Energy needs to provide industry leadership in Barnett Shale

By MITCHELL SCHNURMAN - Fort Worth Star Telegram - July 14, 2010

Devon Energy Corp. works the Barnett Shale the right way. It's the biggest natural gas producer in the region and at the same time has become an industry leader on the environment.

With several initiatives, Devon, based in Oklahoma City, has cut greenhouse gases, limited emissions and recycled more than 400 million gallons of water used in "fracking" wells. Over the past decade, it has won numerous awards for its efforts, which boosted the bottom line as well as the environment.

On older wells, Devon is replacing one part -- a valve about the size of a pinkie finger -- that costs $300 and lets the company capture more gas and rack up carbon credits. One valve cuts methane emissions by 90 percent, which is the equivalent of taking 16 cars off the road.

No one doubts that Devon is a big believer in such initiatives. But last month, Devon wrote the state comptroller to oppose a bill that would require the valve replacements.

Devon also opposed a proposal for "green" well completions, even though it uses the technique on the vast majority of its Barnett Shale wells -- and the process generated $38 million in extra revenue in 2007.

Devon also shot down a call for vapor recovery units for storage tanks and the prospect of replacing combustion engines with electric motors.

The big hang-up? Devon wants the changes to be voluntary , not mandatory.

"There are spots where the technology works and spots where it doesn't," says Darren Smith, a manager of Devon's environmental, health and safety department. "Mandate these activities, and there can be a real business disruption."

In its letter, Devon said the mandates on emissions would ultimately hurt capital investment. It warned of fewer wells and jobs, lower taxes for cities, smaller royalties for residents and the risk that gas companies would shift operations.

Reciting that litany of unintended consequences is a business reflex whenever government proposes more regulation. But it's dismaying that Devon is falling back on that playbook, because right now, the industry needs leaders that will set the bar high -- not just for their companies but for every player.

After the BP spill in the Gulf of Mexico, everybody knows that you can't rely on voluntary compliance for anything. Before that, we had the meltdown on Wall Street, the mortgage lending debacle, the never-ending buildup of housing inventory. All drove home a message that no less an economic authority than Alan Greenspan later articulated: Companies will sacrifice a lot, even their future, for a quick buck.

Closer to home, in the Barnett Shale, there have been reasons to lose faith, too -- or at least to insist that any trust be verified. Several communities, led by the small town of Dish, have said residents are suffering ill effects from the gas business.

Yet state regulators consistently say all is well. This year, the Texas Commission on Environmental Quality lost much of its credibility when it told the Fort Worth City Council that the air was safe -- and failed to disclose that it later learned that three air samples scored high for benzene, a cancer-causing agent.

Follow-up tests showed that contaminant levels fell, but the commission never shared the complete information with city or state leaders. The test results came to light because of an internal complaint and fraud investigation, which was revealed by Forrest Wilder at the Texas Observer.

The disclosure enraged state Sen. Wendy Davis, D-Fort Worth, who had met with the commission's top officials repeatedly and never heard a hint about a discrepancy. Now she may introduce a bill to make it a crime for public officials to withhold information that affects public health.

Fort Worth and Dish are pursuing their own air quality tests because residents don't have confidence in the state's results. Meanwhile, the Environmental Protection Agency is also wading in. Wilder reported that environmentalists had pleaded with the EPA to intervene in Texas issues because the state agency was far too cozy with industry.

The clash between the state and the feds was on display last week when the EPA held a huge public meeting in Fort Worth to hear residents' stories about gas drilling. An EPA study is focusing on water issues in fracking, but the EPA's Dallas office is also looking into air quality.

The day before, Gov. Rick Perry pre-empted the EPA event by launching a Texas initiative on energy. He's pulling together university programs and experts to study the Gulf, gas drilling and more. Perry wants industry to underwrite the program, unbothered by the conflict that creates.

How low is the trust factor in the Barnett Shale? It says a lot when separate government entities -- the environmental commission, the EPA and individual cities -- are spending taxpayer money on the same thing.

In this setting, gas companies can't hew to the "voluntary, not mandatory" line, not if they hope to win public support. Devon may have the money and wherewithal to adopt eco-friendly policies, but others don't.

The solution is not to let companies off the hook. Force them to figure out ways to meet higher standards.

"What Devon does is not the norm in the industry," says Ramon Alvarez, senior scientist at the Environmental Defense Fund in Austin. "That's why regulations are worth having -- to bring the whole industry along."

By design, Devon avoided drilling in Pennsylvania, New York and Colorado, where opposition emerged with a vengeance. That was a savvy business move, but the controversy has come home now.

So why not champion the solutions?

Mitchell Schnurman's column appears Sundays and Wednesdays. 817-390-7821

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Scandal and Suicide in China: A Dark Side of Toys

By DAVID BARBOZA - The New York Times - August 23, 2007
They found the body hanging on the third floor of the Lee Der toy factory.

Zhang Shuhong, a 52-year-old businessman, had apparently committed suicide, just days after Mattel blamed his company, Lee Der Industrial, in Foshan, in southern China, for the recall of one million toys coated in toxic lead paint.

In a summer of high-profile recalls of Chinese exports — pet food, shellfish, tires — Mr. Zhang’s suicide read like the latest twist in a morality play. Each week, it seemed, brought news of another faulty Chinese product; and with it, growing concerns about unscrupulous Chinese businessmen: cutting corners; pouring cheap, sometimes lethal, ingredients into their products; endangering consumers around the world, even children, to make a bigger profit.

But at the Lee Der factory in Foshan, an industrial city 140 miles northwest of Hong Kong, Mr. Zhang’s colleagues and workers tell a less familiar narrative. They say that Mr. Zhang was a victim, too — of his own duplicitous suppliers, of China’s faulty supply chains, and of the pressures of its loosely regulated brand of capitalism, where Chinese entrepreneurs feel squeezed between Western companies’ appetite for cheap goods and the fierce local competition to satisfy it.

Unmarried and reportedly devoted to his company, Mr. Zhang was one of the hundreds of thousands of entrepreneurs who had helped make China into the world’s factory floor, providing the inexpensive goods that fill the shelves of Wal-Mart and Target. According to those who knew him, he was anything but greedy. In fact, in an industry with a reputation for mistreating its workers, he paid his employees on time and did not make them perform mandatory overtime.

“For the last 10 years he lived in a humble 25-square-meter room in the factory,” said Xie Yuguang, chairman of Lee Der, in a telephone interview. “He didn’t save too much money for himself. He put everything back into the company.”

Family members declined to be interviewed for this article, but colleagues say Mr. Zhang grew up in Hong Kong, and started out running errands for Hong Kong factories as a boy. Eventually, he helped run toy factories in nearby Guangdong Province, where China’s big toy producers are based.

After more than a decade with Lee Der, Mr. Zhang took over the company’s operations in Foshan a few years ago. He helped turn the money-losing unit around, colleagues said, reinvesting most of the company’s earnings in new buildings and equipment. Indeed, at the time of his death, workers say one of his three factories was preparing to relocate to a large $5 million plant that had just been completed.

Mr. Xie says that one of the contractors supplying for Lee Der received the lead paint from one of its suppliers.

Mr. Zhang, he says, had no way of knowing the paint on Lee Der’s toys contained lead.

Mattel’s investigation, so far, has found less clarity. The company says it has tracked down three paint suppliers working for Lee Der. The primary supplier of the lead paint pigment — a company called Mingdai — has disappeared, according to Mattel officials, who now believe Mingdai was a trading company.

But it was Mingdai, Mattel believes, that sold the yellow paint pigment containing lead to Dongxin and Zhongxin, which produced the paint.

Jules Andres, a spokeswoman at Mattel, said the company was still trying to determine whether the three paint suppliers — Dongxin, Zhongxin and Mingdai — sent paint to other toy factories supplying Mattel.

But that does not explain why Mr. Zhang — who had lead-detecting equipment on his premises, according to Ms. Andres — did not detect the contaminated toys.

“People at Lee Der were never fully able to give an explanation,” she said. “They had testing equipment on site. And they tested before. We don’t know why they didn’t use it” in this case.

Of Lee Der, Ms. Andres said, “Sadly, they just didn’t have an answer.”

Chinese regulators have blamed an unnamed paint supplier for producing “fake” unleaded paint. Workers said the paint supplier was Dongxin, which was owned by a close friend of Mr. Zhang. But Mr. Xie, Lee Der’s chairman, said Zhongxin sold the tainted pigments to Dongxin using false certificates. “Dongxin people didn’t recognize the fake documents, such as registration documents, quality inspection certificates, provided by Zhongxin,” he said.

Long supply chains, involving multiple contractors and subcontractors, are common in China; and every link in the chain is susceptible to fraud or contaminated goods.

No one has shown clearly where Mattel’s and Lee Der’s supply chain broke down but such uncertainty is common in China, too.

Mattel said lead paint was found only in toys Lee Der had manufactured since April

Wherever the weak link failed, and whether Mr. Zhang was a party to the deceit or not, some experts say part of the blame for tragedies like Lee Der’s must be assigned to the system that puts contractors under constant pressure to keep costs low.

“Labor costs are going up; the renminbi is going up,” Marshall W. Meyer, a professor of management at the Wharton School at the University of Pennsylvania, said. “Mattel relied on one supplier for 15 years, the supplier to other people for parts. So the question is how many other suppliers are there? Is control possible?”

“The larger the chain, the more people involved, the greater the difficulty in controlling the quality of the product,” he added.

The timing of Mattel’s discovery was particularly bad for Mr. Zhang. A toy recall earlier this year involving lead paint had already helped fuel a rising chorus of global anger about how greedy Chinese businessmen were putting the world’s children at risk.

With China under fire for exporting contaminated or problem goods, multinational corporations and Chinese regulators were forced to get tough on violators.

Colleagues say Mr. Zhang appeared demoralized by the turn of events but resigned to closing the company. He encouraged workers to look for other jobs. He instructed managers to sell equipment. And then, apparently, he locked himself in a factory workshop and hanged himself.

“He called me that day and told me to sell some equipment,” said a manager who asked not to be identified because of the controversy surrounding Mr. Zhang’s death. “I just thought he wanted us to get some new equipment. I had no idea he was going to kill himself.”

Meanwhile, Lee Der has shut its doors, and its employees, many of whom lived on the factory campus and earned a base salary of $120 a month, an average salary in Foshan, have left to look for other jobs.

A funeral was held for Mr. Zhang on Friday. That morning, workers burned paper offerings — gifts for the afterlife — in the yard of the factory where he spent his last moments.

Mattel announced the recall on Aug. 2, just weeks after offering a New York Times reporter a tour to show off its sophisticated testing and inspection facilities, including equipment that could detect lead paint on incoming products or supplies.

“You’ve never seen a boss as good as he was,” said a worker last Thursday, as a crowd of employees gathered outside the gates of one of Lee Der’s factories.

On the other side of the gates, boxes of toys were stacked, waiting to be discarded.

Read more and see photos in the New York Times