[Senate Hearing 107-104]
[From the U.S. Government Publishing Office]
S. Hrg. 107-104
COALBED METHANE DEVELOPMENT IN MONTANA
=======================================================================
HEARING
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
SPECIAL HEARING
MARCH 10, 2001--BILLINGS, MONTANA
__________
Printed for the use of the Committee on Appropriations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
______
U.S. GOVERNMENT PRINTING OFFICE
71-744 PS WASHINGTON : 2001
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON APPROPRIATIONS
TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky TOM HARKIN, Iowa
CONRAD BURNS, Montana BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama HARRY REID, Nevada
JUDD GREGG, New Hampshire HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio TIM JOHNSON, South Dakota
MARY L. LANDRIEU, Louisiana
Steven J. Cortese, Staff Director
Lisa Sutherland, Deputy Staff Director
James H. English, Minority Staff Director
------
Subcommittee on Interior and Related Agencies
CONRAD BURNS, Montana, Chairman
TED STEVENS, Alaska ROBERT C. BYRD, West Virginia
THAD COCHRAN, Mississippi PATRICK J. LEAHY, Vermont
PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina
ROBERT F. BENNETT, Utah HARRY REID, Nevada
JUDD GREGG, New Hampshire BYRON L. DORGAN, North Dakota
BEN NIGHTHORSE CAMPBELL, Colorado DIANNE FEINSTEIN, California
PATTY MURRAY, Washington
Professional Staff
Bruce Evans
Ginny James
Leif Fonnesbeck
Christine Drager
Ryan Thomas
Peter Kiefhaber (Minority)
Brooke Livingston (Minority)
Administrative Support
Isaac Green
C O N T E N T S
----------
Page
Opening statement of Senator Conrad Burns........................ 1
Statement of Senator Max Baucus.................................. 2
Statement of Thomas P. Richmond, administrator, Montana Board of
Oil and Gas Conservation....................................... 4
Prepared statement........................................... 6
Statement of Mat Millenbach, State director, Montana, Bureau of
Land Management................................................ 8
Prepared statement........................................... 11
Statement of H. William Hochheiser, Manager, Oil and Gas
Environmental Research, Office of Fossil Energy, U.S.
Department of Energy........................................... 14
Prepared statement........................................... 17
Statement of Michael C. Caskey, vice president, Redstone Gas
Partners, LLC.................................................. 27
Prepared statement........................................... 29
Statement of Neta Old Elk, director, Crow Tribal Mining and
Minerals....................................................... 35
Prepared statement........................................... 36
Statement of Geri Small, president, Northern Cheyenne Tribe...... 37
Prepared statement........................................... 41
Statement of Wayne L. Kelley, president, Omega Oil Co............ 43
Prepared statement........................................... 45
Statement of Michael E. Nicklin, Ph.D., PE, president, Nicklin
Earth & Water.................................................. 55
Prepared statement........................................... 57
Statement of Steve Gilbert, board member, Northern Plains
Resource Coun-
cil............................................................ 59
Prepared statement........................................... 61
Statement of David R. Heinz, manager of business development, CMS
Oil and Gas Co................................................. 65
Prepared statement........................................... 66
Questions submitted by Senator Conrad Burns...................... 71
COALBED METHANE DEVELOPMENT IN MONTANA
----------
SATURDAY, MARCH 10, 2001
U.S. Senate,
Subcommittee on Interior and Related Agencies,
Committee on Appropriations,
Billings, MT.
The subcommittee met at 10:01 a.m., in the ballroom of the
Student Union Building of Montana State University, Billings,
MT, Hon. Conrad Burns (chairman) presiding.
Present: Senator Burns.
Also present: Senator Baucus.
OPENING STATEMENT OF SENATOR CONRAD BURNS
Senator Burns. We will gavel this committee to order. This
is the Appropriations Subcommittee on Interior Appropriations.
And we have seen sort of a--over the past couple of years we
have seen a law that the government did not write that is
working very well right now, called the law of supply and
demand. And, of course, the energy has been in the minds of and
also in the pocketbooks of a lot of people in the last couple
of years. We see a lot of things happening.
So I would like to thank our witnesses for coming today and
everybody that is in here because it does indicate quite a lot
of interest in what is going on, not only here in our State,
but Wyoming and, of course, energy production across this
country.
Everyone in this room is familiar with both the economic
potential and the possible environmental concerns associated
with coalbed methane development. I was pleased to see both
KTVQ here in Billings and the Billings Gazette set the stage
for this hearing for their recent series on coalbed methane
development.
It is my hope that today will shed more light on some of
the concerns mentioned in those articles and give us an idea as
to how we can move ahead with responsible development that will
allow Montana to capture the potential of this resource. Not
only does Montana want to be a part of solving the problem on
energy, but we also should participate in the benefits of
those.
The economics of coalbed methane development are
staggering. All estimates of gas volume in the area reach into
the tens of trillions of cubic feet of available gas. The
estimated value of that gas deposit has reached as high as $70
billion. A majority of potential lies in Wyoming, but Montana
has the opportunity to capture a sizeable portion of this
economic boom.
With our current budget concerns in the State, royalties
and the tax base that this development will provide is a
welcome addition to the State's revenue stream. This added
money could be invested in our education system, used to foster
economic development in new industry sectors, and new
opportunity comes at a time when Montana needs it most.
And our congratulations goes to my colleague to my left
here because he started this idea of economic development a
year ago, been holding meetings. And we would hope that it
would fit into his ideas and all of our ideas on how we turn
this State around economically.
Montana has seen the boom and bust before, and the impacts
sometimes were negative. Environmental concerns must be
addressed, and they must ensure that we are not threatening the
agricultural section of the region. Water is our most precious
resource, and Montana's largest economic sector, agriculture,
is dependent on it.
Montana has some of the most stringent environmental
guidelines in the world because we recognize the land is the
foundation for our quality of life as well as our economy. We
must ensure that the Federal agencies have adequate funding and
environmental impact statements prepared in a timely manner. We
must explore options to mitigate the impacts of water disposal
and find ways to do so in a manner that makes economic sense.
So I want to close by reminding everyone here of the
greater potential available. Right now America is facing an
energy crunch. I was struck by--I went and made a speech to the
consumer electronics industry about a month ago, and especially
we are seeing the blackouts and the rolling blackouts in
California.
And some of that that is going on in California is self-
imposed by their own State and their attitude towards energy,
but they are a part of this Union. And their economy is so
large. No matter what they do, they have impacts on the rest of
us, especially us in the Northwest. So we want to be a part of
the solution, not a part of the problem.
And we also know that fossil fuels--we are going to put
more money into clean coal technology and in ways that we can
use the energy, and we can be a positive answer before America.
It is essential. I do not think there is anything that is
contributing to the economic slowdown in this country right now
as the energy impact is having on our country.
We have the best and the brightest in the room today. And I
hope we can sit back, discuss these issues frankly in order to
create a strong record of detailing the best option and then
move ahead. Make the decision and do it.
And again I want to thank Senator Baucus, who is the
ranking member on the Senate Finance Committee, for attending
today. And, Max, thank you very much for coming. And if you
have a statement, why, it's all yours.
STATEMENT OF SENATOR MAX BAUCUS
Senator Baucus. Thank you very much, Conrad.
This is clearly a very important decision for us in
Montana. Wyoming has reaped huge benefits in the development of
coalbed methane gas. I am struck with the disparity between our
respective State legislatures' abilities to balance their
budgets, and Helena having a very difficult time. And clearly
Wyoming has a large surplus. And it is also true that a lot of
people individually have benefitted from the development of
coalbed methane gas.
We stated the obvious. We do know the problems that are
associated--whether it is water quantity, water quality,
erosion, other roads and fumes and whatnot--all the problems
that are associated with development. I suppose they are not
always problems, but they are problems to some people. So the
real key question is how to best find balance and how best to
mitigate against any potential problems that might arise so
that we can have the benefits but minimize the problems;
recognizing that there's no free lunch.
It is something we all know more and more as we grow older,
that there always are trade-offs. There is compensation in
everything. So that those who see large dollar signs might have
to back off a little bit and help work to mitigate against some
of the adverse effects. On the other hand, those who see
nothing but disaster might have to also think a little bit
more, back off a bit and look for ways to see if maybe they
can--that there are ways to mitigate potential problems, and
maybe they can find some benefits as well.
So I just urge all of us to--while we are giving facts and
points of view, to also sit back a bit and listen, and
particularly listen to the other guy's point of view and put
ourselves in the shoes of the other person a little bit,
because in so doing we are more likely to find, I think, a
solution in how to deal with all of the questions that evolve
around this.
We can learn a lot from Wyoming. And Wyoming, they're ahead
of us.
Senator Burns. And we cannot allow that to continue.
Senator Baucus. In all respects.
But we can learn. That's an advantage we do have here at
home.
So I am just very honored to be here and be a part of this
hearing and very much thank my colleague. You know, this 2001,
this millennium is kind of a new era. The Montana delegation is
really starting to work real well together here. Now, that
might not be a good thing, but I think it is a good thing. And
I just wanted to compliment Conrad for inviting me to join him
here. And who knows? There may be some reciprocation on down
the road. Let's get on with it.
Senator Burns. Thank you, Senator, and we appreciate you
being here.
We are going to open the panel up this morning with three
representatives we think that can sort of lay the groundwork
for us today and to take into consideration what they have to
say and, of course, the questions we may have for them. We have
Tom Richmond, who is the administrator of the State of Montana
Oil and Gas Board; Mat Millenbach, who is the Montana State
director for the BLM--and, Mat, congratulations on being named
to that--and Bill Hochheiser, environmental program manager,
Office of Natural Gas and Petroleum in the Department of
Energy. So we appreciate you gentlemen being here today.
STATEMENT OF THOMAS P. RICHMOND, ADMINISTRATOR, MONTANA
BOARD OF OIL AND GAS CONSERVATION
Senator Burns. And we are going to ask Tom Richmond if he
will open up with his testimony today, and we look forward to
hearing from you.
Mr. Richmond. Thank you, Mr. Chairman, Senator Baucus.
Senator Burns. You might want to pull that microphone up to
you because we want everybody to hear every word they will hang
on.
Mr. Richmond. I was going to thank you for making my
Saturday interesting.
Senator Burns. I figured you need one.
Mr. Richmond. Again, thank you for the opportunity to
discuss coalbed methane development in Montana.
The Montana Board of Oil and Gas Conservation is the
regulatory agency for oil and gas development activities on
State-owned and private land in Montana. Our board consists of
seven members appointed by the governor, including industry
representatives, landowners, and public members.
We regulate industry activities to prevent economic and
physical waste, to conserve oil and gas resources by
establishing rules for exploration and production, and we
protect the property rights of the owners of oil and gas. We
are very interested in seeing that coalbed methane development
occurs in a way that maximizes the recovery of the gas resource
while protecting the land and water resources.
Through a process of notice and public hearing our board
establishes the parameters that determine the density of wells;
the minimum distances that wells can be drilled from property
lines; and the drilling, completion, and producing practices
appropriate for a particular area. We have been doing this
since 1954.
The board developed a programmatic environmental impact
statement in 1989 to incorporate environmental review and
assessment processes into its regulatory activities. The
board's environmental review process is required by the Montana
Environmental Policy Act, legislation that mirrors the National
Environmental Policy Act.
There have been CBM exploration activities in Montana for a
number of years. In 1990, two wells were drilled in the
vicinity of Decker, Montana, to test the wall and canyon coals
of the Fort Union formation for potential gas production. One
of those wells reported an initial production capacity of
75,000 cubic feet of gas per day.
In 1990 and 1991, a Billings-based operator drilled several
wells in the Bear Creek area in Carbon County to test for gas
in the Fort Union formation. And some gas was encountered in
those wells.
In 1995, another operator drilled a well near Boyd in
Carbon County to test deeper, geologically older wells in--
older coals in Eagle formation. This well encountered no
commercial shows of natural gas, but did encounter very high
quality water.
Also in 1995, Redstone Gas Partners drilled seven CBM test
wells in the Decker area. More CBM exploration and production
activities occurred in Big Horn County in 1997 as Redstone
expanded the Tongue River pilot project. In that year we
permitted 31 CBM wells. 41 more wells were permitted in 1998,
and 156 wells in 1999.
We had issued an additional 24 permits by the time Northern
Plains Resource Council filed its lawsuit against the board in
March of 2000. I should note that not every permitted well is
drilled. In the case of these several permits, a number of them
have expired or been withdrawn.
As a result of NPRC's lawsuit, the board instituted a
moratorium in new CBM permits. In June 2000, we agreed with
NPRC to settle the lawsuit. The agreement provides for the
completion of the Redstone project by authorizing the drilling
of up to 325 wells, 250 of which may be produced commercially.
The drilling of an additional 200 wells on a statewide
basis is allowed under the stipulations that prohibit
commercial production and the discharge of produced water. The
board agreed to prepare or participate in the preparation of an
environmental document that would supplement it's 1989
programmatic to cover coalbed methane exploration and
production.
A 1999 report from the Gas Research Institute attributes 39
trillion cubic feet of natural gas to the coalbeds in the
Powder River Basin in Montana and Wyoming, 3.7 trillion cubic
feet to coalbed--coal basins entirely within the State, and
another 3 trillion cubic feet to the Big Horn Basin, also
shared with Wyoming.
There are varying opinions as to the recoverable portion of
gas attributed to Montana, but clearly our CBM resources
present a significant opportunity for economic development in a
part of our State where opportunities are scarce.
Development of natural gas from coalbeds presents unique
challenges to regulatory agencies such as our board. No one in
my organization believes we should trade away or impair the
traditional agricultural base of the areas likely to be
affected by CBM. Yet it is our experience that oil and gas and
agriculture coexist, perhaps not without occasional conflict,
but certainly without the need for one use to exclude the
other.
Our challenge is to implement a regulatory framework that
uses good sense and good science to manage the impacts of
development. As we educate ourselves about CBM development, we
also need to educate others about our existing regulatory
framework and about those new problems we need to address. The
CBM environmental impact statement will be the centerpiece of
this education effort.
The board regulates oil and gas activities on private and
State-owned lands, but has no power to determine when or if
those lands are leased for oil and gas. The parties to the
lease determine the terms and conditions of development. Our
board is challenged by the need to assure equity in development
of oil and gas resources. Each owner must be afforded the
opportunity to recover his or her fair share of the resource.
We have had a long and mutually beneficial relationship
with BLM in Montana in regulating the spacing and location of
the wells to ensure that both the public interest and the
interests of the private landowners are protected. The joint
Federal/State EIS builds on that relationship and provides a
measure of assurance that neither public nor private land will
be disadvantaged by agencies of government failing to reach
decisions concurrently.
The Senate Interior Appropriations Subcommittee's timely
financial support of the CBM EIS in BLM's current year has
allowed this effort to proceed within the time frame we had
predicted would be needed if the board were to independently
develop a supplement to our programmatic.
I want to thank the subcommittee for its support of some
Department of Energy issues in two key areas important to us.
The first is the database that we use to track and generate
statistics for coalbed methane activities, as well as
conventional oil and gas, and UIC in Montana, underground
injection controls.
This is the risk-based data management system that was
developed through the Ground Water Protection Council using DOE
grant money. Montana was one of the original four test States
to develop the system. Now 14 States use all or part of RBDMS,
and the States of Alaska and North Dakota will soon be using
RBDMS to run their oil and gas programs.
DOE's ongoing support of RBDMS has allowed us to develop a
website that both industry and the public can use to obtain
information and track development on a real-time basis. All of
our permitting activities and completion reports and other
information is updated daily.
The second DOE project that we are participating in
involves the development of best management practices for CBM.
And it will include a computer-based geographic information
system to facilitate better decision making. An important part
of this process is sharing data with both industry and the
public.
Natural gas is a premium fuel and its demand to generate
electricity for both new power plants and as a replacement for
other fuels makes unconventional sources such as CBM economic
to recover. Natural gas has been the fuel of choice for space
heating in residential and commercial establishments for many
years, and that demand continues to grow. Montana coal fields
contain a significant resource of natural gas that can be
developed with this need.
PREPARED STATEMENT
To add our resources to the nation's gas supply requires
that we complete the necessary environmental planning, develop
appropriate mitigation, and provide a framework necessary to
assure good decisions. We have joined with our State and
Federal partners in an ambitious schedule to accomplish these
goals as quickly as possible. This committee's support of the
DOE programs and the Federal/State EIS is very much
appreciated.
Thank you for the opportunity to testify today.
[The statement follows:]
Prepared Statement of Thomas P. Richmond
Thank you for the opportunity to discuss Coal Bed methane
development in Montana.
The Montana Board of Oil and Gas Conservation is the regulatory
agency for oil and gas development activities on state and private land
in Montana. Our Board consists of seven members appointed by the
Governor and includes industry representatives, landowners, and public
members. We regulate industry activities to prevent physical and
economic waste, to conserve oil and gas resources by establishing rules
for exploration and production and to protect the property rights of
the owners of oil and gas. We are very interested in seeing that CBM
development occurs in a way that maximizes the recovery of the gas
resource while protecting land and water resources.
Through a process of notice and public hearing, the Board
establishes the parameters that determine density of wells, minimum
distances that wells can be drilled from property lines and drilling,
completion, and producing practices appropriate for the area. We have
been doing this since 1954. The Board adopted a Programmatic
Environmental Impact Statement in 1989 incorporating environmental
review and assessment policies into its regulatory activities. The
Board's environmental review process is required by the Montana
Environmental Policy Act, legislation that mirrors the National
Environmental Policy Act.
There have been CBM exploration activities in Montana for a number
of years. In 1990, two wells were drilled in the vicinity of Decker, MT
to test the Wall and Canyon coals of the Fort Union Formation for
potential gas production. One well reported an initial production
capability of 75,000 cubic feet of natural gas per day. In 1990 and
1991 a Billings based operator drilled several wells in the Bear Creek
area of Carbon County to test for gas in the Fort Union Formation. Some
gas was encountered in these wells. In 1995 another operator drilled a
well near Boyd, also in Carbon County, to test deeper, geologically
older coals in the Eagle formation. This well encountered no commercial
shows of natural gas, but did encounter very high quality water. Also
in 1995 Redstone Gas Partners drilled seven CBM test wells in the
Decker area. More CBM exploration and development activities occurred
in Big Horn County in 1997 as Redstone expanded the Tongue River pilot
project. In that year we permitted 31 CBM wells, 48 more wells were
permitted in 1998 and 156 wells in 1999. We had issued an additional 24
permits by the time Northern Plains Resource Council filed its lawsuit
against the Board of Oil and Gas Conservation in March of 2000. I
should note that not every permitted well is drilled and in the case of
these permits, several have expired, or been withdrawn.
As a result of NPRC's lawsuit, the Board instituted a moratorium on
new CBM permits. In June 2000, we agreed with NPRC to settle the
lawsuit. The agreement provides for the completion of the Redstone
project by authorizing the drilling of up to 325 wells, 250 of which
may be produced commercially in the Decker area. The drilling of up to
200 additional exploratory wells on a statewide basis is allowed under
stipulations that prohibit commercial production and discharge of
produced water. The Board agreed to prepare or participate in the
preparation of an environmental document that supplements its 1989
Programmatic EIS to cover coal bed methane exploration and production
activities.
A 1999 report from the Gas Research Institute attributes 39
trillion cubic feet of natural gas to the coal beds of the Powder River
Basin in Montana and Wyoming, 3.7 trillion cubic feet to coal basins
entirely within Montana, and another 3 trillion cubic feet to the
Bighorn Basin in Montana and Wyoming. While there are varying opinions
as to the recoverable portion of that gas attributed to Montana, our
CBM resources present a significant opportunity for economic
development in a part of our state where opportunities are scarce.
Development of natural gas from coal beds presents unique challenges to
regulatory agencies such as the Board of Oil and Gas. No one in my
organization believes we should trade away or impair the traditional
agricultural base in the areas likely to affected by CBM development.
Yet it is our experience that oil and gas and agriculture co-exist, not
without occasional conflict but certainly without the need for one use
to exclude the other.
Our challenge is to implement a regulatory framework that uses good
science and good judgment to manage the impacts of development. As we
educate ourselves about CBM development we also need to educate others
about our existing regulatory framework and those new problems we need
to address. The CBM Environmental Impact Statement will be the
centerpiece of this education effort.
The Board of Oil and Gas Conservation regulates oil and gas
activity on private and state-owned lands, but it has no power to
determine when or if those lands are leased for oil and gas. The
parties to the lease determine the terms and conditions of development.
Our Board is further challenged by the need to assure equity in
development of oil and gas resources. Each owner must be afforded the
opportunity to recover his or her fair share of the resource. We have
had a long and mutually beneficial relationship with BLM in Montana in
regulating the spacing and location of wells to ensure that both the
public interest and the interests of private owners are protected. The
joint Federal/State EIS builds on that relationship and provides a
measure of assurance that neither public nor private land will be
disadvantaged by agencies of government failing to reach decisions
concurrently. The Senate Interior Appropriations Subcommittee's timely
financial support of the CBM EIS in BLM's current year appropriation
has allowed this effort to proceed within the same timeframe we had
predicted would be needed if the Board were to independently develop a
supplement to our 1989 Programmatic EIS.
I also thank the subcommittee for its support of the Department of
Energy budget in two areas important to CBM development and to my
agency. The first is the database we are using to track and generate
statistics for Coal Bed Methane activities as well as conventional oil
and gas and Underground injection in Montana. The Risk Based Data
Management System was developed through the Ground Water Protection
Council using a DOE grant. Montana was one of four test states in the
development of this system; now over 14 states use all or part of RBDMS
to operate their Oil and Gas programs; the states of Alaska and North
Dakota will soon be added to the list.
DOE's ongoing support of RBDMS has allowed us to develop a website
both industry and the public can use to obtain information and track
development on a real time basis. All our permitting activity, well
completion information and production are replicated to our web server
daily. The second DOE project in which we are participating involves
the development of Best Management Practices and mitigation strategies
for CBM based on production practices in specific environmental
settings. A computer based geographic information system will be
developed to facilitate better decision-making and manage environmental
concerns on a site-specific basis. An important feature of the project
is sharing of the GIS system and data with industry and the public
using the Internet. We are just staring the initial phase of this
project and have received a great deal of assistance and support from
our DOE Program Manager, Mr. John Ford in DOE's National Petroleum
Technology office in Tulsa.
Natural gas is a premium fuel and the demand for gas to generate
electricity for both new power plants and as a replacement for other
fuels in existing plants makes unconventional gas such as CBM economic
to recover. Natural gas has been the fuel of choice for space heating
in residential and commercial establishments for many years and that
demand continues to grow. Montana's coal beds contain a significant
resource of natural gas that can be developed to meet this need. To add
our resources to the nation's gas supply requires that we complete
necessary environmental planning, develop appropriate mitigation, and
provide a framework necessary to assure good decisions. We have joined
with our state and federal partners in an ambitious schedule to
accomplish these goals as quickly as possible. This committee's support
of the DOE programs and the State/Federal EIS is very much appreciated.
Thank you again for the opportunity to testify today.
Senator Burns. Thank you. And I failed to mention we are
going to kind of hold you to anywhere around 5 minutes, if you
can consolidate your statements. But your full statement will
be made part of the record. But if you could consolidate, that
would sure help us along.
STATEMENT OF MAT MILLENBACH, STATE DIRECTOR, MONTANA,
BUREAU OF LAND MANAGEMENT
Senator Burns. Mat Millenbach, who is the new director for
the Montana District of Bureau of Land Management. And, Mat,
congratulations, and thanks for giving up your Saturday today.
Mr. Millenbach. Thanks, Senator Burns, Senator Baucus. I
appreciate the opportunity to appear here today and discuss the
development of coalbed methane resources in the Powder River
Basin in Montana.
First of all, I would like to introduce some of the folks
that are here from the BLM. Al Pierson, down here in the front
row, is the State director for Wyoming, who will be here to
answer any question you might have about BLM development down
there. And then Fred O'Farrell in the blue shirt and Jim Lidown
in the blue sport coat are our coalbed methane experts in Miles
City.
As you know, the Powder River Basin contains large coal
deposits that have methane gas trapped in the coal seams.
Recently there has been a significant increase in coalbed
methane production within the basin, particularly in Wyoming,
where over 8,500 private, State, and Federal coalbed methane
wells have been drilled. And it's estimated that roughly 50
percent of them are now producing.
Currently in Montana, there are about 215 producing coalbed
methane wells. All of these wells are nonfederal wells. With
rising natural gas prices, the industry is interested in
coalbed methane development in southeastern and south central
Montana. And we put up a couple of maps here so you can refer
to those as you need.
More than 50 percent of the oil and gas estate within the
Montana portion of the Powder River Basin with high or moderate
potential for development of coalbed methane is federally-
owned. Furthermore, approximately 60 percent of the Federal oil
and gas estate in this portion of the Powder River Basin is
already leased.
Recognizing that environmentally responsible development of
coalbed methane resources can be an important element of our
national energy strategy, I believe that we should have the
following three guiding principles: First, we need to set
resource protection standards and make sure those standards are
met. Second, industry should be responsible for the costs of
developing the resources, not the neighboring landowners or the
taxpayers. And third, companies must clean up after themselves
and restore the land when their activities cease.
Before we can make permanent decisions that respond to the
new and greatly expanded interest in coalbed methane
development we need to have an up-to-date analysis of its
potential impacts. To make this analysis of both conventional
oil and gas and expanded coalbed methane development, BLM and
the State of Montana are preparing a joint environmental impact
statement. A memorandum of understanding signed by the BLM and
the Montana Department of Environmental Quality as co-leads is
now being amended to include the Montana Board of Oil and Gas
Conservation.
A memorandum of understanding has also been signed with the
Bureau of Indian Affairs as a cooperating agency for the
environmental statement. In addition, agreements are being
developed that would add the Crow and Northern Cheyenne Tribes
and the Environmental Protection Agency as cooperators.
BLM's part of the environmental statement will focus on
amending our Billings and Powder River resource management
plans. And those can be seen on the map outlined in the dark
black line around south central and southeastern Montana.
Scoping for the environmental statement began in December
of 2000. This past January more than 300 people attended public
scoping meetings in Miles City, Billings, Ashland, Broadus, and
Helena. BLM received about 200 letters during the scoping
period. The major issues raised were related to the potential
impacts of coalbed methane development on ground water and
surface water resources, water quality, impacts to soil and
land use, introduction of nonnative plants and noxious weeds,
and air quality.
During preparation of the environmental statement, BLM will
process applications for permit to drill for conventional oil
and gas wells, but for coalbed methane wells we will only be
approving drilling permits for drilling and testing in areas
not previously explored. Drilling and testing coalbed methane
wells will provide needed data that can be used in the
environmental statement. Until our environmental statement is
completed, coalbed methane will not be produced for sale from
any Federal wells, and any water produced from test wells will
be contained on site in tanks or reserve pits.
We are planning to have a draft environmental statement
available for a 90-day public review period by the end of this
year. Using this schedule, a final environmental impact
statement should be ready as soon as summer of 2002, followed
by a 30-day protest period.
BLM has signed a contract with Arthur, Langhus & Layne to
prepare the environmental impact statement. This contractor has
a wide range of experience and skills, including expertise in
hydrology, soils, wildlife, and tribal consultation. Work on
the environmental statement between BLM and the contractor is
progressing on schedule.
There are a number of important issues the environmental
statement will address. Water is vital to the development of
coalbed methane. The coalbed methane extraction process
involves pumping water from the coal seams to the surface in
order to reduce the water pressure that traps the gas in the
coal.
BLM has met with the Montana Bureau of Mines and Geology,
the Department of Environmental Quality, the Board of Oil and
Gas Conservation, and our environmental statement contractor to
discuss ways to analyze potential impacts to ground water.
These parties agree that the analyses need to address the major
issues at both the regional and local level. We will attempt to
identify areas that could experience the greatest impact.
Finally, we want to include a level of detail to show what
could be expected at a local level and provide landowners with
information for negotiating water well mitigation agreements.
Managing the water produced with methane is a challenge to
the oil and gas industry, as well as Federal and State
regulators. We all need to work together to find the solutions
and innovations to address the surface water issues and
potentials. All water disposal options would be handled in
accordance with applicable laws and regulations, and could
include water injection, infiltration, treatment prior to
discharge, discharge into waterways, and beneficial uses such
as dust abatement, stock watering, creation of wildlife
watering areas, and establishment of fisheries.
Monitoring wells will be used to assess the impacts to
ground water, comparing actual drawdown conditions to those
that are predicted in the environmental statement.
Additionally, water quality sampling data will be obtained from
other sites for this same purpose.
BLM Montana and Wyoming are presently discussing the
appropriate model to use to assess the impacts to air quality
in Montana. BLM in both States is committed to sharing all
resource data in the northern portion of the Powder River Basin
that straddles the States in order to better analyze cumulative
impacts resulting from coalbed methane development in both
States.
A major step in completing the environmental statement is
determining how much future development is reasonable to
expect. In the fall of 2000, the oil and gas industry predicted
approximately 10,000 wells to be drilled in the northern Powder
River Basin in Montana. Although BLM's review is still in the
preliminary stage, we believe that number could be considerably
higher.
Public involvement is another important aspect of our
environmental statement, and the public has many opportunities,
through this process, to participate.
PREPARED STATEMENT
We also have the coalbed methane coordination group,
consisting of Federal, State, and tribal agencies, landowners,
industry and environmental groups. And we intend to keep that
in place and use that for our deliberations.
This concludes my statement. I would be pleased to answer
any questions that members may have.
[The statement follows:]
Prepared Statement of Mat Millenbach
Mr. Chairman and members of the Subcommittee, I appreciate the
opportunity to appear here today to discuss the development of the
coalbed methane resources of the Powder River Basin in Montana.
coalbed methane development in montana
As you know, the Powder River Basin contains large coal deposits
that have methane gas trapped in the coal seams. Recently, there has
been a significant increase in coalbed methane (CBM) production within
the Basin--particularly in Wyoming, where over 8,500 private, state and
federal CBM wells have been drilled, and it is estimated that roughly
50 percent of them are now producing. Currently in Montana, there are
about 215 producing CBM wells. All of these wells are non-federal
wells. With rising natural gas prices, industry is interested in
coalbed methane development in southeastern and south central Montana.
More than 50 percent of the oil and gas estate within the Montana
portion of the Powder River Basin with high or moderate potential for
development of CBM is Federally-owned. Furthermore, approximately 60
percent of the Federal oil and gas estate in this portion of the Powder
River Basin is already leased.
Recognizing that the environmentally responsible development of CBM
resources can be an important element of our national energy strategy,
I believe we should have the following three guiding principles:
(1) We need to set resource protection standards and make sure
those standards are met;
(2) Industry should be responsible for the costs of developing the
resource--not the neighboring landowners or taxpayers; and
(3) Companies must clean up after themselves and restore the land
when their activities cease.
Before we can make permitting decisions that respond to the new and
greatly expanded interest in CBM development, we need to have an up-to-
date analysis of its potential impacts. To make this analysis of both
conventional oil and gas and expanded coalbed methane development, BLM
and the State of Montana are preparing a joint environmental impact
statement (EIS). We began analyzing a 1998 industry proposal--by
Redstone Gas Partners--to pursue limited CBM exploration and
development in the Powder River Basin through an environmental
assessment (EA). However, work on the EA was halted when our analysis
showed that potential impacts were sufficiently significant to justify
preparation of an EIS. The current EIS will include the Redstone area,
and it will provide the foundation for oil and gas decisions made by
each agency involved in this process.
For the State of Montana, the planning area (or scope) of the EIS
is statewide with emphasis on the BLM planning area in southeast and
south central Montana, and three areas in Blaine, Park and Gallatin
Counties. A Memorandum of Understanding (MOU) signed by BLM and the
Montana Department of Environmental Quality (DEQ) as co-leads is now
being amended at the Governor's direction to include the Montana Board
of Oil and Gas Conservation. An MOU also has been signed with Bureau of
Indian Affairs (BIA) as a cooperating agency for preparation of the
EIS. In addition, MOUs are being developed that would add the Crow and
Northern Cheyenne Indian Tribes and the Environmental Protection Agency
(EPA) as cooperators in the EIS. The MOUs outline the roles and
responsibilities of each agency and provide guidance through the EIS
process.
At this time, it seems likely that the scope for BLM's part of the
EIS will focus on amending our Billings and Powder River Resource
Management Plans (RMPs). We will make a final decision on the
geographic scope after the contractor has completed an analysis of the
public comments received during scoping. The Powder River RMP area
encompasses 2,522,950 acres of BLM-administered mineral estate,
including oil and gas, in southeast Montana. The Billings RMP area
encompasses the south central portion of Montana consisting of 662,066
acres of BLM-administered oil and gas mineral estate. These plans were
written in the 1980s and were amended in 1994. At the time of the 1994
amendment, large-scale CBM development was not a major interest of
industry. Our amendment reflected then-current and foreseeable needs
and analyzed conventional oil and gas development and limited CBM
exploration and production. The new EIS will include a reasonably
foreseeable development scenario for both CBM and conventional oil and
gas.
Scoping for the EIS began in December 2000. This past January, more
than 300 people attended public scoping meetings in Miles City,
Billings, Ashland, Broadus and Helena. The scoping period for the EIS
ended January 31, 2001. BLM received about 200 letters during the
scoping period. The major issues raised were related to the potential
impacts of CBM development on groundwater and surface water resources,
water quality, impacts to soil and land use, introduction of non-native
plants and noxious weeds, and air quality.
During preparation of the EIS, BLM will process Applications for
Permit to Drill (APDs) for conventional oil and gas wells, but for CBM
wells we will only approve APDs for drilling and testing in areas not
previously explored. Drilling and testing CBM wells will provide needed
data concerning coal, gas and water that can be used for analysis in
the EIS. Until our EIS is completed, CBM will not be produced for sale
from any Federal wells, and any water produced from test wells will be
contained on site in tanks or reserve pits.
Currently, CBM production only occurs from wells on private and
State leases within the CX Field, which is located in Big Horn County.
The State can approve up to 200 permits for drilling and testing CBM
wells outside of the CX Field in Big Horn County in accordance with a
settlement agreement with the Northern Plains Resource Council (NPRC).
The State can continue to approve permits for conventional oil and gas
wells during preparation of the EIS.
Industry has expressed interest in exploring for CBM in areas
adjacent to the CX Field, as well as portions of Big Horn, Powder
River, Carbon, Rosebud, Stillwater, Gallatin, Park and Blaine Counties.
In response to this interest, these are among the areas that are likely
to be evaluated in the EIS.
The NPRC also has served a Notice of Intent to file a lawsuit
against BLM alleging that the Bureau approved APDs for conventional oil
and gas and CBM wells in violation of the Clean Water Act. Although we
believe we are in compliance with requirements of the Act, we are
consulting with DEQ about each agency's roles and responsibilities
under the Act. After completing the consultation, BLM will send a
written response to the NPRC and also request a meeting to discuss the
matter.
Presently, the EIS contractor is analyzing the public comments
received during the scoping process to identify issues and alternatives
for the draft EIS. The contractor is also collecting existing resource
data that will be used to analyze impacts. We continue to consult and
exchange information with State, Federal, and tribal agencies, as well
as other interested parties. A newsletter detailing the status of the
EIS will be available by June 2001.
We are planning to have a draft EIS available for a 90-day public
review by the end of this year. Using this schedule, a final EIS could
be ready as soon as the summer of 2002, which would be followed by a
30-day protest period.
BLM has signed a contract with Arthur, Langhus & Layne (ALL) to
prepare the EIS. A subcontractor will assist ALL in the preparation of
the EIS. Both companies have a wide range of experience and skills--
including expertise in hydrology, soils, wildlife, and tribal
consultation--that is needed to address oil and gas operations and to
analyze their potential impacts. Work on the EIS between BLM and the
contractor is progressing on schedule.
IMPORTANT ISSUES TO BE ADDRESSED
Water issues
Water is vital in the development of CBM. The CBM extraction
process involves pumping water from the coal seams to the surface in
order to reduce the water pressure that traps the gas in the coal.
Coalbed methane wells are drilled into the coal seam with the casing
sealed above the coal. A standard water pump is used to deliver water
to the surface. The combined effect of many wells pumping
simultaneously reduces the water level in the coal in the vicinity of
the wells that are pumping. This lowers the water pressure and allows
the methane to migrate up the well. Among other things, the public is
concerned about potential cumulative effects to groundwater, how long
it will take to recharge aquifers, and any potential harm to private
water wells and springs.
BLM has met with the Montana Bureau of Mines and Geology (MBMG),
the Department of Environmental Quality, the Board of Oil and Gas
Conservation, and our EIS contractor to discuss ways to analyze
potential impacts to groundwater. In order to complete the EIS, these
parties agreed that the analyses need to address the major issues at
both a regional and local level. We will attempt to identify areas that
could experience the greatest impacts. Finally, we want to include a
level of detail to show what could be expected at a local level to
provide landowners with information for negotiating water well
mitigation agreements. The approach agreed upon to address this
analysis will result in a groundwater resources technical report. Part
of this report will include 2-D Draw-down Models according to site-
specific conditions representing 3 or 4 different groundwater
situations and CBM development scenarios. The MBMG will actively
participate by providing existing groundwater data and aquifer
characteristics to the contractor and reviewing work products. After
the Technical Report is completed, the groundwater analyses group,
including the MBMG, the EPA and the other cooperators, will determine
if the analyses' goals were achieved or if further analyses and more
intensive modeling is necessary.
Managing the water produced with methane is a challenge to the oil
and gas industry, as well as Federal and State regulators. We all need
to work together to find the solutions and innovations to address the
surface water issues and potential impacts to the entire land and water
system, including soil, vegetation, and land use. All water disposal
options would be handled in accordance with applicable laws and
regulations and could include water reinjection, infiltration,
treatment prior to discharge, discharge into waterways, and beneficial
uses such as dust abatement, stock watering, creation of wildlife
watering areas, and establishment of fisheries. The State of Montana,
the BLM and the EPA are genuinely concerned with these water issues and
will work to find the best options available. We will consider these
water disposal options as we develop alternatives to analyze in the
EIS. Our joint leadership in the EIS process, we believe, is the best
course of action to achieve proactive solutions that will ensure any
CBM development is conducted in an environmentally sound manner.
Monitoring wells will be used to assess the impacts to groundwater
comparing actual drawdown conditions to those that are predicted in the
EIS. Gauging stations have been installed to assess the impacts to
surface waters from the discharge of produced water associated with
methane production. Additionally, water quality sampling data will be
obtained from other sites for this same purpose. Water quality samples
are also required by the State of Montana's discharge permitting
process to assess and maintain the quality of the receiving waters such
that nondegradation standards are met.
Air issues
BLM Montana and Wyoming are presently discussing the appropriate
model to use to assess the impacts to air quality in Montana. BLM in
both states is committed to sharing all resource data in the northern
portion of the Powder River Basin that straddles the state line, such
as soil, water, air, vegetation, wildlife, cultural, economic, etc., in
order to better analyze cumulative impacts resulting from CBM
development in both states.
Reasonably foreseeable development
A major step in completing the EIS is determining how much future
development is reasonable to expect. In the fall of 2000, the oil and
gas industry predicted approximately 10,000 wells could be drilled in
the northern Powder River Basin in Montana. Although BLM's review is
still in the preliminary stage, we believe the number of CBM wells
drilled in the area could be considerably higher than this estimate.
Industry's analysis only took into consideration the upper Ft. Union
sub-bituminous coals within the Powder River Basin in Montana and
excluded the Ashland District of the Custer National Forest and Crow
and Northern Cheyenne Tribal lands and bituminous coals. In addition to
the areas included in the industry analysis, the BLM and State of
Montana compilation of a reasonably foreseeable development scenario
will include all mineral ownerships in the Powder River and Big Horn
Basins in Montana, and several other areas of the state that contain
coal resources. Because our analysis will be predicting CBM wells from
the sub-bituminous and bituminous coals, it will cover many other areas
besides the Powder River Basin.
Subsurface gas drainage
No subsurface drainage of CBM from Federal or Indian lands in
Montana has been identified to this point. Because of well spacing,
mineral ownership patterns, and the relatively low number of existing
wells, we do not expect drainage to be an issue in the short term.
However, this is an issue that definitely will have to be considered
over the long term.
PUBLIC INVOLVEMENT
Public involvement is another important aspect of the EIS process.
The process is inherently open--as dictated by law, policy, and our
desire to continually inform the public. As part of our outreach
program for the EIS, we will continue to schedule meetings with the CBM
Coordination Group. BLM was instrumental in the formation of this group
that is composed of Federal, State and tribal agencies, landowners,
industry, and environmental groups. The group was formed to discuss
issues and share information related to the EIS. In addition, we will
meet with other members of the public as often as needed or requested.
Finally, BLM will provide information needed to keep the public fully
informed on the EIS process.
This concludes my prepared statement. I would be pleased to answer
any questions that members of the Committee may have.
Senator Burns. Thank you very much, Mat. We appreciate
that.
STATEMENT OF H. WILLIAM HOCHHEISER, MANAGER, OIL AND
GAS ENVIRONMENTAL RESEARCH, OFFICE OF
FOSSIL ENERGY, U.S. DEPARTMENT OF ENERGY
Senator Burns. William Hochheiser, who is the environmental
program manager, Office of Natural Gas and Petroleum,
Department of Energy. Thank you and welcome to Billings,
Montana.
Mr. Hochheiser. Thank you, Mr. Chairman, Senator Baucus. I
appreciate the opportunity to be here today to talk about DOE's
environmental research program for oil and gas.
I was asked to describe the program and specifically to
give examples of where the Department of Energy has worked with
government agencies and industry to address environmental
programs and come up with solutions through research and
analysis.
ENVIRONMENTAL RESEARCH
Our environmental research program mission is to promote
cost-effective environmental protection and enhance
environmental performance to encourage maximum recovery of U.S.
oil and gas resources. I note that this mission emphasizes both
recovery and environmental protection, goals that we believe
are quite compatible.
We do this through technology development, risk analysis,
and regulatory streamlining. And we are strong advocates of
risk-based regulation and decision making. We conduct a variety
of risk assessment studies to provide the scientific basis for
such decisions.
We cover a spectrum of environmental issues, including air
emissions, produced water treatment and disposal, solid waste
management and disposal, underground injection, naturally
occurring radioactive materials, or NORM, data management,
remediation, and operations on public lands.
And while DOE is the principal Federal agency charged with
the responsibility for the development of a national energy
policy, it cannot effectively carry out that responsibility
without close coordination with other Federal agencies. We also
recognize that oil and gas exploration and production is
primarily regulated by the States, so we pursue cooperative
efforts with State agencies and organizations also.
INTERAGENCY COOPERATION
A few examples of our intergovernmental activities include
being a member of the core team of the Federal Leadership
Forum, which is an interagency group that is working to
streamline the National Energy Policy Act process for oil and
gas development in the Rocky Mountain Region.
We have formed an oil and gas Federal lands technology
partnership with BLM, in which we conduct research aimed at
improving access to Federal lands. And in 3 years we funded 10
projects under this partnership.
We are also participating in a multi-stakeholder research
and monitoring team that is looking at the impacts of oil
exploration and development at the National Petroleum Reserve
in Alaska.
And we have a longstanding and close working relationship
with the Interstate Oil and Gas Compact Commission, an
organization of governors of the producing States.
GROUND WATER PROTECTION COUNCIL
We also work closely with the Ground Water Protection
Council (GWPC), and we fund research through that organization
on underground injection and other water-related issues. One of
our biggest successes with GWPC is the risk-based database
management system, which Tom mentioned. I'll describe that a
little bit more in a minute.
COALBED METHANE
On the subject of coalbed methane in Montana, we have just
announced this project, which Tom mentioned, with Arthur
Langhus Layne to help the Montana board complete their coalbed
methane environmental impact statement more effectively and
efficiently. Arthur Langhus Layne in conjunction with the board
and BLM and other agencies, will examine current environmental
concerns of coalbed methane production practices in Montana and
investigate how recent advances in geographic information
system technology can be applied as mitigation aids. DOE is
providing $396,000 in total to support this project.
Through our Federal Lands Technology Partnership with BLM
we are co-funding two projects on monitoring the impacts of
coalbed methane production on ground water. One is in the San
Juan Basin of Colorado; the other is the Wyoming portion of the
Powder River Basin. These projects will help Federal and State
agencies and industry understand the ground water impacts of
coalbed methane development and whether current safeguards are
adequate or if additional measures are needed.
ENVIRONMENTAL PROGRAM SOLVING
Now I would like to describe a few examples of where we
have been asked by our stakeholders to help with environmental
problems. In each case we have either provided a solution or we
are working on providing the science needed to address the
problem.
For example, California oil and gas producers and a State
agency asked us to come up with a way to measure what happens
to the emissions from oil field steam generators under
stagnant, foggy conditions where airplanes and helicopters
cannot fly. Our answer was to develop a small, helium-filled,
remotely piloted airship with advanced instrumentation and
tracer technology. And this winter, what we call Clean Airship
I has demonstrated a successful collection of emissions plume
data during stagnant weather events.
Also in California, we were asked whether emissions from
tanks of heavy oil needed to be controlled. The State was
concerned about this. We funded a national laboratory study to
measure these emissions, and the result was that expensive
vapor recovery systems will not be required.
RISK-BASED DATA MANAGEMENT SYSTEM
Now, oil and gas-producing States have need for data
management--a data management system that would allow them to
manage their data and use it to better do their jobs. In answer
to this need we worked with the GWPC to develop the Risk-Based
Data Management System (RBDMS). With this system, State
agencies can analyze well performance and field-specific
problems, issue notices of required tests and reports, track
permits and inspections, generate letters to producers, and
reports to EPA, and much more.
Now, at least 14 States and 2 EPA regional offices are
using all or part of RBDMS. GWPC estimates that States have
saved over $2 million with this system. And if I may brag a
little bit, RBDMS was recently given an Energy 100 Award,
designating it as one of the 100 most notable scientific and
technological advances during the Department of Energy's 23-
year history. A lot of credit goes to the States for helping
with that development.
METHANE LEAKS
Another topic, methane leaks, are an economic,
environmental, and safety concern. DOE, in conjunction with the
Gas Technology Institute, has taken advantage of national
laboratory technology to develop a video camera that actually
sees methane and other hydrocarbon gases. We tested a van-
mounted version of this system last year at an oil refinery,
and it performed favorably compared to conventional technology.
Next month we will test a portable, shoulder-mounted unit in
another refinery. And if this technology is approved by EPA for
use in refineries, a typical refinery could save $1 million a
year.
AIR QUALITY
I wanted to talk about here in the Rocky Mountain Region,
the question of reduced visibility in pristine areas. It is a
very sensitive and complicated one, and the oil and gas
industry in this region asked DOE to bring its scientific
expertise to bear on this problem.
DOE is helping industry and Federal and State agencies
understand the true contribution of oil and gas development on
air quality. We do this through research on air quality models,
atmospheric chemistry, emissions inventories, air quality
monitoring, uncertainty analysis, and on the science of
visibility. And this is an ongoing effort requiring multiagency
cooperation.
Now, we also help our stakeholders do analysis and other
efforts that may not require as many dollars as applied
research projects, but can have just as large an impact.
Sometimes it is our sweat equity that makes the difference.
Several States have asked for a more sound scientific basis for
their naturally occuring radioactive material (NORM),
requirements, one that takes into account the risk to human
health and the environment. We funded a series of risk
assessments for various NORM disposal options, and this was
used by a DOE-supported committee of the Interstate Oil and Gas
Compact Commission to develop model NORM regulations that can
be adopted by the States with confidence that they are
scientifically supported. The IOGCC also hosts a lab--a
national lab-developed NORM website.
EPA's toxic inventory release--toxic release inventory
program requires manufacturers and other companies to report
their releases of certain chemicals to the environment. The EPA
was considering adding oil and gas production to their program.
The problem is that oil and gas production not a good fit for
that program. It would have imposed considerable costs on
producers.
Industry and the States asked DOE to help establish a
dialog with EPA, which we did. And as a result, there is a
deferral for oil and gas production industry from the TRI
program.
At the request of the oil industry in Alaska, we sponsored
a workshop on established exploration and production practices
on the North Slope last April. The proceedings will serve as a
database for new companies who want to work in that region, as
a baseline for their development.
These are just some of the examples of areas where DOE has
addressed specific environmental issues and problems brought to
us by our stakeholders.
PREPARED STATEMENT
In conclusion, DOE promotes the safe, efficient, cost-
effective recovery of our nation's oil and gas resources. Our
oil and gas environmental research program can often help
address environmental problems by contributing good science and
sound analysis to effective risk-based regulation and decision
making.
Thank you.
[The statement follows:]
Prepared Statement of H. William Hochheiser
Mr. Chairman, thank you for the opportunity to be here today to
describe the Department of Energy's (DOE's) Oil and Gas Environmental
Research Program.
I will give a brief overview of the program, discuss some of the
cooperative efforts we have with other Federal agencies regarding oil
and gas development on Federal lands, and then describe some examples
of efforts in which we helped government agencies and industry to
address environmental problems through research and analysis projects.
DOE believes that our domestic oil and natural gas resources are
needed for economic growth, environmental improvement, and energy
security. These vital and strategic resources can be recovered in an
environmentally safe manner using improved technology and best
practices.
The Oil and Gas Environmental Research Program is part of DOE's
broader oil and natural gas research program which supports research
and policy analysis to enhance the efficiency and environmental quality
of domestic oil and natural gas exploration, recovery, processing,
transport, and storage. It encompasses a wide variety of research and
analysis activities on seismic imaging, drilling, completion and
stimulation, enhanced production, storage, processing, and
infrastructure reliability, as well as environmental issues and
technologies. We work with a variety of stakeholders, including oil and
gas producers and service companies, Federal and state agencies,
tribes, environmental interest groups, universities, national
laboratories and other research organizations, associations, and
consumers.
The mission of the environmental research program is to promote
cost-effective environmental protection and enhance environmental
performance to encourage maximum recovery of U.S. oil and gas
resources. Note that this mission emphasizes both recovery and
environmental protection, goals that we believe are quite compatible.
We accomplish this mission through several types of work. The
program sponsors technology development aimed at reducing the cost of
complying with existing environmental regulations while improving
environmental performance. We also work with Federal and state agencies
and regulators to ensure that new regulations are based on sound
science and are structured to avoid unnecessary costs while providing
appropriate environmental protection. We are strong advocates of risk-
based regulation and decision making and conduct a variety of risk
assessment studies to provide the scientific basis for such decisions.
Finally, we conduct regulatory streamlining efforts in partnership with
Federal and state agencies to reduce costs for both government and
industry.
Our efforts cover the spectrum of environmental issues, including
air emissions, produced water treatment and disposal, solid waste
management and disposal, underground injection, naturally occurring
radioactive materials (NORM), data management, remediation, and
operations on public lands. We set our priorities in these areas by
proactively seeking out the opinions of our stakeholders and balancing
that input with the appropriate Federal role.
INTERAGENCY COOPERATION
While DOE is the principal Federal agency charged with
responsibility for the development of national energy policy, it cannot
effectively carry out that responsibility without close coordination
with other Federal and state agencies. Over half of the estimated
undiscovered resource in this country is located under Federal land,
onshore and offshore, so we must work with the Federal land management
agencies. Also, oil and gas exploration and production is primarily
regulated by the states, so we pursue cooperative efforts with state
agencies and organizations. The following are examples of our inter-
governmental activities.
--DOE is a member of the Core Team of the Federal Leadership Forum,
an interagency group that is working to streamline the NEPA
process for oil and gas development in the Rocky Mountain
region and enhance interagency cooperation. DOE brings an
energy policy perspective to the Forum, as well as expertise on
technology and oil and gas resources.
--DOE has formed an Oil and Gas Federal Lands Technology Partnership
with the Bureau of Land Management (BLM) to conduct research
aimed at improving access to Federal lands. BLM identifies
research needs which we jointly prioritize. DOE provides
funding and BLM contributes land management expertise and helps
to monitor the projects. In three years, ten projects have been
funded under this partnership, ranging from analyzing
compressor noise impacts to predicting the occurrence of
archaeological sites to piloting web-based resource management
planning.
--The Department is participating in a multi-stakeholder Research and
Monitoring Team that is looking at the impacts of oil
exploration and development in the National Petroleum Reserve
in Alaska (NPR-A). An important part of this effort will be to
assess the effectiveness and necessity of the many leasing
stipulations in the NPR-A, and the effectiveness of technology
in addressing those stipulations.
--We have a long-standing, close working relationship with the
Interstate Oil and Gas Compact Commission (IOGCC), an
organization of the governors of the oil and gas producing
states. Our environmental research program funds a variety of
activities with the Commission to increase communication and
dialogue, streamline regulation, and generally encourage
environmentally safe oil and gas recovery. For example, we have
funded projects to assess the nation's idle and abandoned well
population and develop strategies for dealing with such wells,
to develop model state regulations for naturally occurring
radioactive materials (NORM) based on scientific risk analysis,
and to develop and give training on a variety of topics, such
as waste minimization, NORM, and hydrogen sulfide safety, to
state personnel. I serve as the Department's official
representative to the IOGCC.
--DOE works closely with the Ground Water Protection Council (GWPC)
and funds research through that state-industry organization on
underground injection and other water-related issues. One of
our biggest successes, the Risk Based Data Management System,
which I will describe below, has been developed and implemented
through the GWPC. DOE also supports GWPC to conduct projects
that promote innovative, cost-effective methods to protect
underground sources of drinking water. Examples include
assisting the State of Florida to assess and demonstrate their
capabilities to assume regulatory primacy for Class II (oil and
gas related) wells under EPA's Underground Injection Control
Program, and helping obtain an exemption for an aquifer that is
not at risk in Michigan.
On the subject of this hearing, coalbed methane (CBM) in Montana,
we have just announced a new project that will help the Montana Board
of Oil and Gas Conservation (MBOGC) complete their CBM environmental
impact statement more effectively and efficiently. Arthur Langhus
Layne--LLC, in conjunction with the MBOGC, the U. S. Bureau of Land
Management and other governmental agencies, will examine current
environmental concerns and coalbed methane production practices in the
Montana portion of the Powder River Basin, and investigate how recent
advances in Geographic Information Systems technologies can be applied
as mitigation aids. DOE is providing nearly $400,000 to support this
project.
Through our Federal Lands Technology Partnership with BLM, DOE is
co-funding two projects on monitoring the impacts of CBM production on
ground water. One is in the San Juan Basin of Colorado and the other is
in the Wyoming portion of the Powder River Basin. These projects will
help the Federal and State agencies and industry understand the ground
water impacts of CBM development, and assist regulatory agencies in
determining whether current safeguards are adequate or if additional
measures are needed.
ENVIRONMENTAL PROBLEM SOLVING: RESEARCH
Now I would like to describe some examples where DOE has been asked
by our government and industry stakeholders to help with an
environmental problem through R&D or analysis. In each of these
examples, we have developed a solution to the problem or are in the
process of providing the science needed to address the problem. The
following are examples of research projects that have addressed such
problems:
--California's air quality problems are well-known and the
contribution of oil and gas operations to those problems has
been an issue for some time. The California oil and gas
producers and the California Air Resources Board asked DOE to
come up with a way to measure what happens to the emissions
from oil field steam generators under stagnant, foggy
conditions when airplanes and helicopters cannot fly. These are
the episodes of greatest concern. Our answer was to develop a
small helium-filled, remotely piloted air ship with advanced
instrumentation and tracer technology. This winter, ``Clean Air
Ship I'' has demonstrated the successful collection of
emissions plume data during stagnant weather events. This data
will be immensely useful to modelers and analysts who are
trying to understand the transport of oil field emissions in
this region.
--Another issue in California was whether emissions from tanks of
heavy oil needed to be controlled. DOE funded Lawrence Berkeley
National Laboratory to measure these emissions and work with
the state regulatory agency. LBNL developed a low cost sampling
device, lowering the cost to $20 from the previous standard
$500 device, and showed that emissions from heavy oil are much
lower than was being assumed by the agency. Thus, expensive
vapor recovery systems will not be required.
--One of the big challenges in implementing risk based regulation and
decision making is in collecting, storing, managing, and
analyzing the data that is needed for those decisions. The oil
and gas producing states had a need for a data management
system that would allow them to manage their data and use it to
do their jobs better. In answer to this need, DOE worked with
the GWPC to develop the Risk Based Data Management System
(RBDMS). A PC-based, fully relational data base with a user-
friendly interface, RBDMS started as a system for underground
injection information, but its success created a demand to
expand its application to production, waste tracking,
permitting, surface facilities, and other uses. With this
system, state agencies can analyze well performance and field-
specific problems, issue notices of required tests and reports,
track permits and inspections, generate letters to producers
and reports to EPA, and much more. A web access module allows
producers to access and analyze the state information on their
operations. The states themselves formed a users group that
guided development. Within this users group, states that have
the system assist with implementation in other states. With DOE
funding, the users group developed a ``generic version'' of
RBDMS that could be customized and installed in any state for
about $20,000, compared to the half a million dollars that each
of the initial installations cost. Now, at least 17 states and
two EPA regional offices are using all or part of RBDMS. GWPC
estimates that states have saved over $2 million by using this
system. RBDMS was given an Energy 100 Award, designating it as
one of the 100 most notable scientific and technological
achievements during the Department of Energy's 23-year history.
--Methane is a powerful greenhouse gas as well as a valuable
commodity. Methane leaks from pipelines and equipment are an
economic, environmental, and safety concern. DOE, in
conjunction with the Gas Technology Institute (formerly the Gas
Research Institute), has taken advantage of technology from
Sandia National Laboratory to develop a video camera with a
tuneable laser that ``sees'' methane and other hydrocarbon
gases. A van-mounted version of this ``backscatter absorption
gas imaging'' (BAGI) system was tested last year at an oil
refinery and performed favorably compared with conventional
``sniffers'' currently used for EPA--mandated leak detection
and repair programs. Next month, we will test a portable unit
in another refinery. If this technology is approved by EPA for
use in these inspections, a typical refinery could save up to
$1 million per year. The technology is also being developed to
detect leaks in natural gas distribution systems.
--The permitting of an underground injection well for enhanced
recovery or produced water disposal requires an ``area of
review'' (AOR) to be conducted. In general, conducting an AOR
is an important procedure in assuring that the injected water
does not contaminate aquifers or the surface. However, there
are some situations when contamination is almost impossible,
yet the AOR is still required. Four states, along with oil and
gas producers, asked DOE to help them develop a system for
granting variances, or exemptions, where downhole pressures are
so low, or other geologic conditions exist, that injected water
would never reach drinking water aquifers. Using a combination
of RBDMS and appropriate data collection and analysis, DOE
helped Texas, Oklahoma, Kansas, and California develop such
systems. In Texas, a variance for a single field, the East
Texas Field, saved producers an estimated $86 million.
--The Texas Railroad Commission handles more than 2 million pieces of
paper each year. They asked DOE to help them develop an
electronic permitting system that would eliminate much of that
paper. Last year, Texas issued its first electronic permit with
DOE's assistance and more electronic forms are being added each
year. In a parallel effort, California also used DOE money
along with other funds to develop an electronic permitting
system.
--Here in the Rocky Mountains, visibility issues threaten to curtail
oil and gas development. The question of how much oil and gas
operations contribute to reduced visibility in pristine areas
such as national parks and forests is a sensitive and
complicated one. The oil and gas industry in this region asked
DOE to bring its scientific expertise to bear on the problem.
At Lawrence Berkeley National Laboratory we have some of the
nation's premiere experts on air quality related research. They
are helping industry and Federal and state agencies understand
the true contribution of oil and gas development of air quality
through research on air quality models, atmospheric chemistry,
emissions inventories, air quality monitoring, uncertainty
analysis, and the science of visibility. This is an ongoing
effort requiring multi-agency cooperation.
--Michigan regulators and an oil field service company needed help
with how to safely and economically clean up NORM contaminated
soils at a petroleum pipe yard. Using technology originally
developed by DOE to clean up Cold War defense sites, Argonne
National Laboratory demonstrated an on-site soil sampling and
testing method called the Adaptive Sampling and Analysis
Program (ASAP). ASAP combines sophisticated, real-time sampling
and testing with decision support software to dramatically cut
costs, reduce the amount of soil that must be excavated, and
shorten the time required to bring a site into environmental
compliance. At this one Michigan site, ASAP cut the cost of
clean up by 90 percent, reduced the amount of soil that had to
be removed and disposed of by over 97 percent and saved the
pipe yard owner at least $36,000 in disposal costs alone. Clean
up was completed in four days, rather than the several weeks it
would have normally taken and regulators were more confident
that the result met their requirements.
ENVIRONMENTAL PROBLEM SOLVING: ANALYSIS
DOE also helps our stakeholders through analyses and other efforts
that may not require as many dollars as applied research projects, but
that can have just as large an impact. Sometimes it is our ``sweat
equity'' that makes the difference. Here are some examples.
--Various states have interest in promulgating regulations for
management of oilfield NORM. Several have put such regulations
in place. But they expressed a need to have a more sound
scientific basis for these requirements--one that takes into
account the risk to human health and the environment. DOE
funded Argonne National Laboratory to undertake a series of
risk assessments for various NORM disposal options, such as
underground injection and landfill disposal. These assessments
were then used by a DOE-supported committee of the IOGCC to
develop model NORM regulations that can be adopted by the
states with confidence that they are scientifically supported.
Individual states have also used the Argonne reports in their
regulatory development. The IOGCC also hosts an Argonne-
developed web site that contains a searchable data base of
state NORM regulations and guidelines as well as information on
commercial NORM-related services.
--Abandoned salt caverns can be an economical option for disposal of
oil field wastes. But the risks of such disposal were
uncertain. So Texas and other states asked DOE to investigate
the risks, costs, and benefits of this disposal option. DOE
formed a partnership that includes Argonne National Laboratory,
Sandia National Laboratory, the University of Texas and the
Solution Mining Research Institute to do a series of studies on
salt cavern disposal, including the legal and economic
feasibility, the risks of disposal of non-hazardous oil field
wastes and NORM wastes, the engineering of salt caverns for
long-term disposal, and the geology of salt cavern occurrence.
DOE's National Petroleum Technology Office hosts a web site
with salt cavern information. This site received over 10,000
hits in January.
--EPA's Toxic Release Inventory (TRI) Program requires manufacturers
and other companies to report their releases of certain
chemicals to the environment. EPA has been considering adding
the oil and gas production industry to their program. The
problem is that oil and gas production is not a good fit for
that program. Reporting under its rules would give an
inaccurate and inconsistent picture of releases from oil and
gas fields. In addition, most fields are far removed from the
population centers the program is meant to protect. Finally,
the data that TRI would attempt to collect are already
available from state oil and gas agencies, yet TRI would impose
considerable costs on producers. Industry and the states asked
DOE to help establish a dialogue with EPA. We funded IOGCC to
develop a report on the data on releases and other
environmental information that is currently collected by the
states and to meet with EPA on this issue. This helped result
in a deferral for oil and gas production industry from the TRI
program.
--Synthetic drilling muds are environmentally superior and
technically preferred for many offshore drilling applications,
especially in very deep water. However, EPA's offshore
discharge regulations did not take this new technology into
account and so it could not be used in many instances. At the
request of industry, DOE facilitated an industry--EPA dialogue
that educated both sides and resulted in an ``expedited
rulemaking'' that allows the offshore discharge of drilling
wastes using synthetic muds.
--At the request of the oil industry in Alaska, DOE sponsored a
workshop on established exploration and production practices on
the North Slope in April 2000. This workshop served to bring
together information on a wide variety of issues facing North
Slope production and educated industry and federal and state
agency personnel on current practices. The proceedings will
serve as a data base for new companies that want to work in
that region and as a baseline for future development.
PRODUCED WATER RESEARCH
These are just some examples of areas where DOE has addressed
specific environmental issues and problems brought to us by our
stakeholders. In addition, the environmental program conducts research
on a variety of environmental technologies to reduce costs and improve
environmental performance. One area of interest for coalbed methane
production is produced water treatment and disposal. Our research on
produced water includes such technologies as reverse osmosis, ozone
treatment, microbial processes, ``freeze-thaw evaporation'', and
downhole separators. These are in various stages of development and may
be of interest to coalbed methane producers as they reach
commercialization.
CONCLUSION
In conclusion, DOE promotes the safe, efficient, cost-effective
recovery of our nation's oil and gas resources. Our oil and gas
environmental research program can often help address environmental
problems by contributing good science and sound analysis to effective
risk-based regulation and decision making.
Thank you.
Senator Burns. Thank you.
And I will just start with a question to you, Mr.
Hochheiser because I think it is very important. Over 95
percent of the new power generation plants that is on the
drawing board now in this country will be powered by natural
gas. And so that makes this discussion very, very important to
our energy needs, not only to California, but across the
nation. And we have the pipelines for distribution, where we
can get them to the plants.
I guess what I want to hear from the Department of Energy
and what I would--should we be concerned about the industry
investing too much in new technologies, such as in water--maybe
in the water treatment filtration example, and then worry about
these new technologies returning anything when gas prices do
stabilize. And we know from the industry what goes up must come
down someday.
Should we be worrying about that? And also, the amount of
dedication the Department of Energy has in fulfilling their
obligation to make it work? I will give you the rest of the day
to answer that.
Mr. Hochheiser. When we are developing new technology we
have the goal in mind of cost-effective technology. We are
trying to reduce the cost of compliance. Even with new
technologies, they are generally more effective and can both
reduce the cost of operation as well as increase the
environmental performance.
So I think while the recent high prices may not be
maintained, as they stabilize to a level that I have seen
predicted for the next decade, I think they will continue to be
economic. And I think we should be investing in them,
demonstrating them, and adopting them, yes.
Senator Burns. And as we move forward on this, what do you
hear in your department to the degree of commitment to fossil
fuels and the use of fossil fuels?
Mr. Hochheiser. We are very much committed to that, I
think. The Energy Information Administration projects that in
10 years we will--well, currently we have 63, 64 percent of our
energy comes from oil and gas. In 10 years we are going to have
about the same proportion, about 65 percent. That is not going
away.
We need our resources and technology to find them, to
develop them, while protecting the environment in doing so.
Senator Burns. Now, the kickr, does OMB agree with you?
Mr. Hochheiser. We will have to wait until the President
announces the details of his budget.
Senator Burns. By the way, for you folks, that is the folks
that hold the purse strings over there.
Mr. Millenbach, I am interested in your EIS. And right now
we have invested about, oh, a little over $4 million. Just last
year, $1.3 million in the EIS. Give me an idea on your time
line, and are you satisfied with the way the work is
progressing? It seems we spend a lot of money on environmental
impact statements.
Mr. Millenbach. Yes, sir, that is correct. Our time line is
such that we are on schedule with the schedule I laid out in my
testimony. We expect something, wrapped up for public review by
the end of the year, and then coming up this following summer,
the summer of 2002, we should see the final one and go into the
decisions that will be made.
As Mr. Hochheiser says, we are not in a position to talk
about the details of funding for next year, for fiscal year
2002, because the President has not announced the budget until
next month. But I can tell you that the level of activity that
we have got going out with the environmental statement, the air
quality and water quality studies that were currently underway
will be going on into next year, and we anticipate that the
same level of activity we are doing this year will be carried
out into fiscal year 2002.
Senator Burns. I have some more questions. And by the way,
we will probably go over some questions that will take up way
too much time. We may submit some questions in writing to you.
If you could respond to those to the committee, I would
certainly appreciate that.
Senator Baucus.
Senator Baucus. Thank you, Conrad.
The question I have is the EIS. There are a lot of
questions revolving around the EIS. There are a lot of people
that think that the EIS procedure is too complicated, it is too
lengthy, too much paperwork, it takes too long, it is a great
cottage industry for consultants. And I would just like your
thoughts about all that, Mat. And when you are answering that
question, if you could kind of also bring in the point that
Senator Conrad made about costs. Do you think you have enough
to get the job done?
Of course, the answer to that is no, we want more money.
But if you could kind of give us a sense of all of that, that
would be helpful. And comment on the complexity.
This is not an easy question to answer, clearly. I noticed
in the very good coverage of the Gazette of this question of--I
think it was the Gazette, quoting Stillwater. Maybe it was
testimony that I read last night of one of the witnesses, that
the operator of the Stillwater Mine, just up the road here,
said that the EIS was good, that the process was good, it
helped them.
And from my perspective, I think Stillwater has done a
great job, that is, from an environmental perspective. You
know, they have done it right. And it is clear--at least it is
my impression from reading the testimony of Mike Caskey from
Redstone, that they, too, want to do it right.
So do you hear from companies that the EIS process is way
too lengthy and we should speed it up? I glanced at the
testimony of Steve Gilbert of Northern Plains Resource Council,
and he says it is the opposite, that it ought to take longer
time because you are not developing sufficient baseline data to
determine what the referred EIS should be. What do you think
about all of that?
Mr. Millenbach. Well, there are a lot of views on that. The
Federal environmental process has been in place for over 30
years now. And, over that period of time we have developed the
techniques and the cost savings and time-saving things I think
can be done.
It is a long process. And the reason for that is because if
you want to do a good, adequate job of bringing together all
the available information and putting that into a document that
people can understand and make some sense out of, it does take
a fair amount of thought and work.
The other part of it that takes a lot of time when people
talk to us about trying to cut back is that there is a lot of
public involvement in it. There are these various scoping
meetings, reviews of the draft, public hearings. There is an
opportunity to maybe participate in the final analysis as well.
So when you start building in those--the work, the public
involvement, more work, more public involvement, that all adds
up. And that is why it does take the time it does.
As to the funding for this past year, we are in good shape.
We have the funds for the environmental statement. And we are
anticipating that will be the case next year.
As to the baseline studies and that kind of thing, we agree
that one of the things that needs to be done ultimately is to--
once we have got the important issues identified--get
monitoring studies and that kind of thing put in place so we
can keep track of it as we go through the development of this
resource, and what the impacts to the environment are so that
we can make adjustments as we go forward.
Senator Baucus. I think that is important. Many years ago,
when I was in the House Appropriations Committee, there was a
lot of potential development up in the Flathead Basin, north in
Canada, the big coal mines, et cetera. And people were
concerned because of all the environmental adverse effects
would flow south with the air and water and Canada would get
the benefit. And people came to me with the idea of a multiyear
baseline data analysis, and I thought it was a good idea, so
that when projects came along, we had the baseline data in
order to determine what the effects of it may or may not be.
Of course, we cannot know everything about everything.
There comes a limit, diminishing returns, et cetera. But could
you tell us a little on this whole process of EIS, what parts
do you feel good about, what parts are going to cause problems,
whether it is water quality or quantity? If you could just give
us a sense of that. Maybe the other two panelists might be--to
the agree that they are involved in EIS, because I guess you
are too. Let us know what you think about that.
What do you feel comfortable with and what have we got to
come to? Maybe focus on--because the more this is out in the
public, the more people can bring some technical expertise to
it and kind of help you solve that one.
Mr. Richmond. Well, first of all, Senator Baucus, I feel
very comfortable that the program manager that the BLM has
appointed to this process, she seems to be very much interested
in keeping it on track.
Senator Baucus. Who is that?
Mr. Richmond. Her name is Mary Bloom, and she works in
Miles City. And she is, I think, a real asset to the process.
I can assure you that I have learned more about BLM's
planning process than I ever wanted to know, but there are
advantages to us going along with this process on the Federal/
State partnership even though there are things being done that
we would not necessarily have to do under our program that BLM
has to do. But it is important to us to stay in lockstep so
that when this process is done, it is done for all of us and
there are not pieces left hanging out.
So I am comfortable with the process and comfortable that
when we get done with the product it will be comprehensive and
it will address all of our needs. We will have input into it,
and I think we will get there.
Senator Burns. The Senator--on that question, how--you
know, we are going to go through this whole expense. It is
going to cost, what, $6 million when it is all over? And I will
have something to do with that. How many companies--
realistically, how many companies are interested in doing
business and developing this resource?
Mr. Richmond. That is really kind of hard to come up with,
but I think at this time we can identify at least 10 companies
that would be interested--that have expressed an interest at
this time in coalbed methane in Montana.
Senator Burns. And where do you see the major stumbling
block that could slow down the whole thing?
Mr. Richmond. I think we need to resolve the water issues.
I think that has been identified as the principal issue we are
talking about here. We need to reassure people that they are
not to dry up and blow away or that we are going to trade their
prosperity for someone else's. And if we can answer that issue
to the satisfaction of the people that live there, I think we
will be finished.
Now, there are always other issues. And that is part of the
process of EIS, is that you address a lot of issues that people
may not be real interested in, but you have to focus on ones
that deal with all of us.
Senator Burns. We will get a lot of paperwork that people
are not too interested in.
Mr. Richmond. Unfortunately, that is true.
Senator Baucus. One more question.
Senator Burns. Go ahead.
Senator Baucus. I think it struck me that--I read your
testimony last night, Mat--on page 2 he said there are three
standards here. One is we need to set the resource protection
standards; make sure they are met. Second, industry should be
responsible for the costs of developing the resource, not the
neighbors or the taxpayers. And third, the companies must clean
up after themselves and restore the land when their activities
cease. I found those to be pretty strong but fairly reasonable
principles. I am wondering the degree to which you think that
that--are you comfortable that is what is going to happen?
Mr. Millenbach. I am. These are my principles. They are the
ones that I convinced the administration to adopt for this
hearing, and they are the ones that I have been telling my
staff and people I meet with that I think this is what ought to
be done.
And so, when we go ahead and approve APDs and approve this
program, these are the standards that I have set for myself and
for the Bureau of Land Management here in Montana. I think they
are reasonable, too.
Senator Baucus. One thing that struck me is--and I commend
you for that. But there is no assessment here of what the
economic benefits really might be. And I think they could
potentially be huge. And I just--you guys, it is not really
your job to make those determinations, but I am wondering if
you have seen some data or seen some analysis, you know.
Wyoming, we know what they are in Wyoming because Wyoming
has a little history here, more than we do in Montana. I am
just curious what your estimates--what your sense of that is.
Mr. Millenbach. That will be part of the environmental
statement, but maybe Al could talk about their experience in
Wyoming.
Senator Baucus. Would you, Al?
Mr. Pierson. Mr. Chairman, I do not have those numbers
available to me. I could get them if you would like for the
last year. But it is huge. As you well know, the State receives
half of the Federal royalties, half of the bonus bids on lease
sales. And so it is--as you correctly stated--a much different
economic situation for the State legislature in Wyoming this
year than perhaps yours. And it is huge.
Senator Baucus. At some point I think that is going to have
to be factored in.
Mr. Richmond. I believe you have a witness on the next
panel that will address----
Senator Baucus. I am sure we will.
Senator Burns. That is it?
Senator Baucus. Well, I have one other question. Deep
injection, what about it? Is that a good idea or not?
Mr. Millenbach. Well, that is part of the environmental
statement that we are going to be taking a look at. And I think
some of the witnesses on the next panel will be able to address
that in more detail.
Senator Baucus. Well, good luck on your EIS. It is a very
important effort that you are undertaking. And I know I can
speak for the chairman in saying that we want to help you do it
the right way, because I know that is what you want to do.
Thank you.
Senator Burns. Thank you and you are excused.
The next panel will make their way up here. And it is made
up Mike Caskey, president of Redstone Energy; and sitting in
today for the director of mining and minerals for the Crow
Tribe will be Mort Dreamer; Geri Small, president of the
Northern Cheyenne Tribe; and Wayne Kelley, president of Omega
Oil Company. If you folks would make your way up here, why, we
will hear your testimony. Thank you for coming today.
Ms. Old Elk. I'm Neta Old Elk. Mr. Birdinground had to
leave. I'll be providing testimony.
STATEMENT OF MICHAEL C. CASKEY, VICE PRESIDENT,
REDSTONE GAS PARTNERS, LLC
Senator Burns. We are going to call on Mike Caskey,
president, Redstone Energy. And, Mike, thank you for coming
today. And I know you folks have as much experience down there
with this matter as just about anybody. So we are looking
forward to your testimony.
Mr. Caskey. Thank you, Senator. I need to correct one
thing. I am not quite the president yet. He is standing in the
back of the room, but that is close enough.
Senator Burns. Are you working on it?
Mr. Caskey. Yeah, I am working on it. Sneaking up on him.
Senator Baucus. That is a good correction to make.
Mr. Caskey. It is good to be here this morning. I want to
welcome the Senators back to their home State here. I wanted to
give you some oversight and overview into what we are doing
down there as the only producer of coalbed methane in the State
of Montana. We are fortunate enough to be one of the--or the
only company that actually produces commercial quanties of
coalbed methane on both sides of the State line. So we play in
the Wyoming venue as well as the Montana venue.
We are proud of our operations. We would like to invite the
Senators and their staffs, or whoever else wants to come along,
and see what we do as a coalbed methane, coalbed natural gas
operator. We feel that we have a very light footprint. And we
do--as you said earlier, Senator Baucus, we try to do it right.
I want to commend Senator Burns for his ongoing efforts
with this committee to fund various of the NEPA/MEPA
documentation that is going on. And I would also like to thank
Senator Baucus for his efforts to continue the development in
Montana. And most particularly, Senator, I listened to NPR the
other day, and I heard a quote you made. I know that is kind of
a dangerous thing to start with here.
Senator Baucus. It sure is.
Mr. Caskey. I enjoyed your comment on the Chinese character
for change. We feel that the ability of this new technology and
this new resource can do both things that you talked about. It
can help cure the crisis we are involved in, as well as a very
prosperous opportunity for the State of Montana. And we would
like to proceed with that effort to develop the resource.
As we are aware, the crisis side of this is a national
crisis. Gas is in high demand. Electricity is in short supply.
Heating of homes and generation of electricity, what, with the
Net and all of the appliances we each have in our homes is a
very strong priority in the nation. The growing dependence on
natural gas is getting ever stronger. We are 95 percent of the
effort right now for generation of electricity. Any new
electricity will be generated with the utilization of coalbed--
or with natural gas, coalbed methane being a large piece of
that potential.
We think that coalbed natural gas represents a real
opportunity for the State. We feel that it is very applicable
in the area where we are developing as a resource. We think
that the prosperity for the area, which is one of the poorest
areas of the State, can be enhanced with this development and
should be done in the right manner, an environmentally-friendly
manner.
I might mention that Representative Keith Bales is in the
audience today. And he has told me that if you have questions
of him as a Representative for the Otter area of southeast
Montana, he would be glad answer any questions you might have.
Statistically I think it is important that I bring the
Senators up to speed, as well as the public here, relative to
where we stand with our project. It truly is a start-up
operation. We are producing commercial quanties of coalbed
methane. And that level of productivity right now is about 20
million cubic feet of gas per day. That would handle about, oh,
on a cold winter day, the needs for a town--about four towns
the size of Sheridan, Wyoming. So that gives you some sort of
visual on what kind of productivity level that we have.
Thus far we have drilled 17 wells that have been abandoned;
in other words, they were unsuccessful wells or exploratory
wells. We have drilled 10 wells that are drilled and shut in
outside of our producing are. Those would certainly be
exploratory wells, but they will be gas--or data-gathering
wells. We have 66 wells that are currently shut in, waiting on
completion, waiting to be set up for completion and ultimate
production.
We are producing from 162 wells currently. Those wells in
January produced 985 gallons of water per minute that was
pumped into the Tongue River under our MPDES discharge permit.
Those same wells in February 2001 had declined and produced 907
gallons a minute into the Tongue River. Again, that is a--to
give you an example of what that magnitude would be, one
center-pivot irrigation system, the sprinkler system, generally
uses about 1,000 gallons a minute. So that is what our
equivalency is.
The average per well for each of the those 162 wells on the
produced water issue is 7.3 gallons per minute. And that is
down from an initial production rate of somewhere between 12
and 15 gallons a minute per well, down to that 7.3 gallons per
minute in February. The average for the 12 months--the past 12
months in our operation for gallons-per-minute produced of
produced water is 9.4 gallons per minute.
The water we have--or the water we produce actually meets
all drinking water standards and is safe for the use of
livestock. It is high in sodium. We don't argue that fact.
In 2000, another fact that we have, we talked about
prosperity in the area that we are operating in. During the
year of fiscal year 2000, calendar year 2000, Redstone paid
$550,000 in production taxes. Now, that does not sound like a
lot, but you have got to consider that that is really the first
year of operational intensity that we have. It is also during a
year when we are trying to figure out what this type project
does and how it works. So we are in our infancy, but it is
still producing a significant tax base for the State and the
level that we are operating--in the area we are operating in.
Senator Baucus, you mentioned that Wyoming, which currently
has a surplus of somewhere around $700 million, is ahead of the
game on Montana. We recognize that, and we feel that being
ahead of the game we can catch up. We can make the difference
for Montana and, with a viable and environmentally-friendly
approach, produce the gas that will help Montana handle its
budget. While Wyoming is enjoying a surplus, we are still
having trouble trying to figure out how Montana is going to pay
for its valued education system for its children. We think we
can have a dramatic impact on this by productions of this
clean-burning fuel.
Water in this area, as we all know, and we have heard this
morning from all of the previous testimony, is the issue.
Redstone is trying to do it right. We have had some exceedences
on our MPDES permits. Frankly, those were oversights on our
part. We were testing. We had been monitoring. And we have put
in place operational safeguards to prevent any of those
exceedences from happening again.
The exceedences were actually stemmed from reworking
operations we did within some of our wells, which stirred up
some of the sediment that was in the wells. And we did not
realize that that was--it really was not one of our focuses at
that point. We did not realize that was happening until we saw
the analysis come back. And we immediately rang the bell on
ourselves and explained it to the DEQ, as well as the public.
That trend and that approach to doing business is what we want
to do for the State of Montana, to make sure that we are, in
fact, doing it right.
I see that my time is about up. As most of the audience
here can testify, I could go on for hours and hours about this
and have at times. But I would like to thank you again for the
opportunity to address this group and bring the public up to
speed.
If there are any questions or if you want a tour of our
operation--again, we are proud of what we do--we would love to
have you out there touring the area.
PREPARED STATEMENT
Unquestionably, the laws of Montana are strong. The
environmental laws are in place. We work within those laws and
with those laws. We think the EIS system is a good system if it
is timely-applied. There are rules that allow for the
timeliness of the EIS documentation, and we are all for that.
We are working within those rules and regulations and actually
commend the BLM at this point in time for their efforts to stay
timely with their activities.
Thank you very much. I'll be here for questions.
[The statement follows:]
Prepared Statement of Michael C. Caskey
Good Morning Senators Burns and Baucus. I am Mike Caskey, Vice
President--Land of Fidelity Exploration and Production Company and the
managing partner of Redstone Gas Partners, LLC (``Redstone''), the only
company producing coalbed natural gas in Montana. I want to, first,
thank you for holding this Senate field hearing today in Billings, to
discuss the development of clean-burning natural gas in Montana. I
particularly want to thank Senator Burns for his instrumental role in
obtaining the funding for the BLM's preparation of an EIS on coalbed
natural gas in the Montana portion of the Powder River Basin and
Senator Baucus for his sustained focus on economic development in
Montana.
WHY DEVELOP COALBED NATURAL GAS IN MONTANA?
The discussion today could not be more timely, as the West faces
rapidly rising energy prices due, in part, to a growing dependence on
natural gas. We strongly believe that Montana can play a critical role
in helping to meet that demand and can do so in a way that will
sustain, rather than harm, Montana's environment and agricultural
economy. We think coalbed natural gas presents a real opportunity for a
win-win scenario in southeastern Montana--the development of a natural
resource in a manner that will help sustain a struggling agricultural
economy in the poorest region of the State.
I know each of you are very familiar with the statistics that rank
Montana's per capita income of less than $22,000 at anywhere between
46-48th for the lowest per capita income in the nation. Recently, State
Representative Keith Bales of Otter, testified to the Montana House
Natural Resources Committee about the potential of coalbed natural gas.
He began by contrasting the economic fates of southeastern Montana and
northeastern Wyoming over the last 30 years. He noted that while
Montana and Wyoming had similar per capita income in 1970, by 1999
northeastern Wyoming per capita income had shot up to $24,280, while
parts of southeastern Montana had sunk well-below even Montana's
average per capita income to $15,842. While northeastern Wyoming's
population has grown over those thirty years, the population of
southeastern Montana has flattened into a decline. Unemployment in the
area averages 8 percent and 22 percent of the area families are living
below the poverty line. The situation is worse on the area's two
reservations where unemployment is double--16 percent. The situation
for southeastern Montana is summed up in one stark statistic--in 10
years the value of a mill in Powder River County had gone from $78,000
to $4,400.
While the 2001 Montana Legislature struggles with its budget to
meet the basic necessities of education and mental health care, the
2001 Wyoming Legislature, by contrast, enjoys a $695 million surplus--
largely as a result of coalbed natural gas development. Representative
Bales believes that the development of coalbed natural gas in Montana
can turn around the disheartening trends in southeastern Montana by
providing jobs, much-needed tax revenue and additional income and water
to agricultural landowners. We agree with Representative Bales.
WHO ARE WE?
Redstone is a wholly-owned subsidiary of MDU Resources Group, Inc.,
a name familiar to Montana homeowners. MDU Resources Group, Inc.
includes an electric and natural gas utility, natural gas pipeline and
an oil and natural gas production company serving Montana, North and
South Dakota and Wyoming. The Company's ties to Montana are strong; its
Chairman and CEO, Martin White, is a Butte native. Redstone has been
engaged in the development of coalbed natural gas in Montana since
1997, and began producing coalbed natural gas in late 1999. As a result
of litigation filed by the Northern Plains Resource Council (NPRC)
against the Montana Board of Oil and Gas Conservation (``Board''), we
are the only producer of coalbed natural gas in Montana. Northern
Plains Resource Council v. Montana Board of Oil and Gas Conservation,
CDV 2000-177 (First Jud. Dist. Lewis & Clark). Redstone's limited
Tongue River Pilot Project in the CX Field near Decker is the sole
exception to the moratorium on development imposed by this litigation
and the BLM's decision to prepare an EIS before allowing development of
any coalbed natural gas in Montana.
Under the terms of the settlement, Redstone is allowed to drill 325
wells to reach a total of 250 producing wells. Redstone has
approximately 164 wells producing 21 million cubic feet of gas per day.
In the year 2000, during which Redstone averaged 120 producing wells,
Redstone paid the State of Montana, $554,000 in production taxes.
HOW REDSTONE OPERATES
Redstone believes that if coalbed methane development is done
correctly, it is an environmentally sound way to provide a new source
of clean energy. We, like other member companies of the Montana Coalbed
Natural Gas Alliance, are committed to the development of coalbed
natural gas in a scientifically sound, socially responsible and
environmentally sensitive manner. In short, ``Doing it Right.'' These
are our principles:
1. To ensure that Montana's coalbed natural gas resource is
developed in a prudent and orderly manner.
2. To ensure that such development complies with all applicable
state and federal regulations.
3. To ensure that a balanced EIS is prepared before additional
development occurs. Projects underway may proceed, under the
established environmental and permitting review and regulations.
4. To ensure that Montana's agricultural economy, water quality,
air quality, wildlife, soils, hydrologic regimes, cultural and historic
resources, and local communities are protected. We strive not only to
protect these values and resources, but to enhance them, as well.
Thus, Redstone fully supports the joint BLM and Montana EIS on
coalbed natural gas and worked to see that the EIS is produced in a
timely fashion.
As I will explain, Redstone operates in a manner that endeavors to
be ``light on the land.'' We avoid unnecessary roads or duplication of
sites. We clean up after ourselves. Redstone and our employees are
committed to working with area landowners to construct our sites and
operate our wells in a manner that least interferes with existing
agricultural operations.
When we fail to live up to our environmental commitments, as we did
in late February, Redstone will be straight with agency regulators and
the Montana public and will promptly fix the problem. On February 27,
2001, we reported to the DEQ and the Montana public that our monitoring
had disclosed that we had discharged more sediment into the Tongue
River than our MPDES permit allows. DEQ's initial determination was
that there was no environmental damage done by this exceedence.
Although the environmental impact of this exceedence may have been
minor, we promptly investigated the cause of the problem and put into
place measures to ensure that it would not occur again. We will
continue to work with Montana DEQ to investigate and resolve the
circumstances that led to this exceedence. Samples taken after the
problem was detected indicate the level of sediment has dropped back to
well-below the permitted level. Redstone is operating a pilot project
in Montana and the pilot project is doing what it should do, providing
us and regulators with valuable data and experience on a small scale to
help direct future development on a larger scale.
Redstone released this information to the public because we are
committed to being a good steward of Montana's environment and we want
to gain the respect and trust of the public on our commitment to be an
environmentally responsible producer.
WHAT IS COALBED NATURAL GAS?
What is coalbed natural gas (CBNG) or coalbed methane (CBM)? It is
a natural gas found in coalbeds and formed as a result of biogenic
processes--bacteria working on ancient peat beds. These fossilized peat
beds form the coal in the Powder River Basin in Wyoming and Montana.
Methane can be described as having a Dr. Jekyll and Mr. Hyde
personality. In its natural, fugitive state CBNG is a once-deadly gas
that threatened the lives of underground coal miners and is now
considered to be among the most potent of the greenhouse gases--20
times more potent than carbon dioxide. Yet when we safely capture it
and use it as a source of energy, it is one of the cleanest burning
fossil fuels, and among the most benign to produce. Indeed, EPA, as
well as the U.S. Department of Energy have recognized the benefit of
reducing the potential for greenhouse gas while simultaneously
producing energy and have programs in place to encourage the ``capture
and utilization of coalbed methane.'' See e.g., .
Coalbed natural gas is adsorbed in the coal pores and coal cleats
and is held in place by water pressure. CBNG is developed by lowering
the water pressure in order to release the gas. Although water pressure
is lowered the coal seams are not dewatered. Research in Wyoming has
demonstrated that once production of CBNG stops, 80 percent of the
water in the coalbed returns within weeks or months. The balance of the
water will take longer to return, over a period of years.
PRODUCTION OF GAS
Coalbed gas wells in the Powder River Basin generally range from
400 to 1500 feet and extract gas from coal seams in the Wasatch and
Fort Union formations. This is in contrast to conventional gas wells
which are typically 4,000 to 12,000 feet deep in the Powder River
Basin. Conventional gas wells initially produce large volumes of gas
and very little water. Over time, gas production declines and water
production may increase. In contrast, coalbed natural gas wells
initially produce large amounts of water and small gas quantities. Gas
production increases during the initial water pressure reduction phase
and then levels off and start to decline. During this time the water
production will decline.
Again, compared to conventional gas wells, the impact of CBNG wells
on the land is minimal. Wells are drilled using truck-mounted water-
well drilling equipment. In many cases, this avoids the need to
construct roads. The pad for a coalbed methane well is much smaller
than that for a conventional well; about 100 feet x 100 feet.
Typically, very little construction is required at the well site and
the only earthwork required is to dig a pit to hold drill cuttings,
water and mud for the drilling. Normally one pit serves three wells.
The well-site is visually low-impact--the wells are covered by a 4 foot
tall beige box that blends well into the surrounding landscape.
For well construction, steel casing is run into the top of the coal
and is cemented back to the surface. The casing and cement provide a
complete hydraulic isolation or seal between the coal formation, where
the gas is found, and any shale, sand or other water-bearing formation
penetrated by the well. This seal prevents any fluids from migrating
between formations--either from water flowing down into the coal or gas
migrating up to a shallower aquifer. This protects landowners who
depend on these shallow aquifers for water supplies.
A submersible pump is used to lower the water pressure. Production
is begun by pumping water from the coal to the surface and through flow
lines to the water discharge point. The water and gas exit out of
separate pipes. Gas produced from the coalbed migrates up the inside of
the casing to a separate flow line and is transported to a metering
station, and then to a compressor or series of compressors to bring the
pressure up to sales line pressure. The water is either stored to be
used as stockwater or for other permitted uses or is discharged into
surface water pursuant to a state-issued MPDES discharge permit.
WATER MANAGEMENT
The key environmental issue to be addressed in the development of
CBNG is water. Each CBNG well will initially produce an average of
about 12 gpm per well or 17,208 gallons per day per well or 516,240
gallons per month. This will decline to an average of 5 gpm per well
over time. This volume of produced water raises two issues unique to
CBNG development--the impact to water quality and to groundwater
quantity.
WATER QUALITY
In the Montana portion of the Powder River Basin, the unaltered
ground water is comparatively good, but of lesser quality than the
Tongue River. The produced water is potable--it meets all Safe Drinking
Water Act standards for human use and is suitable for domestic
consumption, livestock and wildlife. However, it contains high levels
of sodium bicarbonate which make it unsuitable for irrigation without
special handling. The level of sodium, identified as the SAR (sodium
adsorbtion ratio), in the produced water can harm vegetation and the
soils upon which plant growth depends if special handling or treatment
is not used.
Irrigators and NPRC have raised concerns over the impact that the
discharge of this volume of CBNG produced water into the Tongue River
could have on their ability to irrigate from the Tongue River. They
argue that if all of the CBNG produced water is discharged into the
Tongue River, that it would alter the quality of the Tongue making it
unsuitable for irrigation. We agree that if all CBNG water were to be
discharged into the Tongue that the Tongue River would not meet water
quality standards designed to protect irrigation. However, we contend
that existing Montana and federal regulations simply will not allow
this scenario. Montana water quality standards already protect the
beneficial use of Montana's waters, which in the case of the Tongue
River includes irrigation. These water quality standards also include a
nondegradation policy that does not allow existing water quality to be
lowered. Thus, existing law would prohibit the discharge of all CBNG
produced water into the Tongue River and would protect Montana farmers
from the scenario described by NPRC.
For example, in the case of Redstone's pilot project, Montana DEQ
limited Redstone's Tongue River Pilot Project MPDES permits in several
ways to protect Montana water quality. First, Redstone was not allowed
a permit to discharge into Squirrel Creek because the discharge could
not meet the State's nondegradation policy for fluoride.
Second, the volume of water to be discharged into the Tongue River
was lowered from 4000 gpm, which would have met all Montana water
quality standards, to 1600 gpm in order to meet nondegradation
requirements. Thus, Redstone's Tongue River Pilot Project was limited
to a total of 1600 gpm for its projected 250 producing wells. DEQ
determined that these permit limits would fully protect the beneficial
uses of the Tongue River. This same analysis would have to occur for
any future development and alternatives to discharge into surface
water, as described below, would have to be developed.
In addition, the Montana DEQ and Wyoming DEQ are jointly addressing
the potential impact that Wyoming CBNG development could have on the
Tongue and Powder River as the BLM EIS process and State-moratorium
hold Montana CBNG development static for 18 months. Montana and Wyoming
DEQs are involved in negotiations to develop a ``total maximum daily
load'' (TMDL) for CBNG discharges into the Tongue and Powder River
drainages. That is, the states are developing the maximum load of CBNG
parameters of concern that these rivers can assimilate and still meet
water quality standards and protect beneficial uses. This load or TMDL
will be allocated between the states so that both states have the
opportunity to develop coalbed natural gas. This TMDL development
process is predicted to take two years. In the meantime, the Wyoming
DEQ has agreed to ``no measurable increase in concentration, for
parameters of concern, at the state boundary'' as a result of any
Wyoming permits issued after January 3, 2001. (See attached Wyoming DEQ
letter of January 26, 2001.) In addition, the information developed in
this TMDL process will be incorporated into the on-going EIS, as
appropriate. (See attached Montana DEQ letter of February 28, 2001.)
Unquestionably, there are strong laws, regulations and processes in
place to protect Montana's water quality. We are committed to meeting
those requirements--not because they are laws on the books, but because
we want to be a good neighbor. We're determined to do it right.
GROUNDWATER QUANTITY
Landowners have expressed concerns that CBNG production could
impact existing water rights. Again, existing legal mechanisms are in
place to address this issue.
First, as described above, the steel and concrete well casing
protects shallow aquifers from being adversely impacted by the CBNG
drilling and pumping process. Second, the Montana Department of Natural
Resources and Conservation and the Montana Board of Oil & Gas worked
together under State law to establish the Powder River Basin Controlled
Groundwater Area for coalbed methane development. This provides the
following:
--Applies to all coalbed methane gas producing areas of the Fort
Union Formation, including portions of Treasure, Big Horn,
Rosebud, Powder River and Custer counties.
--Requires each coalbed methane well to receive a permit, before
drilling, from the Board of Oil and Gas.
--Before a permit may be issued, the coalbed methane developer must
provide an inventory and hydrologic assessment of existing
wells, springs and streamflow and a proposed means to mitigate
water resource impacts.
--Coalbed methane developers must offer water mitigation contracts to
all owners of water wells or natural springs within one-half
mile of a coalbed methane gas field. This area will be
automatically extended one-half mile beyond any well adversely
affected.
--The mitigation agreement must require the coalbed methane developer
to promptly supplement or replace water from any natural spring
or water well adversely affected by the coalbed methane
project. The ``burden of proof'' is on the operator and not the
landowner. This protection for water rights impacted by CBNG
production is greater than water rights holders enjoy under the
Montana Water Use Act for interference by a water well.
--Written notice must be provided by operators of proposed wells to
all water rights holders within one-half mile of the coalbed
methane well.
--Finally, the order establishing the Controlled Groundwater Area
establishes a Technical Advisory Committee made up of State and
federal technical people to characterize the hydrologic
conditions in the targeted coal beds prior to development, and
to continue monitoring groundwater levels both within and
outside of the production field during development. See Board
Order 99-99.
Thus, existing law provides strong protection for Montana water
rights holders from loss of water quantity for coalbed natural gas
development.
ALTERNATIVES TO DISCHARGE
The most significant environmental challenge to be addressed in the
development of coalbed natural gas is how to handle the water produced
in a manner that both protects existing environmental values and also
enhances them. Montana is a state that places a high value on water,
works to protect water quality and to prevent the waste of this
valuable resource. Although the water produced from coalbed natural gas
development contains salts that make it unsuitable for irrigation,
without special handling or treatment, its overall quality is
relatively high and can support livestock, wildlife and human use. How
you protect water quality and, yet avoid the unnecessary waste of water
is the issue. The most common means of handling CBNG include:
--Underground injection pursuant to an Underground Injection Control
(``UIC'') permit under the Safe Drinking Water Act. In the case
of Montana, EPA Region VIII issues these permits. Redstone has
been attempting to obtain Class V injection permits in a timely
manner in order to obtain information useful to the CBNG EIS
alternatives analysis. We have been told by Region VIII, that
unlike Wyoming, which issues these permits in two weeks, it
will take at least 6 months, most likely longer to issue these
permits. We hope that EPA can reorganize its priorities so that
these permits can be issued sooner for use in the 2001 field
season. Deep-well injection is the alternative NPRC has already
decided is its preferred alternative, while we do not agree
with this conclusion, it is important that the EIS analyze the
pros and cons of deep-well injection. The most significant
``con'' of this approach is that while it may protect the
environment, it does not enhance the environment or the
ranching community that views additional water as a benefit.
This approach takes relatively good water and injects it into
water of much worse quality and stores it at a level where it
is not available for use. Other injection alternatives include
injection into the same aquifer from which the water was
produced, in order to make it available for use.
--Discharge to surface water authorized by a Montana Pollution
Discharge Elimination System (``MPDES'') permit under the
federal Clean Water Act and Montana Water Quality Act. As
discussed above, Montana law will limit the amount of water
that can be discharged to surface waters to protect existing
water quality.
--Storage ponds for livestock and wildlife use pursuant to either a
Montana Water Quality Act general permit or Montana Board of
Oil & Gas-issued permit. Many landowners will welcome the
opportunities that additional water supplies will provide for
their livestock and hunting operations, particularly during
droughts like the years Montana has recently experienced. CBNG
water can support more efficient use of pastures, increase herd
size and attract water fowl and wildlife. Again, there will be
a natural limit to the number of ponds, reservoirs and stock-
watering facilities that can be constructed.
--Treatment potential-reverse osmosis or filtration. Treatment
alternatives are being actively examined, but the relatively
good quality of the water and its volume present significant,
technical and economic issues. The upside of treated water is
its potential for use for irrigation in a water-poor area.
Again, there will be some economic and technical limitations to
wide-spread use of water treatment, but it is an important
alternative.
The industry position is to maintain a menu of options that will
allow us to work with affected landowners to best meet their needs.
Like State Representative Keith Bales, we would like to find a win-win
solution--develop CBNG and also provide good quality water to a water-
poor area. This could involve some treatment of water for irrigation
purposes; some water for wildlife and livestock use; some use for coal
mine dust suppression; some re-injection and limited discharge to
surface water. No one option is the best or only answer for all
circumstances.
CONCLUSION
Redstone believes that coalbed natural gas development--done
right--can be good news for an area of Montana sorely lacking in
economic opportunity. This area of Montana is aging and depopulating as
its children leave for western Montana or other states to find economic
opportunity. Agriculture alone cannot be expected to support the county
institutions necessary for a healthy community. We believe the tax and
royalty income from coalbed natural gas development will give this area
a shot in the arm for at least 20 years. No, CBNG will not last
forever, but it can provide this area with a bridge to the future. And,
in the short-term, if done right, CBNG development will provide jobs,
taxes, a new source of energy and water that will sustain the area's
agricultural community. Redstone is committed to working with
regulators and the Montana public to find solutions to the
environmental issues presented by coalbed natural gas development--to
``do it right.''
Senator Burns. Thank you. And I might want to remind the
folks, sitting behind us is staff people that--two of them,
Ryan Thomas and Bruce Evans, is off the Senate appropriations
staff, and, of course, Sharon Peterson, here with Senator
Baucus.
Also, Congressman Rehberg has a staffer here too. Where is
she? Right down there. Stand up. And she is listening, and
those--and, of course, this will be passed on to the
Congressman as we go along.
Ms. Old Elk.
STATEMENT OF NETA OLD ELK, DIRECTOR, CROW TRIBAL MINING
AND MINERALS
Ms. Old Elk. Thank you. I am Neta Old Elk, director, Crow
tribal mining and minerals. I am honored to provide the
following testimony on behalf of the Crow Tribe.
The Crow Tribe has one of the largest known coal reserves
in the nation. Currently the Crow Tribe has approximately 5
billion tons of known coal reserves within its exterior
boundaries. These reserves remain largely untapped. The Crow
Tribe lost opportunities to reap the benefits of the coal boom
of past decades due to the State of Montana's attempted
imposition of its coal severance tax. The prospect of double
taxation discouraged development and resulted in the shutout of
Crow coal from the market.
Along with the untapped coal reserves on the Crow
Reservation, geologic data indicates the coal reserves are rich
with coalbed methane gas. With the nation's current energy
crisis, coalbed methane gas at Crow has become an attractive
prospect for immediate development.
The Crow Tribe greatly treasures the abundance of pure
water, wildlife, and vegetation on the reservation. Further,
the Crow Tribe has great respect and tradition connected to its
homeland. However, the Crow Reservation does suffer from 70
percent unemployment, substandard housing, and a depressed
economy. The Crow Tribe must explore all opportunities to
improve reservation life for Crow people.
The Crow Tribe is anxious to participate in coalbed methane
production in a reasonable and environmentally-protected
manner. The tribe is concerned that a lengthy delay in
development of the trapped coalbed methane gas may result in
drainage of our gas due to our close reservation--due to our
close neighbors off the reservation which are currently
harvesting methane gas. We are motivated to establish mineral
boundaries to prevent migration of our natural gas off the
reservation.
Currently the Crow Tribal Minerals and Mining Office is
conducting a geologic survey of the development area in the
southeastern corner of the Crow Reservation, bordering Wyoming
and eastern Montana. The coal data, ownership data, and land
status are being examined very carefully by tribal engineers
and technicians along with anticipated barriers to development,
such as pipelines, leases, fee minerals, and environmental
concerns. Based on the information gathered, the Crow Tribe
will implement an exploration program to determine more
accurately the Crow Tribe's coalbed methane reserve estimates.
The Crow Tribe has made a decision to aggressively explore
its coalbed methane resources with a goal of reasonable
development. This includes forming working alliances with
numerous Federal agencies involved and strict compliance with
all applicable Federal regulations. Further, the Crow Tribe,
while fully intending to exercise its sovereign right to
develop its natural resources, will attempt to acknowledge any
concerns of its neighbors.
One of the biggest concerns to landowners and tribal
members regarding coalbed methane development is the water
associated with producing methane wells. Powder River Basin
coal is full of water. In order to extract the gas, most coal
seams require dewatering. The policy in Wyoming has been to
discharge water, treat the water, and use it for agriculture,
or an experiment in Gillette, Wyoming, where they are treating
the water and using it in their city water system.
The Crow Tribe is in the process of looking at several
options with regard to the water concerns, one of which is
reinjection, the other, of course, is ponding on clinker beds
for natural absorption. However, the Crow Tribe at this time is
examining all possible scenarios.
The biggest barrier facing the Crow Tribe today is funding
for these activities. Assessment and exploration is very
expensive. Between $2 to $3 million is needed for a full
assessment and exploration. BIA currently has an RFP out for
mineral assessment, and the Crow Tribe does meet all
requirements to receive this grant. However, the maximum amount
is $80,000. This will cover administrative costs associated
with development--or with assessment, but several million more
is needed.
The Bureau of Indian Affairs has been very helpful in
assisting the Crow Tribe with information and data needed,
specifically the BIA in Lakewood, Colorado. The Bureau of Land
Management, along with the Montana State Department of
Environmental Quality, are in the middle of a statewide
environmental impact statement which specifically excludes the
Crow reservation. BLM did send a draft MOU inviting the Crow
Tribe to participate in the EIS. However, the MOU was not
acceptable, and the Crow Tribe is in the process of revising it
and sending it back for BLM review.
PREPARED STATEMENT
The Crow Tribe is currently looking at potential benefits
from coalbed methane revenues. We are predicting 70 to 150
full-time jobs, which include well maintenance, roads,
pipelines, geology, and engineering. We are looking at
scholarship programs, health and prevention programs,
retirement plans for elderly, homes, land acquisitions, and
tribal infrastructure. We realize that the revenues are great
and can greatly improve the tribe's economic base.
I will be happy to answer any of your questions on behalf
of the Crow Tribe, and thank you for the opportunity.
[The statement follows:]
Prepared Statement of Neta Old Elk
Honorable Committee members, I am Neta Old Elk, Director of the
Crow Tribal Minerals and Mining Office. I am honored to provide the
following testimony on behalf of the Crow Tribe.
The Crow Tribe has one of the largest known coal reserves in the
Nation. Currently the Crow Tribe has approximately 5 billion tons of
known coal reserves within its exterior boundaries. These reserves
remain largely untapped. The Crow Tribe lost opportunities to reap the
benefits of the coal boom of past decades due to the State of Montana's
attempted imposition of its coal severance tax. The prospect of double
taxation discouraged developers and resulted in a shut out of Crow coal
from the market.
Along with the untapped coal reserves on the Crow reservation,
geologic data indicates the coal reserves are rich with coal bed
methane gas. With the Nation's current energy crisis, the coal bed
methane gas at Crow had become an attractive prospect for immediate
development.
The Crow Tribe greatly treasures the abundance of pure water,
wildlife, and vegetation on the Crow Reservation. Further, the Tribe
has a great respect and traditional connection to our homeland.
However, the Crow Indian Reservation suffers from 70 percent
unemployment, substandard housing and a depressed economy. The Crow
Tribe must explore all opportunities to improve reservation life for
the Crow people.
The Crow Tribe is anxious to participate in coal bed methane
production in a responsible, environmentally protective manner. The
Tribe is concerned that a lengthy delay in development of Tribe's coal
bed methane gas may result in a drainage of gas to our close off
reservation neighbors who are presently actively harvesting methane
gas. We are motivated to establish mineral boundaries to prevent
migration of our natural gas off the reservation.
Currently, the Crow Tribal Minerals and Mining office is conducting
a geologic survey of the development area located in the southeastern
corner of the Crow Reservation bordering Wyoming and eastern Montana.
The coal data, ownership date and land status are being examined very
carefully by tribal engineers and technicians along with anticipated
barriers to development such as pipelines, leases, fee minerals and
environmental concerns. Based on the information gathered, the Crow
Tribe will implement an exploration program to determine more
accurately the Crow Tribe's coal bed methane reserve estimates.
The Crow Tribe has made a decision to aggressively explore its coal
bed methane resources with a goal of responsible development. This
includes forming working alliances with the numerous federal agencies
involved and strict compliance with all applicable federal regulations.
Further, the Crow Tribe, while fully intending to exercise its
sovereign rights to develop its natural resources, will attempt to
acknowledge any concerns of its neighbors.
One of the biggest concerns to landowners and Tribal members
regarding coal bed methane development is the water associated with
producing methane wells. Powder River Basin coal is full of water, in
order to extract the gas, most coal seams require de-watering. The
policy in Wyoming has been to discharge the water, treat the water and
use it for agriculture, or some places such as Gillette, Wyoming are
treating the water and using it in their city water system. The Crow
Tribe is in the process of looking at several options with the water
concerns; one of which is re-injection, once the seams are de-watered,
the water is then pumped several miles down the road and re-injected
back into the ground anywhere from 1000 feet to 3500 feet, well below
any producing aquifers. Another option is to pond the water on Clinker
beds for natural absorption back into the earth. The Crow Tribe is
examining all possible scenarios.
The biggest barrier facing the Crow Tribe today is funding for
these activities. Assessment and Exploration is very expensive. 2 to 3
million dollars is needed for full assessment and exploration. BIA has
put out an RFP for Minerals Assessment and the Crow Tribe does meet all
the requirements to receive this grant, however, the maximum about is
$80,000. The will cover administrative costs associated with
Assessment, but several million more is needed. The Bureau of Indian
Affairs has been very helpful in assisting the Crow Tribe with
information and data needed, especially the BIA in Lakewood, Colorado.
The Bureau of Land Management along with the Montana State Department
of Environmental Quality are in the middle of a State wide
Environmental Impact Statement which specifically excludes the Crow
Reservation. BLM did send a draft MOU inviting the Crow Tribe to
participate in the EIS, however, the MOU was not acceptable and the
Crow Tribe is in the process of revising it and sending it back for BLM
review.
Potential benefits to the Crow Tribe from Coal Bed Methane
revenues:
--70 to 150 full time jobs (well maintenance, roads, pipelines,
geology, engineering)
--Scholarship programs
--Health and prevention programs
--Retirement plan for elderly
--Homes
--Land acquisition
--Tribal infrastructure
Senator Burns. Thank you, Neta. We appreciate that very
much.
Now we have Geri Small, and congratulations to her,
president of the Northern Cheyenne Tribe.
STATEMENT OF GERI SMALL, PRESIDENT, NORTHERN CHEYENNE
TRIBE
Ms. Small. Thank you and good morning, Senator Burns and
Senator Baucus.
I am Geri Small, president of the Northern Cheyenne Tribe.
After a substantial background in tribal government I was
elected president by a 72-percent vote on November 7, 2000. I
will serve a 4-year term. I greatly appreciate the opportunity
to present the concerns of the tribe with respect to coalbed
methane, CBM development in areas surrounding our reservation.
Our unique vulnerabilities. Our 450,000-acre reservation
lies in the heart of Montana's coal and CBM country. Among all
communities in the region, ours is the most vulnerable to the
downside of coal-related development and the least privy to its
financial benefit. For decades we have experienced major
negative impacts and scant benefits from coal mining and power
plant projects to the north and south of us.
I have requested to Congress to--has trust responsibilities
to the Northern Cheyenne Tribe. We are requesting approximately
$8 million over the next 5 years to assist our tribal
government's efforts to establish baseline data and implement a
monitoring program for coalbed methane impacts to our
reservation. As a tribal government, we need to--we need a
Congressional appropriation to meet the expenses associated
with the environmental review process. I am requesting for your
immediate consideration to our appropriation request NEPA
process because of the fast track.
Socioeconomic conditions on our reservation are much worse
than those off-the-reservation communities. Our public services
and facilities are grossly deficient. We receive no share of
the vast royalties or taxes generated by the development
surrounding us. There is no tax base on the reservation to
generate funds to address our needs.
When left to their own devices, off-reservation mines and
power plants do not employ Northern Cheyennes, even though we
are the largest and most needy community in the region. The
most readily available work force hovers around 70 percent.
Despite longstanding and diverse efforts, we have been unable
to generate appreciable economic developments on the
reservation. As development proceeds around us, the gross
disparity and quality of life between us and our off-
reservation neighbors grows larger.
Physical and cultural conditions. In addition, we are
uniquely vulnerable to the physical impacts of surrounding
coal-related development because of our traditional beliefs and
values. Our culture is entirely different from that of our
neighbors. We believe that all living things are sacred. Our
connection with our land and culture is of major importance.
Those traditional values extend beyond the technical boundaries
of our reservation, to lands to the north and south and to our
original lands in the Tongue River Valley.
The depth of our commitment to our traditional values is
manifest from our internal reluctance to exploit the abundant
coal resources underlying on our reservation. In an act of
extraordinary self-denial, we have thus far refrained from
developing those resources for commercial gain because of our
reverence to our homeland.
CBM impacts surrounding the reservation will magnify the
entire range of socioeconomic, physical, and culture impacts we
have suffered from encircling coal and power plant development.
Moreover, those impacts will be augmented by the following new
impacts:
Reservation ground water and subsidence: drawdowns and
deterioration of water quality in reservation wells, dewatering
of the reservation aquifer overlying the coal seams, impairment
of vested ground water rights on the reservation surface lands
due to dewatering of the subsurface.
Reservation surface water: pollution of tribal water in the
Tongue River Reservoir and the Tongue River; noncompliance with
tribal water quality standards; impairment of water rights
secured to us in our water settlement with the United States
and the State; impairment of on-reservation irrigation
projects, including those secured to us by part of our water
settlement.
Migration of CBM water: migration onto the reservation of
CBM water discharges from off-reservation CBM wells; resultant
damage to the reservation agriculture, land, fish, and wildlife
and their habitats.
Reservation mineral resources: siphoning of reservation CBM
reserves; siphoning of water from reservation coalbeds, which
may damage our coal by compression or other means; on-
reservation coal-seam fires.
Noise: CBM venting; noise from compressor stations and
vehicles adversely affecting reservation residents, spiritual
values, and fish and wildlife; hazardous CBM migration onto the
reservation homes and water wells.
Air pollution and visibility impairment from CBM venting,
coal-seam fires, carbon dioxide, dust, and other emissions, in
violation of the reservation's Class I air quality standards.
Our socioeconomic concerns: increased traffic; increased
stress on already inadequate on-reservation public services and
facilities; increased law and order problems, especially in the
light of reservation jurisdictional uncertainties among tribal,
Federal, or State jurisdictions; inclusion of the tribe from
development-related State and local tax revenues and Federal
royalties that will accrue to State and local governments,
exacerbating the gross disparities on-reservation and off-
reservation public services and facilities; exclusion of tribal
members from job opportunities available to others in off-
reservation CBM projects, unless special measures are adopted
to compel opportunities for the Northern Cheyenne.
Culture concerns: damage to the sacred wildlife and plants
found on or near the reservation; damage to the sacred sites on
and near the reservation; damage to the water spirits in the
Tongue River and at the reservation springs.
Lessons from the 1982 Powder River coal sale: the Northern
Cheyenne do not want the current initiative for regional energy
development to be a reenactment of the failed 1982 Powder River
coal sale. In studying and fashioning that 1982 sale, the
United States did not identify, analyze, and require mitigation
of reservation impacts. Before the 1982 sale we made a major
effort to bring these failures to the attention of local,
regional, and national and industry officials, to no avail.
Left with no other recourse, the tribe brought suit against
the United States, and we prevailed. The Court held the United
States had committed a massive breach of trust responsibility
to the tribe and violated the NEPA and other statutory and
regulatory requirements. Judgment was entered, cancelling
issued coal leases and holding the United States liable for the
tribe's very substantial litigation costs and expenses.
We would hope that in considering and fashioning any
proposed regional CBM development, Federal officials will not
repeat the mistakes of the past. Specifically, to meet its
trust responsibilities to the tribe, the United States must
assure that the impacts described above will be carefully
assessed and the appropriate mitigation will be adopted in
light of the uniquely vulnerable and disadvantaged status of
the Northern Cheyenne within the region.
Otter Creek tracts: finally, I must briefly address the
proposed transfer of the Otter Creek tracts to the State. The
legislation directing this was developed without even the
slightest consultation with the Northern Cheyenne Tribe. It was
fashioned without any consideration of the damaging impacts
that implementation of the transfer would inflict on the Tribe.
Under section 503, massive amounts of Federal coal in areas
adjoining the eastern boundary of our reservation will be
transferred to the State. Well before the enactment of section
503 it was well-known to the United States that the adverse
impacts of expanding coal development in the Tongue River
Valley would fall heaviest on our reservation community and
that our community would be uniquely excluded from the benefits
of such development.
Again, development of the Otter Creek tracts will generate
very large public revenues in the form of royalties and State
and local taxes. Those revenues will enable off-reservation
jurisdictions to cope with the impacts of Otter Creek
development. None of those revenues will be available to the
Northern Cheyenne to address the existing defects on the
reservation public services and facilities or increased effects
that the development will create. Also, the jobs and economic
opportunities that would flow from Otter Creek development will
not reach the Northern Cheyenne.
Well before enactment of section 503 it had been
established in the Powder River coal sale litigation that the
United States' trust responsibility to the Tribe requires that
these adverse impacts to the--be identified and mitigated in
the Federal coal leasing and the NEPA processes. But in
complete disregard of the trust responsibilities, members of
the Montana delegation engineered the unilateral transfer of
these massive Federal coal resources to the State and thereby
stripped the Tribe of the essential protections of the Federal
coal leasing and NEPA processes.
Upon such transfer, the coal will be developed in
accordance with the State processes, which, according to the
State, provide no legal authority, under MEPA or strip-mining
permitting act, to require operators to adopt mitigation
measures to address impacts inflicted on the reservation. If we
had been consulted about the legislation proposal in advance,
we would have sought explicit inclusion of appropriate measures
to remedy this fundamental defect.
Notwithstanding these failures, it remains our position to
the Secretary of the Interior, as the Tribe's trustee, must
consider and mitigate these impacts before transferring the
Otter Creek tracts to the State. In advance of any transfer,
the Secretary must identify and analyze these impacts and
mitigate them via insertion of protective stipulations in any
patents transferring to the Otter Creek tracts to the State.
Finally, it is also clear that a condition precedent to the
transfer of the tracts has not been satisfied. The requirement
of Sections 503 (a)(1) and (b) that the Secretary and the
Governor first endeavor to negotiate and agree to transfer of
the 10 million in Federal mineral rights to the State.
PREPARED STATEMENT
It is only after the failure of such good-faith negotiation
that the Otter Creek tracts are to be transferred. As we
understand it, the Governor flatly refused to enter into any
such negotiations and, therefore, we believe, violated Section
503. By its conduct, the State is, therefore, not presently
entitled to the Otter Creek tracts.
Thank you for your opportunity to present the concerns of
the Northern Cheyenne Tribe.
[The statement follows:]
Prepared Statement of Geri Small
I am Geri Small, President of the Northern Cheyenne Tribe. After a
substantial background in Tribal government, I was elected President by
72 percent of the vote on November 7, 2000, and will serve a four-year
term. I greatly appreciate the opportunity to present the concerns of
the Tribe with respect to coalbed methane (``CBM'') development in
areas surrounding our Reservation.
Our unique vulnerabilities
Our 450,000 acre Reservation lies at the heart of Montana's coal
and CBM country. Among all communities in the region, our's is the most
vulnerable to the downside of coal-related development and the least
privy to its financial benefits. For decades we have experienced major
negative impacts, and scant benefits, from coal mining and power plant
projects to the north and south of us.
Socio-economic conditions
Socio-economic conditions on our Reservation are much worse than
those in off-Reservation communities:
--Our public services and facilities are grossly deficient.
--We receive no share of the vast royalties and taxes generated by
the development surrounding us.
--There is no tax base on the Reservation to generate funds to
address our needs.
--When left to their own devices, off-Reservation mines and power
plants do not employ Northern Cheyennes, even though we are the
largest and most needy community in the region, with the most
readily available workforce (our unemployment rate currently
hovers around 70 percent).
--Despite long-standing and diverse efforts, we have been unable to
generate appreciable economic development on the Reservation.
--As development proceeds around us, the gross disparity in quality
of life between us and our off-Reservation neighbors grows
larger.
Physical and cultural conditions
In addition, we are uniquely vulnerable to the physical impacts of
surrounding coal-related development because of our traditional beliefs
and values. Our culture is entirely different from that of our
neighbors. We believe that all living things are sacred. Our connection
with our land and culture is of transcendent importance. These
traditional values extend beyond the technical boundaries of our
Reservation, to lands to the north and south and to our original lands
in the Tongue River Valley. The depth of our commitment to our
traditional values is manifest from our internal reluctance to exploit
the abundant coal resources underlying our Reservation. In an act of
extraordinary self-denial, we have thus far refrained from developing
those resources for commercial gain, because of our reverence for our
Reservation.
CBM impacts
CBM development surrounding the Reservation would exacerbate the
entire range of socio-economic, physical and cultural impacts we have
suffered from encircling coal and power plant development. Moreover,
those impacts will be augmented by pernicious new impacts:
Reservation groundwater and subsidence
Drawdowns and deterioration of water quality in Reservation wells.
De-watering of the Reservation aquifer overlying the coal seams.
Impairment of vested groundwater rights on the Reservation.
Subsidence of Reservation surface lands due to de-watering of the
subsurface.
Reservation surface water
Pollution of Tribal water in the Tongue River Reservoir and the
Tongue River.
Non-compliance with Tribal water quality standards.
Impairment of water rights secured to us in our water settlement
with the United States and the State.
Impairment of on-Reservation irrigation projects, including those
to be secured to us as part of our water settlement.
Migration of CBM water
Migration onto the Reservation of CBM water discharged from off-
Reservation CBM wells.
Resultant damage to Reservation agricultural lands, fish and
wildlife, and their habitats.
Reservation mineral resources
Siphoning of Reservation CBM reserves.
Siphoning of water from Reservation coalbeds, which may damage our
coal by compression or other means.
On-Reservation coal seam fires.
Noise; CBM venting
Noise from compressor stations and vehicles adversely affecting
Reservation residents, spiritual values and fish and wildlife.
Hazardous CBM migration into Reservation homes and water wells.
Air pollution
Air pollution and visibility impairment from CBM venting, coal seam
fires, carbon dioxide, Nox from compressor stations and vehicles, dust
and other emissions, in violation of the Reservation's Class I Air
Quality standard.
Socio-economic concerns
Increased traffic.
Increased stress on already inadequate on-Reservation public
services and facilities.
Increased law and order problems, especially in light of
Reservation jurisdictional uncertainties among Tribal, federal and
State jurisdictions.
Exclusion of the Tribe from development-related State and local tax
revenues and federal royalties that will accrue to State and local
governments, exacerbating the gross disparities between on-Reservation
and off-Reservation public services and facilities.
Exclusion of Tribal Members from job opportunities available to
others in off-Reservation CBM projects, unless special measures are
adopted to compel opportunities for the Northern Cheyenne.
Cultural concerns
Damage to sacred wildlife and plants found on and near the
Reservation.
Damage to sacred sites on and near the Reservation.
Damage to water spirits in the Tongue River and at Reservation
springs.
Lessons from the 1982 Powder River Coal Sale
The Northern Cheyenne do not want the current initiative for
regional energy development to be a re-enactment of the failed 1982
Powder River Coal Sale. In studying and fashioning that 1982 sale, the
United States did not identify, analyze and require mitigation of
Reservation impacts. Before the 1982 sale, we made a major effort to
bring these failures to the attention of local, regional, national and
industry officials, to no avail.
Left with no other recourse, the Tribe brought suit against the
United States and thoroughly prevailed. The court held the United
States had committed a massive breach of its trust responsibility to
the Tribe, and violated NEPA and other statutory and regulatory
requirements. Judgment was entered canceling issued coal leases and
holding the United States liable for the Tribe's very substantial
litigation costs and expenses.
We would hope that in considering and fashioning any proposed
regional CBM development, federal officials will not repeat the
mistakes of the past. Specifically, to meet its trust responsibilities
to the Tribe, the United States must assure that the impacts described
above will be carefully assessed and that appropriate mitigation will
be adopted in light of the uniquely vulnerable and disadvantaged status
of the Cheyenne within the region.
Otter Creek tracts
Finally, I must briefly address the proposed transfer of the Otter
Creek coal tracts to the State. The legislation directing this was
developed without even the slightest consultation with the Northern
Cheyenne Tribe. It was fashioned without any consideration of the
damaging impacts that implementation of the transfer would inflict on
the Tribe.
Under section 503, massive amounts of federal coal in areas
adjoining the eastern boundary of our Reservation will be transferred
to the State. Well before enactment of section 503, it was well known
to the United States that the adverse impacts of expanded coal
development in the Tongue River Valley would fall heaviest on our
Reservation community, and that our community would be uniquely
excluded from the benefits of such development.
Again, development of the Otter Creek tracts will generate very
large public revenues, in the form of royalties and State and local
taxes. Those revenues will enable off-Reservation jurisdictions to cope
with the impacts of Otter Creek development. None of those revenues
will be available to the Northern Cheyenne to address the existing
deficits in Reservation public services and facilities or the increased
deficits that the development will create. Also, the jobs and economic
opportunities that would flow from Otter Creek development will not
reach the Northern Cheyenne.
Well before enactment of section 503, it had been established in
the Powder River Coal Sale litigation, that the United States' trust
responsibility to the Tribe requires that these adverse impacts be
identified and mitigated in the federal coal leasing and NEPA
processes. But, in complete disregard of this trust responsibility,
members of the Montana delegation engineered the unilateral transfer of
these massive federal coal resources to the State, and thereby stripped
the Tribe of the essential protections of the federal coal leasing and
NEPA processes. Upon such transfer, the coal will be developed in
accordance with State processes, which, according to the State, provide
no legal authority (under MEPA or the strip-mine permitting Act) to
require operators to adopt mitigation measures to address impacts
inflicted on the Reservation. If we had been consulted about this
legislative proposal in advance, we would have sought explicit
inclusion of appropriate measures to remedy this fundamental defect.
Notwithstanding these failures, it remains our position that the
Secretary of the Interior, as the Tribe's trustee, must consider and
mitigate these impacts before transferring the Otter Creek tracts to
the State. In advance of any transfer, the Secretary must identify and
analyze these impacts, and mitigate them via insertion of protective
stipulations in any patents transferring the Otter Creek tracts to the
State.
Finally, it is also clear that a condition precedent to the
transfer of the tracts has not been satisfied--the requirement in
sections 503 (a) (1) and (b) that the Secretary and the Governor first
endeavor to negotiate and agree on the transfer of $10 million in
federal mineral rights to the State. It is only after the failure of
such a good faith negotiation, that the Otter Creek tracts are to be
transferred. As we understand it, the Governor flatly refused to enter
into such negotiations and therefore, we believe, violated section 503.
By its conduct, the State is therefore not presently entitled to the
Otter Creek tracts.
Thank you for the opportunity to present the concerns of the
Northern Cheyenne Tribe.
Senator Burns. Thank you.
And now we hear from Wayne Kelley, president, Omega Oil
Company.
Wayne, thank you for coming today. You want to pull your
microphone over there.
STATEMENT OF WAYNE L. KELLEY, PRESIDENT, OMEGA OIL CO.
Mr. Kelley. Coalbed methane is a near-term opportunity to
solve much of the country's current energy crisis. However, the
development of that methane needs to satisfy three fundamental
criteria. As the custodians of our resources, we need to ensure
that those resources are developed efficiently and that they
are also developed in an economic manner. And as the trustees
for our environment, we need to also make sure that that
development is an environmentally satisfactory fashion.
I have brought some charts, which I think you have copies
of, Senators. And I want to give a very brief overview of the
production of oil and gas and what Omega offers that is new to
try to satisfy these concerns.
The mechanical premise under which oil and gas is produced
really has its history back in the 1860s, with Drake's well,
and those mechanics remain unchanged as the state-of-the-art
today. Those mechanics are dependent upon the migration of oil
or gas or fluids associated with gas, through a permeable
membrane to a well bore, and then they are lifted by a
mechanical means to a surface-located wellhead.
In the 1970s concepts were developed whereby lateral or
horizontal segments of those vertical wells could be drilled,
the premise being that by mitigating the distance that the
fluids or the gas have to migrate, that you get a more
effective recovery. And I want to represent that a vertical
well in most cases in this country recovery only about 9 to 12
percent of the original oil in place under primary recovery,
and that this advance using horizontal drilling increases that
recovery factor by maybe 50 percent, resulting in, on an
average, 15-percent recovery of the original oil or gas in
place.
Now, this horizontal technology has become rather
widespread during the 1980s, but it is not really applicable to
coalbed methane, the reason being that these types of wells are
expensive to complete and they also require a fair amount of
distance below the earth's surface in order to get the drill
pipe turned to make this 90-degree turn.
The Omega technology, which we represent may solve some of
the problems in the production of coalbed methane, relies on a
very different mechanical premise. The mechanical premise being
that the wellhead is actually located below the reservoir in a
mine.
The chart that you see here, the well bore that is going
down through the earth's surface is approximately 10 feet in
diameter. The area where the wellheads are are approximately 90
feet in diameter. But this allows the effective placement of up
to 144 well heads at one single location.
What this does in terms of the efficiency or the
effectiveness of the recovery is that the recovery of the
resource is, on average, 200 percent greater than the
mechanical recovery from conventional surface-located
wellheads. The cost of putting in a facility like this, because
of the amount of acreage that is covered by this type of
facility, is roughly equivalent of developing surface-located
wells, but obviously you get a much better economy because you
are recovering more than twice the amount of the initial
resource.
This also has no considerable environmental consequences,
and it has some considerable application to coalbed methane. By
the location of the wellhead below the reservoir, you are able
to produce simultaneously all of the coal seams, all the gas
from all the coal seams, whereas a conventional-located well on
the surface only allows the production of one coal seam at a
time. This results in, you know, more efficient and a faster
rate of recovery, and it also results in a much more effective
rate of recovery.
We have some charts here that kind of show the benefits of
coalbed methane of this type of production.
Senator Baucus. They are in here, too, right?
Mr. Kelley. They are in here, too, that is correct.
Now, this also has a benefit in terms of the water, because
by the production of up to, say, 8,000, 8,500 acres of one
central location, it allows all that water that is produced to
be brought to one central location for treatment and
disposition.
And the next diagram I would like to show is what a
conventional series of well pads would like for the production
of 8,500 acres. You'll see that it requires 220 well sites to
produce 8,500 acres. And those well sites all need electricity.
They all need a pipeline to get the gas to a central collection
point. They all need access for servicing, whereas the
technology we have developed requires but one well site.
Now, how does this relate in terms of the water? The water,
of course, is all drawn to one location. And by the volume of
water that is produced at this one location, this permits the
effective and economic use of wetlands filtration. We are
proposing to use for wetlands filtration a process that was
jointly developed by the United States Department of Energy and
Texaco. And I have some photographs of that development which
are in Wyoming. They are the--or at Naval Petroleum Reserve No.
3.
What you are looking at here is wetlands filtration. These
are an aquatic species of plant. And what they do is they
attach the sodium or heavy metals or any number of contaminants
in the water to the roots of the plants. The plants can then be
harvested and disposed of as either agricultural feed or for
several other uses. This is the water movement between cells in
the wetlands treatment area. And this shows another one of the
cells of the wetlands treatment. This is an organic method of
treatment. It is highly effective and it allows for extremely
clean water that can be used either as potable water or it can
be used for agricultural use.
PREPARED STATEMENT
Again, we think that this method of production is good
stewardship of the environment. It satisfies many of the key
issues of treating water. It obviously gets greater recovery of
gas, and results in a considerable reduction of the
environmental disturbance.
Thank you.
[The statement follows:]
Prepared Statement of Wayne L. Kelley
No opportunity to solve America's energy crisis is more promising
than developing a method to extract the huge methane gas reserves in
the Powder River Basin and across the United States efficiently,
inexpensively, and in an environmentally benign fashion. Omega Oil
Company, Inc. proposes just such a method.
That method solves three distinct problems: the treatment of the
large quantities of water brought to the surface with coal bed methane,
the considerable surface disturbance caused by the large number of
closely spaced wells required when drilled vertically, and the large
quantity of gas stranded or left behind by conventional drilling
methods. Let's deal with each of these questions in turn.
WATER PURIFICATION
The initially high volume of water associated with coal bed methane
production, though it declines over the life of any project, brings to
the surface undesirable salts and minerals. Mechanical methods of
removal are feasible but involve significant quantities of energy and
create visual pollution.
Wetlands filtration removes the minerals from produced water by
absorption into aquatic plants. These plants, with their low levels of
minerals, are then harvested and disposed of. The treated water is then
essentially mineral free and may be reintroduced into the aquifer, used
for domestic or agricultural application or simply be disposed of by
surface drainage without risk of loading mineral concentrations at the
point of discharge.
Omega proposes the use of an organic alternative wetlands
filtration process developed by Texaco and demonstrated with success
jointly with the United States
Department of Energy at the department's Rocky Mountain Oilfield
Testing Center near Casper, Wyoming (Fig. 1).
SURFACE DISTURBANCE
Coal bed methane reservoirs by nature have poor internal
communication, meaning that the gas is not able to migrate more than a
few hundred to two thousand feet at most from its original location to
the well bore. Hence, coal bed methane wells must be closely spaced
and, when drilled vertically in a conventional fashion from the surface
(Fig. 2), create considerable surface disturbance. Omega's development
method concentrates all of the wellheads at a centralized location that
is not only below the surface; but below the gas reservoir as well and
likely to be below any locally exploited freshwater aquifer. Long
horizontal wells are drilled out from that central location by state-
of-the-art coiled tubing drilling methods by which all fluid and gas
collection is at a centralized location. This centralization greatly
reduces surface disturbance (Fig. 3) and makes for more efficient
production facilities.
PRODUCTION EFFICIENCY
We are the custodians of earth's limited resources. Therefore, we
are responsible to ensure efficient exploitation of those resources
when we choose to utilize them. The Omega production method has the
capacity to recover a greater portion of the original gas (or oil) in
place for a variety of reasons:
1. Geologic variances or discontinuities often impede oil or gas
migration. The high concentration of closely spaced horizontal well
borings in the Omega method cross many barriers to migration that
result in stranded or left behind resources when exploited by
conventional methods.
2. The Omega well bore configuration makes for a more favorable
rate of production because fluid (the water in the de-watering phase in
CBM production) migrates naturally in a downward direction toward the
underground control location that is below the gas or oil reservoir.
3. The low operating cost of Omega configured wells allows economic
operations at production volumes lower than conventional wells, thereby
extending the decline curve and improving the recovery factor.
4. Conventional coal bed methane wells can produce from only one
coal seam at a time. The Omega wells can produce multiple seams
simultaneously.
Depending upon the unique reservoir characteristics of any given
field we believe the Omega production method, when employed in oil and
gas production, on average will improve primary recovery factors by as
much as 200 percent and total recovery rates by as much as 100 percent.
The prospect of greater rates and factors of recovery is not only a
question of operating efficiency, but reduces significantly the number
of oil or gas fields required to be in active production at any one
moment. Hence, a greater ratio of gas to water is achieved over the
life of a project by utilizing the Omega technology.
The combined effect of wetlands filtration and Omega's below the
reservoir production technology is greater than the sum of its parts.
Water treatment by wetlands filtration can be achieved at a single
location without any requirement to transmit produced water from a
remote well location. This advantage further reduces surface
disturbance by reducing the number and distribution of wetlands sites,
pipelines, treaters and right-of-ways for transporting water to a
central wetlands.
Although our production concept is new to coal bed methane
production we believe that we can demonstrate in the laboratory the
effectiveness of wetlands filtration at a specific Powder River project
location and accurately forecast the surface disturbance savings, the
exact development footprint, subsurface configuration and production
forecast before the implementation of any on site development. The
steps to commercial implementation of coal bed methane production
utilizing wetlands filtration and Omega's below the reservoir
production technology are:
1. Laboratory demonstration of wetlands filtration and production
site design for technical and economic evaluation.
2. Proof of concept at commercial scale.
SUMMARY
Methane gas production can be a vital source of fuel for electric
power production and for clean burning fuel cell driven transportation.
It is therefore a major element toward energy reliability and
independence.
Omega's method of production of coal bed methane and its treatment
of the water it produces by wetland filtration offers a near-term
tangible advance in the production of much needed, clean burning energy
and a quantum improvement in the environmental consequences of gas
production.
Senator Baucus. We do not have that one.
Mr. Kelley. We will get it to you.
Senator Burns. Can you imagine they only left one page out.
Mr. Kelley. We did not want to bore you with all the
engineering.
Senator Burns. Let us take that a little further. If--and
it seems like as we hear the dialogue on developing this
resource, Mr. Kelley, that water management is at the center of
the discussion. Tell me about, in your experimentation and the
work that you have done in the national petroleum part of that
thing, how much has that added to your costs?
Mr. Kelley. Senator, it is a very nominal increase in the
cost. The treatment of this water compared to the cost per
barrel of oil is in the pennies. And it has been very, very
effective, from what I understand, at Naval Petroleum Reserve
No. 3. And we think that the--because of the consolidation and
the ability to do this on a large scale and it is a centrally-
located facility, that the cost would be insignificant. It
would be cheaper than any type of mechanical means of
treatment.
Senator Burns. See, the reason I ask that question is
because when the price finally stabilizes and maybe goes down a
little bit, do we risk environmental damage to cut corners to
keep the wells in production? That is what I am saying is how
much this adds to the cost, the final cost of the product
before you even transport it.
Also, Ms. Old Elk, I am interested in the tribe's area. How
far along are you in your process of increasing your production
on the reservation?
Ms. Old Elk. We currently have no production on the
reservation. We are in the middle of getting a reserve estimate
of our gas potential, of our resource. We first are doing a
geologic survey and running economics on coalbed methane
development. The next step, of course, is exploration and
getting a few holes drilled for exploration, some coring done.
Of course, that takes money and time.
The geologic assessment I suspect we will have done by May,
and then at that point move forward into exploration and a
pilot project. But I think as a tribe, with 5 billion tons of
coal, we first need to get a reservoir estimate of our gas
potential.
Senator Burns. Have you made contacts of energy companies
or engineering firms to do that work for you?
Ms. Old Elk. Actually, we have been contacted by energy
companies since this administration took office in July.
Approximately 30 to 40 different gas companies have approached
the tribe for development.
Senator Burns. Ms. Small, you registered a pretty strong
opposition to this moving forward. Is that the consensus of the
Cheyenne Tribe, that they do not want to participate in this or
are opposed to the development in and around the reservation.
Ms. Small. It is a very controversial issue, so right now
we have not really--any of that yet.
Senator Burns. Okay, Max.
Senator Baucus. Thank you, Conrad.
One of the interesting sort or technical questions I have--
perhaps Mr. Caskey or Mr. Kelley can answer it--is how much
drawdown or flow or leakage is there when, say, there is
development on private land right next to BLM land? And BLM and
I know that the tribes--I know that the Crow, for example,
maybe Northern Cheyenne as well, are both concerned oh, my
gosh. First of all, Wyoming, it is all kind of flowing south to
Wyoming underground. Second, it is at the expense of not only
private landowners, the expense of BLM land, the expense of
tribal land. I know it is a difficult concept to generalize,
but just how serious is that from a geological perspective?
Mr. Caskey. I will take a crack at it, Senator. Both the
Oil and Gas Conservation Commission in Wyoming and the Board of
Oil and Gas in Montana have rules and regulations that require
certain spacings for development of wells. Those spacings try
to do a couple of things. They try to prevent drainage and
waste of the resource, and they also try to prevent drilling of
unnecessary wells. So with proper engineering and development
oversight, what they pass is the----
Senator Baucus. I appreciate that. That is really not the
question I asked. I probably did not make myself very clear. I
just read testimony of the State's, a couple of the tribes, BLM
too, thinking we got to get going here because this stuff is
leaking over to private lands, leaking over to Wyoming. We
better get moving so we can get some for us too. It is that
question I am trying to address.
Mr. Kelley. Mr. Baucus.
Senator Baucus. Yeah.
Mr. Kelley. The migration of fluids in the permeable
membrane are dictated by Darcy's law.
Senator Baucus. Darcy's law?
Mr. Kelley. Darcy's law.
Senator Baucus. Will you explain Darcy's law to us.
Senator Burns. Is it anything like Murphy's?
Mr. Kelley. Darcy's law is a universally accepted engineer
law that dictates the behavior of fluids and gases in permeable
membranes. And it is dictated by the viscosity of the fluid. It
is dictated by the pressure and by the porosity, the
permeability of the membrane.
The long and the short of it is that a 5- or 6-mile impact
would be a tremendous distance, based upon the types of
pressures, the types of membrane that you are dealing with, the
depths, the volumes of the fluids.
Senator Baucus. Five would be great. Half of that could be
significant? Two and a half miles?
Mr. Kelley. Obviously, the impact becomes less and less as
you go out further from the radius. But a 5- or 6-mile
measurable distance is--from the data we have seen, about five
or six miles is normally what you see as far as impact.
Senator Burns. Wayne, the frequency, you know, when they
locate these wells, if you look at them, they are all fairly
close together. So that would tell me that the migration
distance is not as great as one would suspect.
Senator Baucus. So people should not be that concerned
about migration to Wyoming, to private----
Mr. Kelley. No, it is not going to migrate that far. There
are geological barriers as well as the issue of just how far
can you get it to migrate assuming it were all homogeneous.
Senator Baucus. Again, Mr. Caskey and Kelley, perhaps you
can address this. Mr. Caskey, you mentioned that the Montana
laws are basically sufficient, if I have a sense of your
testimony.
Mr. Caskey. That is true.
Senator Baucus. Could you kind of be a little more
explicit, like which--particularly with water, because I think
that is the greatest concern here. And as I recall, there has
been a lot of controversy in the State on where it is right now
and about nondegradation. And obviously, it depends upon, you
know, who is located where and what water is--perhaps with the
Tongue River, where and when and how much. But could you just
give us a little flavor and try to expand on that, please.
Mr. Caskey. We feel, or it is our opinion, that the current
laws that are in effect, that are in place right now in Montana
are sufficient. It is application of those laws by the
regulators that either makes us available for an economic
operation or slows us down. The things that are in place to
help protect the quantity of the water being produced, which we
fully supported once we understood what it was supposed to do,
is the controlled ground water area that was established by the
DNRC. That oversees the amount of water that is being produced
from the aquifers, including the coals.
There is also the MPDES system that has to be accomplished
prior to any discharge into a--for instance, the Tongue River.
Those permits have to be acquired. And if they are not acquired
or they cannot be acquired, you are not allowed to discharge
into the rivers and streams of the State.
Therefore, there is an oversight readily available to the
State to control the amount and quality of the discharges that
might be available for the rivers and streams.
Senator Baucus. Is it fair to say that Montana statutes,
our environmental statutes that are applicable here are
stronger and tighter than those in Wyoming?
Mr. Caskey. We certainly feel so. We think that the laws
are much more finite and more stringent than what we see in
Wyoming. It is also more--excuse me?
Senator Baucus. Is that an impediment to development?
Mr. Caskey. It is kind of a loaded question, but the----
Senator Burns. It is better than a loaded gun.
Senator Baucus. I mean, if I am a businessman, it is a
question I have got to ask myself.
Mr. Caskey. It does--I mean, it is obvious. We have had--
there is a lot more development in Wyoming. Now, granted, it
started in Wyoming, so you would expect a certain degree of
that.
It is more difficult to do business in Montana because of
the regulatory hurdles you have to step over.
Senator Baucus. Now, is it too much more difficult? You
know, that is a tough question to answer. But I mean, as a
businessman you are looking at Wyoming, you are looking at
Montana. You look at Montana statutes and then you hear the
concerns of people. And yet, you see the opportunities, the
economic opportunities here. As a businessman, is it too
strong, too stringent? Can you live with it? Can you not live
with it?
Mr. Caskey. Certainly I see where your drift is. As a
businessman, we have been fighting with this for 3 years,
trying to get the right mix of regulatory issues and
information established. I think it is workable. I think the
application of the law should become more consistent. We need
to streamline some things. But I think it is workable.
I think right now we have an historic issue for an
industry, particularly extracting mineral industries, whereby
Montana has not been very friendly in the past. And I think a
lot of that still enters into people's decisions to invest in
Montana.
Senator Baucus. Now, this question, though, with respect to
coalbed methane, where does Montana have to be more friendly?
Where are the biggest impediments, more precisely? You started
to talk about the need for streamlining. Are there other areas?
Mr. Caskey. I think that there are--the voice of the
environmental community--granted, the environmental community
plays a huge piece of the activities of the State of Montana,
as well as Wyoming. But I think the credibility issue and the
issues associated with is the development of the State's
resources--as you said earlier, there is a give and take. It
does not happen as a free lunch. There will be impacts. To
address them as only concerns and not try to seek solutions is
very difficult. That is probably the most single difficult
hurdle we have in investing in the State, frankly.
Senator Baucus. That is the perception that too many people
are not trying to find solutions, but are----
Mr. Caskey. Too many cooks.
Senator Baucus [continuing]. Trying to create barriers and
not trying to find solutions?
Mr. Caskey. Correct. Too many cooks with concerns, not
enough people making the sauce. I mean, that is kind of how I
would equate it.
Senator Baucus. I do not disagree with that. There is a bit
too much of that, I agree. And I think it is in lots and lots
of areas and probably occurs here.
But I think you have an opportunity, by addressing the
science and technology in the various ways of dealing with
water, because I think the more people are less concerned and
less worried the more they can find some--the more they can see
some solutions to this. I know you agree that if you were a
rancher, you know, you would be kind of concerned yourself. And
I am sure the rancher would agree that, hey, these guys have
come up with something, and it is--you know, it is not perfect,
but it is--you know, I can work with it. So you have a real
opportunity to develop the science and the technology to make
that happen, it seems to me.
Do you want to say something, Ms. Old Elk?
Ms. Old Elk. No.
Senator Baucus. I have got lots of questions, but we do not
have a lot of time.
Senator Burns. That is kind of like my checkbook. I always
end up with a lot of checks and no money.
I have got a couple of questions with regard to water and
the amount of water you are bringing up and its relation to the
amount of gas that you are getting. Is there a point of
diminishing returns there?
Mr. Caskey. Diminishing returns, the life of these wells in
the field, generally a well life will be 10 to 12 years, we
think. Now, it is still a fledgling industry, and the longest
CBM we have got is 12 years down in Wyoming. Probably a field
life is 20 to 25 years, somewhere in there, depending on the
developer and the development.
Water production, as I alluded to earlier, starts out
relatively high. And as the--there is two lines. As your gas
production comes on, it tends to replace, we think, some of the
water production. In other words, water production declines;
gas production goes up. You can see in the areas down in
Wyoming at this point in time where early on wells were
producing 15, 20 gallons a minute. Now those same wells may be
producing a gallon or two a minute.
In our scenario, or in the Tongue River area, we are not to
the point yet to where we have seen the decline stopped on the
water side, nor the increase in gas stop. We are currently
producing an average of about 124,000 cubic feet of gas per day
from each of our 162 wells.
Senator Burns. What was that number again?
Mr. Caskey. 124,000 cubic feet of gas per day.
That is economic. Those are little wells, but there is a
lot of them. And it combines to be a fairly significant stream
of productivity.
Senator Burns. Well, I have some more questions, but I will
get them to you in writing. And we are going to--this is all I
have for this----
Senator Baucus. I cannot resist one more.
I was stunned, Mr. Kelley, with your charts. I mean, it is
amazing. You do good charts. But I mean, it is this one here
compared to that one there. And is this a technology that is
becoming readily available throughout the industry? Because if
it is and if it works, just off the top of my head, knowing not
as much as I would like to know yet about this problem, this
is--you are on the way to some solutions.
Mr. Kelley. Yes, it is available. Thus far, Texaco, Gulf,
Phillips, Marathon, and Penneco, several other oil companies
have licensed it from us. We are partners with them. We invest
in the projects.
And when you are saying it is stunning, that is why around
our house we buy Omega stock.
Senator Burns. That is a pretty good recommendation. But,
you know, with that, though, this allows them, on the treatment
of that water, to do it pretty----
Mr. Kelley. More efficiently.
Senator Baucus. Mr. Caskey, are you utilizing this? Are you
looking at utilizing this technology?
Mr. Caskey. I just met Mr. Kelley this morning. I will be
looking at it.
Senator Baucus. We may have put something together here.
Mr. Caskey. There is definitely an opportunity to look at
it. We have already set that up.
Senator Baucus. Good. Thank you.
Senator Burns. Thank you. Thank you kindly. We appreciate
that very much.
Our last panel today is made up of Mike Nicklin, President,
Nicklin Earth & Water; Steve Gilbert, who represents the board
members of the Northern Plains Resource Council; and David
Heinz, district manager, CMS Oil and Gas Company. We appreciate
you folks coming today and looking forward to your testimony.
Gentlemen, thank you very much for coming today.
Could we have order in the room, please. Could we have
order in the meeting room, please. The testimony that these
folks will offer is very important to us and to the American
people, and we try to provide everybody with an environment in
which they can make their case.
Mr. Nicklin, president, Nicklin Earth & Water. Thank you
for coming today. Pull the microphone up. You have got to drown
out the talkers.
STATEMENT OF MICHAEL E. NICKLIN, Ph.D., PE, PRESIDENT,
NICKLIN EARTH & WATER
Mr. Nicklin. Thank you, Senator Burns and Senator Baucus. I
appreciate the opportunity to come before you today to testify
about the important subject of coalbed methane development.
From my perspective, the two most significant water
resource issues related to CBM development are CBM well water
discharge and the sodicity salinity of that water. These issues
are intertwined as we need to know how much water and what the
quality of this water will be in order to define proper water
management schemes. The focus of my testimony is on the water
discharged from coal aquifers. In other words, how much water
are we going to get.
I have found that by carefully examining available data one
can generally use that information to predict with reasonable
accuracy how an aquifer will respond when it is tapped or used
for whatever reason. For instance, I have used computer models
to represent coalbed aquifers. Some of the examples include two
different ground water modeling efforts in the Colstrip area in
Montana. And I have also done ground water modeling for
different coalbed methane projects in Campbell and Sheridan
Counties, Wyoming.
Each individual coalbed aquifer, as in the case of any
aquifer, possesses a finite water-bearing capacity. This water-
bearing capacity is a function of the following parameters:
formation of hydraulic conductivity, which is measure of the
ease at which water flows through the aquifer. It also depends
upon coalbed thickness. In general, all other factors being
equal, the thicker the coal, the more water that coalbed will
produce.
Aquifer hydrostatic pressure, which is essentially the
height that water will rise in a well tapping the coal, the
greater the pressure, the more water will be produced. There
are other technical factors as well, but those are the key ones
for today.
The following are typical events and observations that
arise as a coalbed methane field is developed. During early
phases only a few wells have been completed and are operating.
At that time water discharge rates per well will be at their
highest. With time, the formation water levels will be drawn
down and some reduction in average flow rates will occur. When
operations expand and as more wells are added to the project,
less discharge per well is required to maintain water level
drawdowns. Hence, individual or average well water flow rates
become smaller. The more wells we add, then the smaller the
individual well discharge rates become. In addition, we have
two phase flow or the preferential flow of methane gas in the
formation.
Now, these concepts seem simple and logical. Yet, I have
seen various documents and press reports stating that discharge
rates from CBM development will somehow center or stabilize at
individual flow rates typically averaging about 10 to 20
gallons per minute. This flow range likely grossly overprojects
the average CBM well discharges which will arise with
development in the Powder River Basin of Montana.
There are at least two reasons that some believe flows
between 10 and 20 gallons per minute are reasonable. These are
the following: rates have been defined on the basis of early
phases of CBM development. As I stated before, it is in the
early phases of CBM project development that rates are at their
highest. Those rates are probably based in part upon reported
flows from more southern portions of the Powder River Basin,
where coals tend to be thicker than what they are in Montana.
The coals in the Montana portion of the Powder River Basin
do not possess the hydraulic characteristics which will allow
wells on an average to sustain flows in excess of 10 gallons
per minute for most CBM projects where development is
significant. Moreover, my recent discussions with the Bureau of
Land Management confirm there is evidence that the flow
estimates in southern portions of the Powder River Basin have
been inflated over actual flow rates. There is a database
lesson to be learned here for the people doing the EIS. In
essence, it is likely that average well flows in even the
southern portion of the Powder River Basin are less than 10
gallons per minute.
Let me discuss closely a case history involving a CBM
project in Wyoming. It is in the LX Bar Creek watershed in
northern Wyoming, and it is near Montana. One of the operations
there has been kind enough to provide me data on well flow
rates from metered flow rates. And in that particular operation
they are producing from two coals, one about 300 feet below
ground surface and one about 700 feet below ground surface,
each about 30 to 35 feet thick.
They have 56 producing wells. As of the latest average flow
rates, they are at 3.1 gallons per minute, which is far below
the 10- to 20-gallons-per-minute rate that has been presupposed
by some. I went ahead and used some of my computer model
techniques and compared the model parameters that I needed to
get those discharges with those coals in Montana. The purpose
was to determine if these coals possessed water-bearing
characteristics similar to the coals of the Montana portion of
Powder River Basin.
Indeed, the results were very similar, very similar
hydraulic characteristics, and, in fact, reading the Montana
Bureau of Mines and Geology literature, found that those
parameters were also consistent with what I have seen there. In
other words, we are not going to be seeing, on average, 10-
gallons-per-minute or more in most projects.
In summary, it is obvious to me that the projected flows,
which will arise with time, as CBM projects evolve on the
Montana side of the Powder River Basin, have been greatly
overestimated. In fact, we are much more likely to see average
flows in the range to 1- to 10-gallons-per-minute as CBM
development proceeds and matures.
PREPARED STATEMENT
In any event, I believe that using systematic approaches
will allow us to provide reasonable protection of flow rates as
CBM development progresses. Developing more realistic
projections of produced water quantities makes the water
management planning process more meaningful. The implications
of overall lower average flow rates are obvious. Lower flows
also provides for a much greater flexibility in defining water
management control schemes which will eventually be employed to
address environmental concerns associated with CBM development.
Thank you.
[The statement follows:]
Prepared Statement of Michael E. Nicklin
COAL-BED METHANE WELL WATER DISCHARGE PROJECTIONS
Introduction
I appreciate the opportunity to come before you today to testify
about the important subject of Coal-Bed Methane development. I am
Michael Nicklin, President of Nicklin Earth & Water, Inc. which is a
Bozeman, Montana based consulting firm specializing in ground-water and
surface water resource problem solving. I personally have about 27
years of experience working both as a hydrogeologist and as a civil
engineer. I have worked as an academician and as a consultant. For the
last 14 years I have been a consultant assisting clients, ranging from
the U.S. government to industry, in solving environmental and water
resource related problems.
The two most significant water resource issues related to CBM
development are CBM well water discharge and the Sodium Adsorption
Ratio (SAR) of that water. These issues are intertwined as we need to
know how much of this high SAR water must be dealt with in order to
define proper water management schemes. The focus of my testimony is on
the water discharge issue.
I will be using the term aquifer frequently. For those of you who
are not familiar with the term aquifer, an aquifer is a geologic unit
which transmits water which may be tapped and used for a variety of
purposes. Nearly all my life's work has centered around aquifers and
their interaction with surface waters. Coal-bed aquifers are my primary
subject today.
I have found that by carefully examining available data, one can
generally use that information to predict with reasonable accuracy how
an aquifer will respond when it is tapped or used for whatever reason.
In some situations, there are sufficient data available to develop and
utilize mathematical tools, such as computer models, to predict how an
aquifer will respond when it is used. For instance, I have used
computer models to represent coal-bed aquifers. Two representative
examples are the following:
--I developed two separate ground-water models to evaluate coal-bed
aquifers in the vicinity of Colstrip, Montana. The focus was to
evaluate historic, current and projected impacts to aquifers in
response to coal-bed strip mining. I performed this work for
Western Energy Company.
--I utilized ground-water modeling tools as part of a Water
Management Study addressing CBM well water discharge for a
project in Campbell and Sheridan Counties, Wyoming. The study
area is located at the east flank of the northern Powder River
Basin and is just south of the Wyoming/Montana border. This
work was performed under the auspices of the Geosolutions
Group, LLC. This work was requested by and was performed for a
consortium of CBM energy firms. One of the key questions that
must be answered in any Water Management Study related to CBM
activity is ``How much water will be produced from each coal-
bed formation as it is developed?''
Coal-bed aquifer water bearing capacity
Each individual coal-bed aquifer, as in the case of any aquifer,
possesses a finite water bearing capacity. This water bearing capacity
is a function of the following parameters:
--Formation hydraulic conductivity. This is a measure of the ease at
which water flows through the aquifer. All other factors being
equal, the higher the hydraulic conductivity the more easily
water flows through the coal.
--Coal-bed thickness. In general, all other factors being equal, the
thicker the coal the more water that coal-bed will produce.
--Aquifer hydrostatic pressure. This is essentially the height that
water will rise in a well tapping the given coal. The greater
the pressure (or water level height) the more water will be
produced.
The following are typical events and observations that arise as a
coal-bed methane field is developed:
--During early phases of development only a few wells have been
completed and are operating. At that time, when well numbers
are small, water discharge rates per well will be at their
highest. With time the formation water levels will be drawn
down and some reduction in average flow rates will occur.
--When operations expand and as more wells are added to the project,
less discharge per well is required to maintain water level
draw downs. Hence, individual or average well water flow rates
become smaller. The more wells that are added to the project
the smaller the individual well discharge rates become.
These concepts seem simple and logical. Yet, I have seen various
documents and press reports stating that discharge rates from CBM
development will somehow center or stabilize at individual flow rates
typically averaging about 10 to 20 gallons per minute (gpm). This flow
range likely grossly over projects the average CBM well discharges
which will arise with development in the Powder River Basin of Montana.
There are probably at least two reasons that some believe flows
between 10 and 20 gpm are reasonable. These are the following:
--Rates have been defined on the basis of early phases of CBM
development. As I stated before, it is in the early phases of a
CBM project development that rates are at their highest.
--Those rates are probably based in part upon reported flows from
more southern portions of the Powder River Basin where coals
tend to be thicker there than what they are in Montana.
The coals in the northern portion of the Powder River Basin do not
possess the hydraulic characteristics which will allow wells on an
average to sustain flows in excess of 10 gpm for most CBM projects
where development is significant. Moreover, my recent discussions with
the Bureau of Land Management (BLM) confirm there is evidence that the
flow estimates in the southern portions of the Powder River Basin have
been inflated over actual flow rates. In essence, it is likely that
average well flows in even the southern portion of the Powder River
Basin are less than 10 gpm.
Approach
Representative case history
Let us examine more closely the case history involving the CBM
project I described to you before. That project includes the LX Bar
Creek watershed in northern Wyoming. I have chosen this project as it
is in the Powder River Basin and it is near Montana.
There are two coals which are currently being produced in this
watershed by Petroleum Development Corporation (PEDCO) and they are the
Anderson Coal and the Canyon Coal. Each of these coals is about 30 to
35 feet thick in the immediate vicinity of the PEDCO operation. The
Anderson Coal is about 300 feet below ground surface. The Canyon Coal
is about 700 feet below ground surface. PEDCO's operation in LX Bar
Creek has been in place slightly less than one year and there are a
total of 56 CBM producing wells.
These PEDCO wells were measured beginning with the latter part of
the Summer of 2000 and we have obtained the discharge data from these
wells. The respective average discharge rates by coal are tabulated
below:
------------------------------------------------------------------------
Anderson Canyon
Month Coal Wells Coal Wells
(gpm) (gpm)
------------------------------------------------------------------------
August, 2000................................... 1.80 7.80
September, 2000................................ 1.60 5.30
November, 2000................................. 1.60 5.80
December, 2000................................. 1.00 5.30
January, 2001.................................. 0.74 5.40
------------------------------------------------------------------------
The January, 2001 average flow rates for all 56 wells is currently
at 3.1 gpm. This is far below the 10 to 20 gpm rate that has been
presupposed by some.
Comparing water bearing hydraulic characteristics of coal
I developed computer model representations indicative of the PEDCO
operations in the LX Bar drainage in order to back-calculate the
formation parameters of these coals. The purpose was to determine if
these coals possess water bearing characteristics similar to the coals
of the Montana portion of the Powder River Basin. For instance, are
they similar to the coals near Colstrip, Montana where I have developed
and applied ground-water models?
The results of the computer model simulations demonstrate that the
coals beneath the LX Bar Creek drainage possess hydraulic
characteristics consistent with the coals of the Colstrip area of
Montana. Further evaluation reveals they possess characteristics
similar to data summarized in Memoir 62 completed by the Montana Bureau
of Mines and Geology (MBMG). Coupled with the Colstrip data and the
MBMG data, we have data to demonstrate that actual CBM well-water
production rates in the Powder River Basin of Montana will likely
average substantially less than 10 gpm.
Summary and implications
In summary, it is obvious to me that the projected flows which will
arise with time as CBM projects evolve in the Montana side of the
Powder River Basin have been greatly over estimated. Rather, it is more
likely that average CBM flows for a project in excess of 10 gpm will be
the exception rather than the rule. In fact, we are much more likely to
see average well flows in the range of 1 to 10 gpm per well as CBM
development proceeds and matures.
In any event, I believe that using systematic approaches will allow
us to provide reasonable projection of flow rates as CBM development
progresses. Flow rates will vary considerably depending upon the
situation. For instance, we will need to know the depth of that coal,
the hydrostatic pressure in that coal and its thickness. If we know
these coal-bed attributes, we can project flow rates that are much more
reliable than presupposing flow rates that have been suggested by some.
Developing more realistic projections of produced water quantities
makes the water management planning process more meaningful. The
implications of overall lower average flow rates are obvious. Lower
flows also provides for much greater flexibility in defining water
management/control schemes which will eventually be employed to address
environmental concerns associated with CBM development.
Senator Burns. Great timing. Great timing.
With us today, Steve Gilbert, who is a board member and
representing the Northern Plains Resource Council. Thank you
for coming today.
STATEMENT OF STEVE GILBERT, BOARD MEMBER, NORTHERN
PLAINS RESOURCE COUNCIL
Mr. Gilbert. Senator Burns, Senator Baucus. Good morning. I
am Steve Gilbert, consulting biologist from Helena. I am a
board member and a coalbed methane committee member of the
Northern Plains Resource Council. I am not a farmer or rancher,
but other members of the committee are in the middle of calving
and asked me to represent their interests.
The roughly 3,000 members, about half of whom are farmers
or ranchers, are protective stewards of thousands of acres of
Montana's rich prairies, river bottoms, and the social and
cultural fabrics that tie Montanans to the land. The council
states that its mission is committed to land stewardship and
social justice principles that ensure future generations a
healthy quality homeland. It also believes that rural, urban,
and tribal communities in the region can prosper without
destroying the land.
Our goal is to ensure that Montana's CBM resource is
developed in a prudent, orderly manner, that the existing
agricultural economy, water quality, air quality, fisheries,
wildlife, soils, hydrologic regimes, cultural and historic
resources, and local communities are maintained in a condition
as good or better than prior to development, that such
development complies with all applicable State and Federal
regulations, and that a meaningful EIS is prepared before any
additional development occurs.
An EIS is being prepared, so why should we continue to have
very grave concerns that the process is not quite right? Here
are some of the things that concern us right now. To quote the
BLM's work plan on this EIS, the total planning area total
exceeds 3 million square miles. The plan for preparing the EIS/
RMP amendment is based on the need to minimize the schedule,
maximize the efficiency of production and review, and produce a
document that is consistent in its style and easily understood
by the public.
I applaud the final statement about making the document
easily understood. To inform the public is clearly one of the
specific tasks of NEPA. I am, however, deeply concerned by the
industry-sounding language that says the NEPA process is on the
very fast track.
I spent 25 years working with NEPA, gathering baseline
data, writing technical reports and the biological portions of
EISs. An EIS without enough baseline data to back up its
assumptions does not go very far as a planning document, as a
mitigative tool, or as an information source for the public.
I see this particular fast-track EIS as one that will have
the thinnest, bare-bones database. There is no time allocated
to gathering new water quality, fisheries, wildlife, social, or
cultural data related to an extractive, short-term development
process that will potentially be the largest ever of any kind
in Montana in terms of total affected surface acres and effects
on surface and ground water.
Jan Sensibaugh, director of Montana DEQ, which is co-lead
on the EIS for Montana, said to NPRC in a recent meeting that
there is no intent by any of the EIS team to gather data past
March of this year. I have heard that the 3 million acres this
EIS focus on are in the data-rich area. I do not believe this,
since over 70 percent of the surface ownership potentially
affected by CBM development is in private ownership. Private
property where any data has been gathered in this area in the
past 20 to 30 years is primarily an existing permitted mine
property and on data from the CX Ranch field, which has already
been deemed inadequate by the BLM.
I know what some of the surface and wildlife impacts from
this type of development will be. I toured the CX Ranch CBM
field last June with Redstone employees. That does not
necessarily say much. But I think what may something--may say
something is that I worked a week a month for 7 years on the CX
Ranch doing wildlife, fisheries, aquatic, and vegetation
surveys for Consolidated Coal Company's mine permit from 1979
through 1986. I am intimately familiar with what this property
looked like then from a biological perspective, and I was
stunned at the impacts I saw from less than 2 years of activity
and 160 or fewer wells in action.
Picture 9,500 wells over the next 10 years spread across
the southern tier of Montana. Picture the effect of pumping
enough water from the aquifers to fill 3 billion oil field
barrels, enough to cover 56 townships three inches deep. That's
1,290,000 acres 3 inches deep of sour vegetation and soil-
killing water. As a biologist, I cannot and do not want to
picture the magnitude of these potential surface impacts, much
less the impacts to the surface and ground waters of Montana.
Economy and growth are the buzzwords this year, and the
message is being urgently sent to industry that Montana is open
for business. Again, the words being used are we need
streamline, minimize the schedule, maximize efficiency. I have
seen no suggestion anywhere to date that this industry will
have the enormous negative effects that it most certainly will.
I have seen only the positive benefits mentioned.
To quote a draft DEQ economic issue statement from February
of this year, past CBM studies, including at least two EISs,
have tended to focus on economic benefits only, without
acknowledging that significant economic costs may also exist
from the methane extraction process. In these cases, CBM always
passes the economic test without a consideration of costs.
The same paper goes on to say CBM development over its
lifetime will likely result in costs that potentially include
environmental degradation, social division, and the typical
economic consequences from short-term, boom-and-bust extraction
development.
What will it cost Montana to lose thousands of acres of
irrigated cropland forever because the soil is soured by higher
SAR water? What will it cost a farmer or a rancher in Montana
to lose ground water for domestic and livestock use? What will
it cost Montana to sacrifice one of our only sustainable
industries for short-term gain, one that has been here for over
120 years and could be here for as long as Montana is on the
map?
What will it cost to reclaim the tens of thousands of acres
of surface disturbed by CBM development? How much will it cost
to eliminate or even control noxious weeds in areas that
presently have minimal weed problems? What will the cost to
Montanans be in terms of lost fisheries and wildlife resources?
Have we forgotten the costs in perpetuity to Montana from Butte
miners, from Pegasus Gold at Zortmen-Landusky? Who pays for
this? Montanans, of course.
How will this EIS address these issues if it is on a time
line to be in draft form by September? It will not. It will be
meaningless sham, essentially putting spurs to the CBM horse.
If the CBM industry plans to be a stakeholder in more than
short-term gain, if Montana wants to guarantee that short-term
gain does not mean lack of foresight and understanding of long-
term impacts, then show us by demonstrating a sincere interest
in future generations of Montanans. Do this by taking this
important planning tool off the fast track, slow the NEPA
process down, and gather the data and make informed decisions
and do it right.
Coalbed methane has been in the ground for millions of
years. It is estimated there is only enough CBM in Montana's
coal seams to provide the needs of the United States for about
20 months. We do not need to risk the future of millions of
acres of Montana in a rush to get it out of the ground now.
PREPARED STATEMENT
Please do not just tell us not to worry, that you are
making sure that CBM development will be done without damaging
precious resources that will sustain us for generations. Show
us you mean this. Slow the process. Gather the baseline data.
Analyze it carefully. Provide us with all--all with
intelligent, informed, up-to-date information that will allow
this industry to be responsible to Montanans and our long-term
needs.
The Northern Plains Resource Council thanks your for this
opportunity to comment.
[The statement follows:]
Prepared Statement of Steve Gilbert
Good morning. I'm Steve Gilbert, a consulting biologist from
Helena. I'm a Board member and coal bed methane committee member of
Northern Plains Resource Council. I am not a farmer or rancher, but
other members of the committee are in the middle of calving and asked
me to represent their interests.
WHO, OR WHAT IS NPRC?
The roughly 3,000 members (about half of whom are farmers or
ranchers) are protective stewards of thousands of acres of Montana's
rich prairies, river bottoms and the social and cultural fabrics that
tie Montanans to the land. The Council states that its mission is
``committed to land stewardship and social justice principles that
ensure future generations a healthy, quality homeland.'' It also
believes that rural, urban and tribal communities in the region can
prosper without destroying the land.
WHAT IS NPRC'S GOAL RELATIVE TO CBM DEVELOPMENT?
Our goal is to ensure that Montana's CBM resource is developed in a
prudent, orderly manner; that the existing agricultural economy, water
quality, air quality, fisheries, wildlife, soils, hydrologic regimes,
cultural and historic resources and local communities are maintained in
a condition as good or better than prior to development; that such
development complies with all applicable state and federal regulations
and that a meaningful EIS is prepared before any additional development
occurs.
An EIS is being prepared, so why should we continue to have very
grave concerns that the process is not quite right? Here are some of
the things that concern us right now.
To quote the BLM's Work Plan on the EIS, ``the total planning area
exceeds 3 million square miles.'' ``The plan for preparing the EIS/RMP
Amendment is based on the need to minimize the schedule, maximize
efficiency of production and review, and produce a document that is
consistent in its style and easily understood by the public.'' I
applaud the final statement about making the document easily
understood. To inform the public is clearly one of the specific tasks
of NEPA. I am, however, deeply concerned by the industry-sounding
language that says the NEPA process is on the very fast track.
I spent 25 years working with NEPA, gathering baseline data,
writing technical reports and the biological portions of EISs. An EIS
without enough baseline data to back up its assumptions does not go
very far as a planning document, as a mitigative tool, or as an
information source for the public. I see this particular fast-track EIS
as one that will have the thinnest, bare bones data base. There is no
time allocated to gathering new water quality, fisheries, wildlife,
social, or cultural data related to an extractive, short-term
development process that will potentially be the largest ever of any
kind in Montana in terms of total affected surface acres and effects on
surface and ground water.
Jan Sensibaugh, Director of Montana DEQ, which is co-lead on the
EIS for Montana said to NPRC in a recent meeting that there is no
intent by any of the EIS team to gather data past March of this year.
I've heard that the 3 million acres this EIS focus on are in a data-
rich area. I don't believe this since over 70 percent of the surface
ownership potentially affected by CBM development is in private
ownership. Private property where any data has been gathered in this
area in the past 20-30 years is only on existing permitted mine
property and on data from the CX Ranch field already deemed inadequate
by the BLM.
I know what some of the surface and wildlife impacts from this type
of development will be. I toured the CX Ranch CBM field last June with
Redstone employees. That doesn't necessarily say much, but I think what
may say something is that I worked a week a month for 7 years on the CX
Ranch doing wildlife, fisheries, aquatic and vegetation surveys for
Consolidation Coal Company's mine permit from 1979-1986. I am
intimately familiar with what this property looked like then from a
biological perspective and I was stunned at the impacts I saw from 2
years of activity and fewer than 150 wells in action.
Picture 9,500 wells over the next 10 years spread across the
southern tier of Montana. Picture the effect of pumping enough water
from the aquifers to fill 3 billion oil field barrels, enough to cover
56 townships 3 inches deep. That's 1 million, 290 thousand acres 3"
deep with sour, vegetation and soil-killing water. As a biologist, I
can't and don't want to picture the magnitude of these potential
surface impacts, much less the impacts to the surface and ground waters
of Montana.
Economy and growth are the buzz words this year and the message is
being urgently sent to industry that Montana is open for business.
Again, the words being used are we need to streamline, ``minimize the
schedule, maximize efficiency.'' I've seen no suggestion anywhere to
date that this industry will have the enormous negative effects that it
most certainly will. I've seen only the positive benefits mentioned.
But to quote a draft DEQ economic issue statement from February of this
year, ``Past CBM studies (including at least two EISs) have tended to
focus on economic benefits only without acknowledging that significant
economic costs may also exist from the methane extraction process. In
these cases, CBM always passes the economic test without a
consideration of costs.'' The same paper goes on to say ``CBM
development over its lifetime will likely result in costs that
potentially include environmental degradation, social division and the
typical economic consequences from short-term, boom and bust extraction
development.''
What will it cost Montana to lose thousands of acres of irrigated
cropland forever because the soil is soured by high SAR water? What
will it cost a farmer or rancher and Montana to lose groundwater for
domestic and livestock use? What will it cost Montana to sacrifice one
of our only sustainable industries for short-term gain, one that has
been here for over 120 years and could be here for as long as Montana
is on the map?
What will it cost to reclaim the tens of thousands of acres of
surface disturbed by CBM development? How much will it cost to
eliminate or even control noxious weeds in areas that presently have
minimal weed problems? What will the costs to Montanans be in terms of
lost fisheries and wildlife resources? Have we forgotten the costs in
perpetuity to Montana from Butte miners, from Pegasus Gold at Zortman-
Landusky? Who pays for this? Montanans, of course.
How will this EIS address these issues if it is on a time-line to
be in Draft form by September? It won't. It will be a meaningless sham
essentially putting spurs to the CBM horse.
If the CBM industry plans to be a stakeholder in more than short-
term gain, if Montana wants to guarantee that short-term gain doesn't
mean lack of foresight and an understanding of long-term impacts, then
show us by demonstrating a sincere interest in future generations of
Montanans. Do this by taking this important planning tool off the fast-
track. Slow the NEPA process down, gather the data, make informed
decisions and do it right.
Coal bed methane has been in the ground for millions of years. It
is estimated there is only enough CBM in Montana's coal seams to
provide the needs of the U.S. for about 20 months. We don't need to
risk the future of millions of acres of Montana in a rush to get it out
of the ground now. Please don't just tell us not to worry, that you are
making sure that CBM development will be done without damaging precious
resources that will sustain us for generations. Show us you mean this.
Slow the process, gather the baseline data, analyze it carefully,
provide us all with intelligent, informed, up-to-date information that
will allow this industry to be responsible to Montanans and our long-
term needs.
Northern Plains Resource Council thanks you for this opportunity to
comment.
Senator Burns. Thank you. I appreciate that.
David Heinz, district manager, CMS Oil and Gas. Thank you
for coming today.
STATEMENT OF DAVID R. HEINZ, MANAGER OF BUSINESS
DEVELOPMENT, CMS OIL AND GAS CO.
Mr. Heinz. Thank you, Senator.
I am here today to discuss the nation's need for natural
gas, how CBM development in Montana, and in particular the
Powder River Basin of southeastern Montana, can play a role in
supplying natural gas and what the economic benefit could be to
the citizens of Montana.
Natural gas currently supplies 24 percent of the nation's
total energy needs. We as a nation consume approximately 22
trillion cubic feet of natural gas per year. Our yearly
consumption on natural gas is projected to increase to 30
trillion cubic feet by the year 2020. The majority of this
increased consumption will go toward the generation of
electricity.
The nation has very little excess electric generation
capacity. Over 90 percent of the new generation currently under
construction or under consideration will utilize natural gas.
This is due to a number of factors: our need to reduce carbon
dioxide and nitrogen oxide emissions, ease of permitting
natural gas versus coal and nuclear and the size of the plants
and the ease of placing them closer to the market.
The nation's ability to meet this growing natural gas
demand depends on numerous factors: advances in technology,
development of the deep water Gulf of Mexico, access to Federal
lands, the development of so-called unconventional resources.
Coalbed methane falls into the category of an unconventional
gas.
The development of coalbed methane is not new. For years
the coal mines would de-gas coal seams prior to mining for
reasons of mine safety. It has only been within the last 20
years that we have tried to capture this resource and extend
its development out away from the mined areas. Coalbed methane
development is taking place in Alabama, Virginia, New Mexico,
Colorado, Utah, and, of course, here in the Powder River Basin
of Wyoming and Montana.
CMS Oil and Gas and its partner, Marathon Oil, control
approximately 200,000 gross acres within the Powder River Basin
of Montana. Therefore, we are very interested in seeing the
development of this resource. During the course of several
meetings with the coalbed methane coordination group held last
summer it became very apparent that CBM development was coming
to Montana and that numerous issues needed to be addressed.
For example, the State of Montana is required to update it
programmatic EIS, and the Bureau of Land Management preferred a
basinwide EIS as opposed to smaller, site-specific
environmental assessments. It was also apparent that the
general public's perception about the magnitude of development
was much larger than the natural gas industry was predicting.
The area or extent of southern Montana's portion of the
Powder River Basin encompasses over 10,000 square miles.
However, only one quarter of this area is prospected for
coalbed methane development. And it is believed that only three
areas in this region of Montana--Colstrip, Ashland, and Decker
coalfields--will see any substantial development. CMS polled
the active oil and gas companies in these areas, asking them
what their development plans would be given perfect development
conditions.
For example, a proven resource--favorable economics, no
permitting or land access problems, et cetera--the industry
came back with approximately 10,000 coalbed methane wells. Over
50 percent of these are projected to be drilled on Federal
mineral acreage. Based on CMS's experience in northern Wyoming,
we estimated the economic productive life for these wells could
be on the order of 20 years. Given technological advancement,
the gas industry's experience in the past, the productive life
of these could be much greater.
Also based on our production history, we attempted to
project what the economic benefit to the State of Montana and
the United States could be from royalty and production tax
payments. Given a typical CBM well, the number of wells planned
by industry, and the natural gas price of $3.50 over the life
of this project, it is estimated that the State of Montana
would receive royalty payments of $450 million. In addition,
the State could see production tax payments of $440 million,
and the Federal Government could receive royalty payments on
the order of $190 million from those wells drilled on Federal
minerals.
None of these take into account the capital expenditures
that would be necessary to drill, complete, and produce these
wells. I estimate it could take about $1.6 billion to develop
and produce this resource into the market.
PREPARED STATEMENT
In conclusion, CMS believes that there are very legitimate
concerns that need to be addressed before any large-scale
development of coalbed methane can take place in Montana. The
environmental impact statement under discussion here today will
address those concerns. Furthermore, we support and encourage
the public comment. And I thank you.
[The statement follows:]
Prepared Statement of David R. Heinz
My name is David R. Heinz; I'm Manager of Business Development for
CMS Oil and Gas Company. CMS Oil & Gas is actively engaged in the
development of Coalbed Methane (CBM) in Wyoming. I'm here today to
discuss the nations need for natural gas. How CBM development in
Montana and in particular within the Powder River basin of southeastern
Montana can play a role in supplying natural gas. And what the economic
benefit could be to the citizens of Montana.
Natural gas currently supplies twenty four percent (24 percent) of
the nations total energy needs. We as a nation current consume
approximately 22 trillion cubic feet of natural gas per year. Our
yearly consumption of natural gas is projected to increase to 30 TCF by
the year 2020. The majority of this increased consumption will go
toward the generation of electricity. As we have all become aware over
the last several months with the electric crisis in California the
nation has very little excess electricity generation capacity. Over 90
percent of the new electrical generation currently under construction
or under consideration will utilize natural gas. This is due to a
number of factors: the nations need to reduce carbon dioxide
(CO2) and nitrous oxide (NO) emissions, ease of permitting
natural gas fire plants versus coal fired and nuclear powered, the size
of the plants and ease of placing them closer to the market.
The nations ability to meet this growing natural gas demand depends
of numerous factors:
(1) Advances in technology;
(2) Development of the deep water Gulf of Mexico;
(3) Access to Federal lands; and
(4) Development of so called ``unconventional resources.''
Coal bed methane falls into the category of ``unconventional gas.''
The development of coal bed methane is not new. For years coalmines
have degassed coal seams prior to mining for reasons of mine safety. It
has only been within the last twenty years that we have tried to
capture this resource and extend its development out away from the coal
mine areas. CBM developed is taking place in Alabama, Virginia, New
Mexico, Colorado, Utah and of course here in the Powder River basin of
Wyoming and Montana.
CMS Oil and Gas Company and its partner Marathon Oil control
approximately 200,000 gross acres within the Powder River basin of
Montana. Therefore we are very interested in seeing the development of
this resource. During the course of several meetings of ``The Coalbed
Methane Coordination Group'' held last summer, it become very apparent
that CBM development was coming to Montana and that numerous issues
needed to be addressed. For example, the State of Montana is required
by statue to update its programmatic EIS and that the Bureau of Land
Management (BLM) preferred a basinwide EIS as opposed to smaller site
specific ``Environmental Assessments'' (EA's). And that the general
public's perception about the magnitude of development was much larger
then the natural gas industry was predicting.
The aerial extent of southern Montana's portion of the Powder River
basin encompasses over 10,000 square miles, however, only one quarter
of this area is prospective for CBM development. And it is believed
that only three areas in this region of Montana, the Colstrip, Ashland,
and Decker Coalfields will see any substantial development.
CMS Oil and Gas polled active oil and gas companies is these areas,
asking them what their development plans would be given perfect
development conditions. For example, proven resource potential,
favorable economics, no permitting or land access problems, etc.
Industry came back with approximately 10,000 CBM wells. Over fifty
percent (50 percent) of these are projected to be drilled on federal
mineral acreage.
Based on CMS's experience in northern Wyoming we estimated that the
economic productive life of these wells could be on the order of twenty
years. Given technological advancements, and the gas industries
experience in the past, the productive life of these was could be much
greater.
Also based on our production history we attempted to project what
the economic benefit to the State of Montana and United States could be
form royalty and production tax payments.
Given a typical CBM well, the number of wells planned by industry
and a gas price of $3.50/MCF over the life of the project, it is
estimated that the State of Montana could see royalty payments of
$450,000,000 over the course of a twenty-year period. In addition the
State could see production tax payments of $440,000,000. The Federal
government could see royalty payments of $190,000,000 from wells
drilled on federal mineral acreage.
None of these estimates take into account the capital expenditures
that will be necessary to drill, complete and produce these wells. I
would estimated that it will take one billion six hundred million
dollars ($1,600,000,000) to develop and produce this resource into the
market.
In conclusion CMS understands that there are very legitimate
concerns that need to be addressed before any large-scale development
on CBM can take place in Montana. The Environment Impact Statement
under discussion here today will address these concerns. We support and
encourage public comment.
Senator Burns. Mr. Heinz, let us just pick up on your
testimony. You say the estimates have been. Do you think the
estimates, to your knowledge--and we have got only you folks
that are in the business to rely on. Do you think those
estimates are in the--align themselves with the expectations?
Mr. Heinz. I think so, yes, sir.
Senator Burns. Do you think that there is that much?
Mr. Heinz. I do, otherwise we would not be here. We have
invested an awful lot of money in this State, as far as acreage
acquisitions and stuff, and we believe the resource is there.
Yes, sir.
Senator Burns. Mr. Nicklin, you based most of your
testimony on water and water discharge and the amount of water.
You have taken a look at Omega and Mr. Kelley and his testimony
on dealing with that and new technologies dealing with that
water. Do you think that this is feasible?
Mr. Nicklin. I think that water management is very
feasible. We will have to keep in mind there is lots of options
we should--we should work with. That is my answer.
Senator Burns. Mr. Gilbert, in short-water years, not only
do we try to take a resource, participate in the--in solving
some of the problems that the nation has energywise, and if we
can manage our water and make it suitable--in other words,
removing some of the sodium--and making it potable and usable
on our streams, why is that not--why should we not be taking
advantage of that resource?
Mr. Gilbert. Senator Burns, I agree that this resource is
probably one that we should take advantage of for all the
reasons that have been mentioned. Our concerns relative to
water are twofold. One, we do not want to see long-term
agricultural operations compromised by maybe lack of foresight
and proper use of water--you know, reinjection, whatever it is.
To date, there are not enough answers, and there are still more
questions.
We are concerned about loss of springs and seeps to
wildlife and stock-watering opportunities. We are concerned
about quality of irrigation water. We do not have enough
answers yet.
Senator Burns. You are the only--the only solution that you
have really--that you recommend is reinjection; is that
correct?
Mr. Gilbert. We do not have enough information, you know,
right now on reinjection. We are concerned that we reinject in
such a way that it is accessible to those landowners who need
the water. We are concerned about its water quality. To date,
there are no answers there. Northern Plains has, however, hired
an expert on reinjection, and we are looking into that.
Senator Burns. Listening--and I do not know whether you
have had access to the information from the Omega Oil Company
and their suggestion on the technology to deal with that water.
Would that live up to your expectations if they could do
everything that they did say here?
Mr. Gilbert. Senator Burns, I believe that was a big
``if.''
Senator Burns. That is all we deal in around here is
``ifs.''
Mr. Gilbert. I appreciate the proposal that Mr. Kelley
made. I think that it is a valuable one and that it is one of
the many options that we need to look at. I think it has a lot
of potential. I have, as a biologist, been involved with some
processes to take acid mine drainage from coal fields and run
them through wetlands to extract the egregious acid-bearing
materials.
It has not proven to be something that can be used
everywhere and also leaves you with--you know, there was one
little thing that Mr. Kelley mentioned, which was disposal of
the vegetative material. I do not believe that if this filled
up with salts we are going to be able to feed this to
livestock. This material does not disappear. It is taken up by
the vegetation. There are some other good options that we need
to look at, though.
Senator Burns. Senator Baucus.
Senator Baucus. Thank you, Conrad.
You know, as I listen to all of this it seems to me that
basically people are coming together, and it is just a matter
of a lot of work ahead of us to figure out how to do this the
right way.
I commend you, Mr. Gilbert, for saying that you believe we
should take advantage of this resource. I believe you said
that, but you also said to make sure we do it right. And Mr.
Caskey of Redstone has said basically the same thing, that they
want to do it right, they want to do it the right way. And we
have a process, the EIS process, which I think, if done right,
I think will help us come together and figure out the way to
get this done in a way that is balanced.
Now, I think it is important for us to remember that the
EIS also has to be done right. I can think of a lot of times
when the EISs were not done right and there was a lawsuit. And
the lawsuits prevail, and the agency had to go back to the
drawing board and do it all over again. You know, the law is
the law. And if a judge says that the EIS is not done
appropriately, well, then, that is pretty much where it is.
So I think it is incumbent upon all of us, particularly
people from the business prospective, as well as those in the
environmental prospective, to make sure that this is done right
the first time, because if it is done right the first time,
then we are going to be able to develop this resource earlier
rather than later, avoid a lawsuit. And we are also going to be
assured, as well as we possibly can, that the potential adverse
environmental impacts are essentially addressed.
It is my sense that we--that this is such a big deal that
people are going to work pretty hard, maybe harder than usual,
to try to figure how to do all of that. And I see the BLM guys
sitting in the front row here, and I am looking at them when I
say to all of us that we make sure we get this done the right
way to avoid a lawsuit that is going to slow things down. It is
going to make it even more delayed than might otherwise meet
the eye.
A second point that really has not been addressed much yet,
and this is this sodium absorption rate. I am not going to get
into that in great detail now, but that is--it just looks to me
that that is something we are going to have to look at pretty
closely. We have got a lot of ideas here in how to do all of
this. Clearly, we want to develop this resource. It is there.
It is needed. It is going to help in a lot of ways.
But clearly, we want to make sure that we do it in an
appropriate way because now--it has not been developed. And now
that we are focusing on it, we have a much better chance to
develop it the correct way and not with the consequences of,
you know, other resource developments where the cost has been
passed on to taxpayers and Montanans after the benefits have
left and gone somewhere else. We have an opportunity here to
make sure this is done the right way.
And I just urge all of us to do that. Because if we do not,
we are going to pay the price in lots of ways. One is going to
be delay. One is going to be less development, and another
consequence will be environmental degradation potentially. It
is kind of exciting actually. And it is my thought that we
should--Mr. Chairman, we should have follow-up hearings on this
subject just to kind of see how it is going along, see what new
technology is involved, new ideas involved and so forth. So
this is just a good, solid way.
Senator Burns. Well, there will be another hearing. It
might be in Washington, D.C., when we start down this road of
appropriating money.
Senator Baucus. Would not be a bad idea to have one here,
too, I think, in some capacity, in some way, because I think
that will be helpful.
Senator Burns. We will look into that. We will see if we
got money to do it. The chief deputy says we have to cut back.
That is just about all the questions. I want to invite the
press that has been here today to--they can visit with the
individuals. And there will be some more questions, and I will
guarantee you, from the rest of the committee. And they will
probably come in the mail. If you would respond to both me and
the committee members, why, we will make sure that this--this
testimony will be made part of the committee record and as we
move forward.
But I will tell you that I was struck in Las Vegas about a
month ago--I was there when I spoke to the consumer electronics
folks. I picked up a Los Angeles Times and a headline on the
front page on Sunday morning out of the Los Angeles Times says
Californians do not believe that we have an energy shortage.
And I just thought--I just thought somebody has got a
credibility problem. And we know that the crisis is real, and
yet we have those folks who want to keep on limiting our
methods of producing energy.
We still have people who are--who want to breach dams. We
have people who want to continue to block our way to process
high-level nuclear waste so that we can get on with powering
our ships and our national defense and, yes, our--in some
cases, our nuclear situation in producing power.
As you know, California--you may not know this. California
has one--I think it is a 1,200 megawatt plant that has never
cranked out one spark of electricity and was shut down by the
vote of the people, by referendum. And yet, they come to us and
say, well, we want to use your power out of the Northwest
because we are running out of power in California.
So the crisis is real. There is a shortage. And we must use
every resource we have, which includes solar and wind. And
there can be nothing left out of the energy mix to produce the
amount of energy it takes to power what I believe is an
empowering economy.
So thank you for--we want to thank all of the witnesses for
coming today. I want to thank Senator Baucus for stopping by
and adding his insight to this, as his committees and
especially EPW. He sits on that committee also. It will be
very, very important under other forms of industry.
So this has been a good hearing. And I appreciate everybody
making the effort to get here.
Additional committee questions
Thank you very much. There will be some additional
questions which will be submitted for your response in the
record.
[The following questions were not asked at the hearing, but
were submitted to the Department of Energy for response
subsequent to the hearing:]
Questions Submitted by Senator Conrad Burns
minimizing environment impact from coalbed methane
Question. Mr. Hochheiser, thank you for joining us today to learn
more about the potential for development in the Power River Region and
some of the challenges we face. Can you assure me that the Department
of Energy will be willing to help us look for ways to minimize the
environmental impacts from coalbed methane development?
Answer. Yes, the Department of Energy (DOE) is willing to help with
research and analysis within the constraints of the program budget.
DOE's office of Fossil Energy is already working in this area. We have
recently awarded a contract to Arthur Langhus Lane to examine current
environmental concerns and coalbed methane (CBM) production practices
in the Montana portion of the Powder River Basin, and to investigate
how recent advances in geographic information systems technology can be
applied as mitigation aids. As part of this project, they will define
best management practices and mitigation strategies for specific state
regions and environmental settings. DOE is also funding two CBM ground
water monitoring projects with the Bureau of Land Management in
Colorado and Wyoming. In addition, our research on a variety of
produced water treatment and disposal technologies may be useful in
minimizing the environmental impacts of CBM development.
TECHNOLOGY INVESTMENTS
Question. From your position in the Department of Energy, you have
a clear understanding of natural gas needs in this country. Currently,
gas prices are at an record high in much of the country, but it is
expected they will rest at a more reasonable level. What words of
caution might you be able to offer regarding investing too heavily in
new technology during boom periods? Should we be concerned with
industry investing too much on some technologies, water filtration for
example, that may not pay off when gas prices stabilize?
Answer. Industry should be able to invest in the necessary
technologies and still make a profit once gas prices stabilize at
levels currently projected by the Energy Information Administration and
others. Industry participants can also avail themselves of financial
instruments to hedge their exposure to price changes, and thus reduce
their risk. Industry will have to comply with Federal and state
regulatory requirements in disposing of their waste streams. Companies
will have to make the necessary investment, but they have a variety of
treatment and disposal options. DOE can help. DOE's Oil and Gas
Environmental Research Program helps develop compliance technologies
that are more cost-effective while improving environmental performance.
The program can also help analyze options to find the lowest-cost
compliance method for a given situation. The Arthur Langhus Lane
project will provide data and tools for this kind of analysis.
CONCLUSION OF HEARING
Senator Burns. Thank you all very much for being here, that
concludes our hearing. The subcommittee will stand in recess
subject to the call of the Chair.
[Whereupon, at 12:18 p.m., Saturday, March 10, the hearing
was concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]
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