Abandoned Unconventional Natural Gas Wells: A Looming Problem for Pennsylvania?

Jun 13, 2017. | By: Assistant Professor Jeremy Weber and Andrew Earle

Pennsylvania has a long legacy of natural gas drilling. One unfortunate aspect of the legacy is a host of abandoned shallow gas wells throughout the state, some of which likely leak gases or liquids harmful to animals, plants, or people. This raises the question of the fate of the more than 10,000 unconventional natural gas wells that have been drilled in the state over the last decade, with more drilled each day.

Pennsylvania, like many other states, uses a bonding system to motivate companies to properly reclaim wells. Before the state grants a permit for a well, it requires that the company operating the well commits funds that, if the well is eventually abandoned, would be forfeited and used by the state for reclamation. Bond amounts vary in a tiered structure based on the quantity of wells operated by a company (see table). As an example, a company with 55 wells must pay a flat fee of $290,000 to cover the first 50 wells and an additional $10,000 for each of the last 5 wells, leading to a total of $340,000 in bonds. Companies operating many wells benefit from caps on total bond amounts: a company operating up to 150 wells would never pay any more than $430,000; a company operating more than 150 wells would never pay more than $600,000.

Bonding Requirements for Unconventional Natural Gas Wells in Pennsylvania

Number of Wells Bonded by the Company

For the bond system to be expected to work well, bond amounts should be similar to the cost of reclamation. If bond amounts are small relative to reclamation costs, companies may have the incentive to abandon wells. To be clear, abandoning a well and forfeiting the bond does not absolve the company of legal responsibility for the well. However, enforcement by the state requires resources and companies can dissolve or enter bankruptcy, making it difficult to hold them accountable. Another problem with low bond requirements is that if the state is not able to require companies to reclaim wells, the bond will be insufficient to cover reclamation costs, leaving taxpayers with the cleanup bill.

The few unconventional wells that have been reclaimed suggest that reclamation costs greatly exceed current bond requirements. Austin Mitchell and Elizabeth Casman of Carnegie Mellon University estimate the cost of plugging the average unconventional well at about $100,000. This is an estimate of the plugging cost only; it does not account for other aspects of reclamation. In one case, Cabot Oil & Gas Corporation paid Pennsylvania $2,190,000 to reclaim three unconventional wells, which is more than $700,000 per well. At this rate, a company that has 10 wells and abandons them all would forfeit $100,000 but leave the state with a cleanup bill of $7 million.

To date, however, very few of the state’s unconventional wells have been abandoned. Data from the PA Department of Environmental Protection shows 659 unconventional wells classified as permanently inactive, of which 653 have been plugged and 6 are abandoned, an abandonment rate of less than 1 percent. The low abandonment rate is promising but might be misleading. Regulatory Inactive Status is granted to a non-producing well that is expected to enter (or return to) production. The status lasts five years, but companies can apply for an extension. After the state began charging a per well Impact Fee in 2012, the number of regulatory inactive wells rose quickly, increasing from 75 in 2012 to 507 in 2013 (see figure). The number of regulatory inactive wells has generally continued to increase and currently stands at about 750 wells according to the DEP’s data.

The Growing Number of Regulatory Inactive Unconventional Wells

Source: PA Department of Environmental Protection. Elaboration by the authors.

Because most regulatory inactive wells received their status designation in 2012 and 2013, the five-year duration of the status for many of the wells will end in 2017 or 2018. Unless the company operating the well applies for and receives an extension of the regulatory inactive status, it must become active, plugged, or abandoned. The need to drill wells to hold leases, low natural gas prices, or incomplete pipeline infrastructure could create incentives for companies to keep promising wells in the regulatory inactive status. In other cases, companies might simply seek to postpone the costs of plugging and reclaiming an uneconomical well.

The next three years will be telling. Unless the state allows all inactive wells to remain as such, many companies will have to bring an inactive well into production or incur the cost of plugging it. Abandonment might occur if they are unwilling or unable to do either. The change in the abandonment rate over the next three years will indicate whether the state’s low bonding requirements have sowed the seeds for an abandoned well problem that it is financially unprepared to address.

Andrew Earle is a rising senior at the University of Pittsburgh majoring in Mathematical Economics. His current research interests include the management of natural resources and housing blight. After graduation, he intends to pursue a graduate degree in Economics.

Jeremy G. Weber is an Associate Professor at the University of Pittsburgh, Graduate School of Public and International Affairs and the Department of Economics. His research cuts across energy, agriculture, the environment, and well-being. He teaches classes in quantitative methods and energy and environmental policy.

About the blog: The GSPIA Energy and Environment blog provides commentary and analysis that furthers understanding of E&E issues of public interest. Its primary contributors are GSPIA faculty and students.

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In praise of Trump pulling out of the Paris climate pact

May 31, 2017. | By: KEN WARD

To the dismay of our allies, the White House could any day announce the U.S. will withdraw from the Paris climate agreement. But as a patriot and climate activist, I’m not dismayed. I actually want to pull out.

The value of the Paris Agreement is in its aspirational goal of limiting temperature increase to 1.5 degrees Celsius, not in its implementation mechanisms, which are voluntary, insufficient, and impossible to monitor. But that modest goal will be breached shortly, which makes the agreement a kind of fig leaf, offering political cover to those who would soft-pedal the runaway climate crisis a while longer.

The U.N. Conference of the Parties is certainly not the organization to constrain powerful, retrenched fossil fuel interests and other bad climate actors and rogue climate states. The Paris agreement affords oil, gas and coal companies a globally visible platform through which to peddle influence and appear engaged on climate change while lobbying for business as usual. That won’t save the climate. At what point do we give up wishful, incremental thinking — that reason will prevail, the free market will adjust, the president’s daughter and son-in-law will dissuade him from the worst climaticide, the Democratic Party will do something, or prior policies which tinker on the margins like the Clean Power Plan won’t be totally obliterated?

I’d argue we’ve reached that point. If Trump withdraws from the Paris Agreement, at least we will have clarity instead of false hope.

Who wanted to keep the U.S. in the Paris agreement anyway? People around the world, a majority of Americans, environmentalists and other coastal elites — constituencies for which Trump has shown indifference and/or contempt. Staying in was also favored by Exxon Mobil, Chevron, BP, Peabody coal, eBay, HP, General Mills, Kellogg, Tesla and other multinationals the Trump administration would have preferred to keep happy. But let’s face it, they won’t be all that mad the U.S. is pulling out, and the political impact won’t be all that great.

Neither will the environmental impact. In fact, since the agreement lacks teeth, breaking it won’t have any effect on the climate in the short term. But in the longer term, the shock and rethinking it will cause in some circles just might precipitate political and cultural changes we need to stave off climate cataclysm.

Pulling out of Paris will also give the president a political boost. It gives Breitbart and Fox something to crow about and The New York Times, Washington Post and CNN something that’s not Russia-gate to fret over.

Don’t get me wrong. I’m not trying to justify or abet Trump and his supporters in climate denial, and I’m not thinking climate activists and the Trump administration will end up in some the kind of strange-bedfellows embrace. Personally, I loathe this administration and find the president’s actions mean, maleficent, and mendacious, though it’s nothing personal. On my very best days I can eke out a couple minutes of meta loving-kindness meditation for the president as a person, but it’s a struggle.

I welcome pulling out of the Paris agreement because it will disrupt our complacency and strengthen the most vigorous avenues of climate action left to us, which are through the courts and direct citizen action. It lends much more credence to the Our Children’s Trust legal argument that the federal government has utterly failed in its responsibility to consider the long-term impact of carbon emissions. It advances the arguments of the Community Environmental Legal Defense Fund in their federal lawsuit for the right to a livable climate. And it strengthens the case for climate activists attempting to raise the “necessity defense” as a justification for citizen climate action, as I and my fellow “valve turners” are doing as we face criminal charges for shutting off emergency valves on oil sands pipelines.

It’s also true that withdrawal from Paris deprives mainstream environmental organizations and the foundations and funders that guide them of a key deliverable, and that could risk eroding support for them. Perhaps that’s not such a bad thing. Many of them have pursued an utterly bankrupt strategy of understating the climate problem, negotiating with the fossil fuel industry, and cherry-picking small victories to showcase organizational accomplishments at the expense of a functional movement strategy.

Pulling out of Paris takes false hopes off the table, and opens the way for building an effective climate movement. So as committed climate activist who knows we’re running out of time, I say, let’s get on with it.

Ken Ward is a former deputy director of Greenpeace going on trial next week on felony charges for shutting down an oil sands pipeline to prevent harm to the climate.

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Americans win when energy competes

Feb 6, 2017. | By: DOUG HAUGH

Energy is a hot topic these days, but lost in the news cycle is the truth behind domestic energy production.

America has the greatest endowment of resources on the planet. But these domestic resources are not just about the coal in the mountains of West Virginia, the oil in West Texas, the wind in Wyoming, or the sun in Arizona. The most precious and powerful of our domestic resources are the people working, researching, building and leading companies in the most competitive energy industry in the world.

There were over 1.9 million workers directly employed in electric power generation and fuels technologies last year, according to the Department of Energy. They are deployed almost evenly between traditional oil and gas — with 1.1 million employees — and low-carbon power generation such as renewables, nuclear and natural gas, which claimed nearly 800,000 employees.

Job growth is important to those in every sector, but few industries are as important as energy. Cheap, reliable energy is a fundamental foundation beneath every corner of our economy, regardless of whether it’s a hospital, school campus, local corner store or data center. Energy is fundamental to your success.

Yet most Americans don’t think about the energy industry on a regular basis because it rarely causes them problems. Americans enjoy some of the cheapest heat, power and transportation costs of any developed economy, and our businesses never have to plan their work around fuel shortages or power outages. Affordable and reliable energy is the silent support behind every business, every household and every community.

Let’s keep it that way.

All energy industry employees should be empowered to drive our economy and increase prosperity, not just the coal miners or the oil drillers, not just the solar installers or those erecting wind turbines, but everyone with the talent and drive to provide the energy our economy needs to grow. To unleash these resources the government needs to do less, not more. Edison’s light didn’t beat Rockefeller’s gas lamp because government decided it was better and cheaper. The market picked the winner.

Instead of trying to pick winners, government policy should focus on ensuring open competition, provide continued protection of clean air and water and support the education of as many scientists, engineers and technologists as possible.

Leave the rest of our energy future to the consumers that buy energy and those of us competing to supply it. When solar power has to compete with power generated with natural gas and coal it gets cheaper because it must.

When it does, America wins. If solar and wind only gain market share because of government mandates, then America loses. Electric cars don’t need Washington intervention to succeed — they need a cheaper battery.

The president often says that he will lift the restrictions on American energy, and “allow this wealth to pour into our communities.” He’s right. Our communities will become wealthier if we develop energy policies promoting job creation in every energy sector. Free competition for every energy dollar we spend will not only make American energy cleaner and greener, but will make energy cheaper.

The Trump administration, Energy Secretary Rick Perry and Environmental Protection Agency Administrator Scott Pruitt fundamentally get this. They realize less government is more. They understand an “America first” energy plan means more jobs producing cleaner and cheaper energy from all of our resources.

To those in our industry decrying their attempts to unwind government activism and energy subsidies, I say stop wasting your energy.

You’re better than that. Go to work. Go compete. Go win.

Doug Haugh is the president of Mansfield Energy and a member of the Job Creators Network, a national public education initiative comprised of business leaders.

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