A brief description of the growing Natural Gas industry in the Pennsylvania/Appalachian area. And what implications it has for possible employment and the local economy.
With the recent approval of offshore drilling around the country (mainly in the South Atlantic- off the coast of Virginia and Florida, as well as the Gulf Coast), it is becoming more and more apparent the nation is in dire need of a rapidly diminishing resource: energy. With that in mind, I look to the local economy, more specifically the Marcellus Shale deposit in the Northeast U.S. (spanning from West Virginia to upstate New York), currently being mined throughout Pennsylvania- and a major economic driver for the Pittsburgh region.
Most associate drilling for oil and gas as highly destructive procedures, which quickly degrade the environment and essentially decimate any region which succumbs to the pressure of gas corporations to drill on their land. We will start by examining the possibilities of the available resources:
In January 2008, Penn State University professor Terry Engelder estimated the Marcellus Shale deposits to hold 170 TCF (Trillion cubic feet) of mineable natural gas. To put this number in perspective, according to the U.S. Energy Information Administration (USEIA) in 2009 a total of 20.9 Trillion cubic feet of natural gas was delivered to consumers (with 31 Million for vehicle fuel, 4.7 Billion for private residences, and 3.1 Billion for commercial use- not including power plants). According to these numbers, if the entire supply is mineable, enough gas could be recovered to satisfy the total national consumption for roughly 8 years. However, after preliminary drilling results, Engelder updated his results in November 2008 claiming the total mineable region of Marcellus Shale contained 363 TCF of recoverable gas (roughly twice the original estimate). In this announcement he claimed the entire deposit contained roughly 4,359 TCF of gas – assuming a 30% recovery rate (taking possible future mining technology developments into account) this would provide the U.S. with 1,307 TCF natural gas (3.6x the current mineable quantity).
On a more local level, Marcellus Shale has been providing gas companies with profits since drilling began. CNX (NYSE: CNX) gas corporation, a subsidiary of Consol formed for research and development regarding Marcellus shale, has just completed a new well in the region (named GH2BCV) which has been producing gas for roughly a month (with an average of 4.9 MMcfd natural gas). This is just one example of the several wells CNX has constructed since late 2008. One of the main reasons companies have only recently started drilling for Marcellus shale is the low rate of returns. Natural gas (the primary derivative of Marcellus shale) currently costs $11.59/mcf, which provides producers with positive returns, however once the prices dip below around $7.00, the companies are no longer seeing profits, and it is no longer economically feasible to produce.
A lot of controversy has risen lately regarding the environmental effects of drilling, and harvesting natural resources. The process utilized by all companies mining Marcellus is known as horizontal hydraulic fracturing. This is comprised of drilling one path vertically downward, curving the path in any direction, 360 degrees, pumping salt water into the drilled hole- fracturing the shale which releases the gas. This process does minimal destruction to the surface, with the most damage being done by the setting up of the drill platform. However, shortly after the drill is finished, it can be removed and replaced by a well head, allowing foliage to grow back. In addition, what to do with wastewater from the drilling procedure has come under question. As of January 17, 2010, companies mining the shale have subjected themselves to regulation established by the State legislature (working with PennEnvironment). Using these guidelines, the wastewater is expected to be used as gray water after extensive treatment (only increasing price the price of natural gas by $0.25/barrel).
CNX is not the only company vying for a position to continue drilling for natural gas in the Appalachian region, Statoil (NYSE: STO, a Norwegian petroleum producer) on March 26 2010, purchased 59,000 acres of the Marcellus region in order to expanding their drilling operations. The company expects to pump 50,000 barrels of oil equivalent per day by mid 2012. Chesapeake Oil (NYSE: CHK) recently announced that its 60 wells combined are producing 100 Million cubic feet a day. This currently expanding industry is providing more jobs in the region, seeing as the earliest wells were started in 2008. According to the report issued by Penn State University, drilling for natural gas can create as many as 107,000 jobs in PA alone in 2010. In addition, more employment would arise from industries such as communications developing after mining (as many of these jobs are expected to be construction as drilling). As the recession started to set in, natural gas drilling began to grow- offering alternatives to those seeking employment, and providing domestic energy solutions in an effort to curb dependence on imports.
