A heated rush on a new, northern Michigan natural gas source cooled considerably in the latest round of state-auctioned oil and gas leases.
But local industry representatives said natural gas reserves in the deep Collingwood Shale could still ignite a major production push in northern Michigan, depending on the amount of gas available and the cost involved in extracting it from nearly two miles below ground.
"We're all watching it very closely," said Thad Shumway, president of North Bay Energy in Traverse City. "It's in our backyard and we want to be a part of it."
Interest in the Collingwood Shale touched off a massive state auction for oil and gas leases last spring, when the state raised almost $180 million for such leases across more than 20 area counties.
That easily was the largest state auction since it began selling oil and gas leases 80 years ago. The auction boom followed a Canadian company's successful natural gas well venture this year in Missaukee County, a project that originally produced more than 2 million cubic feet of gas per day.
State officials said the Missaukee discovery touched off a flurry of leasing activity from companies across the U.S. and beyond.
"It was completely unprecedented," said Tom Wellman, manager of the Mineral and Land Management section for the state Department of Natural Resources and Environment. "It was certainly fueled by speculation."
The state's most recent oil and gas auction in late October returned to more typical levels, as bidders anted up around $10 million for oil and gas rights on almost 500,000 acres of state-owned properties or lands on which the state holds mineral rights.
Subsequent core testing in the Collingwood Shale raised questions about the amount of gas it holds, local industry people said. The high cost of extracting gas from such depths also played a factor in modest auction bidding, particularly since natural gas prices have leveled off in recent years.
"I think companies outside of Michigan put too high a value on that one well ... I think they jumped the gun a little bit," said Martin Lagina of Rock Management Group Ltd., an energy production company in Traverse City. "I'm surmising that those cores didn't look as good as they thought."
Questions also exist about technology used to access deep energy supplies like the Collingwood Shale. Environmentalists and others are concerned about a drilling method known as hydraulic fracturing or "fracking" in which large amounts of water and chemicals are injected deep underground to create gas flow.
More than 5 million gallons of water were used to extract gas from the Missaukee County gas well that touched off the spring leasing frenzy.
"This uses huge amounts of water that are unregulated under Michigan's water withdrawal act," said Marvin Roberson, forest policy specialist for the Sierra Club of Michigan Chapter. Energy companies also aren't required to disclose the types and extent of chemicals used in the fracking process, he said.
The fracking method can also contaminate nearby groundwater supplies, but Wellman contends that's not a problem for the Collingwood Shale because it's far below Michigan's groundwater aquifers.
Wastewater from such wells in Michigan must be disposed of in deep-water injection wells approved by the Environmental Protection Agency, Wellman said. But environmentalists said there are problems with that approach.
"You're taking (water) from a usable aquifer and pumping it into an unusable aquifer," Roberson said.
Despite the dramatic fall-off in recent lease activity over the Collingwood Shale, the industry hasn't written it off as a potentially major natural gas player in Michigan. Lease auctions still raised an average per-acre bid of more than $140 in Antrim County, nearly $150 an acre in Missaukee and $90-plus in Cheboygan County.
"There were some that were up in the thousands," Wellman said. "There is certainly still interest in it. But it's not being fed by the speculation that it was in May."
Both Shumway and Lagina said Michigan's energy interests will continue monitoring the Collingwood Shale, but agreed that it will take time to determine the find's economic value.
"We're hopeful it's going to happen here," Shumway said. "But it may not happen as quickly as some people expected in the spring."