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North Carolina Oil and Gas Study under Session Law 2011276 April 30, 2012 Prepared by the North Carolina Department of Environment and Natural Resources and the North Carolina Department of Commerce Acknowledgments The following staff at the Department of Environment and Natural Resources and the Department of Commerce worked tirelessly to make this report possible. DENR is grateful for the efforts of these individuals. DENR is also grateful to the hundreds of members of the public who submitted comments, helping us strengthen the final report. Lead Authors Robin Smith, Assistant Secretary for the Environment Trina Ozer Oil and Gas Resources, Oil and Gas Exploration and Extraction, Management and Reclamation of Drilling Sites, Naturally Occurring Radioactive Materials and Seismic Activity Jeff Reid Jim Simons Ken Taylor Water Supply Impacts Don Rayno Water Quality Impacts Rick Bolich Ted Bush Deborah Gore Karen Higgins Evan Kane Sandra Moore Ken Pickle Jon Risgaard Thomas Slusser Chuck Wakild Impacts to Fish, Wildlife and Important Natural Areas John Finnegan Linda Pearsall Judy Ratcliffe Air Quality Impacts Mike Abraczinskas Sheila Holman Sushma Masemore William Willets Disposal, Storage and Transportation of Solid Waste Jack Butler Helen Cotton Ellen Lorscheider Dexter Matthews Ed Mussler Mark Poindexter Michael Scott Economic Impacts Kristin Bunn Stephanie McGarrah, Assistant Secretary for Labor and Economic Analysis Sara Nienow Chuck Sathrum Christa Wagner Vinson Jon Williams, Assistant Secretary for Energy Social Impacts Daniel Raimi Proposed Regulatory Framework Robin Smith Review and Additional Input Kari Barsness Diana Kees Additional Assistance The following staff members from the Department of Health and Human Services, the Department of Transportation and the Wildlife Resources Commission also contributed to this report: Department of Transportation Cary Clemmons Judy Corley‐Lay Department of Health and Human Services James Albright Lee Cox Diana Sulas Wildlife Resources Commission Vann Stancil North Carolina Oil and Gas Study April 2012 i Table of Contents Executive Summary ...................................................................................................................................... 1 Background .......................................................................................................................................... 1 Study Limitations ................................................................................................................................. 1 Key Findings ......................................................................................................................................... 2 Community, Infrastructure and Social Impacts .................................................................................... 8 Regulatory Program .............................................................................................................................. 9 Conclusions and Recommendations ................................................................................................... 10 Funding recommendations ................................................................................................................. 11 Water and air quality recommendations ............................................................................................ 11 Hydraulic fracturing fluids recommendations .................................................................................... 11 Waste management standards ........................................................................................................... 11 Regulatory program recommendations .............................................................................................. 12 Permitting recommendations ............................................................................................................. 12 Data management recommendations ................................................................................................ 12 Emergency response recommendations ............................................................................................ 12 Local government authority recommendations ................................................................................. 12 Address liability .................................................................................................................................. 12 Public participation ............................................................................................................................. 13 Additional research recommendations .............................................................................................. 13 Introduction ............................................................................................................................................... 15 Section 1 – Potential Oil and Gas Resources .............................................................................................. 17 A. Overview of the Triassic Basins ...................................................................................................... 17 B. Organic geochemical data.............................................................................................................. 21 C. Estimating the resources ............................................................................................................... 28 2012 USGS resource assessment ........................................................................................................ 28 1995 USGS oil and gas resource assessment ...................................................................................... 29 North Carolina Geologic Survey gas recovery estimates .................................................................... 29 Recent data from the Butler #3 and Simpson #1 wells ....................................................................... 30 D. Anticipated industry behavior ....................................................................................................... 31 Leasing of mineral rights ..................................................................................................................... 31 Commercial interest ............................................................................................................................ 32 Section 2 – Oil and Gas Exploration and Extraction .................................................................................... 35 A. How hydrocarbons are generated and trapped in the Earth ........................................................ 35 North Carolina Oil and Gas Study April 2012 ii Hydrocarbons 101 ............................................................................................................................... 35 Conventional and unconventional resources ..................................................................................... 35 B. Methods used to find hydrocarbons ............................................................................................. 36 Gravity and magnetic characteristics .................................................................................................. 37 Seismic reflection ............................................................................................................................... 37 Organic geochemistry indicators ........................................................................................................ 39 C. Methods to extract hydrocarbons ................................................................................................. 40 Process of shale gas development ...................................................................................................... 40 Alternative fracturing techniques ....................................................................................................... 42 Section 3 – Potential infrastructure impacts .............................................................................................. 45 A. Water supply ................................................................................................................................. 45 Data sources ....................................................................................................................................... 47 Water use and potential supply .......................................................................................................... 48 Existing regulatory structure for water withdrawals for shale gas exploration and production ....... 69 Estimated water needs for gas well development ............................................................................. 72 Conclusions related to water supply ................................................................................................... 79 B. Road and bridge infrastructure ...................................................................................................... 84 Existing condition and effects of increased use .................................................................................. 84 Existing road conditions ...................................................................................................................... 87 Costs for road repair or replacement ................................................................................................. 88 Safety considerations .......................................................................................................................... 89 Road impacts ...................................................................................................................................... 89 Weight limits ...................................................................................................................................... 90 Management options .......................................................................................................................... 91 C. Transportation methods ................................................................................................................ 92 Rail transportation .............................................................................................................................. 92 Transportation of fresh water ............................................................................................................. 92 Transportation of gas .......................................................................................................................... 92 D. Domestic wastewater treatment ................................................................................................... 97 Section 4 – Potential environmental and health impacts ........................................................................... 99 A. Constituents and contaminants associated with hydraulic fracturing .......................................... 99 The use of chemicals in hydraulic fracturing ...................................................................................... 99 Classes of chemicals used ................................................................................................................. 100 Use of proprietary chemicals ............................................................................................................ 102 Health information related to hydraulic fracturing fluids ................................................................ 102 North Carolina Oil and Gas Study April 2012 iii Chemicals used aboveground ........................................................................................................... 107 Regulation of hydraulic fracturing chemical disclosure .................................................................... 108 Existing regulation of trade secrets in North Carolina ...................................................................... 112 Conclusions related to hydraulic fracturing additives ...................................................................... 112 B. Hydrogeologic framework of the Triassic Basins ......................................................................... 113 Well locations and groundwater use ................................................................................................ 115 C. Potential groundwater impacts ................................................................................................... 119 Stray gas migration ........................................................................................................................... 119 Well construction .............................................................................................................................. 120 Potential releases to groundwater ................................................................................................... 123 Potential public health impacts ........................................................................................................ 127 Conclusions related to groundwater ................................................................................................ 127 D. Process wastewater ..................................................................................................................... 128 Wastewater characteristics .............................................................................................................. 128 On‐site storage of drilling fluids, hydraulic fracturing fluids, produced water and flowback .......... 130 Disposal options for wastewaters ..................................................................................................... 131 E. Surface water impacts and stormwater management ................................................................ 139 Erosion and sedimentation issues during production and following reclamation of well pads ....... 141 Post‐development runoff .................................................................................................................. 142 Stream and wetland impacts ............................................................................................................ 142 Environmentally sensitive site design ............................................................................................... 143 Surface spills and releases from the well pad ................................................................................... 144 Spills and releases during transportation and storage ..................................................................... 145 Potential public health impacts ........................................................................................................ 145 Conclusions related to surface water impacts and stormwater management ................................ 145 F. Land application of oil and gas wastes ........................................................................................ 146 G. Air quality impacts ....................................................................................................................... 147 Air emissions .................................................................................................................................... 147 Emission sources associated with natural gas extraction and production, including venting and flaring ............................................................................................................................................... 149 Air quality permitting requirements ................................................................................................. 152 Potential public health impacts ........................................................................................................ 154 Conclusions related to air quality impacts ........................................................................................ 156 H. Impacts on fish, wildlife and important natural areas ................................................................. 156 Publicly owned lands in North Carolina’s Triassic Basins ................................................................. 157 North Carolina Oil and Gas Study April 2012 iv Important natural areas of North Carolina’s Triassic Basins............................................................. 160 Rare species of the Triassic Basins .................................................................................................... 171 Potential impacts to fish, wildlife and important natural areas based on studies from other states ......................................................................................................................................................... 178 I. Management and reclamation of drilling sites (including orphaned sites) ................................. 189 Definitions ........................................................................................................................................ 189 History of oil and gas exploration in North Carolina ......................................................................... 189 Oil and gas exploration well database data field explanation .......................................................... 191 Summary .......................................................................................................................................... 192 J. Management of naturally occurring radioactive materials (NORMs) ......................................... 192 N.C. Geological Survey (NCGS) measurements and sampling .......................................................... 194 K. Potential for increased seismic activity ....................................................................................... 195 Earthquakes 101 ............................................................................................................................... 196 Possible case of seismicity induced by hydraulic fracturing ............................................................. 198 Arkansas case of disposal wells inducing earthquakes ..................................................................... 198 Ohio and another case of induced seismicity ................................................................................... 199 Summary .......................................................................................................................................... 201 L. Disposal, storage and transportation of hazardous and non‐hazardous solid waste ................. 202 Solid waste types known to be generated in the shale gas industry ................................................ 205 Available types of solid waste disposal in North Carolina ................................................................ 205 Possible waste‐handling problems associated with the shale gas industry ..................................... 207 Recycling of waste ............................................................................................................................. 208 Section 5 – Potential economic impacts ................................................................................................... 209 A. Introduction ................................................................................................................................ 209 Limits to economic input‐output models ......................................................................................... 211 B. Economic impacts ........................................................................................................................ 211 Employment ..................................................................................................................................... 212 Financial impact to the state’s economy .......................................................................................... 214 C. Timing of the realization of economic benefits ........................................................................... 214 D. Other issues ................................................................................................................................ 215 Agriculture, wineries and the local food industry ............................................................................. 215 Travel and tourism ............................................................................................................................ 216 Residential issues .............................................................................................................................. 216 E. Potential impacts to North Carolina energy consumers from developing the shale play ........... 217 F. Fiscal impacts to local government ............................................................................................. 218 North Carolina Oil and Gas Study April 2012 v G. Additional state resources needed to provide regulatory oversight ........................................... 219 H. Comparison of existing bonding requirements to those in other states ..................................... 221 I. Comparison of existing severance taxes to severance taxes or royalty payments in other oil and gas states .............................................................................................................................................. 225 J. Use of special assessments .......................................................................................................... 227 Corporate income taxes .................................................................................................................... 227 Pennsylvania’s impact fee ................................................................................................................. 227 New York’s property tax on natural gas ........................................................................................... 227 Real property taxes ........................................................................................................................... 228 Sales and use taxes ........................................................................................................................... 228 Other fees and taxes ......................................................................................................................... 228 K. Estimate of revenue generated by severance taxes or royalties at levels comparable to other oil and gas states....................................................................................................................................... 230 L. Fees for permitting oil and gas exploration and production activities ........................................ 232 Well permitting fees in North Carolina and other states ................................................................. 232 Well abandonment fees and other well fees in North Carolina and other states ............................ 235 Other environmental permitting fees in North Carolina .................................................................. 236 M. Recommendations for funding state regulatory oversight ......................................................... 236 Appropriate level of severance taxes or royalty payments .............................................................. 236 Recommendations for new or modified permit fees ....................................................................... 236 N. Other recommended uses for oil and gas revenue ..................................................................... 236 Section 6 – Potential social impacts .......................................................................................................... 239 A. Potential impacts on housing availability .................................................................................... 239 Examples from other states .............................................................................................................. 239 Distributional impacts ....................................................................................................................... 240 Rental housing stock and affordability in potentially affected North Carolina counties ................. 241 Estimated vacant rental units in the Dan and Deep River basins ..................................................... 243 Housing options ............................................................................................................................... 246 B. Potential impacts on property values .......................................................................................... 248 Drilling sites ...................................................................................................................................... 248 Natural gas pipelines ......................................................................................................................... 249 Natural gas processing facilities ........................................................................................................ 250 Valuation and mortgage issues ......................................................................................................... 250 Analysis of data on property values .................................................................................................. 251 Limitations of data analysis ............................................................................................................... 252 North Carolina Oil and Gas Study April 2012 vi Counties included in analysis of property values .............................................................................. 253 C. Potential impacts on demand for social services ........................................................................ 253 Potential for decreased demand on social services.......................................................................... 253 Housing assistance ............................................................................................................................ 253 Traffic and policing ............................................................................................................................ 254 Emergency services ........................................................................................................................... 255 Schools ............................................................................................................................................. 255 Other social services ......................................................................................................................... 256 D. Potential impacts on recreation activities ................................................................................... 257 Game lands ...................................................................................................................................... 257 Bike routes ....................................................................................................................................... 257 Boating access points and major water bodies ................................................................................ 257 E. Potential impacts on commercial and residential development ................................................. 257 Commercial development in other shale regions ............................................................................. 257 Implications of changes in rental costs ............................................................................................. 258 Implications of changes in property values ...................................................................................... 259 Water supply issues in commercial and residential development ................................................... 259 F. Potential noise impacts ................................................................................................................ 259 Access road construction .................................................................................................................. 260 Pad construction ............................................................................................................................... 261 Vertical and horizontal drilling .......................................................................................................... 261 Hydraulic fracturing .......................................................................................................................... 263 Site reclamation and sustained production ...................................................................................... 264 Pipeline construction ........................................................................................................................ 264 Compressor stations ......................................................................................................................... 265 G. Potential visual impacts ............................................................................................................... 265 Access road and pad construction .................................................................................................... 266 Drilling, lighting and storage ............................................................................................................. 267 Hydraulic fracturing, flaring and water impoundments ................................................................... 268 Completion and reclamation ............................................................................................................ 268 Pipeline construction ........................................................................................................................ 269 H. Potential impacts on crime rates ................................................................................................. 273 Examples from other states .............................................................................................................. 273 Statistical analysis overview .............................................................................................................. 274 Statistical analysis results.................................................................................................................. 274 North Carolina Oil and Gas Study April 2012 vii Discussion of results .......................................................................................................................... 275 Data analysis limitations ................................................................................................................... 276 Implications for North Carolina ........................................................................................................ 277 I. Potential community impacts ...................................................................................................... 280 Distributional impacts and potential for community division .......................................................... 280 Landowner coalitions ........................................................................................................................ 281 Quality of life .................................................................................................................................... 281 Implications for North Carolina ........................................................................................................ 283 Section 7 – Proposed Regulatory Framework ........................................................................................... 285 A. Guidance for a regulatory framework ......................................................................................... 285 Federal regulation ............................................................................................................................. 285 Summary .......................................................................................................................................... 288 B. STRONGER guidelines for state oil and gas programs ................................................................. 288 1. Develop formal standards for natural gas exploration and development ................................... 289 2. Develop technical criteria for oil and gas activity ......................................................................... 290 3. Use stakeholder groups to develop an oil and gas program ........................................................ 290 C. State regulatory programs ........................................................................................................... 290 Technical standards common to oil and gas states .......................................................................... 291 D. Other sources of recommended standards ................................................................................. 298 1. New York Supplemental Draft Generic Environmental Impact Statement .................................. 298 2. American Petroleum Institute guidance ....................................................................................... 300 3. Report of the Secretary of Energy’s Advisory Board, Shale Gas Production Subcommittee ........ 301 4. Guidance under development ...................................................................................................... 302 E. State policies to guide decisions on hydraulic fracturing ............................................................ 303 F. Recommended regulatory framework ........................................................................................ 304 G. Conclusion ................................................................................................................................... 307 Section 8 – Consumer protection and legal issues ................................................................................... 309 Section 9 – Recommendations and limitations ........................................................................................ 311 A. Recommendations ....................................................................................................................... 311 Funding recommendations ............................................................................................................... 312 Water and air quality recommendations .......................................................................................... 312 Hydraulic fracturing fluids recommendations .................................................................................. 312 Waste management standards ......................................................................................................... 312 Regulatory program recommendations ............................................................................................ 312 Permitting recommendations ........................................................................................................... 313 North Carolina Oil and Gas Study April 2012 viii Data management recommendations .............................................................................................. 313 Emergency response recommendations .......................................................................................... 313 Local government authority recommendations ............................................................................... 313 Address liability ................................................................................................................................ 313 Public participation ........................................................................................................................... 313 Additional research recommendations ............................................................................................ 313 Funding recommendations ............................................................................................................... 314 Water and air quality recommendations .......................................................................................... 315 Hydraulic fracturing fluids recommendations .................................................................................. 318 Waste management standards ......................................................................................................... 318 Regulatory program recommendations ............................................................................................ 320 Permitting recommendations ........................................................................................................... 322 Data management recommendations .............................................................................................. 323 Emergency response recommendations .......................................................................................... 324 Local government authority recommendations ............................................................................... 324 Address liability ................................................................................................................................ 324 Public participation ........................................................................................................................... 325 Additional research recommendations ............................................................................................ 325 B. Limitations .................................................................................................................................. 327 Section 10 – Appendices ........................................................................................................................... 329 A. Appendix A: Bridges in the Triassic Basins with minimum clearance .......................................... 329 B. Appendix B: Maps of recreation areas......................................................................................... 333 Maps of state, county, and local parks ............................................................................................. 333 Maps of game lands in the Triassic Basins ........................................................................................ 341 Maps of bike routes in the Triassic Basins ........................................................................................ 345 Maps of boat access points and major water bodies in the Triassic Basins ..................................... 349 Map sources ..................................................................................................................................... 352 C. Appendix C: Common noise sources and levels at 50 feet .......................................................... 353 D. Appendix D: Statistical analysis methodology ............................................................................. 354 Counties included in analysis ............................................................................................................ 354 Regression Results ............................................................................................................................ 354 Data plots ......................................................................................................................................... 359 E. Appendix E: STRONGER Report.................................................................................................... 363 F. Appendix F: Session Law 2011‐276 .............................................................................................. 445 G. Appendix G: Summary of Public Comments ................................................................................ 453 North Carolina Oil and Gas Study April 2012 ix General comments ............................................................................................................................ 453 Conclusion of the report ................................................................................................................... 455 Shale gas resource ............................................................................................................................ 456 Geology ............................................................................................................................................ 457 Water supply impacts ....................................................................................................................... 458 Roads ................................................................................................................................................ 461 Pipelines ........................................................................................................................................... 462 Hydraulic fracturing fluids ................................................................................................................. 462 Groundwater impacts ....................................................................................................................... 464 Wastewater ...................................................................................................................................... 465 Surface water impacts and stormwater management ..................................................................... 468 Setbacks and areas prohibited from drilling ..................................................................................... 469 Air quality impacts ............................................................................................................................ 469 Impacts on fish, wildlife and important natural areas ...................................................................... 471 Waste management .......................................................................................................................... 472 Management and reclamation of drilling sites ................................................................................. 473 Naturally Occurring Radioactive Materials ....................................................................................... 473 Public health impacts ........................................................................................................................ 473 Economic impacts ............................................................................................................................. 473 Regulatory agency funding and staffing ........................................................................................... 475 Social impacts................................................................................................................................... 477 Environmental justice ....................................................................................................................... 478 Regulatory framework ...................................................................................................................... 480 Water use laws ................................................................................................................................. 481 Consumer protection ........................................................................................................................ 481 Local government authority .............................................................................................................. 482 Comments about draft recommendations ....................................................................................... 483 North Carolina Oil and Gas Study April 2012 x Table of Figures Figure 1‐1. Exposed North Carolina Triassic Basins ...................................................................... 17 Figure 1‐2. Triassic paleogeography approximately 210 million years ago, from Ron Blakey, NAU Geology.. ............................................................................................................................... 18 Figure 1‐3. The Mesozoic Basins of the eastern United States.. .................................................. 19 Figure 1‐4. Cross‐section from northwest to southeast across the Sanford sub‐basin. .............. 20 Figure 1‐5.Total Organic Carbon (TOC) as a percentage for samples from eight wells (seven coal holes and one oil test hole). ................................................................................................. 23 Figure 1‐6. Maturity (Tmax) for multiple wells. These data are color‐coded to the five wells. ... 24 Figure 1‐7. Map of part of the Sanford sub‐basin showing the seismic lines (yellow), the coal mine locations, coal exploration holes and oil and gas test wells.. ...................................... 25 Figure 1‐8. Map of the depth to basement of the Sanford sub‐basin.. ........................................ 27 Figure 1‐9. Map of the thickness of the organic‐rich shale (Cumnock Formation) in the Sanford sub‐basin.. ............................................................................................................................. 28 Figure 2‐1. Model of the different types of conventional and unconventional oil and gas resources.. ............................................................................................................................. 36 Figure 2‐2. Seismic Reflection Line 113 across the Sanford sub‐basin, Deep River Basin. .......... 38 Figure 2‐3. Interpretation of Seismic Reflection Line 113 across the Sanford sub‐basin, Deep River Basin. ............................................................................................................................ 39 Figure 3‐1. Triassic Basins and Upper Dan River and Deep River Sub‐basins ............................... 46 Figure 3‐2. Triassic Basins and Subwatersheds Used in this Analysis ........................................... 47 Figure 3‐3. Sanford and Durham Sub‐basins and Study Area....................................................... 49 Figure 3‐4. Wadesboro Triassic Sub‐basin and Study Area .......................................................... 54 Figure 3‐5. Dan River Triassic Basin Study Area with Wells and Surface Water Intakes .............. 57 Figure 3‐6. Hydrologic Areas of Similar Potential to Sustain Low Flows in North Carolina ......... 62 Figure 3‐7. Sanford Triassic Sub‐basin Study Area ....................................................................... 63 Figure 3‐8. Hydrologic Areas – Sanford and Durham Sub‐basins of Deep River Triassic Basin .... 64 Figure 3‐9. Hydrologic Areas ‐ Wadesboro Sub‐unit .................................................................... 67 Figure 3‐10. Dan River Triassic Basins Study Area ........................................................................ 67 Figure 3‐11. Hydrologic Areas ‐ Dan River Triassic Basins ............................................................ 68 Figure 3‐12. Construction of Underground Pipeline .................................................................... 97 Figure 4‐1. Diabase dikes and sills (red) and faults (labeled black lines) cross‐cutting sedimentary rocks of the Deep River Triassic Basin northwest of Sanford. ....................... 114 North Carolina Oil and Gas Study April 2012 xi Figure 4‐2. Typical Oil or Gas Well Schematic, excluding the horizontal portion of the well .... 121 Figure 4‐3. Publicly Owned Lands in the Dan River Triassic Basin .............................................. 158 Figure 4‐4. Publicly Owned Lands in the Northern Portion of the Deep River Basin ................. 159 Figure 4‐5. Publicly Owned Lands in the Southern Portion of the Deep River Basin ................. 159 Figure 4‐6. SNHAs in the Dan River Triassic Basin ...................................................................... 165 Figure 4‐7. SNHAs in the Northern Portion of the Deep River Basin .......................................... 166 Figure 4‐8. SNHAs in the Southern Portion of the Deep River Basin .......................................... 167 Figure 4‐9. SNHAs in the Wadesboro Sub‐basin ......................................................................... 168 Figure 4‐10. Time series of the number of exploration oil and gas wells completed in North Carolina.. ............................................................................................................................. 190 Figure 4‐11. Observed radiation from shale rock along the south‐facing quarry wall at the CEMEX mine north of Eden, N.C. ........................................................................................ 195 Figure 4‐12. Colored spheres show the location of microseismic events generated by hydraulic fracturing. ............................................................................................................................ 197 Figure 5‐1. Estimated Revenues Using Other States’ Tax Collections ........................................ 232 Figure 6‐1. Demographics and Economics of Housing in Deep River Basin Counties ................ 241 Figure 6‐2. Demographics and Economics of Housing in the Dan River Basin Counties ............ 242 Figure 6‐3. Housing Characteristics of Counties in the Deep River Basin, 2005‐2009 ............... 242 Figure 6‐4. Housing Characteristics of Counties in the Dan River Basin, 2005‐2009 ................. 243 Figure 6‐5. Estimated Vacant Rental Units in Dan River Basin, 2010 ......................................... 244 Figure 6‐6. Estimated Vacant Rental Units in Durham Sub‐basin, 2010 .................................... 244 Figure 6‐7. Estimated Vacant Rental Units in Sanford Sub‐basin, 2010 ..................................... 245 Figure 6‐8. Estimated Vacant Rental Units in Wadesboro Sub‐basin, 2010 ............................... 245 Figure 6‐9. Hydraulic Fracturing in Upshur Valley, West Virginia (Marcellus region) ................ 264 Figure 6‐10. Natural Gas Compressor Stations in North Carolina .............................................. 265 Figure 6‐11. Accessing Shale Field via Vertical Drilling ............................................................... 266 Figure 6‐12. Accessing Shale Field via Horizontal Drilling .......................................................... 267 Figure 6‐13. Drilling Rig from Two Miles..................................................................................... 270 Figure 6‐14. Marcellus “Double Rig” ........................................................................................... 271 Figure 6‐15. Hydraulic Fracturing Operation, Canadian County, Oklahoma .............................. 271 Figure 6‐16. Lighting and Natural Gas Flaring at a Marcellus Natural Gas Well, Pennsylvania . 272 Figure 6‐17. Brine Tanks at a Producing Well, Bradford County, Pennsylvania ......................... 272 North Carolina Oil and Gas Study April 2012 xii Figure 6‐18. Dan River Basin Population Density ....................................................................... 278 Figure 6‐19. Durham Sub‐basin Population Density ................................................................... 279 Figure 6‐20. Sanford Sub‐basin Population Density ................................................................... 279 Figure 6‐21. Wadesboro sub‐basin population density .............................................................. 280 Figure 10‐1. Anson County State, County and Local Parks ......................................................... 333 Figure 10‐2. Chatham County State, County and Local Parks .................................................... 334 Figure 10‐3. Davie County State, County and Local Parks .......................................................... 334 Figure 10‐4. Durham County State, County and City Parks ........................................................ 335 Figure 10‐5. Granville County State, County and Local Parks ..................................................... 335 Figure 10‐6. Lee County State, County and Local Parks ............................................................. 336 Figure 10‐7. Montgomery County State, County and City Parks ................................................ 336 Figure 10‐8. Moore County State, County and City Parks .......................................................... 337 Figure 10‐9. Orange County State, County and City Parks ......................................................... 337 Figure 10‐10. Richmond County State, County and City Parks ................................................... 338 Figure 10‐11. Rockingham County State, County and City Parks ............................................... 338 Figure 10‐12. Stokes County State, County and City Parks ........................................................ 339 Figure 10‐13. Union County State, County and City Parks ......................................................... 339 Figure 10‐14. Wake County State, County and City Parks .......................................................... 340 Figure 10‐15. Yadkin County State, County and City Parks ........................................................ 340 Figure 10‐16. Dan River Basin and Game Lands ......................................................................... 341 Figure 10‐17. Durham Sub‐Basin and Game Lands .................................................................... 342 Figure 10‐18. Sanford Sub‐Basin and Game Lands ..................................................................... 343 Figure 10‐19. Wadesboro Sub‐Basin and Game lands................................................................ 344 Figure 10‐20. Dan River Basin and Bike Routes .......................................................................... 345 Figure 10‐21. Durham Sub‐Basin and Bike Routes ..................................................................... 346 Figure 10‐22. Sanford Sub‐Basin and Bike Routes ...................................................................... 347 Figure 10‐23. Wadesboro Sub‐Basin and Bike Routes ................................................................ 348 Figure 10‐24. Dan River Basin, Boat Access Points and Major Water Bodies ............................ 349 Figure 10‐25. Durham Sub‐Basin, Boat Access Points and Major Water Bodies ....................... 350 Figure 10‐26. Sanford Sub‐Basin, Boat Access Points and Major Water Bodies ........................ 351 Figure 10‐27. Wadesboro Sub‐Basin, Boat Access Points and Major Water Bodies .................. 352 North Carolina Oil and Gas Study April 2012 xiii Figure 10‐28. Texas Barnett Region, Index of Change in Gas Production and Index of Nonviolent Crime Rates with Least Fit Squares Line ............................................................................. 359 Figure 10‐29. Colorado Western Slope Region, Index of Change in Gas Production and Index of Violent Crime Rates with Least Fit Squares Line................................................................. 360 Figure 10‐30. Wyoming Green River Basin Region, Index of Change in Gas Production and Index of Violent Crime Rates with Least Fit Squares Line ............................................................ 360 Figure 10‐31. Wyoming Green River Basin Region, Index of Change in Oil Production and Index of Total Crime Rates with Least Fit Squares Line ................................................................ 361 North Carolina Oil and Gas Study April 2012 xiv Table of Tables Table 1‐1. Stages of Thermal Maturity ......................................................................................... 22 Table 1‐2. Interpreted Maturation Based on Vitrinite Reflectance Values .................................. 22 Table 3‐1. USGS Drainage Area Nomenclature ............................................................................. 46 Table 3‐2. Sanford and Durham Sub‐basins ‐ County Population ................................................ 51 Table 3‐3. Sanford and Durham Sub‐basin ‐ Population Served by a Local Water Supply Plan (LWSP) Water System ........................................................................................................... 52 Table 3‐4. Sanford and Durham Sub‐unit ‐ Water Demands from Local Water Supply Plans ..... 52 Table 3‐5. Sanford and Durham Sub‐basins ‐ Population and Water Demands of County Residents Not Served by a LWSP System ............................................................................. 52 Table 3‐6. Sanford and Durham Sub‐basins Agricultural Water Use............................................ 53 Table 3‐7. Wadesboro Triassic Sub‐basin County Population ...................................................... 55 Table 3‐8. Wadesboro Triassic Sub‐basin Local Water Supply Plan Service Population .............. 55 Table 3‐9. Wadesboro Triassic Sub‐basin Local Water Supply Plan Water Use ........................... 55 Table 3‐10. Wadesboro Triassic Sub‐basin Water Demands ‐ Non‐LWSP residents .................... 56 Table 3‐11. Wadesboro Sub‐basin Agricultural Water Use .......................................................... 56 Table 3‐12. Dan River Triassic Basin ‐ County Population ............................................................ 58 Table 3‐13. Dan River Triassic Basin ‐ Population Served by a Local Water Supply Plan Water System .................................................................................................................................. 58 Table 3‐14. Dan River Triassic Basin ‐ Water Demands from Local Water Supply Plans .............. 58 Table 3‐15. Dan River Triassic Basin ‐ Population and Water Demands of County Residents Not Served by a LWSP System ..................................................................................................... 58 Table 3‐16. Dan River Triassic Basin ‐ Agricultural Water Use ..................................................... 59 Table 3‐17. Analysis Scenario Descriptions .................................................................................. 77 Table 3‐18. Triassic Public Water Supply Wells (gpm = gallons per minute)................................ 82 Table 3‐19. NYSDEC Assumed Construction and Development Times ......................................... 85 Table 3‐20. Estimated Number of One‐Way (Loaded) Trips per Well: Horizontal Well1 ............. 86 Table 3‐21. Pavement Conditions in Sample of Roads in the Triassic Basin ................................ 87 Table 4‐1. Categories and Purposes of Additives Proposed for Use in New York State ............. 101 Table 4‐2. Summary of Domestic Water Use in Counties containing the Deep River and Dan River Triassic Basins in 2005 ............................................................................................... 118 Table 4‐3. Summary of the Sources of Groundwater Contamination from Oil and Gas Production in Ohio and Texas ................................................................................................................ 126 North Carolina Oil and Gas Study April 2012 xv Table 4‐4. Typical Range of Concentrations for Some Common Constituents of Flowback Water in Western Pennsylvania ..................................................................................................... 129 Table 4‐5. Definitions for SNHA Significance Rankings ............................................................... 160 Table 4‐6. Nationally Significant Natural Heritage Areas within the Triassic Basins (Rank A) ... 161 Table 4‐7. Statewide Significant Natural Heritage Areas within the Triassic Basin (Rank B) ..... 162 Table 4‐8. Regionally Significant Natural Heritage Areas within the Triassic Basin (Rank C) ..... 163 Table 4‐9. County Significant Natural Heritage Areas within the Triassic Basin (Rank D) .......... 164 Table 4‐10. Natural Communities within the Triassic Basin ....................................................... 171 Table 4‐11. Federally or State‐Listed Endangered or Threatened Plant Species ....................... 173 Table 4‐12. Federally or State‐Listed Endangered or Threatened Animal Species .................... 174 Table 4‐13. Sample of Hydraulic Fracturing Fluid Composition by Weight ................................ 203 Table 5‐1. Model Assumptions ................................................................................................... 210 Table 5‐2. Potential Well Field .................................................................................................... 211 Table 5‐3. Annual Employment Impacts ..................................................................................... 213 Table 5‐4. Top 10 Industry Sectors Impacted ............................................................................. 213 Table 5‐5. Annual Economic Impacts .......................................................................................... 214 Table 5‐6. Summary of State Oil and Gas Well Bonding Requirements, , , ............................... 223 Table 5‐7. Severance and Corporate Income Tax Rates for Various Natural Gas‐Producing States ............................................................................................................................................ 226 Table 5‐8. Severance Tax Collections per Million Cubic Feet for 2009 ...................................... 231 Table 5‐9. Estimated Revenues Based on Other States’ Tax Collections ................................... 231 Table 5‐10. Permit Fees for Drilling Natural Gas Wells in Selected States ................................. 234 Table 5‐11. Annual Fees for Well Permit Holders in Arkansas ................................................... 235 Table 5‐12. Annual Production Fees for Wells in Louisiana ....................................................... 235 Table 6‐1. Commute Times (in minutes) to North Carolina Shale Regions ................................ 247 Table 6‐2. Change in Average Property Values, 2009‐2012 ....................................................... 252 Table 6‐3. HUD Daytime Land Use Compatibility Guidelines for Noise ..................................... 260 Table 6‐4. Distance in Feet/Sound Pressure Levels in Decibels ................................................. 260 Table 6‐5. Distance in Feet/Sound Pressure Levels in Decibels ................................................. 261 Table 6‐6. Distance in Feet/Sound Pressure Levels in Decibels ................................................. 262 Table 6‐7. Distance in Feet/Sound Pressure Levels in Decibels ................................................. 262 North Carolina Oil and Gas Study April 2012 xvi Table 6‐8. Distance in Feet/Sound Pressure Levels in Decibels ................................................. 263 Table 6‐9. Distances, in Miles, Between Potential Shale Regions and North Carolina Compressor Stations* ............................................................................................................................. 269 Table 6‐10. Population Densities in Oil/Gas regions, and in the North Carolina Deep and Dan River Basin Regions ............................................................................................................. 278 Table 10‐1. Bridges in the Triassic Basins with Minimum Clearance ......................................... 329 Table 10‐2. Natural Gas Production Changes and Crime Rates per 100,000 People: “T” and “P” Values ................................................................................................................................. 355 Table 10‐3. Natural Gas Production Changes and Crime Rates per 100,000 People: Coefficients and Confidence Intervals .................................................................................................... 356 Table 10‐4. Oil Production Changes and Crime Rates per 100,000 People: “T” and “P” Values 357 Table 10‐5. Oil Production Changes and Crime Rates per 100,000 People: Coefficients and Confidence Intervals ........................................................................................................... 358 North Carolina Oil and Gas Study April 2012 1 Executive Summary Background In Session Law 2011‐276, the North Carolina General Assembly directed the North Carolina Department of Environment and Natural Resources (DENR), the Department of Commerce (Commerce), and the Department of Justice, in conjunction with the nonprofit Rural Advancement Foundation International (RAFI), to study the issue of oil and gas exploration in the state and specifically the use of directional and horizontal drilling and hydraulic fracturing for natural gas production. DENR researched oil and gas resources present in the Triassic Basins (Section 1 of this report), methods of exploration and extraction of oil and gas (Section 2), potential impacts on infrastructure, including roads, pipelines and water and wastewater services (Section 3), potential environmental and health impacts (Section 4), potential social impacts (Section 6), and potential oversight and administrative issues associated with an oil and gas regulatory program (Section 7). S.L. 2011‐276 directed the Department of Commerce, in consultation with DENR, to gather information on potential economic impacts of natural gas exploration and development (Section 5 of this report). Department of Commerce prepared Sections 5.A through 5.F of the report that discuss job creation and other projected economic impacts of natural gas drilling. DENR prepared Sections 5.G though 5.N that address the different financial tools (such as bonding requirements and severance taxes) used by oil and gas producing states to assure funding for reclamation of drilling sites, cover regulatory costs and offset public infrastructure costs. The law directed the Consumer Protection Division of the Department of Justice to study consumer protection and legal issues relevant to oil and gas exploration in the state, including matters of contract and property law, mineral leases and landowner rights. The Consumer Protection Division was directed to consult with RAFI on the consumer protection issues. The Department of Justice did not provide this section to DENR, and it is therefore not included in this report; the Department of Justice will release the consumer protection section separately. Study Limitations As requested by the General Assembly, this report analyzes the potential environmental, health, economic, social and consumer protection impacts that an oil and gas extraction industry may have in North Carolina. The analysis is constrained by the limited information available at this time. We do not have detailed or comprehensive information on the extent and richness of the shale gas resource in North Carolina. For purposes of this report we have been forced to extrapolate from data gathered from only two wells in the Sanford sub‐basin; those well values have been averaged to project an estimate of the natural gas resource potentially available in that sub‐basin. Since there are only two data points and the two wells have significantly different values, it is not clear how well the average value represents the resource throughout the Sanford sub‐basin. This report generally uses the Sanford sub‐basin as the basic unit for analysis of all impacts because the available data came from that sub‐basin. North Carolina Oil and Gas Study April 2012 2 The Sanford sub‐basin represents only a fraction of the total Triassic basin formations in the state – approximately 59,000 acres out of a total of 785,000 acres. These limitations carry over into the assessment of both potential economic and environmental impacts. DENR projected the number of wells and total gas production for the Sanford sub‐basin, using the limited data derived from averaging the values of two wells. Those projections are used throughout the report as the basis for assessing economic and environmental impacts. Many impacts of natural gas extraction will vary based on local characteristics, such as water resources and even the weather. For example, the depth and quality of groundwater resources in the Triassic basins of North Carolina appear to be very different from conditions in the Marcellus shale formations in Pennsylvania. North Carolina does not seem to have as great a separation between potential drinking water resources and the gas‐producing zone; understanding the geology and groundwater hydrology of North Carolina’s shale formations will be critical to ensuring protection of drinkable groundwater. In terms of infrastructure impacts, weather can be an important factor. A local government official in Pennsylvania told DENR staff that when the natural gas industry first came to Pennsylvania from the South, oil and gas operators were surprised at how the harshness of the winters magnified the road damage caused by heavy oil and gas trucks. There are some aspects of oil and natural gas extraction for which data is extremely limited even at a national level; the limited time available to prepare this report prevented us from taking into account additional research that is currently underway. This includes EPA’s research on potential groundwater impacts in Pavillion, Wyo., and Dimock, Pa., and EPA’s study of hydraulic fracturing and its potential impact on drinking water resources. EPA’s first report of results related to drinking water is expected in 2012; the final report is not expected until 2014. To our knowledge, no comprehensive studies are currently available on the long‐term impacts to health from hydraulic fracturing for natural gas, and DENR is not qualified to conduct such a study. DENR recognizes that questions remain about health impacts. The EPA drinking water study may provide additional insight on health effects. Key Findings North Carolina’s potential shale gas resource Most of the N.C. Geological Survey’s information on potential shale gas resources in the state comes from the Sanford sub‐basin of the Deep River geologic basin — a 150‐mile‐long area that runs from Granville County southwestward across Durham, Orange, Wake, Chatham, Lee, Moore, Montgomery, Richmond, Anson and Union counties into South Carolina. The Deep River Basin is one of several similar geologic formations in North Carolina that cover approximately 785,000 acres. The available organic geochemical and seismic data has caused NCGS to focus on an area of more than 59,000 acres in the Sanford sub‐basin as the most promising location for organic‐rich shale and coals from which natural gas can be extracted. North Carolina Oil and Gas Study April 2012 3 The shale formation in this area can be found at depths generally ranging between 2,100 and 6,000 feet below the surface. This particular shale formation has a maximum thickness of 800 feet and an average thickness that ranges from 180 to 540 feet. Hydraulic Fracturing Natural gas extraction by hydraulic fracturing involves drilling a well vertically and then horizontally into the shale formation. The natural gas production company perforates the well and then pumps fracturing fluid into the well under pressure to fracture the shale. Fracturing fluids may be composed primarily of water and a proppant (such as sand) to keep the fractures open. Water and sand represent between 98 percent and 99.5 percent of the fracturing fluid. The fluid also includes chemical additives used to condition the water. Additives may be used to thicken or thin the fluid, prevent corrosion of the well casing, kill bacteria or for other purposes. The exact makeup of fracturing fluid varies from company to company and may also be adjusted based on conditions at the individual well site. Several hundred chemical compounds have been identified by the industry as chemicals that have been used in fracturing fluid. Any single fracturing fluid generally contains between 6 and 12 chemical additives. Some chemicals that have been used in fracturing fluids, such as diesel fuel, have raised concern because of potential health impacts. EPA has discouraged use of diesel fuel in hydraulic fracturing. Environmental Impacts Water Supply: Hydraulic fracturing requires between 3 and 5 million gallons of water per well. To put this in perspective, a number of small cities in North Carolina withdraw 5 million gallons per day to serve their water system customers. Based on some informed assumptions about the number of wells that could potentially be located in the Sanford sub‐basin and the pace of well development, there appear to be adequate surface water supplies to meet the needs of the industry. The timing of water withdrawals will need to be managed, however, to avoid injury to other water users and the environment. Under existing state law, water withdrawals do not require a state permit except in the Central Coastal Plain Capacity Use Area where a permitting program exists to manage withdrawals from two depleted aquifers. The Capacity Use Area permitting program does not overlap with any part of the shale formation. As a result, the state currently has no ability to ensure that groundwater or surface water withdrawals for natural gas development will be appropriately managed to avoid stream impacts and conflicts with other water users. A 3 million gallon withdrawal made over a three‐day period (which is technically possible for the industry) has a much greater potential impact than a 3 million gallon withdrawal made over the course of three weeks. In the absence of permit conditions to prevent rapid withdrawals, streams could run dry and other water users may be harmed. Water Quality: In the Sanford sub‐basin, there appears to be much less separation between groundwater used for drinking water and the gas‐producing layer than in other gas‐producing states. Water supply wells of up to 1,000 feet deep have been found in North Carolina’s Triassic North Carolina Oil and Gas Study April 2012 4 Basins and the depth to which freshwater extends is unknown. Some of the shale that might be tapped for natural gas in the Triassic Basins of North Carolina lies at depths of 3,000 feet or less. (By contrast, the Pennsylvania shale gas resource lies at depths of roughly 10,000 feet or more and the deepest water supply wells are generally no more than 600 feet deep.) At least two recent studies have found higher levels of methane in groundwater near natural gas wells that had been hydraulically fractured. In Pavillion, Wyo., EPA found methane of thermogenic origin and organic chemicals consistent with those used in hydraulic fracturing fluids in both monitoring wells and water supply wells. Conditions in Pavillion are not necessarily representative of most shale plays, however; the hydraulic fracturing that occurred in Pavillion involved injection of hydraulic fracturing fluids directly into the same formation tapped by water supply wells. A study in Pennsylvania found that water supply wells close to active exploration and production wells in the Marcellus shale have higher levels of dissolved methane than wells farther away. The study did not find constituents of hydraulic fracturing fluids in any of the water supply wells that were sampled. The study did find methane in water supply wells. The methane had an isotopic signature indicating that it originated from deep, thermogenic sources consistent with a Marcellus shale source, rather than from shallow biogenic sources. The lack of pre‐drilling groundwater samples make it difficult to definitively link the methane to drilling practices. Water quality problems have been associated with oil and gas operations generally; the problems can result from a number of production activities other than hydraulic fracturing. A Groundwater Protection Council study found that most Texas groundwater contamination incidents related to oil and gas activity reviewed were traced to either the production phase of well operations or involved waste management and disposal. Oil and gas exploration and production can disturb large areas of land to develop access roads, well pads, impoundments and other infrastructure. These activities have impacts very similar to the stormwater impacts of any large development project: sedimentation and erosion, water pollution, increased peak discharges, increased frequency and severity of flooding, and other stormwater concerns. Unlike other construction projects, oil and gas exploration and production activities are exempt from federal Clean Water Act stormwater requirements. Air Quality: Federal Clean Air Act standards have only been adopted for natural gas processing facilities. In 2011, EPA developed draft standards for air emissions from natural gas exploration and production activities. As proposed, the rules would affect gas wellheads, centrifugal compressors, reciprocating compressors, pneumatic controllers, storage vessels and sweetening units. Until the proposed rules go into effect, no federal new source performance standards or hazardous air pollution standards apply to emissions from these natural gas exploration and production activities. EPA finalized the rules on April 17, 2012, but industry is not required to implement all of the provisions of the rules until 2015. A recent New York Environmental Impact Statement estimated that statewide NOx emissions could be increased by 3.7 percent from hydraulic fracturing operations and as much as 10.4 percent in the upstate New York area where the Marcellus Shale is located. These increases in North Carolina Oil and Gas Study April 2012 5 NOx emissions raise concerns for the impact on ozone concentrations and the state’s ability to attain and maintain compliance with the federal ozone standard. The state air toxics program requires a source of state‐regulated toxic air pollutants to demonstrate compliance with the ambient air levels at the property boundary. Shale gas production often occurs under a lease of property that may be owned and in some cases occupied by another person. If natural gas production occurs on a residential property or farm, the property owner or occupant may be exposed to unhealthy concentrations of toxic pollutants. Earthquakes: Hydraulic fracturing fluid under pressure cracks the surrounding rock; these cracks generate vibrations while breaking that can be picked up by sensitive geophones. Data from other states suggests that the process of hydraulic fracturing causes microseismic events that do not pose a threat to the environment or human health or safety. An Oklahoma Geologic Survey study of an earthquake complaint near a hydraulic fracturing operation found that seismographs had recorded as many as 50 very small events on the day of the complaint. Most of the earthquakes occurred within a 24‐hour period after the hydraulic fracturing operations had ceased and were so minor (between 1 and 2.4 on the Richter scale) that they could not be felt. Most reports of significantly increased earthquake activity have occurred in regions where disposal wells are operated and related to underground injection of waste rather than hydraulic fracturing. Only a small fraction of injection wells have caused significant seismic activity. Limiting injection volumes, decreasing pressure and distributing the waste between more disposal wells have been shown to reduce and even eliminate induced seismicity, while reusing and recycling of wastewater can reduce the need for other waste management options. Wastewater and Solid Waste: Between 9 and 35 percent of the fluid pumped into a well for hydraulic fracturing returns to the surface as “flowback” shortly after fracturing. During the remainder of the productive life of the well, a much smaller volume of wastewater is generated more or less continuously as the well produces gas; this wastewater is produced water. In many states, flowback or produced water from a drilling operation can be disposed of by underground injection. N.C. General Statute 143‐214.2(b) prohibits the use of wells for waste disposal. It is not clear that injection wells would be a feasible option for managing produced waters from a gas well in the Triassic Basins of North Carolina. The areas with potential for natural gas development have not been sufficiently characterized to determine whether the formations would be suitable for disposal of shale gas production wastewater. The sedimentary rocks of these basins generally have very low permeability, and natural fractures are responsible for nearly all of the permeability and groundwater movement in these basins. Disposal by injection into fractured rock presents difficulty in predicting the fate and transport of the injected wastewaters. These conditions suggest that Triassic Basins in North Carolina generally do not have suitable hydrogeologic conditions for disposal by injection. North Carolina Oil and Gas Study April 2012 6 Some wastewater streams can go to a municipal wastewater treatment plant. These waste streams can be difficult to treat in a conventional wastewater treatment plant, however, and it would be advisable to require pretreatment. A number of states allow land‐application of produced water from hydraulic fracturing. The acceptability of wastewater for that purpose may depend on its quality at the time of land application since high levels of salts and chlorides can be a problem. Chesapeake Energy is currently recycling and reusing 95 percent of the flowback water that returns to the surface (only a small percentage of the volume of water used in hydraulic fracturing) by a filtering process. EPA has exempted “drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal energy” from regulation under the Resource Conservation and Recovery Act (RCRA) ‐‐ the federal statute that regulates hazardous waste. Since some exploration and production wastes may have the characteristics of hazardous wastes, but are not regulated under RCRA, oil and gas‐producing states have generally developed specific standards for handling exploration and production wastes. North Carolina does not have standards that specifically address disposal of or transportation of exploration and production waste. Since North Carolina statutes and rules have not been written to address these particular types of wastes, existing state rules would allow disposal of all RCRA‐exempt exploration and production wastes (other than oils and liquid hydrocarbons) in a municipal solid waste (MSW) landfill. Although North Carolina has strong standards for design and construction of both industrial and MSW landfills, those standards were not developed for disposal of hazardous waste. Economic Analysis The economic impact analysis focuses on the statewide economic impact of gas drilling activities in the Sanford sub‐basin. (The Sanford sub‐basin is approximately 59,000 acres of the 785,000 acres of the Triassic Basins in North Carolina.) The analysis does not take site preparation, leasing of land, hydraulic fracturing or extraction, production or transmission of gas into consideration. Review of studies from other parts of the country show that a large infusion of economic activity from shale gas drilling will increase the incomes of some individuals and communities and will add jobs. Without reliable expenditure inputs for North Carolina, however, it remains uncertain how much wealth, income or benefits from long‐term employment would accrue to Lee, Chatham and surrounding counties. For its analysis, the Department of Commerce used the IMPLAN modeling tool. IMPLAN allows researchers to develop local level input‐output models to estimate the economic impacts associated with marginal changes in the economy, such as “shocks” of new production or output. North Carolina Oil and Gas Study April 2012 7 The model estimates that 36 percent of drilling investments will be spent locally with North Carolina vendors. Since North Carolina does not presently have a developed fossil fuel extraction industry, there will likely be substantial economic “leakages” as dollars are spent outside the North Carolina economy. For example, drilling requires specialized equipment that is not available from in‐state companies. The IMPLAN model estimates drilling activities in the Sanford sub‐basin would sustain an average of 387 jobs per annum over the seven‐year time period studied: • In the peak well year, drilling activities are estimated to sustain 858 jobs over a one‐year period. • In Year 1, the year with the lowest level of drilling expenditures, the IMPLAN model estimates that 59 jobs will be either created or partially supported by these expenditures. At the completion of all drilling activities in the state, it is estimated the economy will have increased output by $453 million. Output represents the level of all economic activity from production and is typically larger than value added impacts, which measure the direct change in North Carolina’s gross domestic product (GDP). Anticipated drilling activities are estimated to positively affect the state’s GDP by $292 million by year 2019. It is not likely that North Carolina’s shale play will be developed in the near‐term. IHS Global Insight, in a December 2011 study for the American Natural Gas Alliance, reported that six prominent plays are expected to account for more than 90 percent of U.S. shale capacity by 2035. North Carolina was not on this list and, at this time, does not appear on U.S. Geological Survey maps of North American shale plays. Low natural gas prices also make activity in North Carolina unlikely in the near‐term. The Energy Information Administration’s preliminary 2012 Annual Energy Outlook assumes that with increased production, average annual wellhead prices for natural gas will remain below $5 per thousand cubic feet (2010 dollars) through 2023. Low prices make it less likely that the industry will move from areas already in production to a new and unproven area. Bonding: North Carolina Session Law 2011‐276 revised the amount of the bond required for an oil and gas‐drilling permit to $5,000 plus $1 per linear foot. Under North Carolina’s law, the bond only covers proper closure and abandonment of the well. The bond does not cover the costs of restoring the surface of the site to pre‐existing conditions or remediation of any contamination caused by the drilling operation. States vary significantly in the amount of bond required per well, but typically the uses of those bonds extend beyond well closure and often cover site reclamation. As one measure of the adequacy of bond requirements for wells on public lands, the General Accounting Office (GAO) looked at the cost to the Bureau of Land Management of reclaiming orphan wells. Over a 21‐year period, BLM spent about $3.8 million to reclaim 295 orphaned wells, or an average of about $12,900 per well. The GAO report states that “the amount spent per reclamation project varied greatly, from a high of $582,829 for a single well in Wyoming in fiscal year 2008 to a low of $300 for 3 wells in Wyoming in fiscal year 1994.” The BLM also North Carolina Oil and Gas Study April 2012 8 estimated the costs of wells it has yet to reclaim at approximately $1.7 million for 102 orphaned wells, an average of roughly $16,700 per well. Severance Taxes: North Carolina’s Oil and Gas Conservation Act currently sets the state’s severance tax for natural gas at 5/100 of a cent – $.0005 per 1,000 cubic feet of gas. The revenues can only be used to pay the costs of administering the law. North Carolina has one of the lowest severance taxes in the nation. With the exception of those states that do not assess any severance tax, North Carolina’s tax rate was the lowest of all states for which severance taxes were identified as part of this study. Maryland, New York and Pennsylvania do not assess severance taxes on the production of natural gas, however, Pennsylvania recently enacted a law imposing an “impact fee” on natural gas production, and New York assesses a “property type production tax” on the amount of natural gas produced. Community, Infrastructure and Social Impacts In Pennsylvania, road impacts have been a major problem for municipalities in the Marcellus shale region. Gas development significantly increases truck traffic on roads that often were not designed for such heavy use. For many of Pennsylvania’s small towns, road maintenance and repair accounts for the largest part of the town budget. New York’s EIS estimated 1,148 one‐way heavy‐duty truck trips and 831 one‐way light‐duty truck trips per well during the construction phase of gas development. For early well pad development, this is a total of 2,296 round‐trip heavy‐duty truck trips and 1,662 round‐trip light‐duty truck trips per well for all truck traffic needs; these figures assume that all water is transported by truck rather than by pipeline. In some states, natural gas production companies have entered into road maintenance agreements with local government – committing to return the roads to good condition. Pennsylvania recently enacted a local option impact assessment to provide additional revenue to counties and towns affected by drilling activity. Significant increases in truck traffic can lead to an increase in accidents and increased demand for traffic control. Both place additional demand on police and other emergency services. Given the volume and nature of the liquids being transported, accident response can be both more complex and more time‐consuming than a typical one‐ or two‐car accident. Spills of hazardous chemicals require labor‐ and time‐intensive responses from law enforcement and environmental agencies. In regions unaccustomed to oil and gas activity, the specialized nature of the response required for spills, explosions or fires related to the industry might necessitate new equipment, training and staff. This can place a special strain on rural areas still served by volunteer fire and rescue services. As drilling activity has increased in certain parts of the United States, rural areas and small towns have, in some cases, been overwhelmed by the demand for worker housing. The impact of gas production on housing costs and availability likely depends on three key factors: 1) the speed and scale of industry growth in a given community; 2) the existing housing capacity of a North Carolina Oil and Gas Study April 2012 9 community before drilling begins; and 3) the industry’s need to import workers skilled in gas production activities. Property owners who control the mineral rights to economically recoverable gas resources under their land may see substantial increases in property values. Analysis claimed that the taxable value of oil and gas properties in Texas’ Barnett shale region increased from $341 million to $5.9 billion, a 1,730 percent increase, from 2000‐2005. Other studies of property values have generally shown much more modest increases. Increased value can be attributed to two financial benefits to property owners: bonuses upon signing an oil and gas lease agreement and royalty payments. Lease agreements can range anywhere from $5 per acre to $20,000 per acre. On properties where lease agreements have not been signed, potential buyers may factor an expected bonus payment into the value of the property. Mineral owners receive royalties on income from gas production, typically earning 12.5 percent to 20 percent of the gas revenue generated at their wellhead. Regulatory Program The fact that oil and gas production activities are exempt from a number of federal environmental statutes that otherwise apply to industrial activities places a special burden on oil and gas‐producing states to create adequate state regulatory programs. Storage and disposal of oil and gas wastes have been exempted from federal hazardous waste regulation, specifically to allow states to develop tailored programs for management of those wastes. Congress has also deferred to the states to regulate stormwater runoff from drilling sites, exempting those sites from Clean Water Act permitting requirements for construction stormwater and industrial stormwater discharges. States that have a long history of oil and gas production typically have very detailed regulations for well siting, well construction, wastewater disposal, storage and disposal of solid wastes, and water use. Since North Carolina does not have an active oil and gas industry, the state does not have standards appropriate for the special nature of these activities and the waste products generated in the process. Guidelines for state oil and gas regulatory programs developed by the State Review of Oil and Natural Gas Environmental Regulations (STRONGER) recommend: • Standards for casing and cementing sufficient to handle highly pressurized injection of fluids into a well for purposes of fracturing bedrock and extracting gas. • Rules requiring the driller to identify potential conduits for fluid migration; address management of the extent of fracturing; and identify actions to be taken in response to operational or mechanical problems. • Standards for dikes, pits and tanks, including contingency planning and spill risk management procedures. • Waste characterization, including testing of fracturing fluids. Waste should be tracked to ensure appropriate disposal. North Carolina Oil and Gas Study April 2012 10 • Prior notification of fracturing activity. • Assessment of water use for hydraulic fracturing in terms of volume in light of water supply, competing water uses and the environmental impacts of withdrawing water for fracturing. Use of alternative water sources and recycling of water should be encouraged. Recommendations for siting standards, such as setbacks from streams, wetlands and floodplains, can be found in the New York Department of Environmental Control EIS and in recent legislation enacted in Pennsylvania. In the last three years, a number of states have moved to require disclosure of the chemicals used in hydraulic fracturing fluids to state regulatory and emergency response agencies. Several states have also required disclosure to the public with appropriate safeguards for proprietary information. Oil and gas producing states have also found it necessary to address the issue of local authority to regulate natural gas production activities. Several states that have comprehensive state oil and gas regulatory programs continue to allow local governments to exercise some degree of planning and zoning authority with respect to production activities. Conclusions and Recommendations After reviewing other studies and experiences in oil and gas‐producing states, DENR has concluded that information available to date suggests that production of natural gas by means of hydraulic fracturing can be done safely as long as the right protections are in place. Production of natural gas by means of hydraulic fracturing can only be done safely in North Carolina if the state adopts adequate safeguards in the form of regulatory standards specifically adapted to conditions in the state and invests sufficient resources in compliance and enforcement. Development of appropriate standards will require additional information on North Carolina’s geology and hydrogeology to identify conditions under which hydraulic fracturing can be done without putting the state’s water resources at risk. The ban on hydraulic fracturing and horizontal drilling should remain in effect until both standards and a strong compliance and enforcement program are in place. Both of these are needed before issuing permits for hydraulic fracturing in North Carolina’s shale formations. A number of states have experienced problems associated with natural gas exploration and development because the appropriate measures were not in place from the beginning – forcing both the state and the industry to react after damage had already been done. DENR has identified a number of immediate recommendations for management of natural gas exploration and development activities. A complete oil and gas permitting program will require more detailed standards than it is possible to provide in this report and those standards should be based on conditions in North Carolina. Conditions in the Triassic Basins of North Carolina are not identical to those found in Pennsylvania or other gas‐producing states. For example, a better understanding of the depth of usable groundwater in the Triassic Basin will be necessary to set well construction standards that will adequately protect drinking water resources. North Carolina Oil and Gas Study April 2012 11 Based on the research and analysis in this report, the Department of Environment and Natural Resources, in consultation with the Department of Commerce, developed the following recommendations for the General Assembly. These recommendations have been revised based on public comment. It should be noted that these recommendations do not take into account information from the Department of Justice’s section on consumer protection, because DENR had not received that section of the report in time for preparation of the recommendations. A brief description of each recommendation is listed; a more detailed explanation of each recommendation is included in Section 9. The recommendations are organized by subject matter but are not listed in order of priority. Funding recommendations 1. Provide funding for any continued work on the development of a North Carolina regulatory program for the natural gas industry. 2. Address the distribution of revenues from oil and gas excise taxes and fees to support the oil and gas regulatory program, fund environmental initiatives, and support local governments impacted by the industry. Water and air quality recommendations 3. Collect baseline environmental quality data including groundwater, surface water and air quality information. 4. Require oil and gas operators to operate in compliance with a DENR‐approved Water and Wastewater Management Plan. The Water Management Plan should limit water withdrawals to 20 percent of the 7Q10 stream flow and prohibit withdrawals during times of drought and periods of low flows. 5. Develop a state stormwater regulatory program for oil and gas drilling sites. Hydraulic fracturing fluids recommendations 6. Require full disclosure of all hydraulic fracturing chemicals and constituents to regulatory agencies and to local government emergency response officials prior to drilling. The state should encourage the industry to fully disclose that same information to the public and require public disclosure of hydraulic fracturing chemicals and constituents with the exception of trade secrets already protected under state law. 7. Prohibit the use of diesel fuel in hydraulic fracturing fluids Waste management standards 8. Develop specific transportation, storage and disposal standards for management of oil and gas wastes. North Carolina Oil and Gas Study April 2012 12 Regulatory program recommendations 9. Develop a modern oil and gas regulatory program, taking into consideration the processes involved in hydraulic fracturing and horizontal drilling technologies, and long‐term prevention of physical or economic waste in developing oil and gas resources. 10. Enhance existing oil and gas well construction standards to address the additional pressures of horizontal drilling and hydraulic fracturing. 11. Develop setback requirements and identify areas (such as floodplains) where oil and gas exploration and production activities should be prohibited. 12. Close the gaps in regulatory authority over the siting, construction and operation of gathering pipelines 13. Identify a source of funding for repair of roads damaged by truck traffic and heavy equipment. Permitting recommendations 14. Keep the environmental permitting program for oil and gas activities in DENR where it will benefit from the expertise of state geological staff and the ability to coordinate air, land and water permitting. 15. Develop a coordinated permitting process. Data management recommendations 16. Improve data management capabilities and develop an e‐permitting program that is easily accessible by the public Emergency response recommendations 17. Ensure that state agencies, local first responders and industry are prepared to respond to a well blowout, chemical spill or other emergency. Local government authority recommendations 18. Clarify the extent of local government regulatory authority over oil and gas exploration and production activities. Address liability 19. Address the natural gas industry’s liability for environmental contamination caused by exploration and development, particularly for groundwater contamination. North Carolina Oil and Gas Study April 2012 13 Public participation 20. Provide additional opportunities for the public to participate in development of detailed standards to govern gas exploration and development. Additional research recommendations 21. Complete additional research on impacts to local governments and local infrastructure. 22. Complete additional research on potential economic impacts. 23. Complete additional research on closed‐loop systems and the potential for prohibiting open wastewater pits. 24. Complete additional research on the ability of the air toxics program to protect landowners who lease their land for natural gas extraction and production activities. 25. Complete additional research on air emissions from hydraulic fracturing operations. 26. Complete additional research on the shale gas resource. 27. Complete additional research on groundwater resources in the Triassic Basins. North Carolina Oil and Gas Study April 2012 15 Introduction The North Carolina Geological Survey (NCGS) has identified a potentially valuable natural gas resource in the Triassic Basins of North Carolina. Preliminary results show that at least 59,000 acres in the Sanford sub‐basin of the Deep River Basin contain organic‐rich shale and coals from which natural gas can be captured. The NCGS continues to collect and analyze data on the potential for natural gas resources in the Triassic Basins, including the Dan River Basin and the other areas of the Deep River Basin. At the same time, the U.S. Geological Survey is working on an assessment of natural gas resources for all Mesozoic basins along the East Coast, which includes the Triassic Basins of North Carolina. Results from the USGS assessment will not be available until the summer of 2012. In 2011, interest in the potential natural gas resource in North Carolina prompted the North Carolina General Assembly to direct the North Carolina Department of Environment and Natural Resources (DENR), the Department of Commerce (Commerce), and the Department of Justice, in conjunction with the nonprofit Rural Advancement Foundation International (RAFI), to study the issue of oil and gas exploration in the state and specifically the use of directional and horizontal drilling and hydraulic fracturing for that purpose. Session Law 2011‐276 directs DENR to address a number of issues related to the exploration and production of oil and gas. S.L. 2011‐276 also assigns certain sections of the report to other departments and organizations. DENR was assigned to report on oil and gas resources present in the Triassic Basins (Section 1 of this report), methods of exploration and extraction of oil and gas (Section 2), potential impacts on infrastructure, including roads, pipelines and water and wastewater services (Section 3), potential environmental and health impacts (Section 4), potential social impacts (Section 6), and potential oversight and administrative issues associated with an oil and gas regulatory program (Section 7). The law directs the Department of Commerce, in consultation with the Department of Environment and Natural Resources, to gather information on potential economic impacts of natural gas exploration and development (Section 5 of this report). Commerce prepared Sections 5.A through 5.F of this report which discusses job creation and other projected economic impacts of natural gas drilling. DENR prepared Sections 5.G though 5.N which address the different financial tools (such as bonding requirements and severance taxes) used by oil and gas producing states to assure funding for reclamation of drilling sites, cover regulatory costs, and offset public infrastructure costs. The law directs the Consumer Protection Division of the Department of Justice to study consumer protection and legal issues relevant to oil and gas exploration in the state, including matters of contract and property law, mineral leases, and landowner rights (Section 8). The Consumer Protection Division is directed to consult with RAFI on this section. Recommendations and limitations are discussed in Section 9 of this report. North Carolina Oil and Gas Study April 2012 17 Section 1 – Potential Oil and Gas Resources A. Overview of the Triassic Basins The geologic term “basin” refers to a low area in the earth’s crust, formed by the warping of the crust from mountain‐building forces, in which sediments have accumulated. The Triassic Basins in North Carolina are elongated basins bounded by faults along their long sides. These basins formed 235 to 200 million years ago, during the Triassic Period, when Africa and North America were beginning to split apart to form the Atlantic Ocean. This type of basin is called a rift valley. Four Triassic Basins are exposed and outcrop at the earth’s surface in North Carolina: Deep River, Dan River, Davie and the Ellerbe (see Figure 1‐1). The Dan River Basin is the North Carolina portion of continuous rift basin that extends from Stokes County northwest across Rockingham County and into Virginia. In Virginia, the basin is called the Danville. Figure 1‐1. Exposed North Carolina Triassic Basins The Deep River is a 150‐mile‐long rift basin that runs from Granville County southwestward across Durham, Orange, Wake, Chatham, Lee, Moore, Montgomery, Richmond, Anson and Union counties into South Carolina. The basin is subdivided into three sub‐basins: Durham, Sanford and Wadesboro. The Ellerbe Basin in Richmond County has been interpreted as an erosional remnant of the larger Deep River Basin. The areas of these basins are: Davie – 20.04 square miles, Dan River – 152.02 square miles and Deep River – 1,211.07 square miles. North Carolina Oil and Gas Study April 2012 18 The rift basins began to form approximately 210 million years ago with the breakup of the supercontinent Pangea (a large land mass that divided to become Africa and North America), which preceded the later opening of the Atlantic Ocean. Dr. Ron Blakey of Northern Arizona University is a paleogeographer who has reconstructed the shape of the continental landmasses over time. Figure 1‐2 shows the Triassic paleogeography at the time when rifting had formed a series of freshwater lakes. At that time, North Carolina was located near the equator and sediment accumulated within the basins. Figure 1‐2. Triassic paleogeography approximately 210 million years ago, from Ron Blakey, NAU Geology. North Carolina can be identified from the current state outlines shown on the continent. The Deep River Basin has a steeply dipping eastern border fault. Approximately 7,000 feet of Triassic strata has been deposited in this basin. The organic shale part of this basin is interpreted by geologists as shallow lake deposits that are similar to the African Rift Valley lakes, which are forming as the African tectonic plate is splitting apart today. North Carolina Oil and Gas Study April 2012 19 The Piedmont physiographic province included all Triassic or Mesozoic rift basins along the east coast of the United States: Hartford‐Deerfield (Mass., Conn.), Newark (N.Y., N.J., Pa.), Gettysburg (Pa., Md.), Culpeper (Md., Va.), Taylorsville (Md., Va.), Richmond (Va.), Dan River‐ Danville (Va., N.C.), and Deep River (N.C., S.C.). Figure 1‐3 illustrates the extent of the Mesozoic basins. During the Mesozoic era, North Carolina was near the equator. Figure 1‐3. The Mesozoic Basins of the eastern United States. The city of Raleigh is shown for reference and the Sanford sub‐basin in outline by a red box. To better understand the geology within the basin, we can look at a cross‐section or vertical slice through the earth from the northwest to the southeast across the Sanford sub‐basin of the Deep River Basin (Figure 1‐4). What this section shows is an up to 800‐foot thick organic‐rich sedimentary rock (or shale) called the Cumnock Formation. The Cumnock Formation is sandwiched between the Sanford Formation sandstones above and the Pekin Formation North Carolina Oil and Gas Study April 2012 20 sandstones below. The Cumnock Formation extends more than eight miles across the sub‐basin. Figure 1‐4. Cross‐section from northwest to southeast across the Sanford sub‐basin. Four of the eight oil and gas exploration wells drilled in the Sanford sub‐basin are located along Seismic Section 113, which is parallel to the published cross‐section in Figure 1‐4. The depths from the surface to the top of the Cumnock formation for those four wells are: Butler #1 – 1,960 feet; Simpson #1 – 2,380 feet; V.R. Gross – 2,360 feet; and Bobby Hall – 4,190 feet. As early as the Revolutionary War period, the Deep River Basin was known to produce coal. Underground coal mining occurred in the 1920s to 1940s. A 1925 mine explosion in Farmville, N.C., which killed 53 miners, was blamed in part on excess coal gas. In 1974, a division of Chevron drilled the first oil exploration well (V.R. Gross LE‐OT‐1‐74) in Lee County. In 1981, North American Exploration Inc. drilled six coal exploration holes in Moore (4) and Chatham (2) counties, and in 1982, Richard Beutel and Associates drilled the first coal‐bed methane exploration well (Dummit‐Palmer LE‐OT‐1‐82). In 1983, Seaboard Exploration and Production Company drilled two more wells (Butler #1 LE‐OT‐1‐83 and Bobby Hall #1 LE‐OT‐2‐ 83). In 1985 and 1986, seismic reflection lines that crisscrossed the sub‐basin were collected to provide better target selection for future drilling. The location for the seismic lines, especially North Carolina Oil and Gas Study April 2012 21 the down dip section (Line 113) was configured to pass as close as possible to the locations of prior unsuccessful wells (Dummit‐Palmer, V.R. Gross and Bobby Hall #1). The seismic data had not been fully processed in 1987 when Sanford Exploration drilled the Elizabeth Gregson #1 (LE‐OT‐ 1‐87) well; that well missed the entire organic shale formation. Four years passed before Equitable Resources Exploration drilled Butler #2 (LE‐OT‐1‐91) in 1991, along the Seismic Line 113. Again the results from the well gave indications of modest oil and/or gas shows, but not a potential conventional oil or gas resource. In 1998, Amvest drilled two wells, one located along Seismic Line 113 (Simpson #1 LE‐OT‐1‐98) and the other several miles off the line (Butler #3). Both wells were perforated and Amvest attempted to hydraulically fracture the wells using nitrogen foam. That fracturing effort was unsuccessful in both wells, but the wells flowed gas and Amvest placed a wellhead containing several pressure shut‐off valves (also known as a Christmas tree) on each completed well. Eleven years later in March 2009, the two wells were sampled for natural gas and pressure tested. The pressure at the Simpson #1 well was 250 pounds per square inch (psi) and the pressure at Butler #3 was 900 psi. B. Organic geochemical data In 2008, Jeffrey Reid and Robert Milici published the organic geochemical data for the Deep River in the United States Geological Survey (USGS) Open File Report 2008‐1108.1 This report marked the first recognition by the North Carolina Geological Survey (NCGS) of this thick section of organic shale as a potential gas resource. The next year, the NCGS published “Information Circular 36: Natural Gas and Oil in North Carolina.”2 That same year, the NCGS issued Open‐File Report 2009‐013 and gas samples were taken from both shut‐in wells, Simpson #1 and Butler #3. NCGS made a series of presentations and briefings to interested industry, governmental and environmental groups in 2009 and 2010. For the successful commercial production of oil and gas, geologists look at three indicators in the shale: total organic carbon (TOC), kerogen type and thermal maturity. TOC is indicative of the quantity of organic matter available for the formation of hydrocarbons. Kerogen type is an indication of the type of organic matter. When organic matter is buried in a basin, it is exposed to increasingly higher subsurface temperatures. When heated to temperatures of approximately 60°C or higher, kerogen yields bitumen – the fraction of organic matter that is soluble in organic solvents. Further heating then creates liquid hydrocarbons and hydrocarbon gas. Oil is produced within a certain temperature range, called the “oil window.” As temperatures increase beyond the oil window, the hydrocarbons are cracked into natural 1Reid, Jeffrey C. and Robert C. Milici. “Hydrocarbon Source Rocks in the Deep River and Dan River Triassic Basins, North Carolina.” U.S. Geological Survey Open‐File Report 2008‐1108. 2North Carolina Geological Survey. “Information Circular 36: Natural Gas and Oil in North Carolina.” http://www.geology.enr.state.nc.us/pubs/PDF/NCGS_IC_36_Oil_and_Gas.pdf 3Reid, Jeffrey C. and Kenneth B. Taylor. “Shale Gas Potential in Triassic Strata of the Deep River Basin, Lee and Chatham Counties, North Carolina with pipeline and infrastructure data.” North Carolina Geological Survey Open‐file Report 2009‐01. North Carolina Oil and Gas Study April 2012 22 gas. Type I kerogen indicates lake deposits with oil prone rocks. Type II indicates marine deposits with oil prone rocks. Type III indicates gas prone source rocks.4 Thermal maturity dictates the wetness of the gas. Natural gas that contains less methane and more ethane and other complex hydrocarbons is called wet gas. Natural gas that occurs without these liquid hydrocarbons is called dry gas. Table 1‐1 below shows the stages of thermal maturity. Table 1‐1. Stages of Thermal Maturity5 Stage of Thermal Maturity Temperature Process Product Immature <60°C Bacterial and plant organic matter converted to kerogens and bitumen Methane generated by microbial activity Mature 60°C ‐ 160°C Rock generates and expels most of its oil Oil Postmature >160°C Postmature for oil/mature for gas Condensate / wet gas and at higher temperatures, dry gas only Thermal maturity of sedimentary rocks is evaluated based on vitrinite reflectance values (%Ro), thermal alteration and a parameter called T max. Vitrinite reflectance is a measure of the amount of light reflected by vitrinite (an organic component of kerogens) when examined under a microscope. Vitrinite reflectance is used as a measure of thermal maturity because it is sensitive to temperature ranges in a way that corresponds to hydrocarbon generation. It is measured by immersing grains of vitrinite in oil, and it is expressed as percent reflectance in oil, Ro. Table 1‐2 shows thermal maturity based on vitrinite reflectance values. Table 1‐2. Interpreted Maturation Based on Vitrinite Reflectance Values6 Vitrinite Reflectance (%Ro) Thermal Maturity <0.60 Immature 0.60 – 1.00 Oil window 1.00 – 1.40 Condensate / wet gas window >1.40 Dry gas window 4Jarvie, Dan. “Evaluation of Hydrocarbon Generation and Storage in the Barnet Shale, Ft. Worth Basin, Texas.” Humble Instruments & Services, Inc. 2004. Accessed February 19, 2012. http://blumtexas.tripod.com/sitebuildercontent/sitebuilderfiles/humblebarnettshaleprespttc.pdf 5Pennsylvania Department of Conservation and Natural Resources. “Thermal Maturation and Petroleum Generation.” Accessed February 19, 2012. http://www.dcnr.state.pa.us/topogeo/oilandgas/sourcerock_maturation.aspx. 6Jarvie, 2004. North Carolina Oil and Gas Study April 2012 23 Tmax is the temperature at which the maximum release of hydrocarbons from cracking of kerogen occurs during organic decomposition. Tmax indicates the stage of maturation of the organic matter. Analysis of the organic‐rich lake sediments in the Triassic Basin showed that they are predominantly gas‐prone with some oil shows. The TOC data exceeds the conservative 1.4 percent threshold necessary for hydrocarbon expulsion (Figure 1‐5). The average TOC for the samples tested from the eight wells is 5.06 percent, 3.6 times the 1.4 percent threshold.7 Figure 1‐5.Total Organic Carbon (TOC) as a percentage for samples from eight wells (seven coal holes and one oil test hole). Geochemical laboratory tests also showed the organic matter is derived from terrestrial Type III woody (coaly) material and from lacustrine Type I (algal material), which is a preliminary indicator for wet gas (natural gas with light oil condensates). The quantity of potential gas volumes or the potential gas condensates is unknown from the geochemical test. The thermal alteration index (TAI) data, which is used to determine the temperature rock has attained during its history, combined with the vitrinite reflectance data for the sediments in the 7 Reid and Milici, 2008. North Carolina Oil and Gas Study April 2012 24 Triassic Basin, indicate levels of thermal maturity suitable to generate hydrocarbons. The maturity for a composite of data from five wells is shown in Figure 1‐6. Samples from the Dummit‐Palmer well range from immature to overmature. This well was located near a diabase dike – an intrusion of molten magma into the sedimentary basin shortly after the basin formed. The diabase heated the organic‐rich shale and caused the hydrocarbons to be “overcooked;” as a result, these shales would not be suitable for the commercial production of oil or gas. For samples from the U.S. Bureau of Mines coal exploration hole #2, the data are clustering in the oil window to the condensate‐wet gas zone. For data from the Simpson #1 well, more samples are in the condensate‐wet gas zone. Figure 1‐6. Maturity (Tmax) for multiple wells. These data are color‐coded to the five wells. Combining the organic geochemical data with the interpretation of the 1985‐86 seismic data delineated a potential target location with an area of more than 59,000 acres, which is shown in Figure 1‐7. This compilation map shows the location of seismic lines, detailed geologic mapping from Reinemund (1947, 1955), the location of the coal mines, coal exploration holes, oil and gas test wells and the two interpreted geologic cross‐sections by Reinemund. The hill shade relief topography that forms the bottom layer of this figure is derived from LiDAR (Light Detection and Ranging), a remote sensing technology that illuminates targets with light. The LiDAR was collected by the N.C. Floodplain Mapping Program in 2002. Several igneous North Carolina Oil and Gas Study April 2012 25 intrusive bodies (diabase dikes) are shown in red on the geologic map. The elevation tends to follow the diabase dikes, since these rocks weather quickly, but the ridges along their length are due to the baking of the country rock. Figure 1‐7. Map of part of the Sanford sub‐basin showing the seismic lines (yellow), the coal mine locations, coal exploration holes and oil and gas test wells. The red line shows the approximately 59,000 acres where the vitrinite reflectance (%Ro) is greater than or equal to 0.8. The underlying geologic map is from Reinemund (1955) and the hill shade elevation is from LiDAR (N.C. Floodplain Mapping, 2002). The two green lines that run from the northwest to southeast on the map are the locations of two geologic cross‐sections A – A’ and B – B’ constructed by Reinemund (1955). In 1978 and 1979, the U.S. Army Corps of Engineers (USACE) contracted with N.C. State University and later with the University of North Carolina at Chapel Hill to investigate potential groundwater resources in the land adjacent to the future site of the Jordan Lake. During those investigations, the USACE was looking for groundwater resources in the diabase dikes to sustain potable water usage by campers at campsites around the lake. The intrusion of the diabase dikes and sills at temperatures of 1,200 degrees Fahrenheit baked the country rock, which significantly reduced the country rock’s permeability. As the diabase cooled, cracks formed inside the dikes and sills, which provided avenues for water to further North Carolina Oil and Gas Study April 2012 26 weather the diabase. This process provides the potential for a tabular body of groundwater to be held by the country rock like a cistern. Using hand‐held proton precession magnetometers, students from the two schools collected data from dozens of traverses to find and map the dike locations. Profiles across the dikes were analyzed to determine the dike orientation. Next, electrical resistivity profiles were collected to determine if there were indicators of groundwater in the weathered dikes. For dikes with the lowest resistivity measurements, USACE contractors drilled test wells and conducted pump tests to assess potential groundwater resources. While both schools found groundwater in the diabase dikes, the resources were insufficient to support the proposed number of campsites. Today, dikes in the Triassic basins are sometimes a source of groundwater. The country rock within about half of the thickness of the dike or sill is altered by the intrusive heat and will become less permeable. Any oil and gas within those zones is destroyed. It is unclear at this time if natural gas exploration companies would see advantages in drilling near the diabase dikes and sills. While several peer‐reviewed studies on gas migration in Pennsylvania have been published on the migration of thermogenic methane from deep sources such as the Marcellus and the Utica shales, current data for northeastern Pennsylvania shows the thermogenic methane is sources from the upper Devonian Catskill Formation, not the deeper sources.8 Three‐dimensional seismic reflection data, some collected using three‐component geophones, would provide the best indicator of the presence of dikes, sills and faults. This information would assist the state by providing a better understanding of the structure of the Triassic rocks. To better understand the geometry and structure of the Sanford sub‐basin, Figure 1‐8 shows the depth to basement. This map is calculated from the depth to the metamorphic and igneous rocks that are under the Mesozoic sediments. The thickness of the organic‐rich shale is shown in Figure 1‐9. Both of these maps are plotted using meters (30 meters ~ 100 feet). 8 Molofsky, Lisa J, J.A. Connor, S. K. Farhat, A.S. Wylie, Jr., T. Wagner (2011). Methane in Pennsylvania water wells unrelated to Marcellus shale fracturing , Oil and Gas Journal (December 5, 2011 edition), 12 pp. North Carolina Oil and Gas Study April 2012 27 Figure 1‐8. Map of the depth to basement of the Sanford sub‐basin. The dark blue to purple region, which is under Seismic Line 113, indicates the deepest part of the basin is 7,100 feet below the surface. Another deep point in the sub‐basin is found in Moore County. The units are in meters and each color ramp indicates 100 meters (i.e. ~300 feet). North Carolina Oil and Gas Study April 2012 28 Figure 1‐9. Map of the thickness of the organic‐rich shale (Cumnock Formation) in the Sanford sub‐basin. The units are in meters and the average thickness ranges from 60 meters (~180 feet) to 180 meters (~540 feet). C. Estimating the resources 2012 USGS resource assessment In 2010, DENR provided data collected and analyzed by the North Carolina Geological Survey to the U.S. Geological Survey (USGS) for use in a national resource assessment of Mesozoic basins across the United States. USGS provided a modest grant to the N.C. Geological Survey to convert paper records in the NCGS archive (geophysical logs, maps, reports, seismic lines, geochemical analyses and lithologic logs) to digital form. The N.C. Geological Survey completed conversion and analysis of the information in December 2010. On July 12‐13, 2011, Dr. Jeff Reid, the principal research geologist on this project, and Mr. Jim Simons, State Geologist, briefed USGS on the North Carolina data as part of the USGS geological assessment of Mesozoic resources. North Carolina Oil and Gas Study April 2012 29 Gas Resource Terms Technically recoverable gas: The total amount of a resource, both discovered and undiscovered, that is thought to be recoverable with available technology, regardless of economics. Only about 20 percent of this gas can actually be recovered using today’s technology. Original gas‐in‐place: The entire volume of gas contained in the reservoir, reg
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Title | North Carolina oil and gas study under session law 2011-276 |
Contributor |
North Carolina. Department of Environment and Natural Resources. North Carolina. Department of Commerce. |
Date | 2012-04-30 |
Subjects |
Natural gas reserves--North Carolina Natural gas--Economic aspects--North Carolina Gas wells--North Carolina Gas extraction--Environmental aspects--North Carolina Petroleum--Geology--North Carolina |
Place | North Carolina, United States |
Description | Cover title from opening screen (viewed on May 17, 2012).; "April 30, 2012."; Includes bibliographical references. |
Abstract | In Session Law 2011-276, the North Carolina General Assembly directed the North Carolina Department of Environment and Natural Resources (DENR), the Department of Commerce (Commerce), and the Department of Justice, in conjunction with the nonprofit Rural Advancement Foundation International (RAFI), to study the issue of oil and gas exploration in the state and specifically the use of directional and horizontal drilling and hydraulic fracturing for natural gas production. As requested by the General Assembly, this report analyzes the potential environmental, health, economic, social and consumer protection impacts that an oil and gas extraction industry may have in North Carolina. |
Publisher | North Carolina Department of Environment and Natural Resources |
Agency-Current |
North Carolina Department of Environmental Quality North Carolina Department of Commerce |
Rights | State Document see http://digital.ncdcr.gov/u?/p249901coll22,63754 |
Physical Characteristics | 504 p. of electronic text : digital, PDF file. |
Collection | North Carolina State Documents Collection. State Library of North Carolina |
Type | Text |
Language | English |
Format | Reports |
Digital Characteristics-A | 60 MB; 504 p. |
Digital Collection | North Carolina Digital State Documents Collection |
Digital Format | application/pdf |
Related Items | http://worldcat.org/oclc/793815062/viewonline |
Audience | All |
Pres File Name-M | pubs_ncoilgas2012.pdf |
Pres Local File Path-M | \Preservation_content\StatePubs\pubs_borndigital\images_master\ |
Full Text | North Carolina Oil and Gas Study under Session Law 2011276 April 30, 2012 Prepared by the North Carolina Department of Environment and Natural Resources and the North Carolina Department of Commerce Acknowledgments The following staff at the Department of Environment and Natural Resources and the Department of Commerce worked tirelessly to make this report possible. DENR is grateful for the efforts of these individuals. DENR is also grateful to the hundreds of members of the public who submitted comments, helping us strengthen the final report. Lead Authors Robin Smith, Assistant Secretary for the Environment Trina Ozer Oil and Gas Resources, Oil and Gas Exploration and Extraction, Management and Reclamation of Drilling Sites, Naturally Occurring Radioactive Materials and Seismic Activity Jeff Reid Jim Simons Ken Taylor Water Supply Impacts Don Rayno Water Quality Impacts Rick Bolich Ted Bush Deborah Gore Karen Higgins Evan Kane Sandra Moore Ken Pickle Jon Risgaard Thomas Slusser Chuck Wakild Impacts to Fish, Wildlife and Important Natural Areas John Finnegan Linda Pearsall Judy Ratcliffe Air Quality Impacts Mike Abraczinskas Sheila Holman Sushma Masemore William Willets Disposal, Storage and Transportation of Solid Waste Jack Butler Helen Cotton Ellen Lorscheider Dexter Matthews Ed Mussler Mark Poindexter Michael Scott Economic Impacts Kristin Bunn Stephanie McGarrah, Assistant Secretary for Labor and Economic Analysis Sara Nienow Chuck Sathrum Christa Wagner Vinson Jon Williams, Assistant Secretary for Energy Social Impacts Daniel Raimi Proposed Regulatory Framework Robin Smith Review and Additional Input Kari Barsness Diana Kees Additional Assistance The following staff members from the Department of Health and Human Services, the Department of Transportation and the Wildlife Resources Commission also contributed to this report: Department of Transportation Cary Clemmons Judy Corley‐Lay Department of Health and Human Services James Albright Lee Cox Diana Sulas Wildlife Resources Commission Vann Stancil North Carolina Oil and Gas Study April 2012 i Table of Contents Executive Summary ...................................................................................................................................... 1 Background .......................................................................................................................................... 1 Study Limitations ................................................................................................................................. 1 Key Findings ......................................................................................................................................... 2 Community, Infrastructure and Social Impacts .................................................................................... 8 Regulatory Program .............................................................................................................................. 9 Conclusions and Recommendations ................................................................................................... 10 Funding recommendations ................................................................................................................. 11 Water and air quality recommendations ............................................................................................ 11 Hydraulic fracturing fluids recommendations .................................................................................... 11 Waste management standards ........................................................................................................... 11 Regulatory program recommendations .............................................................................................. 12 Permitting recommendations ............................................................................................................. 12 Data management recommendations ................................................................................................ 12 Emergency response recommendations ............................................................................................ 12 Local government authority recommendations ................................................................................. 12 Address liability .................................................................................................................................. 12 Public participation ............................................................................................................................. 13 Additional research recommendations .............................................................................................. 13 Introduction ............................................................................................................................................... 15 Section 1 – Potential Oil and Gas Resources .............................................................................................. 17 A. Overview of the Triassic Basins ...................................................................................................... 17 B. Organic geochemical data.............................................................................................................. 21 C. Estimating the resources ............................................................................................................... 28 2012 USGS resource assessment ........................................................................................................ 28 1995 USGS oil and gas resource assessment ...................................................................................... 29 North Carolina Geologic Survey gas recovery estimates .................................................................... 29 Recent data from the Butler #3 and Simpson #1 wells ....................................................................... 30 D. Anticipated industry behavior ....................................................................................................... 31 Leasing of mineral rights ..................................................................................................................... 31 Commercial interest ............................................................................................................................ 32 Section 2 – Oil and Gas Exploration and Extraction .................................................................................... 35 A. How hydrocarbons are generated and trapped in the Earth ........................................................ 35 North Carolina Oil and Gas Study April 2012 ii Hydrocarbons 101 ............................................................................................................................... 35 Conventional and unconventional resources ..................................................................................... 35 B. Methods used to find hydrocarbons ............................................................................................. 36 Gravity and magnetic characteristics .................................................................................................. 37 Seismic reflection ............................................................................................................................... 37 Organic geochemistry indicators ........................................................................................................ 39 C. Methods to extract hydrocarbons ................................................................................................. 40 Process of shale gas development ...................................................................................................... 40 Alternative fracturing techniques ....................................................................................................... 42 Section 3 – Potential infrastructure impacts .............................................................................................. 45 A. Water supply ................................................................................................................................. 45 Data sources ....................................................................................................................................... 47 Water use and potential supply .......................................................................................................... 48 Existing regulatory structure for water withdrawals for shale gas exploration and production ....... 69 Estimated water needs for gas well development ............................................................................. 72 Conclusions related to water supply ................................................................................................... 79 B. Road and bridge infrastructure ...................................................................................................... 84 Existing condition and effects of increased use .................................................................................. 84 Existing road conditions ...................................................................................................................... 87 Costs for road repair or replacement ................................................................................................. 88 Safety considerations .......................................................................................................................... 89 Road impacts ...................................................................................................................................... 89 Weight limits ...................................................................................................................................... 90 Management options .......................................................................................................................... 91 C. Transportation methods ................................................................................................................ 92 Rail transportation .............................................................................................................................. 92 Transportation of fresh water ............................................................................................................. 92 Transportation of gas .......................................................................................................................... 92 D. Domestic wastewater treatment ................................................................................................... 97 Section 4 – Potential environmental and health impacts ........................................................................... 99 A. Constituents and contaminants associated with hydraulic fracturing .......................................... 99 The use of chemicals in hydraulic fracturing ...................................................................................... 99 Classes of chemicals used ................................................................................................................. 100 Use of proprietary chemicals ............................................................................................................ 102 Health information related to hydraulic fracturing fluids ................................................................ 102 North Carolina Oil and Gas Study April 2012 iii Chemicals used aboveground ........................................................................................................... 107 Regulation of hydraulic fracturing chemical disclosure .................................................................... 108 Existing regulation of trade secrets in North Carolina ...................................................................... 112 Conclusions related to hydraulic fracturing additives ...................................................................... 112 B. Hydrogeologic framework of the Triassic Basins ......................................................................... 113 Well locations and groundwater use ................................................................................................ 115 C. Potential groundwater impacts ................................................................................................... 119 Stray gas migration ........................................................................................................................... 119 Well construction .............................................................................................................................. 120 Potential releases to groundwater ................................................................................................... 123 Potential public health impacts ........................................................................................................ 127 Conclusions related to groundwater ................................................................................................ 127 D. Process wastewater ..................................................................................................................... 128 Wastewater characteristics .............................................................................................................. 128 On‐site storage of drilling fluids, hydraulic fracturing fluids, produced water and flowback .......... 130 Disposal options for wastewaters ..................................................................................................... 131 E. Surface water impacts and stormwater management ................................................................ 139 Erosion and sedimentation issues during production and following reclamation of well pads ....... 141 Post‐development runoff .................................................................................................................. 142 Stream and wetland impacts ............................................................................................................ 142 Environmentally sensitive site design ............................................................................................... 143 Surface spills and releases from the well pad ................................................................................... 144 Spills and releases during transportation and storage ..................................................................... 145 Potential public health impacts ........................................................................................................ 145 Conclusions related to surface water impacts and stormwater management ................................ 145 F. Land application of oil and gas wastes ........................................................................................ 146 G. Air quality impacts ....................................................................................................................... 147 Air emissions .................................................................................................................................... 147 Emission sources associated with natural gas extraction and production, including venting and flaring ............................................................................................................................................... 149 Air quality permitting requirements ................................................................................................. 152 Potential public health impacts ........................................................................................................ 154 Conclusions related to air quality impacts ........................................................................................ 156 H. Impacts on fish, wildlife and important natural areas ................................................................. 156 Publicly owned lands in North Carolina’s Triassic Basins ................................................................. 157 North Carolina Oil and Gas Study April 2012 iv Important natural areas of North Carolina’s Triassic Basins............................................................. 160 Rare species of the Triassic Basins .................................................................................................... 171 Potential impacts to fish, wildlife and important natural areas based on studies from other states ......................................................................................................................................................... 178 I. Management and reclamation of drilling sites (including orphaned sites) ................................. 189 Definitions ........................................................................................................................................ 189 History of oil and gas exploration in North Carolina ......................................................................... 189 Oil and gas exploration well database data field explanation .......................................................... 191 Summary .......................................................................................................................................... 192 J. Management of naturally occurring radioactive materials (NORMs) ......................................... 192 N.C. Geological Survey (NCGS) measurements and sampling .......................................................... 194 K. Potential for increased seismic activity ....................................................................................... 195 Earthquakes 101 ............................................................................................................................... 196 Possible case of seismicity induced by hydraulic fracturing ............................................................. 198 Arkansas case of disposal wells inducing earthquakes ..................................................................... 198 Ohio and another case of induced seismicity ................................................................................... 199 Summary .......................................................................................................................................... 201 L. Disposal, storage and transportation of hazardous and non‐hazardous solid waste ................. 202 Solid waste types known to be generated in the shale gas industry ................................................ 205 Available types of solid waste disposal in North Carolina ................................................................ 205 Possible waste‐handling problems associated with the shale gas industry ..................................... 207 Recycling of waste ............................................................................................................................. 208 Section 5 – Potential economic impacts ................................................................................................... 209 A. Introduction ................................................................................................................................ 209 Limits to economic input‐output models ......................................................................................... 211 B. Economic impacts ........................................................................................................................ 211 Employment ..................................................................................................................................... 212 Financial impact to the state’s economy .......................................................................................... 214 C. Timing of the realization of economic benefits ........................................................................... 214 D. Other issues ................................................................................................................................ 215 Agriculture, wineries and the local food industry ............................................................................. 215 Travel and tourism ............................................................................................................................ 216 Residential issues .............................................................................................................................. 216 E. Potential impacts to North Carolina energy consumers from developing the shale play ........... 217 F. Fiscal impacts to local government ............................................................................................. 218 North Carolina Oil and Gas Study April 2012 v G. Additional state resources needed to provide regulatory oversight ........................................... 219 H. Comparison of existing bonding requirements to those in other states ..................................... 221 I. Comparison of existing severance taxes to severance taxes or royalty payments in other oil and gas states .............................................................................................................................................. 225 J. Use of special assessments .......................................................................................................... 227 Corporate income taxes .................................................................................................................... 227 Pennsylvania’s impact fee ................................................................................................................. 227 New York’s property tax on natural gas ........................................................................................... 227 Real property taxes ........................................................................................................................... 228 Sales and use taxes ........................................................................................................................... 228 Other fees and taxes ......................................................................................................................... 228 K. Estimate of revenue generated by severance taxes or royalties at levels comparable to other oil and gas states....................................................................................................................................... 230 L. Fees for permitting oil and gas exploration and production activities ........................................ 232 Well permitting fees in North Carolina and other states ................................................................. 232 Well abandonment fees and other well fees in North Carolina and other states ............................ 235 Other environmental permitting fees in North Carolina .................................................................. 236 M. Recommendations for funding state regulatory oversight ......................................................... 236 Appropriate level of severance taxes or royalty payments .............................................................. 236 Recommendations for new or modified permit fees ....................................................................... 236 N. Other recommended uses for oil and gas revenue ..................................................................... 236 Section 6 – Potential social impacts .......................................................................................................... 239 A. Potential impacts on housing availability .................................................................................... 239 Examples from other states .............................................................................................................. 239 Distributional impacts ....................................................................................................................... 240 Rental housing stock and affordability in potentially affected North Carolina counties ................. 241 Estimated vacant rental units in the Dan and Deep River basins ..................................................... 243 Housing options ............................................................................................................................... 246 B. Potential impacts on property values .......................................................................................... 248 Drilling sites ...................................................................................................................................... 248 Natural gas pipelines ......................................................................................................................... 249 Natural gas processing facilities ........................................................................................................ 250 Valuation and mortgage issues ......................................................................................................... 250 Analysis of data on property values .................................................................................................. 251 Limitations of data analysis ............................................................................................................... 252 North Carolina Oil and Gas Study April 2012 vi Counties included in analysis of property values .............................................................................. 253 C. Potential impacts on demand for social services ........................................................................ 253 Potential for decreased demand on social services.......................................................................... 253 Housing assistance ............................................................................................................................ 253 Traffic and policing ............................................................................................................................ 254 Emergency services ........................................................................................................................... 255 Schools ............................................................................................................................................. 255 Other social services ......................................................................................................................... 256 D. Potential impacts on recreation activities ................................................................................... 257 Game lands ...................................................................................................................................... 257 Bike routes ....................................................................................................................................... 257 Boating access points and major water bodies ................................................................................ 257 E. Potential impacts on commercial and residential development ................................................. 257 Commercial development in other shale regions ............................................................................. 257 Implications of changes in rental costs ............................................................................................. 258 Implications of changes in property values ...................................................................................... 259 Water supply issues in commercial and residential development ................................................... 259 F. Potential noise impacts ................................................................................................................ 259 Access road construction .................................................................................................................. 260 Pad construction ............................................................................................................................... 261 Vertical and horizontal drilling .......................................................................................................... 261 Hydraulic fracturing .......................................................................................................................... 263 Site reclamation and sustained production ...................................................................................... 264 Pipeline construction ........................................................................................................................ 264 Compressor stations ......................................................................................................................... 265 G. Potential visual impacts ............................................................................................................... 265 Access road and pad construction .................................................................................................... 266 Drilling, lighting and storage ............................................................................................................. 267 Hydraulic fracturing, flaring and water impoundments ................................................................... 268 Completion and reclamation ............................................................................................................ 268 Pipeline construction ........................................................................................................................ 269 H. Potential impacts on crime rates ................................................................................................. 273 Examples from other states .............................................................................................................. 273 Statistical analysis overview .............................................................................................................. 274 Statistical analysis results.................................................................................................................. 274 North Carolina Oil and Gas Study April 2012 vii Discussion of results .......................................................................................................................... 275 Data analysis limitations ................................................................................................................... 276 Implications for North Carolina ........................................................................................................ 277 I. Potential community impacts ...................................................................................................... 280 Distributional impacts and potential for community division .......................................................... 280 Landowner coalitions ........................................................................................................................ 281 Quality of life .................................................................................................................................... 281 Implications for North Carolina ........................................................................................................ 283 Section 7 – Proposed Regulatory Framework ........................................................................................... 285 A. Guidance for a regulatory framework ......................................................................................... 285 Federal regulation ............................................................................................................................. 285 Summary .......................................................................................................................................... 288 B. STRONGER guidelines for state oil and gas programs ................................................................. 288 1. Develop formal standards for natural gas exploration and development ................................... 289 2. Develop technical criteria for oil and gas activity ......................................................................... 290 3. Use stakeholder groups to develop an oil and gas program ........................................................ 290 C. State regulatory programs ........................................................................................................... 290 Technical standards common to oil and gas states .......................................................................... 291 D. Other sources of recommended standards ................................................................................. 298 1. New York Supplemental Draft Generic Environmental Impact Statement .................................. 298 2. American Petroleum Institute guidance ....................................................................................... 300 3. Report of the Secretary of Energy’s Advisory Board, Shale Gas Production Subcommittee ........ 301 4. Guidance under development ...................................................................................................... 302 E. State policies to guide decisions on hydraulic fracturing ............................................................ 303 F. Recommended regulatory framework ........................................................................................ 304 G. Conclusion ................................................................................................................................... 307 Section 8 – Consumer protection and legal issues ................................................................................... 309 Section 9 – Recommendations and limitations ........................................................................................ 311 A. Recommendations ....................................................................................................................... 311 Funding recommendations ............................................................................................................... 312 Water and air quality recommendations .......................................................................................... 312 Hydraulic fracturing fluids recommendations .................................................................................. 312 Waste management standards ......................................................................................................... 312 Regulatory program recommendations ............................................................................................ 312 Permitting recommendations ........................................................................................................... 313 North Carolina Oil and Gas Study April 2012 viii Data management recommendations .............................................................................................. 313 Emergency response recommendations .......................................................................................... 313 Local government authority recommendations ............................................................................... 313 Address liability ................................................................................................................................ 313 Public participation ........................................................................................................................... 313 Additional research recommendations ............................................................................................ 313 Funding recommendations ............................................................................................................... 314 Water and air quality recommendations .......................................................................................... 315 Hydraulic fracturing fluids recommendations .................................................................................. 318 Waste management standards ......................................................................................................... 318 Regulatory program recommendations ............................................................................................ 320 Permitting recommendations ........................................................................................................... 322 Data management recommendations .............................................................................................. 323 Emergency response recommendations .......................................................................................... 324 Local government authority recommendations ............................................................................... 324 Address liability ................................................................................................................................ 324 Public participation ........................................................................................................................... 325 Additional research recommendations ............................................................................................ 325 B. Limitations .................................................................................................................................. 327 Section 10 – Appendices ........................................................................................................................... 329 A. Appendix A: Bridges in the Triassic Basins with minimum clearance .......................................... 329 B. Appendix B: Maps of recreation areas......................................................................................... 333 Maps of state, county, and local parks ............................................................................................. 333 Maps of game lands in the Triassic Basins ........................................................................................ 341 Maps of bike routes in the Triassic Basins ........................................................................................ 345 Maps of boat access points and major water bodies in the Triassic Basins ..................................... 349 Map sources ..................................................................................................................................... 352 C. Appendix C: Common noise sources and levels at 50 feet .......................................................... 353 D. Appendix D: Statistical analysis methodology ............................................................................. 354 Counties included in analysis ............................................................................................................ 354 Regression Results ............................................................................................................................ 354 Data plots ......................................................................................................................................... 359 E. Appendix E: STRONGER Report.................................................................................................... 363 F. Appendix F: Session Law 2011‐276 .............................................................................................. 445 G. Appendix G: Summary of Public Comments ................................................................................ 453 North Carolina Oil and Gas Study April 2012 ix General comments ............................................................................................................................ 453 Conclusion of the report ................................................................................................................... 455 Shale gas resource ............................................................................................................................ 456 Geology ............................................................................................................................................ 457 Water supply impacts ....................................................................................................................... 458 Roads ................................................................................................................................................ 461 Pipelines ........................................................................................................................................... 462 Hydraulic fracturing fluids ................................................................................................................. 462 Groundwater impacts ....................................................................................................................... 464 Wastewater ...................................................................................................................................... 465 Surface water impacts and stormwater management ..................................................................... 468 Setbacks and areas prohibited from drilling ..................................................................................... 469 Air quality impacts ............................................................................................................................ 469 Impacts on fish, wildlife and important natural areas ...................................................................... 471 Waste management .......................................................................................................................... 472 Management and reclamation of drilling sites ................................................................................. 473 Naturally Occurring Radioactive Materials ....................................................................................... 473 Public health impacts ........................................................................................................................ 473 Economic impacts ............................................................................................................................. 473 Regulatory agency funding and staffing ........................................................................................... 475 Social impacts................................................................................................................................... 477 Environmental justice ....................................................................................................................... 478 Regulatory framework ...................................................................................................................... 480 Water use laws ................................................................................................................................. 481 Consumer protection ........................................................................................................................ 481 Local government authority .............................................................................................................. 482 Comments about draft recommendations ....................................................................................... 483 North Carolina Oil and Gas Study April 2012 x Table of Figures Figure 1‐1. Exposed North Carolina Triassic Basins ...................................................................... 17 Figure 1‐2. Triassic paleogeography approximately 210 million years ago, from Ron Blakey, NAU Geology.. ............................................................................................................................... 18 Figure 1‐3. The Mesozoic Basins of the eastern United States.. .................................................. 19 Figure 1‐4. Cross‐section from northwest to southeast across the Sanford sub‐basin. .............. 20 Figure 1‐5.Total Organic Carbon (TOC) as a percentage for samples from eight wells (seven coal holes and one oil test hole). ................................................................................................. 23 Figure 1‐6. Maturity (Tmax) for multiple wells. These data are color‐coded to the five wells. ... 24 Figure 1‐7. Map of part of the Sanford sub‐basin showing the seismic lines (yellow), the coal mine locations, coal exploration holes and oil and gas test wells.. ...................................... 25 Figure 1‐8. Map of the depth to basement of the Sanford sub‐basin.. ........................................ 27 Figure 1‐9. Map of the thickness of the organic‐rich shale (Cumnock Formation) in the Sanford sub‐basin.. ............................................................................................................................. 28 Figure 2‐1. Model of the different types of conventional and unconventional oil and gas resources.. ............................................................................................................................. 36 Figure 2‐2. Seismic Reflection Line 113 across the Sanford sub‐basin, Deep River Basin. .......... 38 Figure 2‐3. Interpretation of Seismic Reflection Line 113 across the Sanford sub‐basin, Deep River Basin. ............................................................................................................................ 39 Figure 3‐1. Triassic Basins and Upper Dan River and Deep River Sub‐basins ............................... 46 Figure 3‐2. Triassic Basins and Subwatersheds Used in this Analysis ........................................... 47 Figure 3‐3. Sanford and Durham Sub‐basins and Study Area....................................................... 49 Figure 3‐4. Wadesboro Triassic Sub‐basin and Study Area .......................................................... 54 Figure 3‐5. Dan River Triassic Basin Study Area with Wells and Surface Water Intakes .............. 57 Figure 3‐6. Hydrologic Areas of Similar Potential to Sustain Low Flows in North Carolina ......... 62 Figure 3‐7. Sanford Triassic Sub‐basin Study Area ....................................................................... 63 Figure 3‐8. Hydrologic Areas – Sanford and Durham Sub‐basins of Deep River Triassic Basin .... 64 Figure 3‐9. Hydrologic Areas ‐ Wadesboro Sub‐unit .................................................................... 67 Figure 3‐10. Dan River Triassic Basins Study Area ........................................................................ 67 Figure 3‐11. Hydrologic Areas ‐ Dan River Triassic Basins ............................................................ 68 Figure 3‐12. Construction of Underground Pipeline .................................................................... 97 Figure 4‐1. Diabase dikes and sills (red) and faults (labeled black lines) cross‐cutting sedimentary rocks of the Deep River Triassic Basin northwest of Sanford. ....................... 114 North Carolina Oil and Gas Study April 2012 xi Figure 4‐2. Typical Oil or Gas Well Schematic, excluding the horizontal portion of the well .... 121 Figure 4‐3. Publicly Owned Lands in the Dan River Triassic Basin .............................................. 158 Figure 4‐4. Publicly Owned Lands in the Northern Portion of the Deep River Basin ................. 159 Figure 4‐5. Publicly Owned Lands in the Southern Portion of the Deep River Basin ................. 159 Figure 4‐6. SNHAs in the Dan River Triassic Basin ...................................................................... 165 Figure 4‐7. SNHAs in the Northern Portion of the Deep River Basin .......................................... 166 Figure 4‐8. SNHAs in the Southern Portion of the Deep River Basin .......................................... 167 Figure 4‐9. SNHAs in the Wadesboro Sub‐basin ......................................................................... 168 Figure 4‐10. Time series of the number of exploration oil and gas wells completed in North Carolina.. ............................................................................................................................. 190 Figure 4‐11. Observed radiation from shale rock along the south‐facing quarry wall at the CEMEX mine north of Eden, N.C. ........................................................................................ 195 Figure 4‐12. Colored spheres show the location of microseismic events generated by hydraulic fracturing. ............................................................................................................................ 197 Figure 5‐1. Estimated Revenues Using Other States’ Tax Collections ........................................ 232 Figure 6‐1. Demographics and Economics of Housing in Deep River Basin Counties ................ 241 Figure 6‐2. Demographics and Economics of Housing in the Dan River Basin Counties ............ 242 Figure 6‐3. Housing Characteristics of Counties in the Deep River Basin, 2005‐2009 ............... 242 Figure 6‐4. Housing Characteristics of Counties in the Dan River Basin, 2005‐2009 ................. 243 Figure 6‐5. Estimated Vacant Rental Units in Dan River Basin, 2010 ......................................... 244 Figure 6‐6. Estimated Vacant Rental Units in Durham Sub‐basin, 2010 .................................... 244 Figure 6‐7. Estimated Vacant Rental Units in Sanford Sub‐basin, 2010 ..................................... 245 Figure 6‐8. Estimated Vacant Rental Units in Wadesboro Sub‐basin, 2010 ............................... 245 Figure 6‐9. Hydraulic Fracturing in Upshur Valley, West Virginia (Marcellus region) ................ 264 Figure 6‐10. Natural Gas Compressor Stations in North Carolina .............................................. 265 Figure 6‐11. Accessing Shale Field via Vertical Drilling ............................................................... 266 Figure 6‐12. Accessing Shale Field via Horizontal Drilling .......................................................... 267 Figure 6‐13. Drilling Rig from Two Miles..................................................................................... 270 Figure 6‐14. Marcellus “Double Rig” ........................................................................................... 271 Figure 6‐15. Hydraulic Fracturing Operation, Canadian County, Oklahoma .............................. 271 Figure 6‐16. Lighting and Natural Gas Flaring at a Marcellus Natural Gas Well, Pennsylvania . 272 Figure 6‐17. Brine Tanks at a Producing Well, Bradford County, Pennsylvania ......................... 272 North Carolina Oil and Gas Study April 2012 xii Figure 6‐18. Dan River Basin Population Density ....................................................................... 278 Figure 6‐19. Durham Sub‐basin Population Density ................................................................... 279 Figure 6‐20. Sanford Sub‐basin Population Density ................................................................... 279 Figure 6‐21. Wadesboro sub‐basin population density .............................................................. 280 Figure 10‐1. Anson County State, County and Local Parks ......................................................... 333 Figure 10‐2. Chatham County State, County and Local Parks .................................................... 334 Figure 10‐3. Davie County State, County and Local Parks .......................................................... 334 Figure 10‐4. Durham County State, County and City Parks ........................................................ 335 Figure 10‐5. Granville County State, County and Local Parks ..................................................... 335 Figure 10‐6. Lee County State, County and Local Parks ............................................................. 336 Figure 10‐7. Montgomery County State, County and City Parks ................................................ 336 Figure 10‐8. Moore County State, County and City Parks .......................................................... 337 Figure 10‐9. Orange County State, County and City Parks ......................................................... 337 Figure 10‐10. Richmond County State, County and City Parks ................................................... 338 Figure 10‐11. Rockingham County State, County and City Parks ............................................... 338 Figure 10‐12. Stokes County State, County and City Parks ........................................................ 339 Figure 10‐13. Union County State, County and City Parks ......................................................... 339 Figure 10‐14. Wake County State, County and City Parks .......................................................... 340 Figure 10‐15. Yadkin County State, County and City Parks ........................................................ 340 Figure 10‐16. Dan River Basin and Game Lands ......................................................................... 341 Figure 10‐17. Durham Sub‐Basin and Game Lands .................................................................... 342 Figure 10‐18. Sanford Sub‐Basin and Game Lands ..................................................................... 343 Figure 10‐19. Wadesboro Sub‐Basin and Game lands................................................................ 344 Figure 10‐20. Dan River Basin and Bike Routes .......................................................................... 345 Figure 10‐21. Durham Sub‐Basin and Bike Routes ..................................................................... 346 Figure 10‐22. Sanford Sub‐Basin and Bike Routes ...................................................................... 347 Figure 10‐23. Wadesboro Sub‐Basin and Bike Routes ................................................................ 348 Figure 10‐24. Dan River Basin, Boat Access Points and Major Water Bodies ............................ 349 Figure 10‐25. Durham Sub‐Basin, Boat Access Points and Major Water Bodies ....................... 350 Figure 10‐26. Sanford Sub‐Basin, Boat Access Points and Major Water Bodies ........................ 351 Figure 10‐27. Wadesboro Sub‐Basin, Boat Access Points and Major Water Bodies .................. 352 North Carolina Oil and Gas Study April 2012 xiii Figure 10‐28. Texas Barnett Region, Index of Change in Gas Production and Index of Nonviolent Crime Rates with Least Fit Squares Line ............................................................................. 359 Figure 10‐29. Colorado Western Slope Region, Index of Change in Gas Production and Index of Violent Crime Rates with Least Fit Squares Line................................................................. 360 Figure 10‐30. Wyoming Green River Basin Region, Index of Change in Gas Production and Index of Violent Crime Rates with Least Fit Squares Line ............................................................ 360 Figure 10‐31. Wyoming Green River Basin Region, Index of Change in Oil Production and Index of Total Crime Rates with Least Fit Squares Line ................................................................ 361 North Carolina Oil and Gas Study April 2012 xiv Table of Tables Table 1‐1. Stages of Thermal Maturity ......................................................................................... 22 Table 1‐2. Interpreted Maturation Based on Vitrinite Reflectance Values .................................. 22 Table 3‐1. USGS Drainage Area Nomenclature ............................................................................. 46 Table 3‐2. Sanford and Durham Sub‐basins ‐ County Population ................................................ 51 Table 3‐3. Sanford and Durham Sub‐basin ‐ Population Served by a Local Water Supply Plan (LWSP) Water System ........................................................................................................... 52 Table 3‐4. Sanford and Durham Sub‐unit ‐ Water Demands from Local Water Supply Plans ..... 52 Table 3‐5. Sanford and Durham Sub‐basins ‐ Population and Water Demands of County Residents Not Served by a LWSP System ............................................................................. 52 Table 3‐6. Sanford and Durham Sub‐basins Agricultural Water Use............................................ 53 Table 3‐7. Wadesboro Triassic Sub‐basin County Population ...................................................... 55 Table 3‐8. Wadesboro Triassic Sub‐basin Local Water Supply Plan Service Population .............. 55 Table 3‐9. Wadesboro Triassic Sub‐basin Local Water Supply Plan Water Use ........................... 55 Table 3‐10. Wadesboro Triassic Sub‐basin Water Demands ‐ Non‐LWSP residents .................... 56 Table 3‐11. Wadesboro Sub‐basin Agricultural Water Use .......................................................... 56 Table 3‐12. Dan River Triassic Basin ‐ County Population ............................................................ 58 Table 3‐13. Dan River Triassic Basin ‐ Population Served by a Local Water Supply Plan Water System .................................................................................................................................. 58 Table 3‐14. Dan River Triassic Basin ‐ Water Demands from Local Water Supply Plans .............. 58 Table 3‐15. Dan River Triassic Basin ‐ Population and Water Demands of County Residents Not Served by a LWSP System ..................................................................................................... 58 Table 3‐16. Dan River Triassic Basin ‐ Agricultural Water Use ..................................................... 59 Table 3‐17. Analysis Scenario Descriptions .................................................................................. 77 Table 3‐18. Triassic Public Water Supply Wells (gpm = gallons per minute)................................ 82 Table 3‐19. NYSDEC Assumed Construction and Development Times ......................................... 85 Table 3‐20. Estimated Number of One‐Way (Loaded) Trips per Well: Horizontal Well1 ............. 86 Table 3‐21. Pavement Conditions in Sample of Roads in the Triassic Basin ................................ 87 Table 4‐1. Categories and Purposes of Additives Proposed for Use in New York State ............. 101 Table 4‐2. Summary of Domestic Water Use in Counties containing the Deep River and Dan River Triassic Basins in 2005 ............................................................................................... 118 Table 4‐3. Summary of the Sources of Groundwater Contamination from Oil and Gas Production in Ohio and Texas ................................................................................................................ 126 North Carolina Oil and Gas Study April 2012 xv Table 4‐4. Typical Range of Concentrations for Some Common Constituents of Flowback Water in Western Pennsylvania ..................................................................................................... 129 Table 4‐5. Definitions for SNHA Significance Rankings ............................................................... 160 Table 4‐6. Nationally Significant Natural Heritage Areas within the Triassic Basins (Rank A) ... 161 Table 4‐7. Statewide Significant Natural Heritage Areas within the Triassic Basin (Rank B) ..... 162 Table 4‐8. Regionally Significant Natural Heritage Areas within the Triassic Basin (Rank C) ..... 163 Table 4‐9. County Significant Natural Heritage Areas within the Triassic Basin (Rank D) .......... 164 Table 4‐10. Natural Communities within the Triassic Basin ....................................................... 171 Table 4‐11. Federally or State‐Listed Endangered or Threatened Plant Species ....................... 173 Table 4‐12. Federally or State‐Listed Endangered or Threatened Animal Species .................... 174 Table 4‐13. Sample of Hydraulic Fracturing Fluid Composition by Weight ................................ 203 Table 5‐1. Model Assumptions ................................................................................................... 210 Table 5‐2. Potential Well Field .................................................................................................... 211 Table 5‐3. Annual Employment Impacts ..................................................................................... 213 Table 5‐4. Top 10 Industry Sectors Impacted ............................................................................. 213 Table 5‐5. Annual Economic Impacts .......................................................................................... 214 Table 5‐6. Summary of State Oil and Gas Well Bonding Requirements, , , ............................... 223 Table 5‐7. Severance and Corporate Income Tax Rates for Various Natural Gas‐Producing States ............................................................................................................................................ 226 Table 5‐8. Severance Tax Collections per Million Cubic Feet for 2009 ...................................... 231 Table 5‐9. Estimated Revenues Based on Other States’ Tax Collections ................................... 231 Table 5‐10. Permit Fees for Drilling Natural Gas Wells in Selected States ................................. 234 Table 5‐11. Annual Fees for Well Permit Holders in Arkansas ................................................... 235 Table 5‐12. Annual Production Fees for Wells in Louisiana ....................................................... 235 Table 6‐1. Commute Times (in minutes) to North Carolina Shale Regions ................................ 247 Table 6‐2. Change in Average Property Values, 2009‐2012 ....................................................... 252 Table 6‐3. HUD Daytime Land Use Compatibility Guidelines for Noise ..................................... 260 Table 6‐4. Distance in Feet/Sound Pressure Levels in Decibels ................................................. 260 Table 6‐5. Distance in Feet/Sound Pressure Levels in Decibels ................................................. 261 Table 6‐6. Distance in Feet/Sound Pressure Levels in Decibels ................................................. 262 Table 6‐7. Distance in Feet/Sound Pressure Levels in Decibels ................................................. 262 North Carolina Oil and Gas Study April 2012 xvi Table 6‐8. Distance in Feet/Sound Pressure Levels in Decibels ................................................. 263 Table 6‐9. Distances, in Miles, Between Potential Shale Regions and North Carolina Compressor Stations* ............................................................................................................................. 269 Table 6‐10. Population Densities in Oil/Gas regions, and in the North Carolina Deep and Dan River Basin Regions ............................................................................................................. 278 Table 10‐1. Bridges in the Triassic Basins with Minimum Clearance ......................................... 329 Table 10‐2. Natural Gas Production Changes and Crime Rates per 100,000 People: “T” and “P” Values ................................................................................................................................. 355 Table 10‐3. Natural Gas Production Changes and Crime Rates per 100,000 People: Coefficients and Confidence Intervals .................................................................................................... 356 Table 10‐4. Oil Production Changes and Crime Rates per 100,000 People: “T” and “P” Values 357 Table 10‐5. Oil Production Changes and Crime Rates per 100,000 People: Coefficients and Confidence Intervals ........................................................................................................... 358 North Carolina Oil and Gas Study April 2012 1 Executive Summary Background In Session Law 2011‐276, the North Carolina General Assembly directed the North Carolina Department of Environment and Natural Resources (DENR), the Department of Commerce (Commerce), and the Department of Justice, in conjunction with the nonprofit Rural Advancement Foundation International (RAFI), to study the issue of oil and gas exploration in the state and specifically the use of directional and horizontal drilling and hydraulic fracturing for natural gas production. DENR researched oil and gas resources present in the Triassic Basins (Section 1 of this report), methods of exploration and extraction of oil and gas (Section 2), potential impacts on infrastructure, including roads, pipelines and water and wastewater services (Section 3), potential environmental and health impacts (Section 4), potential social impacts (Section 6), and potential oversight and administrative issues associated with an oil and gas regulatory program (Section 7). S.L. 2011‐276 directed the Department of Commerce, in consultation with DENR, to gather information on potential economic impacts of natural gas exploration and development (Section 5 of this report). Department of Commerce prepared Sections 5.A through 5.F of the report that discuss job creation and other projected economic impacts of natural gas drilling. DENR prepared Sections 5.G though 5.N that address the different financial tools (such as bonding requirements and severance taxes) used by oil and gas producing states to assure funding for reclamation of drilling sites, cover regulatory costs and offset public infrastructure costs. The law directed the Consumer Protection Division of the Department of Justice to study consumer protection and legal issues relevant to oil and gas exploration in the state, including matters of contract and property law, mineral leases and landowner rights. The Consumer Protection Division was directed to consult with RAFI on the consumer protection issues. The Department of Justice did not provide this section to DENR, and it is therefore not included in this report; the Department of Justice will release the consumer protection section separately. Study Limitations As requested by the General Assembly, this report analyzes the potential environmental, health, economic, social and consumer protection impacts that an oil and gas extraction industry may have in North Carolina. The analysis is constrained by the limited information available at this time. We do not have detailed or comprehensive information on the extent and richness of the shale gas resource in North Carolina. For purposes of this report we have been forced to extrapolate from data gathered from only two wells in the Sanford sub‐basin; those well values have been averaged to project an estimate of the natural gas resource potentially available in that sub‐basin. Since there are only two data points and the two wells have significantly different values, it is not clear how well the average value represents the resource throughout the Sanford sub‐basin. This report generally uses the Sanford sub‐basin as the basic unit for analysis of all impacts because the available data came from that sub‐basin. North Carolina Oil and Gas Study April 2012 2 The Sanford sub‐basin represents only a fraction of the total Triassic basin formations in the state – approximately 59,000 acres out of a total of 785,000 acres. These limitations carry over into the assessment of both potential economic and environmental impacts. DENR projected the number of wells and total gas production for the Sanford sub‐basin, using the limited data derived from averaging the values of two wells. Those projections are used throughout the report as the basis for assessing economic and environmental impacts. Many impacts of natural gas extraction will vary based on local characteristics, such as water resources and even the weather. For example, the depth and quality of groundwater resources in the Triassic basins of North Carolina appear to be very different from conditions in the Marcellus shale formations in Pennsylvania. North Carolina does not seem to have as great a separation between potential drinking water resources and the gas‐producing zone; understanding the geology and groundwater hydrology of North Carolina’s shale formations will be critical to ensuring protection of drinkable groundwater. In terms of infrastructure impacts, weather can be an important factor. A local government official in Pennsylvania told DENR staff that when the natural gas industry first came to Pennsylvania from the South, oil and gas operators were surprised at how the harshness of the winters magnified the road damage caused by heavy oil and gas trucks. There are some aspects of oil and natural gas extraction for which data is extremely limited even at a national level; the limited time available to prepare this report prevented us from taking into account additional research that is currently underway. This includes EPA’s research on potential groundwater impacts in Pavillion, Wyo., and Dimock, Pa., and EPA’s study of hydraulic fracturing and its potential impact on drinking water resources. EPA’s first report of results related to drinking water is expected in 2012; the final report is not expected until 2014. To our knowledge, no comprehensive studies are currently available on the long‐term impacts to health from hydraulic fracturing for natural gas, and DENR is not qualified to conduct such a study. DENR recognizes that questions remain about health impacts. The EPA drinking water study may provide additional insight on health effects. Key Findings North Carolina’s potential shale gas resource Most of the N.C. Geological Survey’s information on potential shale gas resources in the state comes from the Sanford sub‐basin of the Deep River geologic basin — a 150‐mile‐long area that runs from Granville County southwestward across Durham, Orange, Wake, Chatham, Lee, Moore, Montgomery, Richmond, Anson and Union counties into South Carolina. The Deep River Basin is one of several similar geologic formations in North Carolina that cover approximately 785,000 acres. The available organic geochemical and seismic data has caused NCGS to focus on an area of more than 59,000 acres in the Sanford sub‐basin as the most promising location for organic‐rich shale and coals from which natural gas can be extracted. North Carolina Oil and Gas Study April 2012 3 The shale formation in this area can be found at depths generally ranging between 2,100 and 6,000 feet below the surface. This particular shale formation has a maximum thickness of 800 feet and an average thickness that ranges from 180 to 540 feet. Hydraulic Fracturing Natural gas extraction by hydraulic fracturing involves drilling a well vertically and then horizontally into the shale formation. The natural gas production company perforates the well and then pumps fracturing fluid into the well under pressure to fracture the shale. Fracturing fluids may be composed primarily of water and a proppant (such as sand) to keep the fractures open. Water and sand represent between 98 percent and 99.5 percent of the fracturing fluid. The fluid also includes chemical additives used to condition the water. Additives may be used to thicken or thin the fluid, prevent corrosion of the well casing, kill bacteria or for other purposes. The exact makeup of fracturing fluid varies from company to company and may also be adjusted based on conditions at the individual well site. Several hundred chemical compounds have been identified by the industry as chemicals that have been used in fracturing fluid. Any single fracturing fluid generally contains between 6 and 12 chemical additives. Some chemicals that have been used in fracturing fluids, such as diesel fuel, have raised concern because of potential health impacts. EPA has discouraged use of diesel fuel in hydraulic fracturing. Environmental Impacts Water Supply: Hydraulic fracturing requires between 3 and 5 million gallons of water per well. To put this in perspective, a number of small cities in North Carolina withdraw 5 million gallons per day to serve their water system customers. Based on some informed assumptions about the number of wells that could potentially be located in the Sanford sub‐basin and the pace of well development, there appear to be adequate surface water supplies to meet the needs of the industry. The timing of water withdrawals will need to be managed, however, to avoid injury to other water users and the environment. Under existing state law, water withdrawals do not require a state permit except in the Central Coastal Plain Capacity Use Area where a permitting program exists to manage withdrawals from two depleted aquifers. The Capacity Use Area permitting program does not overlap with any part of the shale formation. As a result, the state currently has no ability to ensure that groundwater or surface water withdrawals for natural gas development will be appropriately managed to avoid stream impacts and conflicts with other water users. A 3 million gallon withdrawal made over a three‐day period (which is technically possible for the industry) has a much greater potential impact than a 3 million gallon withdrawal made over the course of three weeks. In the absence of permit conditions to prevent rapid withdrawals, streams could run dry and other water users may be harmed. Water Quality: In the Sanford sub‐basin, there appears to be much less separation between groundwater used for drinking water and the gas‐producing layer than in other gas‐producing states. Water supply wells of up to 1,000 feet deep have been found in North Carolina’s Triassic North Carolina Oil and Gas Study April 2012 4 Basins and the depth to which freshwater extends is unknown. Some of the shale that might be tapped for natural gas in the Triassic Basins of North Carolina lies at depths of 3,000 feet or less. (By contrast, the Pennsylvania shale gas resource lies at depths of roughly 10,000 feet or more and the deepest water supply wells are generally no more than 600 feet deep.) At least two recent studies have found higher levels of methane in groundwater near natural gas wells that had been hydraulically fractured. In Pavillion, Wyo., EPA found methane of thermogenic origin and organic chemicals consistent with those used in hydraulic fracturing fluids in both monitoring wells and water supply wells. Conditions in Pavillion are not necessarily representative of most shale plays, however; the hydraulic fracturing that occurred in Pavillion involved injection of hydraulic fracturing fluids directly into the same formation tapped by water supply wells. A study in Pennsylvania found that water supply wells close to active exploration and production wells in the Marcellus shale have higher levels of dissolved methane than wells farther away. The study did not find constituents of hydraulic fracturing fluids in any of the water supply wells that were sampled. The study did find methane in water supply wells. The methane had an isotopic signature indicating that it originated from deep, thermogenic sources consistent with a Marcellus shale source, rather than from shallow biogenic sources. The lack of pre‐drilling groundwater samples make it difficult to definitively link the methane to drilling practices. Water quality problems have been associated with oil and gas operations generally; the problems can result from a number of production activities other than hydraulic fracturing. A Groundwater Protection Council study found that most Texas groundwater contamination incidents related to oil and gas activity reviewed were traced to either the production phase of well operations or involved waste management and disposal. Oil and gas exploration and production can disturb large areas of land to develop access roads, well pads, impoundments and other infrastructure. These activities have impacts very similar to the stormwater impacts of any large development project: sedimentation and erosion, water pollution, increased peak discharges, increased frequency and severity of flooding, and other stormwater concerns. Unlike other construction projects, oil and gas exploration and production activities are exempt from federal Clean Water Act stormwater requirements. Air Quality: Federal Clean Air Act standards have only been adopted for natural gas processing facilities. In 2011, EPA developed draft standards for air emissions from natural gas exploration and production activities. As proposed, the rules would affect gas wellheads, centrifugal compressors, reciprocating compressors, pneumatic controllers, storage vessels and sweetening units. Until the proposed rules go into effect, no federal new source performance standards or hazardous air pollution standards apply to emissions from these natural gas exploration and production activities. EPA finalized the rules on April 17, 2012, but industry is not required to implement all of the provisions of the rules until 2015. A recent New York Environmental Impact Statement estimated that statewide NOx emissions could be increased by 3.7 percent from hydraulic fracturing operations and as much as 10.4 percent in the upstate New York area where the Marcellus Shale is located. These increases in North Carolina Oil and Gas Study April 2012 5 NOx emissions raise concerns for the impact on ozone concentrations and the state’s ability to attain and maintain compliance with the federal ozone standard. The state air toxics program requires a source of state‐regulated toxic air pollutants to demonstrate compliance with the ambient air levels at the property boundary. Shale gas production often occurs under a lease of property that may be owned and in some cases occupied by another person. If natural gas production occurs on a residential property or farm, the property owner or occupant may be exposed to unhealthy concentrations of toxic pollutants. Earthquakes: Hydraulic fracturing fluid under pressure cracks the surrounding rock; these cracks generate vibrations while breaking that can be picked up by sensitive geophones. Data from other states suggests that the process of hydraulic fracturing causes microseismic events that do not pose a threat to the environment or human health or safety. An Oklahoma Geologic Survey study of an earthquake complaint near a hydraulic fracturing operation found that seismographs had recorded as many as 50 very small events on the day of the complaint. Most of the earthquakes occurred within a 24‐hour period after the hydraulic fracturing operations had ceased and were so minor (between 1 and 2.4 on the Richter scale) that they could not be felt. Most reports of significantly increased earthquake activity have occurred in regions where disposal wells are operated and related to underground injection of waste rather than hydraulic fracturing. Only a small fraction of injection wells have caused significant seismic activity. Limiting injection volumes, decreasing pressure and distributing the waste between more disposal wells have been shown to reduce and even eliminate induced seismicity, while reusing and recycling of wastewater can reduce the need for other waste management options. Wastewater and Solid Waste: Between 9 and 35 percent of the fluid pumped into a well for hydraulic fracturing returns to the surface as “flowback” shortly after fracturing. During the remainder of the productive life of the well, a much smaller volume of wastewater is generated more or less continuously as the well produces gas; this wastewater is produced water. In many states, flowback or produced water from a drilling operation can be disposed of by underground injection. N.C. General Statute 143‐214.2(b) prohibits the use of wells for waste disposal. It is not clear that injection wells would be a feasible option for managing produced waters from a gas well in the Triassic Basins of North Carolina. The areas with potential for natural gas development have not been sufficiently characterized to determine whether the formations would be suitable for disposal of shale gas production wastewater. The sedimentary rocks of these basins generally have very low permeability, and natural fractures are responsible for nearly all of the permeability and groundwater movement in these basins. Disposal by injection into fractured rock presents difficulty in predicting the fate and transport of the injected wastewaters. These conditions suggest that Triassic Basins in North Carolina generally do not have suitable hydrogeologic conditions for disposal by injection. North Carolina Oil and Gas Study April 2012 6 Some wastewater streams can go to a municipal wastewater treatment plant. These waste streams can be difficult to treat in a conventional wastewater treatment plant, however, and it would be advisable to require pretreatment. A number of states allow land‐application of produced water from hydraulic fracturing. The acceptability of wastewater for that purpose may depend on its quality at the time of land application since high levels of salts and chlorides can be a problem. Chesapeake Energy is currently recycling and reusing 95 percent of the flowback water that returns to the surface (only a small percentage of the volume of water used in hydraulic fracturing) by a filtering process. EPA has exempted “drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal energy” from regulation under the Resource Conservation and Recovery Act (RCRA) ‐‐ the federal statute that regulates hazardous waste. Since some exploration and production wastes may have the characteristics of hazardous wastes, but are not regulated under RCRA, oil and gas‐producing states have generally developed specific standards for handling exploration and production wastes. North Carolina does not have standards that specifically address disposal of or transportation of exploration and production waste. Since North Carolina statutes and rules have not been written to address these particular types of wastes, existing state rules would allow disposal of all RCRA‐exempt exploration and production wastes (other than oils and liquid hydrocarbons) in a municipal solid waste (MSW) landfill. Although North Carolina has strong standards for design and construction of both industrial and MSW landfills, those standards were not developed for disposal of hazardous waste. Economic Analysis The economic impact analysis focuses on the statewide economic impact of gas drilling activities in the Sanford sub‐basin. (The Sanford sub‐basin is approximately 59,000 acres of the 785,000 acres of the Triassic Basins in North Carolina.) The analysis does not take site preparation, leasing of land, hydraulic fracturing or extraction, production or transmission of gas into consideration. Review of studies from other parts of the country show that a large infusion of economic activity from shale gas drilling will increase the incomes of some individuals and communities and will add jobs. Without reliable expenditure inputs for North Carolina, however, it remains uncertain how much wealth, income or benefits from long‐term employment would accrue to Lee, Chatham and surrounding counties. For its analysis, the Department of Commerce used the IMPLAN modeling tool. IMPLAN allows researchers to develop local level input‐output models to estimate the economic impacts associated with marginal changes in the economy, such as “shocks” of new production or output. North Carolina Oil and Gas Study April 2012 7 The model estimates that 36 percent of drilling investments will be spent locally with North Carolina vendors. Since North Carolina does not presently have a developed fossil fuel extraction industry, there will likely be substantial economic “leakages” as dollars are spent outside the North Carolina economy. For example, drilling requires specialized equipment that is not available from in‐state companies. The IMPLAN model estimates drilling activities in the Sanford sub‐basin would sustain an average of 387 jobs per annum over the seven‐year time period studied: • In the peak well year, drilling activities are estimated to sustain 858 jobs over a one‐year period. • In Year 1, the year with the lowest level of drilling expenditures, the IMPLAN model estimates that 59 jobs will be either created or partially supported by these expenditures. At the completion of all drilling activities in the state, it is estimated the economy will have increased output by $453 million. Output represents the level of all economic activity from production and is typically larger than value added impacts, which measure the direct change in North Carolina’s gross domestic product (GDP). Anticipated drilling activities are estimated to positively affect the state’s GDP by $292 million by year 2019. It is not likely that North Carolina’s shale play will be developed in the near‐term. IHS Global Insight, in a December 2011 study for the American Natural Gas Alliance, reported that six prominent plays are expected to account for more than 90 percent of U.S. shale capacity by 2035. North Carolina was not on this list and, at this time, does not appear on U.S. Geological Survey maps of North American shale plays. Low natural gas prices also make activity in North Carolina unlikely in the near‐term. The Energy Information Administration’s preliminary 2012 Annual Energy Outlook assumes that with increased production, average annual wellhead prices for natural gas will remain below $5 per thousand cubic feet (2010 dollars) through 2023. Low prices make it less likely that the industry will move from areas already in production to a new and unproven area. Bonding: North Carolina Session Law 2011‐276 revised the amount of the bond required for an oil and gas‐drilling permit to $5,000 plus $1 per linear foot. Under North Carolina’s law, the bond only covers proper closure and abandonment of the well. The bond does not cover the costs of restoring the surface of the site to pre‐existing conditions or remediation of any contamination caused by the drilling operation. States vary significantly in the amount of bond required per well, but typically the uses of those bonds extend beyond well closure and often cover site reclamation. As one measure of the adequacy of bond requirements for wells on public lands, the General Accounting Office (GAO) looked at the cost to the Bureau of Land Management of reclaiming orphan wells. Over a 21‐year period, BLM spent about $3.8 million to reclaim 295 orphaned wells, or an average of about $12,900 per well. The GAO report states that “the amount spent per reclamation project varied greatly, from a high of $582,829 for a single well in Wyoming in fiscal year 2008 to a low of $300 for 3 wells in Wyoming in fiscal year 1994.” The BLM also North Carolina Oil and Gas Study April 2012 8 estimated the costs of wells it has yet to reclaim at approximately $1.7 million for 102 orphaned wells, an average of roughly $16,700 per well. Severance Taxes: North Carolina’s Oil and Gas Conservation Act currently sets the state’s severance tax for natural gas at 5/100 of a cent – $.0005 per 1,000 cubic feet of gas. The revenues can only be used to pay the costs of administering the law. North Carolina has one of the lowest severance taxes in the nation. With the exception of those states that do not assess any severance tax, North Carolina’s tax rate was the lowest of all states for which severance taxes were identified as part of this study. Maryland, New York and Pennsylvania do not assess severance taxes on the production of natural gas, however, Pennsylvania recently enacted a law imposing an “impact fee” on natural gas production, and New York assesses a “property type production tax” on the amount of natural gas produced. Community, Infrastructure and Social Impacts In Pennsylvania, road impacts have been a major problem for municipalities in the Marcellus shale region. Gas development significantly increases truck traffic on roads that often were not designed for such heavy use. For many of Pennsylvania’s small towns, road maintenance and repair accounts for the largest part of the town budget. New York’s EIS estimated 1,148 one‐way heavy‐duty truck trips and 831 one‐way light‐duty truck trips per well during the construction phase of gas development. For early well pad development, this is a total of 2,296 round‐trip heavy‐duty truck trips and 1,662 round‐trip light‐duty truck trips per well for all truck traffic needs; these figures assume that all water is transported by truck rather than by pipeline. In some states, natural gas production companies have entered into road maintenance agreements with local government – committing to return the roads to good condition. Pennsylvania recently enacted a local option impact assessment to provide additional revenue to counties and towns affected by drilling activity. Significant increases in truck traffic can lead to an increase in accidents and increased demand for traffic control. Both place additional demand on police and other emergency services. Given the volume and nature of the liquids being transported, accident response can be both more complex and more time‐consuming than a typical one‐ or two‐car accident. Spills of hazardous chemicals require labor‐ and time‐intensive responses from law enforcement and environmental agencies. In regions unaccustomed to oil and gas activity, the specialized nature of the response required for spills, explosions or fires related to the industry might necessitate new equipment, training and staff. This can place a special strain on rural areas still served by volunteer fire and rescue services. As drilling activity has increased in certain parts of the United States, rural areas and small towns have, in some cases, been overwhelmed by the demand for worker housing. The impact of gas production on housing costs and availability likely depends on three key factors: 1) the speed and scale of industry growth in a given community; 2) the existing housing capacity of a North Carolina Oil and Gas Study April 2012 9 community before drilling begins; and 3) the industry’s need to import workers skilled in gas production activities. Property owners who control the mineral rights to economically recoverable gas resources under their land may see substantial increases in property values. Analysis claimed that the taxable value of oil and gas properties in Texas’ Barnett shale region increased from $341 million to $5.9 billion, a 1,730 percent increase, from 2000‐2005. Other studies of property values have generally shown much more modest increases. Increased value can be attributed to two financial benefits to property owners: bonuses upon signing an oil and gas lease agreement and royalty payments. Lease agreements can range anywhere from $5 per acre to $20,000 per acre. On properties where lease agreements have not been signed, potential buyers may factor an expected bonus payment into the value of the property. Mineral owners receive royalties on income from gas production, typically earning 12.5 percent to 20 percent of the gas revenue generated at their wellhead. Regulatory Program The fact that oil and gas production activities are exempt from a number of federal environmental statutes that otherwise apply to industrial activities places a special burden on oil and gas‐producing states to create adequate state regulatory programs. Storage and disposal of oil and gas wastes have been exempted from federal hazardous waste regulation, specifically to allow states to develop tailored programs for management of those wastes. Congress has also deferred to the states to regulate stormwater runoff from drilling sites, exempting those sites from Clean Water Act permitting requirements for construction stormwater and industrial stormwater discharges. States that have a long history of oil and gas production typically have very detailed regulations for well siting, well construction, wastewater disposal, storage and disposal of solid wastes, and water use. Since North Carolina does not have an active oil and gas industry, the state does not have standards appropriate for the special nature of these activities and the waste products generated in the process. Guidelines for state oil and gas regulatory programs developed by the State Review of Oil and Natural Gas Environmental Regulations (STRONGER) recommend: • Standards for casing and cementing sufficient to handle highly pressurized injection of fluids into a well for purposes of fracturing bedrock and extracting gas. • Rules requiring the driller to identify potential conduits for fluid migration; address management of the extent of fracturing; and identify actions to be taken in response to operational or mechanical problems. • Standards for dikes, pits and tanks, including contingency planning and spill risk management procedures. • Waste characterization, including testing of fracturing fluids. Waste should be tracked to ensure appropriate disposal. North Carolina Oil and Gas Study April 2012 10 • Prior notification of fracturing activity. • Assessment of water use for hydraulic fracturing in terms of volume in light of water supply, competing water uses and the environmental impacts of withdrawing water for fracturing. Use of alternative water sources and recycling of water should be encouraged. Recommendations for siting standards, such as setbacks from streams, wetlands and floodplains, can be found in the New York Department of Environmental Control EIS and in recent legislation enacted in Pennsylvania. In the last three years, a number of states have moved to require disclosure of the chemicals used in hydraulic fracturing fluids to state regulatory and emergency response agencies. Several states have also required disclosure to the public with appropriate safeguards for proprietary information. Oil and gas producing states have also found it necessary to address the issue of local authority to regulate natural gas production activities. Several states that have comprehensive state oil and gas regulatory programs continue to allow local governments to exercise some degree of planning and zoning authority with respect to production activities. Conclusions and Recommendations After reviewing other studies and experiences in oil and gas‐producing states, DENR has concluded that information available to date suggests that production of natural gas by means of hydraulic fracturing can be done safely as long as the right protections are in place. Production of natural gas by means of hydraulic fracturing can only be done safely in North Carolina if the state adopts adequate safeguards in the form of regulatory standards specifically adapted to conditions in the state and invests sufficient resources in compliance and enforcement. Development of appropriate standards will require additional information on North Carolina’s geology and hydrogeology to identify conditions under which hydraulic fracturing can be done without putting the state’s water resources at risk. The ban on hydraulic fracturing and horizontal drilling should remain in effect until both standards and a strong compliance and enforcement program are in place. Both of these are needed before issuing permits for hydraulic fracturing in North Carolina’s shale formations. A number of states have experienced problems associated with natural gas exploration and development because the appropriate measures were not in place from the beginning – forcing both the state and the industry to react after damage had already been done. DENR has identified a number of immediate recommendations for management of natural gas exploration and development activities. A complete oil and gas permitting program will require more detailed standards than it is possible to provide in this report and those standards should be based on conditions in North Carolina. Conditions in the Triassic Basins of North Carolina are not identical to those found in Pennsylvania or other gas‐producing states. For example, a better understanding of the depth of usable groundwater in the Triassic Basin will be necessary to set well construction standards that will adequately protect drinking water resources. North Carolina Oil and Gas Study April 2012 11 Based on the research and analysis in this report, the Department of Environment and Natural Resources, in consultation with the Department of Commerce, developed the following recommendations for the General Assembly. These recommendations have been revised based on public comment. It should be noted that these recommendations do not take into account information from the Department of Justice’s section on consumer protection, because DENR had not received that section of the report in time for preparation of the recommendations. A brief description of each recommendation is listed; a more detailed explanation of each recommendation is included in Section 9. The recommendations are organized by subject matter but are not listed in order of priority. Funding recommendations 1. Provide funding for any continued work on the development of a North Carolina regulatory program for the natural gas industry. 2. Address the distribution of revenues from oil and gas excise taxes and fees to support the oil and gas regulatory program, fund environmental initiatives, and support local governments impacted by the industry. Water and air quality recommendations 3. Collect baseline environmental quality data including groundwater, surface water and air quality information. 4. Require oil and gas operators to operate in compliance with a DENR‐approved Water and Wastewater Management Plan. The Water Management Plan should limit water withdrawals to 20 percent of the 7Q10 stream flow and prohibit withdrawals during times of drought and periods of low flows. 5. Develop a state stormwater regulatory program for oil and gas drilling sites. Hydraulic fracturing fluids recommendations 6. Require full disclosure of all hydraulic fracturing chemicals and constituents to regulatory agencies and to local government emergency response officials prior to drilling. The state should encourage the industry to fully disclose that same information to the public and require public disclosure of hydraulic fracturing chemicals and constituents with the exception of trade secrets already protected under state law. 7. Prohibit the use of diesel fuel in hydraulic fracturing fluids Waste management standards 8. Develop specific transportation, storage and disposal standards for management of oil and gas wastes. North Carolina Oil and Gas Study April 2012 12 Regulatory program recommendations 9. Develop a modern oil and gas regulatory program, taking into consideration the processes involved in hydraulic fracturing and horizontal drilling technologies, and long‐term prevention of physical or economic waste in developing oil and gas resources. 10. Enhance existing oil and gas well construction standards to address the additional pressures of horizontal drilling and hydraulic fracturing. 11. Develop setback requirements and identify areas (such as floodplains) where oil and gas exploration and production activities should be prohibited. 12. Close the gaps in regulatory authority over the siting, construction and operation of gathering pipelines 13. Identify a source of funding for repair of roads damaged by truck traffic and heavy equipment. Permitting recommendations 14. Keep the environmental permitting program for oil and gas activities in DENR where it will benefit from the expertise of state geological staff and the ability to coordinate air, land and water permitting. 15. Develop a coordinated permitting process. Data management recommendations 16. Improve data management capabilities and develop an e‐permitting program that is easily accessible by the public Emergency response recommendations 17. Ensure that state agencies, local first responders and industry are prepared to respond to a well blowout, chemical spill or other emergency. Local government authority recommendations 18. Clarify the extent of local government regulatory authority over oil and gas exploration and production activities. Address liability 19. Address the natural gas industry’s liability for environmental contamination caused by exploration and development, particularly for groundwater contamination. North Carolina Oil and Gas Study April 2012 13 Public participation 20. Provide additional opportunities for the public to participate in development of detailed standards to govern gas exploration and development. Additional research recommendations 21. Complete additional research on impacts to local governments and local infrastructure. 22. Complete additional research on potential economic impacts. 23. Complete additional research on closed‐loop systems and the potential for prohibiting open wastewater pits. 24. Complete additional research on the ability of the air toxics program to protect landowners who lease their land for natural gas extraction and production activities. 25. Complete additional research on air emissions from hydraulic fracturing operations. 26. Complete additional research on the shale gas resource. 27. Complete additional research on groundwater resources in the Triassic Basins. North Carolina Oil and Gas Study April 2012 15 Introduction The North Carolina Geological Survey (NCGS) has identified a potentially valuable natural gas resource in the Triassic Basins of North Carolina. Preliminary results show that at least 59,000 acres in the Sanford sub‐basin of the Deep River Basin contain organic‐rich shale and coals from which natural gas can be captured. The NCGS continues to collect and analyze data on the potential for natural gas resources in the Triassic Basins, including the Dan River Basin and the other areas of the Deep River Basin. At the same time, the U.S. Geological Survey is working on an assessment of natural gas resources for all Mesozoic basins along the East Coast, which includes the Triassic Basins of North Carolina. Results from the USGS assessment will not be available until the summer of 2012. In 2011, interest in the potential natural gas resource in North Carolina prompted the North Carolina General Assembly to direct the North Carolina Department of Environment and Natural Resources (DENR), the Department of Commerce (Commerce), and the Department of Justice, in conjunction with the nonprofit Rural Advancement Foundation International (RAFI), to study the issue of oil and gas exploration in the state and specifically the use of directional and horizontal drilling and hydraulic fracturing for that purpose. Session Law 2011‐276 directs DENR to address a number of issues related to the exploration and production of oil and gas. S.L. 2011‐276 also assigns certain sections of the report to other departments and organizations. DENR was assigned to report on oil and gas resources present in the Triassic Basins (Section 1 of this report), methods of exploration and extraction of oil and gas (Section 2), potential impacts on infrastructure, including roads, pipelines and water and wastewater services (Section 3), potential environmental and health impacts (Section 4), potential social impacts (Section 6), and potential oversight and administrative issues associated with an oil and gas regulatory program (Section 7). The law directs the Department of Commerce, in consultation with the Department of Environment and Natural Resources, to gather information on potential economic impacts of natural gas exploration and development (Section 5 of this report). Commerce prepared Sections 5.A through 5.F of this report which discusses job creation and other projected economic impacts of natural gas drilling. DENR prepared Sections 5.G though 5.N which address the different financial tools (such as bonding requirements and severance taxes) used by oil and gas producing states to assure funding for reclamation of drilling sites, cover regulatory costs, and offset public infrastructure costs. The law directs the Consumer Protection Division of the Department of Justice to study consumer protection and legal issues relevant to oil and gas exploration in the state, including matters of contract and property law, mineral leases, and landowner rights (Section 8). The Consumer Protection Division is directed to consult with RAFI on this section. Recommendations and limitations are discussed in Section 9 of this report. North Carolina Oil and Gas Study April 2012 17 Section 1 – Potential Oil and Gas Resources A. Overview of the Triassic Basins The geologic term “basin” refers to a low area in the earth’s crust, formed by the warping of the crust from mountain‐building forces, in which sediments have accumulated. The Triassic Basins in North Carolina are elongated basins bounded by faults along their long sides. These basins formed 235 to 200 million years ago, during the Triassic Period, when Africa and North America were beginning to split apart to form the Atlantic Ocean. This type of basin is called a rift valley. Four Triassic Basins are exposed and outcrop at the earth’s surface in North Carolina: Deep River, Dan River, Davie and the Ellerbe (see Figure 1‐1). The Dan River Basin is the North Carolina portion of continuous rift basin that extends from Stokes County northwest across Rockingham County and into Virginia. In Virginia, the basin is called the Danville. Figure 1‐1. Exposed North Carolina Triassic Basins The Deep River is a 150‐mile‐long rift basin that runs from Granville County southwestward across Durham, Orange, Wake, Chatham, Lee, Moore, Montgomery, Richmond, Anson and Union counties into South Carolina. The basin is subdivided into three sub‐basins: Durham, Sanford and Wadesboro. The Ellerbe Basin in Richmond County has been interpreted as an erosional remnant of the larger Deep River Basin. The areas of these basins are: Davie – 20.04 square miles, Dan River – 152.02 square miles and Deep River – 1,211.07 square miles. North Carolina Oil and Gas Study April 2012 18 The rift basins began to form approximately 210 million years ago with the breakup of the supercontinent Pangea (a large land mass that divided to become Africa and North America), which preceded the later opening of the Atlantic Ocean. Dr. Ron Blakey of Northern Arizona University is a paleogeographer who has reconstructed the shape of the continental landmasses over time. Figure 1‐2 shows the Triassic paleogeography at the time when rifting had formed a series of freshwater lakes. At that time, North Carolina was located near the equator and sediment accumulated within the basins. Figure 1‐2. Triassic paleogeography approximately 210 million years ago, from Ron Blakey, NAU Geology. North Carolina can be identified from the current state outlines shown on the continent. The Deep River Basin has a steeply dipping eastern border fault. Approximately 7,000 feet of Triassic strata has been deposited in this basin. The organic shale part of this basin is interpreted by geologists as shallow lake deposits that are similar to the African Rift Valley lakes, which are forming as the African tectonic plate is splitting apart today. North Carolina Oil and Gas Study April 2012 19 The Piedmont physiographic province included all Triassic or Mesozoic rift basins along the east coast of the United States: Hartford‐Deerfield (Mass., Conn.), Newark (N.Y., N.J., Pa.), Gettysburg (Pa., Md.), Culpeper (Md., Va.), Taylorsville (Md., Va.), Richmond (Va.), Dan River‐ Danville (Va., N.C.), and Deep River (N.C., S.C.). Figure 1‐3 illustrates the extent of the Mesozoic basins. During the Mesozoic era, North Carolina was near the equator. Figure 1‐3. The Mesozoic Basins of the eastern United States. The city of Raleigh is shown for reference and the Sanford sub‐basin in outline by a red box. To better understand the geology within the basin, we can look at a cross‐section or vertical slice through the earth from the northwest to the southeast across the Sanford sub‐basin of the Deep River Basin (Figure 1‐4). What this section shows is an up to 800‐foot thick organic‐rich sedimentary rock (or shale) called the Cumnock Formation. The Cumnock Formation is sandwiched between the Sanford Formation sandstones above and the Pekin Formation North Carolina Oil and Gas Study April 2012 20 sandstones below. The Cumnock Formation extends more than eight miles across the sub‐basin. Figure 1‐4. Cross‐section from northwest to southeast across the Sanford sub‐basin. Four of the eight oil and gas exploration wells drilled in the Sanford sub‐basin are located along Seismic Section 113, which is parallel to the published cross‐section in Figure 1‐4. The depths from the surface to the top of the Cumnock formation for those four wells are: Butler #1 – 1,960 feet; Simpson #1 – 2,380 feet; V.R. Gross – 2,360 feet; and Bobby Hall – 4,190 feet. As early as the Revolutionary War period, the Deep River Basin was known to produce coal. Underground coal mining occurred in the 1920s to 1940s. A 1925 mine explosion in Farmville, N.C., which killed 53 miners, was blamed in part on excess coal gas. In 1974, a division of Chevron drilled the first oil exploration well (V.R. Gross LE‐OT‐1‐74) in Lee County. In 1981, North American Exploration Inc. drilled six coal exploration holes in Moore (4) and Chatham (2) counties, and in 1982, Richard Beutel and Associates drilled the first coal‐bed methane exploration well (Dummit‐Palmer LE‐OT‐1‐82). In 1983, Seaboard Exploration and Production Company drilled two more wells (Butler #1 LE‐OT‐1‐83 and Bobby Hall #1 LE‐OT‐2‐ 83). In 1985 and 1986, seismic reflection lines that crisscrossed the sub‐basin were collected to provide better target selection for future drilling. The location for the seismic lines, especially North Carolina Oil and Gas Study April 2012 21 the down dip section (Line 113) was configured to pass as close as possible to the locations of prior unsuccessful wells (Dummit‐Palmer, V.R. Gross and Bobby Hall #1). The seismic data had not been fully processed in 1987 when Sanford Exploration drilled the Elizabeth Gregson #1 (LE‐OT‐ 1‐87) well; that well missed the entire organic shale formation. Four years passed before Equitable Resources Exploration drilled Butler #2 (LE‐OT‐1‐91) in 1991, along the Seismic Line 113. Again the results from the well gave indications of modest oil and/or gas shows, but not a potential conventional oil or gas resource. In 1998, Amvest drilled two wells, one located along Seismic Line 113 (Simpson #1 LE‐OT‐1‐98) and the other several miles off the line (Butler #3). Both wells were perforated and Amvest attempted to hydraulically fracture the wells using nitrogen foam. That fracturing effort was unsuccessful in both wells, but the wells flowed gas and Amvest placed a wellhead containing several pressure shut‐off valves (also known as a Christmas tree) on each completed well. Eleven years later in March 2009, the two wells were sampled for natural gas and pressure tested. The pressure at the Simpson #1 well was 250 pounds per square inch (psi) and the pressure at Butler #3 was 900 psi. B. Organic geochemical data In 2008, Jeffrey Reid and Robert Milici published the organic geochemical data for the Deep River in the United States Geological Survey (USGS) Open File Report 2008‐1108.1 This report marked the first recognition by the North Carolina Geological Survey (NCGS) of this thick section of organic shale as a potential gas resource. The next year, the NCGS published “Information Circular 36: Natural Gas and Oil in North Carolina.”2 That same year, the NCGS issued Open‐File Report 2009‐013 and gas samples were taken from both shut‐in wells, Simpson #1 and Butler #3. NCGS made a series of presentations and briefings to interested industry, governmental and environmental groups in 2009 and 2010. For the successful commercial production of oil and gas, geologists look at three indicators in the shale: total organic carbon (TOC), kerogen type and thermal maturity. TOC is indicative of the quantity of organic matter available for the formation of hydrocarbons. Kerogen type is an indication of the type of organic matter. When organic matter is buried in a basin, it is exposed to increasingly higher subsurface temperatures. When heated to temperatures of approximately 60°C or higher, kerogen yields bitumen – the fraction of organic matter that is soluble in organic solvents. Further heating then creates liquid hydrocarbons and hydrocarbon gas. Oil is produced within a certain temperature range, called the “oil window.” As temperatures increase beyond the oil window, the hydrocarbons are cracked into natural 1Reid, Jeffrey C. and Robert C. Milici. “Hydrocarbon Source Rocks in the Deep River and Dan River Triassic Basins, North Carolina.” U.S. Geological Survey Open‐File Report 2008‐1108. 2North Carolina Geological Survey. “Information Circular 36: Natural Gas and Oil in North Carolina.” http://www.geology.enr.state.nc.us/pubs/PDF/NCGS_IC_36_Oil_and_Gas.pdf 3Reid, Jeffrey C. and Kenneth B. Taylor. “Shale Gas Potential in Triassic Strata of the Deep River Basin, Lee and Chatham Counties, North Carolina with pipeline and infrastructure data.” North Carolina Geological Survey Open‐file Report 2009‐01. North Carolina Oil and Gas Study April 2012 22 gas. Type I kerogen indicates lake deposits with oil prone rocks. Type II indicates marine deposits with oil prone rocks. Type III indicates gas prone source rocks.4 Thermal maturity dictates the wetness of the gas. Natural gas that contains less methane and more ethane and other complex hydrocarbons is called wet gas. Natural gas that occurs without these liquid hydrocarbons is called dry gas. Table 1‐1 below shows the stages of thermal maturity. Table 1‐1. Stages of Thermal Maturity5 Stage of Thermal Maturity Temperature Process Product Immature <60°C Bacterial and plant organic matter converted to kerogens and bitumen Methane generated by microbial activity Mature 60°C ‐ 160°C Rock generates and expels most of its oil Oil Postmature >160°C Postmature for oil/mature for gas Condensate / wet gas and at higher temperatures, dry gas only Thermal maturity of sedimentary rocks is evaluated based on vitrinite reflectance values (%Ro), thermal alteration and a parameter called T max. Vitrinite reflectance is a measure of the amount of light reflected by vitrinite (an organic component of kerogens) when examined under a microscope. Vitrinite reflectance is used as a measure of thermal maturity because it is sensitive to temperature ranges in a way that corresponds to hydrocarbon generation. It is measured by immersing grains of vitrinite in oil, and it is expressed as percent reflectance in oil, Ro. Table 1‐2 shows thermal maturity based on vitrinite reflectance values. Table 1‐2. Interpreted Maturation Based on Vitrinite Reflectance Values6 Vitrinite Reflectance (%Ro) Thermal Maturity <0.60 Immature 0.60 – 1.00 Oil window 1.00 – 1.40 Condensate / wet gas window >1.40 Dry gas window 4Jarvie, Dan. “Evaluation of Hydrocarbon Generation and Storage in the Barnet Shale, Ft. Worth Basin, Texas.” Humble Instruments & Services, Inc. 2004. Accessed February 19, 2012. http://blumtexas.tripod.com/sitebuildercontent/sitebuilderfiles/humblebarnettshaleprespttc.pdf 5Pennsylvania Department of Conservation and Natural Resources. “Thermal Maturation and Petroleum Generation.” Accessed February 19, 2012. http://www.dcnr.state.pa.us/topogeo/oilandgas/sourcerock_maturation.aspx. 6Jarvie, 2004. North Carolina Oil and Gas Study April 2012 23 Tmax is the temperature at which the maximum release of hydrocarbons from cracking of kerogen occurs during organic decomposition. Tmax indicates the stage of maturation of the organic matter. Analysis of the organic‐rich lake sediments in the Triassic Basin showed that they are predominantly gas‐prone with some oil shows. The TOC data exceeds the conservative 1.4 percent threshold necessary for hydrocarbon expulsion (Figure 1‐5). The average TOC for the samples tested from the eight wells is 5.06 percent, 3.6 times the 1.4 percent threshold.7 Figure 1‐5.Total Organic Carbon (TOC) as a percentage for samples from eight wells (seven coal holes and one oil test hole). Geochemical laboratory tests also showed the organic matter is derived from terrestrial Type III woody (coaly) material and from lacustrine Type I (algal material), which is a preliminary indicator for wet gas (natural gas with light oil condensates). The quantity of potential gas volumes or the potential gas condensates is unknown from the geochemical test. The thermal alteration index (TAI) data, which is used to determine the temperature rock has attained during its history, combined with the vitrinite reflectance data for the sediments in the 7 Reid and Milici, 2008. North Carolina Oil and Gas Study April 2012 24 Triassic Basin, indicate levels of thermal maturity suitable to generate hydrocarbons. The maturity for a composite of data from five wells is shown in Figure 1‐6. Samples from the Dummit‐Palmer well range from immature to overmature. This well was located near a diabase dike – an intrusion of molten magma into the sedimentary basin shortly after the basin formed. The diabase heated the organic‐rich shale and caused the hydrocarbons to be “overcooked;” as a result, these shales would not be suitable for the commercial production of oil or gas. For samples from the U.S. Bureau of Mines coal exploration hole #2, the data are clustering in the oil window to the condensate‐wet gas zone. For data from the Simpson #1 well, more samples are in the condensate‐wet gas zone. Figure 1‐6. Maturity (Tmax) for multiple wells. These data are color‐coded to the five wells. Combining the organic geochemical data with the interpretation of the 1985‐86 seismic data delineated a potential target location with an area of more than 59,000 acres, which is shown in Figure 1‐7. This compilation map shows the location of seismic lines, detailed geologic mapping from Reinemund (1947, 1955), the location of the coal mines, coal exploration holes, oil and gas test wells and the two interpreted geologic cross‐sections by Reinemund. The hill shade relief topography that forms the bottom layer of this figure is derived from LiDAR (Light Detection and Ranging), a remote sensing technology that illuminates targets with light. The LiDAR was collected by the N.C. Floodplain Mapping Program in 2002. Several igneous North Carolina Oil and Gas Study April 2012 25 intrusive bodies (diabase dikes) are shown in red on the geologic map. The elevation tends to follow the diabase dikes, since these rocks weather quickly, but the ridges along their length are due to the baking of the country rock. Figure 1‐7. Map of part of the Sanford sub‐basin showing the seismic lines (yellow), the coal mine locations, coal exploration holes and oil and gas test wells. The red line shows the approximately 59,000 acres where the vitrinite reflectance (%Ro) is greater than or equal to 0.8. The underlying geologic map is from Reinemund (1955) and the hill shade elevation is from LiDAR (N.C. Floodplain Mapping, 2002). The two green lines that run from the northwest to southeast on the map are the locations of two geologic cross‐sections A – A’ and B – B’ constructed by Reinemund (1955). In 1978 and 1979, the U.S. Army Corps of Engineers (USACE) contracted with N.C. State University and later with the University of North Carolina at Chapel Hill to investigate potential groundwater resources in the land adjacent to the future site of the Jordan Lake. During those investigations, the USACE was looking for groundwater resources in the diabase dikes to sustain potable water usage by campers at campsites around the lake. The intrusion of the diabase dikes and sills at temperatures of 1,200 degrees Fahrenheit baked the country rock, which significantly reduced the country rock’s permeability. As the diabase cooled, cracks formed inside the dikes and sills, which provided avenues for water to further North Carolina Oil and Gas Study April 2012 26 weather the diabase. This process provides the potential for a tabular body of groundwater to be held by the country rock like a cistern. Using hand‐held proton precession magnetometers, students from the two schools collected data from dozens of traverses to find and map the dike locations. Profiles across the dikes were analyzed to determine the dike orientation. Next, electrical resistivity profiles were collected to determine if there were indicators of groundwater in the weathered dikes. For dikes with the lowest resistivity measurements, USACE contractors drilled test wells and conducted pump tests to assess potential groundwater resources. While both schools found groundwater in the diabase dikes, the resources were insufficient to support the proposed number of campsites. Today, dikes in the Triassic basins are sometimes a source of groundwater. The country rock within about half of the thickness of the dike or sill is altered by the intrusive heat and will become less permeable. Any oil and gas within those zones is destroyed. It is unclear at this time if natural gas exploration companies would see advantages in drilling near the diabase dikes and sills. While several peer‐reviewed studies on gas migration in Pennsylvania have been published on the migration of thermogenic methane from deep sources such as the Marcellus and the Utica shales, current data for northeastern Pennsylvania shows the thermogenic methane is sources from the upper Devonian Catskill Formation, not the deeper sources.8 Three‐dimensional seismic reflection data, some collected using three‐component geophones, would provide the best indicator of the presence of dikes, sills and faults. This information would assist the state by providing a better understanding of the structure of the Triassic rocks. To better understand the geometry and structure of the Sanford sub‐basin, Figure 1‐8 shows the depth to basement. This map is calculated from the depth to the metamorphic and igneous rocks that are under the Mesozoic sediments. The thickness of the organic‐rich shale is shown in Figure 1‐9. Both of these maps are plotted using meters (30 meters ~ 100 feet). 8 Molofsky, Lisa J, J.A. Connor, S. K. Farhat, A.S. Wylie, Jr., T. Wagner (2011). Methane in Pennsylvania water wells unrelated to Marcellus shale fracturing , Oil and Gas Journal (December 5, 2011 edition), 12 pp. North Carolina Oil and Gas Study April 2012 27 Figure 1‐8. Map of the depth to basement of the Sanford sub‐basin. The dark blue to purple region, which is under Seismic Line 113, indicates the deepest part of the basin is 7,100 feet below the surface. Another deep point in the sub‐basin is found in Moore County. The units are in meters and each color ramp indicates 100 meters (i.e. ~300 feet). North Carolina Oil and Gas Study April 2012 28 Figure 1‐9. Map of the thickness of the organic‐rich shale (Cumnock Formation) in the Sanford sub‐basin. The units are in meters and the average thickness ranges from 60 meters (~180 feet) to 180 meters (~540 feet). C. Estimating the resources 2012 USGS resource assessment In 2010, DENR provided data collected and analyzed by the North Carolina Geological Survey to the U.S. Geological Survey (USGS) for use in a national resource assessment of Mesozoic basins across the United States. USGS provided a modest grant to the N.C. Geological Survey to convert paper records in the NCGS archive (geophysical logs, maps, reports, seismic lines, geochemical analyses and lithologic logs) to digital form. The N.C. Geological Survey completed conversion and analysis of the information in December 2010. On July 12‐13, 2011, Dr. Jeff Reid, the principal research geologist on this project, and Mr. Jim Simons, State Geologist, briefed USGS on the North Carolina data as part of the USGS geological assessment of Mesozoic resources. North Carolina Oil and Gas Study April 2012 29 Gas Resource Terms Technically recoverable gas: The total amount of a resource, both discovered and undiscovered, that is thought to be recoverable with available technology, regardless of economics. Only about 20 percent of this gas can actually be recovered using today’s technology. Original gas‐in‐place: The entire volume of gas contained in the reservoir, reg |
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