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Coronavirus And Slumping Prices Hit Ohio Valley’s Oil & Gas Sector

Energy producers, utilities and energy sector workers across the Ohio Valley are adjusting operations and bracing for continued economic impacts as the fast-moving coronavirus pandemic continues to unfold.

Efforts to limit the spread of the virus include shuttering schools and businesses and limiting travel, all of which reduce demand for energy. The federal government is moving to stabilize the economy, including a possible bailout for oil and gas producers.

Oil prices fell to their lowest level in 18 years Wednesday as travel restrictions tighten and air travel plunges. Crude was trading at $20.48 Wednesday afternoon. Natural gas prices were causing Appalachian Basin producers anxiety earlier this year while they were hovering near $2. On Wednesday that price fell to about $1.60.

Although it’s hard to nail down an exact number, the natural gas industry supports thousands of jobs across the region and contributes millions of dollars in taxes to state governments. In West Virginia, for example, drillers paid $146 million in severance taxes to the state in 2019. Projections for 2020 are $98 million, according to the state tax department.

Natural gas production in the Appalachian Basin has grown rapidly since 2012 and is projected to grow exponentially over the next few decades.

While West Virginia, Ohio, Kentucky are not major oil-producing regions, drillers in the gas-rich Appalachian Basin do produce oil and are being impacted, said Charlie Burd, executive director of the Independent Oil and Gas Association of West Virginia.

“These falling prices present a challenge for lots of small companies who are already with the low natural gas prices striving to remain viable and in existence,” he said.

Anne Blankenship, head of the West Virginia Oil and Natural Gas Association, agreed lower crude prices tighten the margins for some companies.

“But our members have continually committed to being a big part of West Virginia’s economic present and future,” she said in an email. “They are invested in this state and its communities.”

Falling oil prices are being driven both by shrinking demand due to the coronavirus and the price war between Saudi Arabia and Russia, which flooded the market with cheap crude, said Mark Agerton, an assistant professor at the University of California, Davis who studies energy and resource economics.

He said while drillers in the Marcellus and Utica shale formations will undoubtedly see an impact from lower prices, he believes as big oil-producing regions like the Permian Basin slow oil production, associated gas production there will fall too, which could benefit drillers in the Appalachian Basin.

“That’s going to maybe potentially mean that the Marcellus doesn’t have to ramp down production quite as much,” Agerton said. “The other thing is that with reduced drilling for oil, all of the oilfield services and rigs are going to become available, and those costs for services should come down, which would help cushion someplace like the Marcellus.”

In a press call Wednesday morning, Suzanne Lemieux, manager of operations security and emergency response policy for the national trade group the American Petroleum Institute said the group doesn’t see threats to the broader oil supply chain from the coronavirus outbreak. She added many producers have developed pandemic plans, especially after the 2016 Ebola outbreak.

“A lot of conditions we’re operating under or see in the future are similar to operating under a hurricane or another type of natural disaster,” she said.

Agerton said with the situation changing so rapidly it’s unlikely we yet know the full extent of how the virus will affect both the economy and energy sectors.

On Wednesday, Shell said it will temporarily suspend construction of its ethane cracker in Beaver County, Pennsylvania to prevent the spread of the coronavirus.

Smaller producers, which account for many in the Ohio Valley, may be at risk, Agerton said.

It’s unclear if and what type of measures the federal government could take to help the oil and gas industry. In a letter, the head of the trade group the American Exploration & Production Council encouraged lawmakers to ease requirements under the Jones Act, a federal maritime law that requires goods shipped between U.S. ports to be transported on ships that are American-made, owned, and operated. The administration is also considering purchasing oil for the U.S. Strategic Petroleum Reserve.

Agerton said direct aid to the industry would be purely a political move.

“As far as bailing out the energy sector, I mean, I’m not sure why other than the political advantage,” he said.

Burd, with IOGA WV, said some companies may also benefit from low-interest loans offered by the Small Business Administration, but he’s largely optimistic, at this time, that the industry will be OK.

“We are a resilient industry and we believe everyone will try to maintain all the production wells and I don’t think that’s going to be an issue,” he added.

Utilities Suspend Shutoffs

Across the Ohio Valley, companies that generate and distribute electricity to homes and businesses are also adjusting. Many utilities have announced they will not disconnect customers who cannot pay their bills during the coronavirus crisis.

The Public Utilities Commission of Ohio last week ordered all electric, natural gas, water, wastewater and landline telephone companies to suspend disconnection policies. The Kentucky Public Service Commission issued a similar order Monday, which includes an order to suspend late payment fees for at least 30 days. Regulators in West Virginia are urging utilities to temporarily suspend shutoffs.

Utilities are also taking steps to protect workers. Aaron Ruegg, a spokesman for FirstEnergy Corp. said some travel is being reconsidered including for workers who were set to help during a planned outage at the Harrison Power Station, located in Haywood, West Virginia.

He said that lineworkers and service technicians have been instructed on measures such as social distancing.

At this time, Ruegg said no measures are being considered to sequester workers at power stations to maintain operations.

That is something Appalachian Power is looking at, said Communications Director Jeri Matheney. She said decisions are being made on a plant-by-plant basis, but no final decisions have been made.

Q&A: Rolling Stone Reporter Examines The Risks Of Radioactive Drilling Waste

Across the Ohio Valley, natural gas drilling waste is trucked from the well pad to disposal sites. The waste contains naturally occurring radioactive elements.

Freelance science journalist Justin Nobel spent nearly two years reporting on this topic. He interviewed hundreds of scientists, environmentalists, state regulators and industry workers and uncovered never-before-released early reports from the oil and gas industry that highlight the radioactivity problem and its risks to workers and the public.

Energy and Environment Reporter Brittany Patterson spoke with Nobel via Skype about his investigation titled “America’s Radioactive Secret” that was published last month in Rolling Stone.

***Editor’s Note: The following has been lightly edited for clarity.

Patterson: You use a character, a pseudonym of a character, named Peter. Tell us where we meet him and tell us a little bit about him and his concerns.

Nobel: Peter does a job that has become quite common across northern West Virginia, southwestern Pennsylvania, eastern Ohio, the heart of the Marcellus and also Utica shale areas, and that job is the job of brine hauler, or driving a truck that looks a bit like a septic truck, but is actually filled with this oil and gas waste product. The industry often refers to this product as brine, or produced water, but what my reporting revealed is that this is very misleading. Brine, especially in the Marcellus, can have a very complicated mix of different chemicals and there’s a lot of toxic heavy metals. There’s what’s known as volatile organics; these are known human carcinogens like benzene, and then there’s also radioactive elements such as radium. Drivers like Peter are told often that they’re hauling water or that they’re hauling saltwater, and yet they’re not. They’re hauling this really complicated brew of chemicals that also has radioactivity in it.

Patterson: What is the federal and state oversight of this activity?

Nobel: So, oil and gas waste has a stunning exemption that goes back to the late 1970s. The United States at that time knew there’s a lot of industry and that industry regularly produces hazardous waste, and under a law called the Resource Conservation and Recovery Act, the United States determined that it’s going to appropriately label waste that is hazardous as hazardous. That means that waste can only go in certain types of trucks that are designed to carry hazardous waste. It can only go on certain routes that are appropriate for hazardous waste to be hauled on. Drivers will have to be appropriately trained, and the hazardous waste will have to end up in landfills that are appropriately designed to hold hazardous waste.

And it was a good way, a cradle to grave way, of dealing with hazardous waste. Except oil and gas waste, all of these different waste streams produced at an oil and gas well, such as brine, such as drill cuttings, such as other materials like scales and sludges, these wastes all received an exemption. And what’s just so striking is that the EPA actually looked at that exemption in 1988, and they determined that even though there are hazardous materials in oil and gas waste, there’s uranium, there’s toxic heavy metals, to label that waste as hazardous would cause a severe economic burden on the industry. There literally would not be enough landfills to deal with it. It would overwhelm regulators and so EPA sticks with this determination of non-hazardous and everything we see happening today — in regards to these trucks in the Marcellus, why are they not labeled, why are these drivers not being told what’s in them — it goes back to that exemption.

Patterson: One of the really striking things about your story and the reporting you’ve done on this topic is how deep you’ve gone. Can you tell us a little bit about some of the documents and research that you found and how that impacts workers’ health?

Nobel: So in my reporting, I would be talking to workers working in West Virginia, Pennsylvania, Ohio, talking to community members, and hearing things that were quite concerning when it came to how this material was being handled and just what the radioactive content might be. And there is the question of well, ‘How concerning? What really are the risks? And just how worried should I be?’ And what helped answer that question was finding documents of the industry that conveyed that they had knowledge about this going back decades. And so some of the industry’s most prominent organizations and publications have actually written about this topic. And that’s significant because right now the industry still is actually denying that there’s a serious problem. And yet when you look 30 and 40 years ago, the industry themselves wrote about this problem. And I found a set of Louisiana legal cases only recently settled in 2016 that showed that oil and gas worker cancers had been linked indisputably to radioactivity exposure received on the job. That was just such a moment of alarm for me because it confirmed that if this job, and these different types of jobs, are done for long enough, a worker actually can get cancer and that cancer can kill them. So, in Louisiana workers got different types of lymphomas, different types of leukemias, colon cancer, liver cancer, kidney cancer.

Patterson: So we have the EPA that is sort of declining to regulate the disposal of this type of hazardous waste. And we have thousands of workers in this region that are working in this industry hauling brine, but also involved in other parts of natural gas drilling. And it’s an industry that’s growing. What does this mean for the people who work in this industry, for those oil and gas workers?

Nobel: There needs to be a massive health analysis done immediately. And what’s so worrisome about the Louisiana cases is we know the signature of the brine in Louisiana. The radium levels are significantly less than they are in the Marcellus, about eight to nine times less. So no one has looked at what it means for workers in the Marcellus to be handling different bines, scales, sludges, to be handling this oil and gas waste for a prolonged period of time. What’s just been so striking is that workers continue to reach out to me, and this is a difficult thing for them to do, but they’re not getting help from the regulatory agencies. They’re not getting help from their employer, certainly. And suddenly they’ve read this article which has information that connects to things that they’ve been seen and wondering about. And so, with each week, really since the story’s been published, more people have been reaching out. And many of them are workers and they help fill in a picture that’s already forming and the picture is really a concerning one.

West Virginia Public Broadcasting reached out to the trade group, the West Virginia Oil and Natural Gas Association. In a statement, executive director Anne Blankenship said the industry is highly-regulated and does not expose workers or the public to high levels of radiation. She said her association disagrees with the Rolling Stone article, calling it “purposefully misleading, biased and exaggerated.”

Citizens Group Asks DEP for Hearing on Transfer of Thousands of Oil and Gas Wells

11/20/2018 8:55 p.m.: This story was updated with information from Diversified.

The West Virginia Surface Owners Rights Organization is asking state environmental regulators for a hearing to discuss a proposed transfer of more than 3,800 oil and gas wells located across West Virginia.

Natural gas driller EQT and others are proposing the deal. The move would transfer the rights to any oil and gas produced by these wells, but also the companies’ plugging liabilities to Diversified Oil and Gas.

Dave McMahon, a lawyer and co-founder of the WV Surface Owners’ Rights Organization, said in a press conference with reporters that the transfer could create one of the most widespread economic and property rights issues in the state.

“We hope to present evidence that the financial position of Diverisifed is that it will milk these wells for the first 15 years, and after that they will run out of money and leave these wells across thousands of people’s property across the state,” he said.

WVSORO argues the wells are older, which means they will be less profitable, which increases the financial burden on the company to plug the well.

In a statement, Diversified spokesperson Adrian Williams said the wells in question have average remaining lives of 40-50 years, or more. Williams added that Diversified is a publically-traded company, which allows it to tap into significant financial capital.

“We expect our assets to produce significant cash flow over the next 40 to 50+ years, a portion of which we will responsibly use to decommission these wells for the benefit of the communities within which we operate,” the statement said.

The group argues EQT and others should not be allowed to transfer the wells unless the well is currently producing enough oil and gas to make it profitable, thus ensuring there are enough resources to plug it later on.

There are 12,000 abandoned wells and more than 4,000 are orphaned across the state. The group says this deal could lead to many more. In total, WVSORO said EQT and others want to transfer an estimated 17,000 wells in West Virginia.

WVDEP is expected to issue a decision on whether to grant a hearing in the coming months.

Peering Into the Gas & Chemical Industries — Tarriffs, Best Practices, Workforce

About 2,000 people gathered in Pittsburgh last month for two gas and petrochemical industry conferences. Despite those numbers, people noticed who wasn’t there: investors from China. Participants discussed the impacts of tariffs, best practices and hiring.

Tariffs

West Virginia University’s Brian Anderson had the job of letting everyone know that Chinese government’s China Energy would not be on hand to talk about their $80 billion plus investment in West Virginia. Why? Tariffs.

At both the Northeast Petrochemical Construction and the Hart Energy DUG East conferences international trade was major topic of discussion. For petrochemical producers — notably the businesses that take natural gas and crack it into ethylene that ultimately shows up in plastics — tariffs are becoming a concern.

“We’re going to have an oversupply,” said Taylor Robinson, the president of PLG Consulting. “The relief valve for that is exports.”

During his talk, Robinson highlighted increased production, including new plants coming online in the region. He said one of the biggest risks to growth right now are escalating tarrif threats.

“China has put a big tariff on imported polyethylene,” Robinson said. He added that has thrown a “big wrench” into many Gulf Coast producers’ plans to export to China, the largest market in the world for polyethylene.

“Never a dull moment,” he quipped.

And on the production side, U.S. steel tariffs are giving one Canadian pipeline firm pause.

Taylor Robinson, President of PLG Consulting, called tariffs one of “the biggest risks right now” for the petrochemical industry. He spoke at the Northeast Petrochemical Construction Conference in Pittsburgh June 19, 2018 at the Westin Conference Center.

Cale Johnson, traveled from Calgary with Canadian CORE Linepipe to work the floor. For him, these tariffs are having a “big time” impact.

“Our product is steel so we’ve been directly affected by the new tariffs,” he explained. “It’s increased our commodity price significantly so it’s been challenging. However all steel products are affected, so it’s just a challenge the whole industry is faced with.”

Johnson said ultimately, end users will have to pick up increased costs created by tariffs.

“If we are launching down here, we might have to evaluate American distribution or pipe that’s made in the states to possibly avoid those tariffs,” he said.

Best Practices

At Hart Energy’s DUG East, which brings together natural gas industry drillers, shippers and support businesses, much of the focus was how to better adjust to the current market — gas prices are low and production increasing. So, the question is: how do you drill smarter?

Benjamin Hulburt, Chairman, President & CEO, Eclipse Resources speaks at Hart Energy’s DUG East Conference in Pittsburgh June 20 & 21, 2018 at the Pittsburgh Convention Center.

Benjamin Hulburt and his company Eclipse Resources recently set records for the length of the “laterals,” or the horizontal distance from the vertical drill in a well pad, it has drilled. The company drilled out more than 20,000 feet (nearly four miles) from the well pad, but with low gas prices, Hulburt said the economics can be challenging.

“In today’s natural gas environment, if you are not the low cost producer, the low cost driller, you’re going to struggle to survive,” Hulburt explained. “You have to be constantly innovating, and constantly trying to drive down that cost curve if you are going to survive.”

Lots of conference attendees were optimistic about the future of the industry, despite the absence of Chinese investors and businesses. Shawn Quinton, from Oklahoma, works for a German company, Linde Engineering. The engineering firm designs and builds the plants that are essentially giant refrigerators that cool the natural gas so that it separates into the different gas types – methane, ethane and other derivatives Currently, they’ve got one job in the region, and he thinks he’ll get more.

Chris Allen, left, and Shawn Quinton, right, from Linde Engineering North America, Inc., ran out of business cards the first day of the conference. “There are a lot of regional people here that attend this that we don’t normal contact with, so this is an excellent opportunity to do some elbow-rubbing and handshaking that we wouldn’t normally see on a daily basis,” Quinton said. “And you just can’t walk up to their door.”

“We’ve had really good traffic,” Quinton said. “Unfortunately, I am just about out of cards… I brought 100. Tickled pink to have that problem. Next time we’ll stock up and make sure we bring 200.”

Workforce

There was also a lot of talk about jobs and training. Chevron’s Lee Ann Wainwright was part of a panel on STEM training and jobs.

She said the industry needs candiates with “basic life skills.”

“We just need people to show up,” Wainwright said when discussing hiring practices. “We need them to pass the drug test. We need them to be able to have a conversation, look you in the eye, and come on time.”

Lee Ann Wainwright, a Policy, Government & Public Affairs Advisor for Chevron said her company is looking for the “basic life skills as it relates to a job,” when looking at new hires. She participated in panel “Readying the Next-Generation for Careers in Advanced Manufacturing & Petrochemicals” at the Northeast Petrochemical Construction Conference in Pittsburgh June 19, 2018 at the Westin Conference Center.

Wainwright, who is a policy, government and public affairs advisor with Chevron, said her company looks to train employees on the job.

“Don’t get me wrong — there’s always going to be some jobs where you need that 4-year degree and maybe beyond — but a lot of jobs in the energy and manufacturing right now are skilled labor jobs and once you have the foundation and you are in the door, we can get you trained,” she said.

Along with workforce issues, trade wars and low gas prices that can affect growth, other issues surfaced. Community concerns and protests against drilling and pipeline construction is now a part of the industry’s equation.

There was some limited discussion on environmental issues such as leaking methane from gas wells and pipelines. That’s a big deal when taking into account the entire life cycle of natural gas and its impact on climate. And one speaker cited climate change with a different twist — the extreme weather events that hit Gulf Coast production areas. Coastal flooding regularly takes petrochemical operations offline. In comparison, Applachia’s weather is relatively tame, which could make the region a more reliable home for petrochemical production.

Nancy Andrews is a Pittsburgh based journalist and 2018 Alicia Patterson Foundation Fellow studying natural gas pipelines in Appalachia. Follow her on Twitter @NancyAndrews or @NancyAndrews on Instagram.

WVU to Study Oil and Gas Wastewater

Researchers in West Virginia and Kansas want to get a better handle on how best to manage millions of barrels of dangerous wastewater produced across the United States by the natural gas industry.

Kansas University and West Virginia University just announced a joint research effort to identify safe, environmentally responsible management of the wastewater that is a byproduct of natural gas wells.

Researchers from the two universities acquired a $4 million grant from the National Science Foundation in part to study the effects of drilling on surface water.

“You have three classes of potential contaminants: salts, organic compounds and some amount of radioactivity mainly in the form of radium,” said one of the lead researcher with the project, director of West Virginia’s Water Research Institute Paul Ziemkiewicz. He says management of wastewater, which the industry refers to as “produced water”, is a growing concern. The Department of Energy estimates 20 million barrels are produced each year.

“A lot of the produced water that was generated over the first wave of Marcellus development was largely being consumed in new well completions, and with the drop in gas prices, well completions have gone down and therefore we have this extra water accumulating,” Ziemkiewicz said. “We need to find a way to dispose of it, treat it, or something else.”

Researchers also hope to develop safe handling and treatment practices of the wastewater, as well as develop ways to avoid earthquakes when disposing wastewater into underground injection wells.

W.Va. DEP Shuts Down Danny Webb Construction Waste Site, For Now

The W.Va. Department of Environmental Protection has Statement About Danny Webb waste site in Fayette County. DEP Communications Director, Kelly J. Gillenwater said in an email Friday:

"The West Virginia Department of Environmental Protection's Office of Oil and Gas has shut down operations at the Danny E. Webb Construction Inc. underground injection control facility in Fayette County until further notice. The shutdown, effective immediately, is in response to an April 8 decision by the Environmental Quality Board. The board ruled that a March 2014 order under which the facility was operating was unlawful and gave the DEP 30 days to either issue a new permit or require the operations to cease. Two permit applications from Danny Webb for the facility are currently under thorough review, and DEP is taking into consideration all comments submitted during the public comment period regarding these proposed permits. There is no deadline by which DEP must make a decision whether to approve or deny the applications and the agency has no estimated timeframe on when that decision will be made."

A permit to operate an underground injection well had expired in October 2012 but the operator continued to collect waste.

The underground (UIC) permit was granted February 6, 2014 under the condition that the operator close an above ground pit used to collect fluids from oil and gas exploration, development drilling, and production before being injected into the underground well.

In a letter of appeal filed in March 2014, attorney Tom Rist said the permit did not specify the closure requirements and should have been addressed before granting the permit. The operation permit was revoked in March, but the order still allowed the operator Danny Webb Construction to continue to work at the site.

The West Virginia Environmental Quality Board ruled in April that the Department of Environmental Protection violated state law when it allowed Danny Webb Construction to operate the injection wells in Fayette County without a permit. Danny Webb Construction had until May 8 to issue a new permit or cease operations.