By Jeff Alexander
Tucked deep in the woods of northern Michigan, three miles east of the tourist town of Indian River and the state’s famed Inland Waterway, sits a temporarily dormant natural gas well.
Above ground, it looks like many other oil and gas wells waiting to plumb the Earth’s hydrocarbon jewels.
It’s what took place nearly two miles underground that put this “unconventional” gas well in Cheboygan County in the crosshairs of a national debate about the benefits and risks of pursuing large deposits of natural gas buried deep underground.
That debate pits the desire to replace coal and oil with cleaner burning natural gas in power plants and cars — to reduce air pollution and slow global warming — against evidence that pursuing deep gas deposits is harming the environment and even threatening human health in several states.
At the well near Indian River, Canadian energy giant Encana Corp. used a technique called hydraulic fracturing — or “fracking” — to probe for natural gas in a 40-foot layer of rock known as the Utica/Collingwood formation. That formation lies roughly 10,000 feet underground and spans 20 northern Michigan counties.
Officials at the Michigan Department of Environmental Quality, which regulates oil and gas exploration generates funding via fees on the industry, said increasing national demand for natural gas would drive more drilling in the Utica/Collingwood formation. And that could mean major dollars for Michigan. Penn State University, for example, has estimated that similar drilling in the Marcellus Shale play added $3.9 billion to Pennsylvania’s economic output in 2009 and created 48,000 jobs.
“In the short term, I predict there will be substantial drilling to explore the Utica/Collingwood formation,” said Hal Fitch, chief of the MDEQ’s Geological Survey Division. “It might be another 12-18 months before (drillers) get a better feel” for how much natural gas the formation could produce.
The likelihood of energy companies fracking more deep shale gas wells in northern Michigan is unlikely to meet with universal acceptance, however.
Fracking, which was exempted from the federal Safe Drinking Water Act in 2004, has been linked to more than 1,000 pollution incidents in several states other than Michigan, reports ProPublica. Critics fear fracking could cause similar problems here.
To frack a well, drillers pump millions of gallons of water mixed with sand and thousands of gallons of toxic chemicals into the borehole under extremely high pressure. The fracking fluids cause an underground explosion, which fractures the shale and allows natural gas and oil to flow to the surface. (See a video of the fracking process here.)
Orin Kendall, who owns and lives on the land near Indian River where Encana drilled the gas well, said the fracking operation there went off without a hitch. He said Encana’s crews went to great lengths to ensure that contaminated fracking fluids didn’t spill on the ground or threaten nearby Crumley Creek.
“Encana is an incredible company,” Kendall said. “When you see how they drilled this well, there was no way anything could get into the creek or the groundwater.”
But fracking has caused serious problems in other states, according to government documents exposed in an investigation by the nonprofit news organization ProPublica. Among the issues:
* Spills of fracking fluids in other states have poisoned streams, killing fish and other animals that drank the toxic brew.
* Faulty well casings have caused methane leaks that contaminated groundwater and residential wells, in some cases making tap water flammable, according to a National Academy of Sciences study.
* In Ohio, a methane leak from a fracked gas well caused an explosion that leveled a house.
Calgary-based Encana, which is Canada’s largest natural gas producer and the biggest player in Michigan’s burgeoning natural gas rush, has a history of problems in other states.
Encana has paid $1.5 million in fines over the past four years for violating environmental laws in Colorado, Pennsylvania and other states, according to published reports. The Colorado Oil & Gas Conservation Commission fined Encana a record $371,000 after one of the company’s gas wells leaked fracking fluids laced with a cancer-causing chemical into a creek in 2004.
Encana spokesman Alan Boras has said the company quickly corrected mistakes that were made in Colorado. He said the company runs a “very safe operation.”
“We work very hard to protect the workers, the community and … we maintain high environmental standards with regard to our operations,” Boras said.
Conservation groups in Michigan fear that drilling into the Utica/Collingwood formation could rob lakes and streams of critical water resources and contaminate groundwater and drinking water wells with toxic fracking fluids.
“Many of the same companies that have caused water and air contamination in other states are now exploring, or even drilling, in Michigan. Why would they operate any differently here?” said Rita Chapman, a program manager for the Sierra Club’s Michigan chapter.
State officials said hydraulic fracturing is more strictly regulated in Michigan than in other states. MDEQ’s Fitch said Michigan has more stringent well-casing regulations and requires drillers to store contaminated fracking fluids in steel tanks, where it is less likely to spill on the ground and cause groundwater contamination.
“Accidents can happen anywhere but I think we’ve got real good safeguards in Michigan to reduce any risks,” Fitch said.
“We’ve got a safe record of fracking in Michigan,” Fitch added. “More than 12,000 wells have been fracked in this state and we have never had a problem from any of them.”
The difference is that drillers in Michigan have never extracted natural gas from a formation nearly as deep as the Utica/Collingwood. Most of the earlier gas wells that were fracked into Michigan’s Antrim formation were around 1,000 feet deep, according to state records. Fracking a well 10,000-feet-deep requires displacing large amounts of groundwater and moving it from one geological formation to another.
At each well, roughly 5 million gallons of water is pumped out of the ground. About 75 percent of that contaminated fracking water returns to the surface, where it is captured in tanks and discarded in deep disposal wells off-site. About 25 percent of the contaminated fracking water, about 1 million gallons, remains in the deep shale formation, according to government data.
Michigan’s regulatory officials said the contaminated fracking water poses no threat to the environment because the formation where it ends up is far below aquifers that provide water for rivers, lakes and drinking water wells.
Critics, though, aren’t convinced that fracking wells 10,000 feet deep can be conducted safely in Michigan. Several groups have called on the state to force drillers to disclose the types and volume of all chemicals used in fracking water. The industry has refused, claiming some of the chemicals they use are proprietary.
The Sierra Club and Clean Water Action recently called for a moratorium on fracking until the MDEQ requires companies to disclose all of the chemicals used to frack a well.
“If Michigan is going to explore for natural gas, we must do it the right way, with total accountability, comprehensive safety measures and full public participation in order to protect our residents’ health and our drinking water,” said Cyndi Roper, director of Michigan’s chapter of Clean Water Action. “We must close oil and gas industry loopholes, and make sure we fully protect communities in Michigan from the kind of reckless practices that have led to disastrous consequences elsewhere.”
Several states have tightened regulations in response to a growing public outcry over toxic spills and other problems at fracked wells. The state of New York imposed a moratorium on fracking last year, but it is set to expire this summer.
The U.S. Environmental Protection Agency is currently studying whether tougher federal regulations are needed to better protect the environment and public health.
A spokeswoman for the Michigan Oil & Gas Association, declined to comment on the issue.
“It would be premature at this time for MOGA and/or its members to talk about the potential for production from the Utica/Collingwood,” MOGA spokeswoman Deb Muchmore said.
From one well, a rush
The rush to drill for natural gas in deep shale formations is being driven by an abundant supply and increasing demand for cleaner burning fuels that could slow global warming and reduce America’s reliance on foreign sources of energy. The use of natural gas to generate electricity in the U.S. increased 38 percent between 2001 and 2010, according to the U.S. Energy Information Administration.
Industry officials have said that the Marcellus Shale, which spans parts of Pennsylvania, New York, Ohio. West Virginia and Kentucky, is one of the world’s largest shale gas deposits.
Michigan’s shale gas reserves are not in the same league as larger deposits in the eastern states, Texas or Wyoming. However, experts believe the Utica/Collingwood formation could produce significant quantities of natural gas.
In May 2010, oil and gas companies spent a record $178 million to lease 120,000 acres of state-owned minerals in northern Michigan. Some companies paid a whopping $5,000 per acre for the right to drill into the Utica/Collingwood formation. The May 2010 leasing haul nearly equaled the $190 million that oil and gas companies had paid over the previous 81 years for the right to drill for state-owned oil and gas.
Encana triggered the rush to drill in the Utica/Collingwood formation. Its Pioneer well near Lake City, drilled in 2009, appeared to hit a mother lode of natural gas. The Pioneer well has rejuvenated Michigan’s middling oil and gas industry and fueled speculation that Michigan could be a major new player in a barrage of shale gas drilling that has swept across 31 states.
Fitch, however, said the initial returns from Encana’s wells in Missaukee and Cheboygan counties were disappointing.
Encana officials disagree. Company spokesman Boras said Encana was “encouraged” with returns from those wells and expects to produce oil or natural gas at both wells in the future. “It’s not uncommon for drilling at this stage to have results that indicate potential,” Boras said. “It’s an incremental process to understand what is down there.”
Fitch said Encana is the only company that has completed the fracking of a well in the Utica/Collingwood formation. To date, the state has issued 18 permits to drill into the Utica/Collingwood formation; another 13 are pending, according to MDEQ data.
Boras said the current glut of natural gas on the market has lowered prices and slowed drilling activities in the Utica/Collingwood formation. In 2005, natural gas prices at the wellhead were $7.33 per thousand cubic feet*; in April, the price was down to $4. Boras said Encana would further develop its wells in northern Michigan when natural gas prices are higher, noting that the wellhead price would need to reach $6 per thousand cubic feet* to make new wells profitable.
While lower prices are bad news for drillers, they are incentives for utilities providing electric power to Michigan homes and businesses. Confronted with aging coal-fired units and significant regulatory costs to keep them in compliance with air quality standards, utilities such as the Lansing Board of Water & Light are opting for cleaner-burning natural gas instead.
In a 2010 statement announcing a new $182 million power plant, BWL stated the change “would reduce greenhouse gas emissions by 50 percent,” compared to its existing arrangement.
Straight-up, coal is cheaper than natural gas, but add in regulatory costs and gas becomes an attractive alternative — if the price remains fairly stable and supplies are plentiful.
Speculation loves company
Encana has already spent $37 million acquiring the rights to drill for Utica/Collingwood shale gas beneath 250,000 acres of land in northern Michigan. But the Canadian company isn’t alone.
Oklahoma-based Chesapeake Energy, one of America’s largest natural gas producers, has spent $325 million to lease 75,000 acres of mineral rights in the Utica/Collingwood formation.
Orin Kendall said Encana sent a small army of workers and numerous trucks to his property earlier this year when the company fracked the natural gas well near Indian River.
“When they were here they spent a lot of money in the community — they stayed in our hotels and ate in our restaurants,” Kendall said. “It was good for local businesses.”
But those economic benefits were short-lived. Once the well was drilled and then capped until a later date, the workers left.
It remains to be seen if the Utica/Collingwood formation yields large quantities of natural gas or oil. If it does, the state and property owners who leased mineral rights to oil companies stand to earn millions of dollars in royalty payments on gas and oil extracted from their state land.
“This could have significant economic benefits for the state,” Fitch said.
Editor’s note: CFM Executive Director John Bebow is 2nd vice president of Anglers of the Au Sable, a conservation organization that has raised concerns and questions about the potential for increased fracking in northern Michigan. Bebow and Jeff Alexander collaborated on an in-depth report about fracking for an Anglers of the Au Sable newsletter. Bebow has had no involvement in the editing of this story nor does the Center for Michigan have an official policy statement on fracking.