More Natural Gas for Pennsylvania

By Andrew Maykuth


Inquirer Staff Writer

In their exuberance, oil- and gas-industry officials repeat a single refrain when describing the natural gas from Pennsylvania's Marcellus Shale:


A game-changer.

Tony Hayward, chief executive officer of oil giant BP P.L.C., was the latest to gush enthusiastically when he called unconventional natural gas resources like the Marcellus "a complete game-changer."

"It probably transforms the U.S. energy outlook for the next 100 years," Hayward said Thursday at the World Economic Forum in Davos, Switzerland.


The breathtaking emergence of natural gas as America's energy savior was not in the cards. Just four years ago, after Hurricanes Katrina and Rita devastated Gulf Coast rigs and rattled gas markets, energy pundits forecast a bleak winter of short supplies, high prices, and low thermostats.

The vast scale of shale-gas resources has come into focus quickly, and industry officials are touting the possibility of steady supplies for decades to come.


The Potential Gas Committee in Colorado last year revised its outlook of America's future gas supply - up 35 percent in just two years. The forecast was the highest in its 44-year history.


The Marcellus Shale is the nation's fastest-growing producing area. Though it lies under five states, about 60 percent of its reserves are in Pennsylvania, according to Terry Engelder, a Pennsylvania State University geologist.

"In terms of its impact on Pennsylvania, this is probably without peer in the last century," said Engelder, whose projections in 2008 alerted the public about the size of the Marcellus.

"America's energy portfolio has undergone a first-order paradigm shift just in the last two years," he said. "This is such an exciting thing."


Not everyone has climbed aboard the bandwagon. Some environmentalists are uneasy about the hydraulic-fracturing process that has unlocked the shale gas. The technique requires the injection of millions of gallons of water into a well to break up the shale to initiate production.

And some analysts say they believe the gas industry's estimates are too optimistic.

"I would look at all this with a bit of healthy skepticism," said Arthur E. Berman, a Houston gas-industry consultant, who says he believes some operators have overstated the production potential and understated the cost of Texas shale-gas wells. His pointed criticism got him banished from one trade journal - and invited to speak at scores of investor workshops.

"Two years ago, we were talking about importing gas from the Middle East," he said. "And now we have a hundred-year supply of domestic gas?"

Berman said he had been unable to conduct a similar analysis of Marcellus wells because Pennsylvania law allows operators to keep their production data secret for five years, unlike other states, where output is reported to taxing authorities promptly.

"If something looks too good to be true," he said, "I need to look more closely."

Questioning voices such as Berman's are uncommon in the industry, which portrays natural gas as abundant, cheap, and cleaner than coal and oil - a domestically produced "bridge fuel" to ease the transition to renewable wind and solar generation.

For companies like UGI Corp. - the Valley Forge energy company that operates regulated utilities in Pennsylvania that sell natural gas to retail customers and operates unregulated subsidiaries that consume and transport natural gas - the Marcellus Shale represents a game-changing opportunity on several fronts.

"That activity in the Marcellus Shale is really a win-win, not only for our regulated business, but also our nonregulated business," UGI chief executive Lon R. Greenberg told analysts in a conference call last week.

Officials at UGI and other Pennsylvania gas utilities say retail customers will benefit in the long run, as utilities begin buying their supplies from Marcellus sources, saving pipeline costs from the Gulf Coast.

UGI's utilities are in a strong position because many of their 578,000 customers are in Marcellus cities such as Scranton, Wilkes-Barre, and Williamsport. The utility could eventually work out deals to buy gas directly from producers.

Though UGI has no interest in becoming a gas producer, the company is exploring the possibilities for investing in "midstream" pipelines that tie the Marcellus wells to the interstate pipelines that move gas to lucrative urban markets like New York. Expansion of the pipeline infrastructure is critical to opening the Marcellus to exploration.

In addition, UGI is looking at expanding its underground gas-storage operations in Western Pennsylvania, said Brad Hall, president of UGI Energy Services.

"There is a bit of a gold-rush mentality," he said, "but in this case, there's really gold."

UGI may also reap some other, unintended benefits.

The company's power-generation subsidiary last year announced a $125 million project to convert its aging Hunlock Power Station near Wilkes-Barre from coal to natural gas.

Hall said the decision was made before the Marcellus abundance was fully understood. But when the plant comes online in 2011, it is likely to find eager sellers of fuel nearby.

"It makes us look like we were really smart."

Contact staff writer Andrew Maykuth at 215-854-2947

or amaykuth@phillynews.com.