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Vol. 14, No. 35 Week of August 30, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

The geothermal dilemma

DNR has geothermal authority; AOGCC has technical drilling expertise

Kristen Nelson

Petroleum News

There’s been growing excitement in Alaska the last few years over the possibility of using geothermal energy to create power. At Chena Hot Springs power is being generated using hot springs water.

But what if you want to drill for geothermal energy?

Oil and gas drilling in the state is regulated by the Alaska Oil and Gas Conservation Commission, but geothermal drilling is regulated by the Department of Natural Resources.

That created issues when Naknek Electric Association began its geothermal drilling program.

DNR’s drilling regulations are based on 1986 commission regulations, AOGCC Commissioner Cathy Foerster said Aug. 26 at the commission’s monthly public meeting.

Art Saltmarsh, senior petroleum geologist with the commission, said the commission has started receiving requests from DNR to review geothermal permits to drill. Since DNR has held a geothermal lease sale, Saltmarsh said, those requests can be expected to increase.

The issues the commission deals with include: whether a resource is wasted; best practices for production of the resource; health and safety of the public; and protection of the environment.

In a number of areas the commission has stricter standards than DNR: protection of correlative rights (rights of adjacent resource owners); demonstration by the operator of safe drilling operations, including casing design, surface and downhole equipment, blowout prevention equipment and rig inspection; demonstration by the operator of knowledge of geology, offset data, pressure regimes; and ensuring the operator has mitigation plans for unexpected occurrences during drilling.

Significant differences

Commission reservoir engineer Winton Aubert said the commission’s drilling regulations differ significantly from those enforced by DNR. He said blowout equipment and testing regulations are “significantly different and less stringent” in DNR’s regulations; DNR’s regulations do not include a methane gas detection requirement; and there is no completion equipment requirement.

Aubert said DNR’s regulations are based on regulations implemented by the commission in 1986 and have not been updated as the commission has updated its regulations.

Foerster asked whether geothermal wells could be drilled under DNR regulations in a manner the commission would have considered safe in 1986; Aubert said yes, but, he said, the commission’s regulations have stayed current and have incorporated technical changes since 1986.

Foerster asked Aubert whether the commission’s 2009 regulations are safer than what the commission required 23 years ago, and whether geothermal wells should be held to those standards or held to the 1986 standards.

Aubert said yes on the 2009 standards. Some of the fluids likely to be produced by a geothermal well could be “at least as hazardous, possibly more hazardous,” than those from conventional wells.

Circumscribed authority

On the issue of the commission’s authority to assert its requirements, Tab Ballantine, the assistant attorney general assigned to work with the commission, said the commission’s authority would arguably be circumscribed by whether there was a likelihood of an unexpected encounter with oil or gas during the drilling of a geothermal well.

“So we don’t have the power to assert our requirements,” Foerster said.

Ballantine said he hadn’t looked at the issue in depth, but that was his gut reaction.

Foerster asked if it would be a safe operation if the commission didn’t assert its drilling requirements, and Aubert said in his opinion it would not be safe if the commission’s regulations were not adhered to.

Issue elsewhere

Commissioner John Norman said the subject has been addressed “in depth” recently by the Mineral Law Institute.

Of states with interests in geothermal, two states — Utah and Idaho — assign geothermal responsibility and oversight to the same agency managing water resources.

All other states, Norman said, assign geothermal responsibility to the same agency overseeing oil and gas drilling. The reasons, he said, include safety, well integrity, managing reservoir pressures and correlative rights, all of which are within the expertise of the agency managing oil and gas drilling.

Norman noted that there was federal funding in large amounts for geothermal drilling, “so it would not surprise me that we here in Alaska see a fair amount of activity.” He suggested looking at how other states have approached geothermal regulation.

Legal gaps

Asked by Foerster how legal gaps in correlative rights, safety, knowledge of geology and mitigation measures could be cured, Ballantine said this was plowing new ground so it wasn’t real clear, but he thought because geothermal fell in DNR’s bailiwick the commission was limited to unexpected encounters with oil and gas.

Statutory amendments could be sought, he said.

Since DNR’s regulations are out of date, if geothermal stays with DNR, it needs at a minimum to be required to consult with the commission on the wells to be drilled to make sure those wells are safe, and be required to consult and accept the commission’s recommendations, Ballantine said.

Foerster said DNR has taken this “very, very seriously and they have requested our assistance on this throughout … and they have taken our advice.” She said she told DNR the commission wouldn’t send employees to do inspections if the commission didn’t consider the drilling safe.

Aubert said the consulting role was “a little unwieldy.” And, he said, since DNR appears interested in relying on AOGCC inspectors, it would be much more streamlined and easier to respond if permitting was within the commission.

The commission has a hearing scheduled Sept. 23 on a commission motion to require a drilling permit for many wells proposed for the Naknek area with a depth of greater than 1,000 feet.

Cost recovery

Another issue is cost recovery.

Oil and gas operators pay for the commission through a regulatory cost charge based on production.

Commission Chair Dan Seamount said the regulatory cost charge might be one of the more complicated issues if AOGCC took on geothermal permitting.

Norman noted that if geothermal stayed at DNR the department would have to staff up so it would have the expertise, but said that since DNR is holding geothermal lease sales that money — which goes into the state general fund — could be matched up with those costs.

He suggested that the commission could provide services to DNR through a regulatory services agreement so that the commission would be reimbursed for its work on geothermal and the regulated oil and gas industry wouldn’t have the cost of geothermal imposed on it.

The third possibility, Norman said, is that the Legislature could follow the lead of most other states and have geothermal exploration and production regulated by the agency which regulates oil and gas exploration and production.

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