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Daniel Yergin on Fracking Pioneer George Mitchell


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This is an excerpt from Daniel Yergin's epic chronicle of the modern quest for oil and natural gas, "The Quest," posted with permission of the author for reference on The New York Times blog Dot Earth.

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Daniel Yergin on Fracking Pioneer George Mitchell

  1. 1. 16 THE NATURAL GAS REVOLUTION1 eorge P. Mitchell, a Houston-based oil and gas producer, could see the problem coming. His company was going to run short of natural gas, which would put it in a very difficult position. For it was contracted to deliver a substantial amount of natural gas from Texas to feed a pipeline serving Chicago. The reserves on which the contract depended were going down, and it was not at all clear where he could find more gas to replace those depleting reserves. But he did have a strong hunch, piqued by a geology report that he had read. That was in the early 1980s. Three decades later, Mitchell’s relentless commitment to do something about the problem would transform the North American natural gas market and shake expectations for the global gas market. Indeed, the stubborn conviction of this one man would change America’s energy prospects and force recalculations around the world. The son of a Greek goat herder who had somehow ended up in Galveston, Texas, Mitchell had grown up dirt-poor. He had worked his way through Texas A&M University waiting tables, selling candy and stationery, and doing tailoring for his fellow students. After World War II, Mitchell had started in the oil-and-gas business in Houston, working out of a one-room office atop a drugstore. Over the years he had built it into a very substantial company, Mitchell Energy and Development, that focused much more on natural gas than oil. For Mitchell, natural gas was virtually a cause. He was such a believer that when he suspected someone of speaking too kindly of coal, he would reach for the phone and set him straight in a few short sentences. What he wanted to see was more natural gas use. And he simply would not accept the notion that supplies were constrained by scarcity. But where was he going to get more gas? The geological report that he had read in 1982 pointed to a possible solution. For a very long time it had been recognized that natural gas was found not only in productive reservoirs but also trapped in hard, concrete-like shale rock. This shale served as the source rock, the “kitchen,” where the gas was created, and also as the cap that sat on top of reservoirs that prevented the gas (and oil) from leaking away. Gas could certainly be extracted from shale rock. In fact, it is thought that the very first natural gas well in the United States, in Fredonia, New York, in 1821, drew from a shale formation. The problem was the economics. It was inordinately difficult and thus very expensive to extract gas from shale. It just was not anywhere near commercially viable. Yet maybe it was possible with the right mixture of technological innovation and persistence. 1 Excerpted for Dot Earth by permission of the author from “The Quest: Energy, Security, and the Remaking of the Modern World,” by Daniel Yergin. G
  2. 2. Mitchell’s “laboratory” was a large region called the Barnett Shale, around Dallas and Fort Worth, Texas, which sprawled under ranches, suburbs, and even Dallas–Fort Worth International Airport. Despite Mitch- ell’s efforts, the Barnett Shale proved continuously unforgiving. Mitchell insisted that his engineers and geologists keep plugging away in the face of ongoing disappointment and their own skepticism. “George, you’re wasting your money,” they would say to him over the years. He would reply, “This is what we’re going to do.” Fortunately, something of a carrot was available, what was called Section 29—a provision in the 1980 windfall profits tax bill that provided a federal tax credit for drilling for so-called unconventional natural gas. Over the years, that incentive did what it was supposed to do—it stimulated activity that would otherwise not have taken place. In the 1990s, the tax credit mainly supported the development of two other forms of unconventional natural gas, coal bed methane, and gas from tight sands, the very name of which conveys the challenge. But even with the incentive of the Section 29 tax credit, producing commercial-scale shale gas— another form of unconventional gas—was proving so much more difficult. In addition to Mitchell, a few other companies were also tackling the problem, but they became discouraged and dropped out. In 1997 the only one of the major companies working on shale gas development efforts in the Barnett region shut down its office. Only Mitchell Energy and a few other smaller independents were left. George Mitchell would just not give up. “It was clear to him that Barnett held a lot of gas, and he wanted us to figure a way to get it out,” recalled Dan Steward, who led the development team. “If we couldn’t, then he would hire other people who could. He had a way of getting things out of people they might not know they could deliver on.” The introduction of 3-D seismic much improved understanding of the subsurface. Still, Mitchell Energy had not cracked the Barnett’s code. “All sorts of experienced, educated folks,” said Steward, “wanted to bail out of the Barnett.” By the late 1990s the area was so much off the radar screen that when people did forecasts of future natural gas supplies, the Barnett did not even show up. Mitchell Energy’s board of directors was becoming increasingly skeptical. After all, when all the effort was added up, it was clear that the company had lost a good deal of money on the Barnett play. But George Mitchell would not give up; he insisted that they were getting closer to cracking the Barnett’s code. BREAKTHROUGH Fraccing—otherwise known as hydraulic fracturing—is a technique that was first used at the end of the 1940s. It injects large amounts of water, under high pressure, combined with sand and small amounts of chemicals, into the shale formation. This fragments underground rock, creating pathways for otherwise trapped natural gas (and oil) to find a route and flow through to the well. Mitchell Energy had been experimenting with different methodologies for fraccing. By the end of 1998, the company finally achieved its break- through: it successfully adapted a fraccing technique—what is known as LSF, or light sand fraccing—to break up the shale rock. “It was the trial-and-error approach that Mitchell Energy used that ultimately made the difference,” said Dan Steward.
  3. 3. George Mitchell recognized that developing the Barnett was going to take a lot of capital. He had also been at it as an independent for sixty years and that was a long time. He had other interests; he had developed the Woodlands, the 25,000-acre new community north of Houston. He put Mitchell Energy up for sale. Three other companies looked at the company but they all decided to pass. It appeared to all of them that while Mitchell’s pursuit of shale gas, fraccing included, may have been an interesting idea, it was a commercial flop. The team at Mitchell went back to work, further developing its capabilities, deepening its understanding—and producing a lot more natural gas. One of the companies that had passed was another independent, Devon Energy, from Oklahoma City. But in 2001, its CEO, Larry Nichols, noticed a sudden surge in gas supply from the Barnett Shale area. “I challenged our engineers as to why this was happening,” said Nichols. “If fraccing was not working, why was Mitchell’s output going up?” The answer was clear: Mitchell Energy had indeed cracked the code. Nichols did not waste any more time. In 2002 Devon acquired Mitchell Energy for $3.5 billion. “At that time,” added Nichols, “absolutely no one believed that shale drilling worked, other than Mitchell and us.” Devon, for its part, had its own strong capabilities in another technology, horizontal drilling, which had begun to emerge in the 1980s. Advances in controls and measurement allowed operators to drill down to a certain depth, and then drill on at an angle or even sideways. This would expose much more of the reservoir, permitting much greater recovery of gas (or oil) from a reservoir. Devon combined the fraccing know-how (and the team) it had acquired from Mitchell with its own skills in horizontal drilling. All that required a good deal of experimentation. Devon drilled seven such wells in 2002. “By 2003,” said Nichols, “we were becoming very confident that this drilling truly worked.” Devon drilled another 55 horizontal wells in the Barnett that year. It did work. Shale gas, heretofore commercially inaccessible, began to flow in significant volumes. Combining the advances in fraccing and horizontal drilling was what would unleash what became known as the unconventional gas revolution. Entrepreneurial independent oil and gas companies jumped on the technology and quickly carried it to other regions—in Louisiana and in Arkansas, and Oklahoma, and then to the “mighty Marcellus” shale that sprawls beneath western New York and Pennsylvania down into West Virginia. Copyright 2011, 2012, Daniel Yergin