Monday, October 18, 2010

Debate is Taxing Marcellus Shale

When it comes to natural gas drilling, all eyes are on Pennsylvania.
From controversy over methane-tainted water in the small northeastern Pennsylvania town of Dimock, to the legislative tussle over an extraction tax, to a close watch on regulatory moves in Harrisburg, how the state proceeds on many fronts related to the Marcellus Shale formation has the potential to affect the industry's future elsewhere.
"The eyes of the world are back on Pennsylvania as part of a transformation, I believe, in energy policy," Scott Perry, director of the state's Bureau of Oil and Gas Management, said this week at Penn State University's Marcellus Summit conference.
The state's link to the oil and gas business goes back 150 years ago to a boom that began in northwestern Pennsylvania in small-town Titusville.
"We did it once before," Perry said, "and it looks like we're going to do it again."
The gas riches of the vast Marcellus Shale — which underlies Pennsylvania, New York, West Virginia and part of Ohio — have attracted a rush of drillers and related operations to the region in the last two years. Tens of thousands of acres of Pennsylvania land have been leased and thousands of wells have been drilled.
Some geologists estimate the Marcellus contains 500 trillion cubic feet of natural gas, of which 50 trillion cubic feet might be recoverable by hydraulic fracturing, or "fracking" — enough to supply the entire East Coast for 50 years. Those vast gas riches are attractive because they're so close to major markets in the Northeast.
"The Marcellus is so big, so new and happening so fast," said conference presenter Bobby Huffman, project director for Houston-based Spectra Energy Transmission, a major natural gas infrastructure company. "I would say the rest of the industry is watching it because the potential for the ultimate amount of gas production is so big in Pennsylvania."
Advancements in the technology have significantly increased the yield and economic viability of tapping the shale gas.
But environmentalists are concerned on several fronts, especially because the process uses millions of gallons of water mixed with sand and chemicals, some of them toxic, and blasts deep underground to crack the shale and free the gas within. Surface spills of chemicals and contamination of water aquifers and private wells by migrating methane gas are among concerns.
Julian Boggs of the Columbus-based Environment Ohio, said in a phone interview that his group has been keeping tabs on Marcellus issues in western Pennsylvania, though drilling concerns aren't quite at the forefront as a statewide issue there. Marcellus projects have only recently crept into parts of eastern Ohio.
In Ohio, the Utica Shale — a formation deeper underground than the Marcellus — may hold more promise than the Marcellus, based on preliminary interest from gas companies, said Rick Simmers, statewide enforcement coordinator for the Ohio Division of Mineral Resources Management.
"We're watching and gearing up for a fight, especially with leasing of state lands," Boggs said. "The biggest problem with hydraulic fracturing ... is that it hasn't been around long enough for the environmental impact to be understood."
The fracking process is currently exempt from regulation by the U.S. Environmental Protection Agency; EPA is considering how to structure a study requested by Congress, where bills are pending that would reverse the exemption and give the EPA regulatory oversight.
Louis D'Amico, president of the Pennsylvania Independent Oil & Gas Association, said some environmental groups may be spreading misinformation about fracking.
"There are a large group of environmental groups ... opposed to any kind of fossil fuel development, raising the specter of hydraulic fracturing," he said in a phone interview. "They have created an atmosphere of fear with a lot of people who don't understand."
D'Amico gave a measured response when asked to assess Pennsylvania's regulatory oversight. For example, he praised new rules about improved well casing standards, but took issue with turnaround times for permitting requests.
Kansas, he said, can issue permits in a day, whereas in Pennsylvania, "we're lucky we get that done in several months."
"I think our programs here are going to be pretty much a model in other states," D'Amico said. "That being said, there are areas of concern that perhaps Pennsylvania has gone too far regulatory-wise."
Simmers said his department began developing plans 4½ years ago to deal with potential development, just as industry attention was focusing on the Marcellus in Pennsylvania.
"We realized early on that we were not going to be the focus of Marcellus development. It gave us time to sit and watch," Simmers said. "We had the benefit of stepping back and saying, 'What can we do to do this properly?'"
Ohio had issued about 64 Marcellus permits, with 42 drilled — a tiny fraction compared with Pennsylvania, where more than 2,300 permits had been issued the first nine months of 2010. Nearly half of those wells have been drilled.
In New York, the Department of Environmental Conservation has halted issuing permits for wells needing "high-volume" hydraulic fracturing, classified as using 80,000 gallons of water or more. The state is studying issues including water management in that type of fracking.
Brad Field, director of New York's Division of Mineral Resources, told the Penn State conference the state issued 500 permits in 2009 for wells needing less water. "That's what's going forward in New York. We're still open for business," he said. "Low-volume fracking does take place in the Marcellus, in the Utica, but nothing of the high-volume variety is going forward."
More than 500 wells have also been drilled into the Marcellus field in West Virginia.

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