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Encana, EPA's battle could send energy costs skyrocketing

EPA findings about possible drinking-water contamination in Wyoming come amid growing concerns about whether natural-gas fracking endangers water supplies.

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A battle between Encana Corp. and the U.S. Environmental Protection Agency threatens to lead to higher costs and regulatory hurdles for the natural gas industry, as companies and regulators face off over the environmental impact of hydraulic fracturing.

Calgary-based natural gas giant Encana attacked an EPA report that found natural gas drilling techniques contaminated water at a company property in Wyoming.

Encana said Monday it "strongly disagrees" with the EPA findings, accusing the agency of basing its conclusions on "conjecture" that "only serve to trigger undue alarm."

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The company pointed to the EPA's use of deep test wells, which found water laced with hydrocarbons and other toxic substances. Encana argues the EPA had actually penetrated rock containing hydrocarbons.

"Natural gas developers didn't put the natural gas at the bottom of the EPA's deep monitoring wells, nature did," the company said Monday.

The EPA last week released findings that showed water polluted with hydrocarbons and synthetic substances associated with hydraulic fracturing, or "fracking." The technique involves pumping chemicals and huge volumes of water and sand into wells, using high pressure to fracture rocks deep underground, allowing trapped oil and gas to flow to surface.

With North America's second-largest gas producer pitted against the regulator, the industry will likely face even greater scrutiny and red tape, which will lead to increased expenses for energy companies, industry experts said. Some jurisdictions, such as Quebec and New York state, have placed a moratorium on fracking to study its effects further. Natural gas derived from vast pools tapped through fracking techniques are key to the current supply glut of gas that is keeping prices low. Any move to ban fracking – not seen as a possibility any time soon – would threaten those supplies.

"If they ban fracturing, energy prices will go through the roof," said Kevin Lo, an analyst at First Energy Capital Corp. "It would be good for energy companies. It would be terrible and devastating for the consumer."

North Americans could pay as much as three times more for natural gas, which is hovering around $3.25 (U.S.) per million British thermal units on the New York Mercantile Exchange, Mr. Lo said.

While some areas are increasingly scrutinizing fracking, states such as Texas, which is swimming in natural gas, are more welcoming and unlikely to clamp down on industry, Mr. Lo noted. Further, the governor of Wyoming, along with other politicians, supports natural gas companies, said John Tasdemir, managing director of oil field services research at Canaccord Genuity.

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Fracking is an increasingly controversial technique because of complaints that people who live near areas with substantial fracking have found their drinking water fouled.

Industry disputes these claims. Encana also questioned the EPA's methodology, arguing the agency was inconsistent with test samples.

The EPA's 121-page report details findings from three years of effort. It documents a chronology of sampling that saw the agency first discover methane – natural gas – and dissolved hydrocarbons in domestic and municipal water wells. The EPA then came back to sample additional wells, and found "elevated levels" of methane and diesel-like substances. It returned again for a third series of sampling, which included drilling two deep wells to identify whether contamination was present at deeper levels. It concluded that the answer was yes, and wrote: "Data indicates likely impact to groundwater that can be explained by hydraulic fracturing."

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About the Authors
Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More

Carrie Tait joined the Globe in January, 2011, mainly reporting on energy from the Calgary bureau. Previously, she spent six years working for the National Post in both Calgary and Toronto. She has a master’s degree in journalism from the University of Western Ontario and a bachelor’s degree in political studies from the University of Saskatchewan. More

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