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

Natural gas exploration companies and public risk managers have a number of issues to consider—from environmental risks of the extraction process to risk transfer—before embracing the process of hydraulic fracturing.

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

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

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

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

Shale gas is extracted from tight rock formations with low permeability, the report said. The primary difference between modern shale gas development and conventional natural gas development is the extensive use of horizontal drilling and multi-stage hydraulic fracturing instead of vertical wells.

Shale gas production has become more economically viable in recent years because of the advances in horizontal drilling and hydraulic fracturing.

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

• Bending of the steel pipe: The pipe needs to fit into a small diameter hole and then curve into the horizontal leg. Although improvements have been introduced to the steering tools, the bend is the one area that is susceptible to failure under high pressure if not installed to the highest standards.

• Integrity of pipe and casings: Shortages of U.S. milled pipe have led some contractors to buy foreign made supplies that may not be fabricated or rolled to American Petroleum Institute (API) specifications. In addition, if strings of pipe casing are mixed between sources, this can cause breaches. It’s important to review the casing program to determine what specific pressures can be applied, and limit the squeeze pressures to a level below what the pipe is designed for.

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

• Fracturing pressure intermediate casing: Intermediate casing normally has a lesser internal yield or burst pressure, and once it is drilled through has even less. A good casing program should not allow for fracturing through intermediate casing.

• Surface valve failure: Having the ability to control fracturing operations at the surface is important. Good risk management prefers to see redundancy in fracturing valves at the surface 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 and transportation accidents to and from the job site, and environmental exposures such as heat exhaustion.

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

• Vehicle accidents caused by inexperienced drivers and rough terrain.

ENVIRONMENTAL CONCERNS

Two of the largest shale gas formations—Barnett in Texas and Marcellus covering four states in the Northeast—are located close to major urban population centers, the report said. The Marcellus shale is also located next to abandoned coal mining operations where methane gas is present. In the Northeast, the legacy of environmental damage from coal mining operations still weighs heavy with public officials and residents.

Environmental concerns for shale gas drilling include:

• Potential chemical spills causing pollution of local pond and irrigation canals.

• Natural gas or fracturing chemicals seeping into the water table 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 in existence for 50 years.

Multiple federal, state and local government rules address environmental protection during shale gas operations, including the protection of water resources. These rules cover well permitting, well materials and construction, safe disposition of used hydraulic fracturing fluids, water testing, chemical recordkeeping and reporting, Zurich said.

Special Reports /

Risk Management Critical To Successful Natural Gas Extraction

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