NU Online News Service, Feb. 11, 12:13 p.m.EST

Natural gas exploration companies and public risk managers havea number of issues to consider—from environmental risks of theextraction process to risk transfer—before embracing the process ofhydraulic fracturing.

Hydraulic fracturing is the process of extracting natural gasfrom shale rock. In a report, “Balancing the Opportunities andRisks of Shale Gas Exploration,” the global insurer Zurich saidthat the World Resources Institute estimates that shale gasprovides a 50 to 70 percent reduction in greenhouse gas emissionscompared to coal. Together with wind and solar energy, natural gasfrom shale rock offers the U.S. a strong foundation for alow-carbon electricity system.

While shale gas development has been likened to the gold-rush ofthe mid-1800s, there are risks that can emerge for even the mostexperienced subcontractors, the report said.

Current demand for these types of services across the country isattracting contractors with less experience to this type ofexploration work. These contractors may only have experience withlow-pressure, low-volume type of drilling.

From a risk management perspective, according to the report,it’s critical that companies use subcontractors that havecertificates of insurance and have annual master contracts withhold harmless clauses.

Shale gas is extracted from tight rock formations with lowpermeability, the report said. The primary difference betweenmodern shale gas development and conventional natural gasdevelopment is the extensive use of horizontal drilling andmulti-stage hydraulic fracturing instead of vertical wells.

Shale gas production has become more economically viable inrecent years because of the advances in horizontal drilling andhydraulic fracturing.

Even for experienced subcontractors, potential risks that canemerge during shale gas operations include:

• Bending of the steel pipe: The pipe needs to fit into a smalldiameter hole and then curve into the horizontal leg. Althoughimprovements have been introduced to the steering tools, the bendis the one area that is susceptible to failure under high pressureif not installed to the highest standards.

• Integrity of pipe and casings: Shortages of U.S. milled pipehave led some contractors to buy foreign made supplies that may notbe fabricated or rolled to American Petroleum Institute (API)specifications. In addition, if strings of pipe casing are mixedbetween sources, this can cause breaches. It’s important to reviewthe casing program to determine what specific pressures can beapplied, and limit the squeeze pressures to a level below what thepipe is designed for.

• Perforation of steel casing: The cyclical stress on the casingcan cause perforations. Casing is manufactured to API standards,but repeated high pressure of 8 to 12 thousand pounds can build upstress on the casing. When casing is perforated, the inside of thepipe can be exposed to the outer rock formation.

• Fracturing pressure intermediate casing: Intermediate casingnormally has a lesser internal yield or burst pressure, and once itis drilled through has even less. A good casing program should notallow for fracturing through intermediate casing.

• Surface valve failure: Having the ability to controlfracturing operations at the surface is important. Good riskmanagement prefers to see redundancy in fracturing valves at thesurface in order to have back-up if one becomes inoperable.

Beyond the risks posed by these underground drilling operations,other issues can arise at the surface:

• Employee injuries caused by blowout preventer malfunction,hose bursts, manual moving of fracturing fluid additives, fleet andtransportation accidents to and from the job site, andenvironmental exposures such as heat exhaustion.

• Public nuisance claims resulting from the damage toneighboring property caused by trucks.

• Vehicle accidents caused by inexperienced drivers and roughterrain.

ENVIRONMENTAL CONCERNS

Two of the largest shale gas formations—Barnett in Texas andMarcellus covering four states in the Northeast—are located closeto major urban population centers, the report said. The Marcellusshale is also located next to abandoned coal mining operationswhere methane gas is present. In the Northeast, the legacy ofenvironmental damage from coal mining operations still weighs heavywith public officials and residents.

Environmental concerns for shale gas drilling include:

• Potential chemical spills causing pollution of local pond andirrigation canals.

• Natural gas or fracturing chemicals seeping into the watertable due to an inadequate casing cementing.

• Natural gas leaching into municipal drinking water.

• Inappropriate disposal of fracturing mixture.

• High water volume required for shale gas fracturing.

Regulations governing hydraulic fracturing have been inexistence for 50 years.

Multiple federal, state and local government rules addressenvironmental protection during shale gas operations, including theprotection of water resources. These rules cover well permitting,well materials and construction, safe disposition of used hydraulicfracturing fluids, water testing, chemical recordkeeping andreporting, Zurich said.