Environment Picture

Natural gas frenzy raises questions about toxic chemicals, water use

An explosion of interest in natural gas exploration in Michigan has set the stage for a new gas rush that could stimulate the economy, fund key state environmental programs and bring a measure of energy independence. But it also has the potential to contaminate drinking water, mar natural landscapes and degrade the Great Lakes ecosystem.

The success of a single exploratory well drilled about 30 miles south of Traverse City set off the recent frenzy. The well was drilled by Petoskey Exploration, a Denver corporation that is a division of Canada-based Encana Oil & Gas (USA) Inc.

It initially produced 2.5 million cubic feet per day, igniting a firestorm of interest from gas companies and driving a frenetic State of Michigan Oil and Gas Lease Auction that shattered all previous records. The May 4 auction generated $178 million in revenue as gas companies bought rights to the gas beneath 118,117 acres of state land in 22 counties of the Northern Lower Peninsula. The previous record auction was $23.6 million set in 1981.

“We knew there was a lot of interest in the available land, but we didn’t see this kind of outcome coming,” said Tom Wellman, mineral and land manager with the Forest Management Division of the Michigan Department of Natural Resources and the Environment (DNRE).

Michigan is no stranger to gas extraction. There are about 17,000 active wells in the state, producing enough gas to fuel 20 percent of the state’s appetite for the fuel. Forty-three thousand wells are capped and no longer in use. Most of those wells are drilled in a rock formation known as the Antrim Shale, lying about 1,500 to 2,000 feet below the surface in a swath stretching from Lake Huron, across the northern counties of Alpena, Charlevoix, Otsego, Antrim, and Benzie, to Lake Michigan.

Production from the Antrim formation has been declining for years. “There hasn’t really been anything new in Michigan in terms of gas since 1986,” said Michael Bricker, permitting and technical services supervisor for the DNRE.

That changed dramatically with the blockbuster auction in May.

But this new wave of exploration is different from its Antrim Shale predecessor. The new gas lies in a much deeper formation called the Collingwood Shale, which is 9,000 to 10,000 feet down, in a stretch roughly from the eastern tip of Lake Erie through Canada and also across the northern counties of the Lower Peninsula.

The deeper formation is more expensive to access and creates new technological challenges for drillers.

It also requires an extraction process that injects far larger quantities of water and toxic chemicals under high pressure to break up the underground rock. The process, known as fracking, is exempt from the federal Safe Water Drinking Act, and gas companies are not required to disclose the types or amounts of chemicals they use. Improperly handled, they can contaminate drinking water wells and surface water. (See related story on page 6.)

Both industry and state regulators say they are up to the task of responsibly managing a new gas rush should it occur. But they caution that it is too early to predict whether the recent frenzy of interest will translate into a robust new era of gas production in the state.

Essentially, bidders in the 2010 Michigan gas rights leasing wars are throwing down bets based on a good looking horse’s impressive burst from the starting gate.

“We don’t know how well or how long it is going to produce,” said Wellman of the Encana well.

Nonetheless, interest in the next state gas rights auction slated for October 26–28 is feverish. Companies have nominated more than 450,000 acres for leasing—almost four times as much as the record-setting May auction.

Doug Hock, director of community and public relations for Encana, said gas extraction provides good jobs, a fuel source that is cleaner than coal or oil, and helps Michigan rely less on fuels purchased from other states and countries.

“From a broader perspective,” Hock said, “developing natural gas in places such as Michigan means less dependence on overseas sources of energy and is cleaner than the leading domestic source: coal.”

The leasing auction also fills the coffers of the state’s Natural Resources Trust Fund. That fund helps the state and local communities acquire and maintain unique recreational and natural lands for public use. Once the fund reaches its constitutional cap of $500 million—which is expected after October’s auction—the money will spill over to other natural resources funds, including the State Park Endowment Fund and the Game and Fish Protection Fund.

Michigan Governor Jennifer Granholm said the May auction was “great news for the state,” reported Platts’ Gas Daily: “This will be an economic stimulus to many communities in northern Michigan and aligns with our state’s plan to diversify the economy and grow good-paying jobs,” she said. “The state has safely and wisely been developing our oil and gas resources for almost 100 years, and for three decades has ensured that the revenues generated from that development are used to enhance recreational opportunities across Michigan.”

Wellman said private landowners could see windfalls, too, if the gas boom accelerates. In some cases, “the mineral value of their land may now be worth more than its surface value,” he said.

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-Zach Berridge and Hugh McDiarmid, Jr.
RELATED TOPICS: land use, water protection
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