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Prospects for natural gas in Idaho

Mark Mendiola
Eastern Idaho

Hydraulic fracturing or “fracking,” coupled with technological advances in horizontal drilling, have revolutionized the natural gas industry’s ability to tap into North America’s vast shale reserves and dramatically boost available natural gas volumes.

Because of its relatively low cost and increased availability, natural gas has become the “energy of choice” for many companies using it to fire up their plants, heat their buildings, generate electricity and maintain business operations.

Natural gas executives lately are expressing an optimism they haven’t always enjoyed about their industry’s future. Before, limited natural gas reserves appeared for decades to be locked up and inaccessible due to an inability to reach them underground.

Fracking and horizontal drilling have made an almost infinite supply of natural gas and petroleum a reality, they say, greatly helping America’s energy independence.

But the controversial hydro fracturing technology is opposed by many environmental groups who fear it contaminates ground water, reduces air quality and causes gases and chemicals to migrate to land surfaces.

Injection of highly pressurized fluids into subterranean shale formations creates new veins or fractures, which improve extraction rates and recovery of hydrocarbons. The fluid injected into the rock typically is a slurry of water, sand, gels , foams, chemical additives and gases, including nitrogen, carbon dioxide and oxygen.

Industry officials say fracturing liquids consist 90 percent of water, 9.5 percent of sand and .5 percent of chemicals. A typical fracking treatment uses between three and 12 chemical additives, including acids, salt, friction reducers, ethylene glycol, methanol, isopropyl alcohol, carbonates and disinfectants.

Petroleum engineers, not public relations professionals, coined the term “fracking,” notes Dan Kirschner, executive director of the Portland-based Northwest Gas Association – a trade organization that includes six natural gas utilities serving Idaho, Oregon, Washington and British Columbia, and four transmission pipelines that transport natural gas throughout the region from supply basins.

There were large declines in industrial natural gas use in 1999 and 2000 in connection with California’s energy crisis, which left only two of 10 aluminum plants standing in the Pacific Northwest, Kirschner says. The “Great Recession” that started at the end of 2008 also caused permanent shutdowns of other plants across the region.

Meanwhile, “gas came into the market right into the teeth of the Great Recession. There was a decline in demand just as there was a great increase in production.” From 2007 to 2010, there was a dramatic spike in production, driving down costs.

natural gas
Scott Madison, Intermountain Gas executive vice president and general manager, right, discusses natural gas issues with Kirk Bailey following a City Club of Idaho Falls presentation. (photo/Mark Mendiola)

Although the National Oceanic & Atmospheric Association (NOAA) predicted a more active hurricane season that could impact drilling in the Gulf of Mexico during 2012, “the gas market didn’t budge. It didn’t even blink.”

In 2010, 600,000 jobs were directly related to natural gas production, up 20 percent since 2007. While the prices of oil and natural gas historically have run in tandem, a “disconnect” since has occurred, with natural gas remaining much less expensive than petroleum.

The ability to extract natural gas from shale rock and sandstone has changed the equation for the industry, which he calls “a great paradigm shift.” Kirschner notes that ability to effectively combine hydraulic fracturing with horizontal drilling the past decade has unlocked previously unusable reserves.

Horizontal drilling allows access to thousands more feet of resource and minimizes surface disturbances, the NWGA executive director says, remarking that common concerns about fracking entail “water, water and water.”

Oil and natural gas wells are drilled 5,000 to 6,000 feet below drinking water levels, Kirschner notes. Ninety-nine and a half percent of the fracking fluid used is sand and water. Of five million gallons pumped into fracking wells, half a percent typically consists of chemicals and lubricants – or about 25,000 gallons.

Keeping that “cocktail” isolated and separated is a top priority of producers, who use top technology to protect drinking water and are exploring other alternatives, including the use of reclaimed or “gray” water that was not available three years ago. “Water costs producers 15 cents to $15 a barrel,” he says.

The likelihood of fracking fluids contaminating drinking water is “very, very, very low,” Kirschner says. Producers also are looking very closely at reducing related air emissions, including diesel fumes, fugitive methane and particulate matter.

Hydraulic fracturing and well construction are state-regulated, but water disposal falls under the federal Clean Water Act. The U.S. Environmental Protection Agency is considering more stringent fracking regulations.

Scott Madison, executive vice president and general manager of Intermountain Gas and Cascade Natural Gas, North Dakota-based MDU Resources Group subsidiaries, notes that Intermountain Gas – which serves 320,000 customers in 74 communities and employs more than 300 in Idaho – has not filed for a rate increase since 1984. Since 2008, its residential price has decreased 40 percent.

Intermountain Gas secures its natural gas via Williams Northwest Pipeline from British Columbia, Alberta, Colorado, Wyoming and Utah. “We now buy primarily Canadian,” Madison says, adding Intermountain Gas can toggle between Canada and the Rockies, depending on best prices.

The utility will invest $20 million in capital to increase its pipeline capacity by 17 percent from Pocatello to Rexburg via Shelley, Ammon and Rigby in eastern Idaho. It employs 180 employees at its Meridian call center that serves a million MDU electricity and natural gas customers in eight states.

For the past 40 years, those involved in the nation’s natural gas industry estimated only a supply of 10 to 20 years remained, but the success of fracking and horizontal drilling has been “a game changer,” Madison says. “A lot of recovery hasn’t been there before.” More than 100 years supply could now be available.

Frank Morehouse, Madison’s predecessor at Intermountain Gas and new president and chief executive officer of MDU’s utility group, notes that Intermountain Gas has applied for a 6½ percent rate decrease with the Idaho Public Utilities Commission. Its rates have dropped 4 percent to 5 percent each of the last four years.

Morehouse expects Intermountain Gas will gain 4,500 customers in 2013 and natural gas production near Payette in western Idaho could come on line within 12 months. In the past, Intermountain has received 60 percent of its gas from the Rockies and 40 percent from Canada.

“We really need a comprehensive energy policy at the federal level. That’s a very important step to take toward becoming energy independent,” which would strengthen the U.S. position in global energy markets, Morehouse says.

MDU Resources’ utility group includes Intermountain Gas, Montana-Dakota Utilities Co., Great Plains Natural Gas. Co. and Cascade Natural Gas Corp., serving 976,000 customers. MDU employs up to 12,000 people in Washington, Oregon, Idaho, Montana, Wyoming, the Dakotas and Minnesota.

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