Recently in Natural gas Category

Talk of the town

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Shale gas is once again (actually it never went away) in the headlines. Out comes the cover story in Time followed by a new report by the Energy Information Administration (EAI) on 'world shale gas stocks.' Basically these reports and flurry of related commentary sums up mostly optimistic reports on the future of shale gas. The gas is there, the technology is there, the question is at what cost? ie what is the break-even price for drilling and production. Right now the industry are drilling at prices of $3.50/mcf or so. Is that profitable or even sustainable? I doubt it. Some experts suggest the prices needs to be $8/mcf to break-even. Lots of factors go into this range of prices. One factor not even in the equation are the environmental costs.

Is shale natural gas the solution to our energy needs?

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I am getting this question - why do we need to develop bioenergy in PA since we sitting on a wealth of shale natural gas? My answer is a clear - we need multiple energy sources; one source won't solve all our problems. I also won't get into the fossil fuel energy vs renewable energy debate. However, if you convinced that natural gas will solve our problems take a look at this review. Its starts off:

" While there is the possibility that shale gas will allow US natural gas supplies to increase for a few years (or even 10 or 15 years), natural gas is only about one-fourth of US fossil fuel use, so it would be very difficult to ramp it up enough to meet all of these needs."

Then the article details a litany of points:
1. The US is a natural gas importer. It does not produce as much natural gas as it consumes.
2. The US supply pattern for natural gas has been quite irregular over the years.
3. In the absence of shale gas, EIA's forecast for US natural gas production would be a decline over the next 25 years.
4. The production of Canada, the US's largest source of imports, is declining as its own use is rising.
5. The much publicized report from the Potential Gas Committee relates to "resources". Much of these resources may prove to be too expensive, or not technically feasible, to extract.
6. If Texas experience serves as an example, shale production starts dropping fairly quickly after it starts.
7. Shale gas drillers appear to need higher prices than are currently available to make production of shale gas profitable.
8. High (and volatile) prices tend to depress natural gas consumption for industrial use and for heating buildings.
9. The amount of oil and coal consumption that needs to be replaced is huge in relationship to natural gas consumption.
10. There are a number of outstanding environmental questions.

Some of them are self explanatory. Read the article for more explantion. I think the issue of technology and extraction costs as we go deeper in the earth is big one. Its sobering, but adds to my ammunition when people ask me that question next time.

The Marcellus debate continues...

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In a recent blog I stated the Marcellus shale gas "boom" is filled with uncertainty. Everyone and their brother is going after this issue. Now, here is the latest front page NY Times exposé on the issues of waste water - Regulation lax as gas wells' tainted water hits rivers. So, how accurate is this article? Not very according to former DEP official John Hanger - read his response from his blog here. Hanger lists a slew of mistakes and also refers to an independent review of PA's regs:

Now let's examine the strange omission from the article of the independent review of Pennsylvania's hydraulic fracturing regulatory program done by STRONGER (see http://www.strongerinc.org/).
Its good to see a Hanger not hanging up (excuse the pun) the game but remaining active. Another slam on the article here. I'll leave it to you to decide but seems like some slack journalism.

Gas impacts on logging and forest sector - not good!

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Although I haven't seen anything written specifically about Marcellus shale gas impact on forestry, I just read this article about a dairy farmer who got rich from leasing his farm for gas and how rely on farm income. From the article:
"Say hello to Pennsylvania's nouveau riche -- the Marcellus "shalionaires." It's better than any milk checks we ever got," said Bednarski, 52, of Avella, whose family has owned the farm since 1932. Today, he sells hay and breeds heifers. "It made farming more fun." Bednarski sold his 50 dairy cows when his family began receiving royalty checks in January 2010 from a lease his mother signed 11 years ago.
I'm wondering how many forest landowners getting royalty checks will say - "now I don't need income from timber? What is pretty clear is that gas has taken employees from the logging a forestry workforce. I hear many situations where workers go to the gas industry, not only because of the downturn in the the forest sector, but because they pay better. Do you blame them? I think this is something our lawmakers should be looking into. The question for them is how we maintain a viable forest industry in PA. We still have some of the most valuable forests in the world but we should be thinking about its future.

Marcellus gas = uncertainty, so what's a landowner to do?

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Things are getting interesting in our Marcellus gas shale "boom". I don't think you can open the news without seeing something. Last year is all about the severance tax. Now its a slew of new issues emerging every day. There are real issues and many unanswered questions then ever. Its been a few years since this boom began in PA, and we still not clear about its impacts

I've been looking at tax and fiscal implications over the last few years, writing an extension pub and facilitating some workshops. Just last week I was on a talk show discussing financial implications. You can listen to this show and more here.

My take has always been for everyone to be very cautious because of all the uncertainty. Perhaps the industry are too aggressive in pushing forward. Just imagine if we didn't have the recession to slow them down. But whose to slow them down? Are our regulators and politicians doing their job? My area of expertise is helping landowners make the most from their land use opportunities without degrading the land and planning for future tax and financial implications.

Some of the uncertainty landowners should be aware of include:

1) We don't know how much "proven" reserves there are under your property until they actually produce.
2) There are limited number of drill rigs - who knows when they will drill in your production unit?
3) Even if you have a lease who knows when they will produce and start pays you royalties. The industry may just drill and shut-in the well to hold the lease.
4) While a producing well may pay millions of dollars over its life, do you know what your share is - accounting for your royalty share, your acreage share of unit (see division of orders), post production expense deductions, etc?  It may not be as big as you think.

In other words, it could take years to get a check. This issues require careful planning. Don't jump into a deal. Have a solid lease, know your rights and share of royalties, and most of all do tax and wealth management planning.

N.Y. Assembly Approves Fracking Moratorium

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The NYTimes reports that hydraulic fracking for deep gas in NY is still banned. At least till May if the governor signs it. We may be thinking that is NY and we PA, but it does have impacts on our gas production. It probably means more focus by industry on getting wells drilled in PA. So instead of the moderated ramping of gas activity in PA we'll probably see more accelerated activity in PA. However the primary goal of industry now is to shut in their leases by starting drilling on these sites. More on this later.

Nature Conservancy's report shows gas impact on forests

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The Nature Conservancy came out with an important report entitled: Pennsylvania Energy Impacts Assessment Report 1: Marcellus Shale Natural Gas and Wind. Part 2 I guess will look at Woody Biomass and Transmission Lines. With respect to the gas part, I think the report is well done given all the assumptions. It's tough projecting this immature industry 20 years into the future. They come up with 3 scenarios: low impact with 6,000 well pads with 10 wells per site; medium impact with 10,000 well pads with 6 well per site; and a high impact scenario of 15,000 well pads with 4 wells per site. They find that each pad impacts an average of 8.8 acres of forest (including roads and other infrastructure). Total forest clearing is 33,800 acres (low scenario) to 83,000 acres (high scenario). They go further to suggest indirect impacts to adjacent forest interior habitats would total an additional 81,500 acres (low scenario) and an additional 200,300 acres of forest interior habitats affected (high scenario). To get this they assume the interior forest impact of 100 meters around the well pad:

"To assess the potential interior forest habitat impact, we created a 100 meter buffer into forest patches from new edges created by well pad and associated infrastructure development. For those well sites developed in forest areas (about half of the 242 total sites), an average area of 21 acres of interior forest habitat was lost."

That adds 21 additional acres of forest lost to the already impacted 8.8 acres = 30 acres/well pad - wow.  This is where I may quibble - why 100 meters? However, I do like the fact that they distinguish intact forest tracts in discussing impacts:

"In contrast to overall forest loss, projected Marcellus gas development scenarios indicate a more pronounced impact on large forest patches. For example, over 20 percent of patches greater than 1,000 acres are projected to have at least one well pad and associated infrastructure located in them."

Yes, its more problematic to impact larger intact tracts then already fragmented areas.  But, why not address the question of reclamation and restoration? Probably because we don't know how long the play will last or how long it will take for them to drill 10 wells/site? The take home message is industry can do a better job of well location to reduce impacts:

"Integration of conservation features into the planning and development of Marcellus gas well fields can significantly reduce impacts. For example, relocating projected wells to open areas or toward the edge of large forest patches in high probability gas development pixels in the southern Laurel Highlands reduces forest clearing by 40 percent and forest interior impacts by over a third."

I'd like to ask the authors whether they think 'forced pooling' can help smooth out the irregular well placements and reduce negative conservation impacts. My answer - yes.

Gas jobs = forestry industry losing

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Lots of discussion on the hot political issue of jobs and gas production. The Marcellus Shale Education & Training Center (MSETC) says "direct workforce to drill a single well requires approx. 410 individuals working in 150 different occupations." At a brown bag yesterday I raised some pointed questions:
How many jobs are local (ie PA residents)? Answer: Unclear.
How many jobs are taken form other industries? Answer: Unknown.
As to the latter I would say "lots" - especially from the forest industry labor force. Part of the problem is the recession confounds the situation - not many new jobs are not been created. The forest industry will recover, but in what form?

Poor government lands - little mineral rights

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Wondering about government ownership of the subsurface mineral rights. We know the Game Commission owns very little (about a quarter in NE PA) as does the Allegheny National Forest (7%). The State forests (DCNR) does own a nice percentage but some state parks and National Parks are not as well off. Here are some excerpts from the National Geographic article mentioned in previous blog:

  • Global Geophysical Services, a Texas-based seismic survey company, wants to begin testing in the park for potential natural gas drilling sweet spots, state officials say. The reason: all of Ohiopyle--its trails and campgrounds, and even the mighty Yough (pronounced "yawk")--sits atop the Marcellus shale.
  • And even though this is ostensibly a protected area, the Commonwealth of Pennsylvania did not purchase the subsurface mineral rights for the vast majority of land in its 117 parks when the recreation areas were established decades ago. State officials fear there is little they will be able to do to stop gas development in the Pennsylvania park system, including at popular Ohiopyle, the park where the pressure for gas exploration has been most intense...
  • In addition to the impact from development on private land near the National Parks, the federal government--like Pennsylvania--does not own the mineral rights in the majority national park and historic area land overlying the Marcellus. In fact, private landowners hold the drilling and extraction rights for two-thirds of the 170,300 acres (69,000 hectares) of those 13 NPS units

National Geographic on PA gas (and history)

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Traveling around I find myself mentioning Marcellus and the issues in PA. Many people out of state have even heard about it. Its national news. So just about every news organization has picked up on it - including now National Geographic So NG's focus is obviously environment and protection. It provides a nice history of the play. A few tidbits:

  • Harlan Shober remembers how cars lined Hickory Ridge Road in the spring of 2008 with curiosity-seekers hoping for a glimpse of the first Marcellus shale gas flare in Chartiers Township, Pennsylvania.
  • Geologist Bill Zagorski, now a vice president of the gas company Range Resources, knew about the shale history in 2003, when he was working on a problematic well southwest of Pittsburgh.
  • Coincidentally, Zagorski had a chance to visit a geologist friend in Texas, who was studying the implications of an exciting development unfolding in the Barnett shale near Dallas-Fort Worth. Iconoclastic oilman George Mitchell, with years of effort that flew in the face of conventional industry wisdom, had earlier succeeded in coaxing gas out of the shale by hydraulic fracturing (fracking). 
  • In 2002, a bigger firm, Devon Energy, had purchased Mitchell's company. Now, a year later, Devon attacked the shale by combining fracking with another technique that was its specialty--horizontal drilling. The results were stupendous...