drilled in that state in the next three years.

In an ironic twist, the amount of drilling elsewhere is tempering activity in Michigan. Fitch and industry officials said the only thing slowing Michigan’s modern gas rush is the low price of natural gas. Widespread use of fracking in 30 other states has created a glut of natural gas in the U.S., which has driven down prices.

"The market and prices are the biggest drivers in oil and gas exploration," Fitch said. "If prices go up, I think we’ll see an increase in drilling."

But the federal Energy Information Administration said in August that it expects gas consumption to increase less than 1 percent in 2013. And with supplies on the uptick, EIA expects prices to dip next year.

All wells drilled into the Utica-Collingwood formation, which is about two miles underground, use hydraulic fracturing, or fracking, to release natural gas and oil trapped in the shale. To frack a well, drillers bore a hole about two miles down and up to two miles horizontally. They then pump several million gallons of water mixed with sand and thousands of gallons of sometimes toxic chemicals into the borehole, which resembles a capital L, under extremely high pressure. The intense pressure fractures the shale and allows natural gas and oil to flow to the surface.

Encana spokesman Doug Hock said the company’s wells in Kalkaska County are promising because both have produced methane, ethane and propane. Some power plants burn methane, ethane is used to make plastics and propane is widely used to heat rural homes.

"We’re encouraged by what we’ve seen to date," Hock said.

He said Encana plans to drill two more Utica-Collingwood wells in Kalkaska County and three others in Crawford County.

The prospect of large deposits of natural gas under Michigan has attracted huge investments by the oil and gas industry, prompted lawsuits from property owners who fear fracking will contaminate drinking water wells and triggered an effort to put a fracking ban moratorium on the 2014 statewide ballot.

Oil and gas companies already have spent more than $435 million for the right to drill for oil and natural gas on state and private lands in Michigan, according to state and industry data.

Forbes magazine recently reported that China’s government-controlled energy company, Sinopec, invested $2.5 billion in a joint venture with Oklahoma-based Devon Energy. Devon has permits to drill two Utica-Collingwood wells in Roscommon County and is seeking another state permit to drill in Missaukee County; the company also is drilling oil and natural gas wells in Gladwin County, according to state officials.

Meanwhile, state and federal agencies are investigating whether two of the nation’s largest natural gas producers — Encana and Oklahoma-based Chesapeake Energy — committed anti-trust violations by conspiring to hold down prices paid for oil and gas properties in Michigan.

A series of reports by the Reuters news organization claimed that emails between executives at Chesapeake and its Canadian rival, Encana, showed the companies colluded to hold down prices on oil and gas properties.

Both companies have denied any wrongdoing, but have acknowledged that the U.S. Department of Justice and Michigan Attorney General’s Office are investigating the antitrust allegations.

State officials wouldn’t comment on the investigation.

Fracking has been linked to pollution incidents nationwide. A Duke University study published this summer found that fracking puts drinking-water supplies in Pennsylvania at risk by creating pathways that allow naturally occurring contaminants to migrate into water supplies. That study has come under harsh criticism from the oil and gas industry and a scientist on the National Academy of Science’s review panel.

The U.S. Environmental Protection Agency is studying whether fracking poses safety threats and should be more tightly regulated.

Fitch said the oil and gas industry has safely fracked thousands of wells in Michigan over the past 50 years.

Most of those wells were drilled into Michigan’s Antrim formation, where gas deposits are found at a depth of about 1,000 feet deep, according to state records. Until recently, drillers in Michigan had never extracted natural gas from the Utica-Collingwood, which is between 10,000 feet and 12,000 feet underground. The greater depth requires injecting 100 times more water and more chemicals than are used in an Antrim well, according to state records.

About 25 percent of the fracking fluid remains in the well. The rest is hauled away and discarded in deep disposal wells.

Jeff Alexander is owner of J. Alexander Communications LLC and the author of "Pandora's Locks: The Opening of the Great Lakes - St. Lawrence Seaway." He’s a former staff writer for the Muskegon Chronicle.