Total natural gas resources in the Marcellus Shale far exceed earlier government estimates, according to recent studies by two financial firms, Standard & Poor’s and ITG Investment Research. The news is a comeuppance, of sorts, for opponents of the drilling who embraced the government reports as a sign the economic development potential of shale was inflated.
Industry experts warn, however, that the naysayers could yet win the day if Pennsylvania loses its competitive advantage in natural gas drilling to other states, and even other countries; we are a court ruling away from doing just that.
The ITG study assigns resources of 330 trillion cubic feet (TCF) of natural gas to the Marcellus. In contrast, the latest estimate from the Energy Information Agency (EIA) of the US Department of Energy is just 141 TCF. The Standard & Poor’s study concluded that the Marcellus could provide "almost half of the current proved natural gas reserves in the US."
"It’s a bit of a bouncing ball in terms of the figures," said Geoff Styles, Managing Director of GWS Strategies, LLC, a nationally recognized expert on domestic energy. "But even the USGS (US Geological Survey) figure of 84 TCF is equivalent to over 14 billion barrels of oil, or half-again the original estimate for Alaska’s Prudhoe Bay field, which was a game-changer in global oil markets in the 1980s. That means there’s enough gas to sustain higher production volumes than today for decades–up to 5 billion cubic feet per day (22% of US dry gas production in 2011) for perhaps 40 years or more. And those resources are likely to grow over time, as more of the Marcellus is accessed and evaluated."
Styles added that at today’s prices, the gas is equivalent to paying $18 for a barrel for oil. As of November 13, 2012, Brent Crude was trading at $109 per barrel.
The new studies only increase the likelihood that natural gas will be used for even more energy uses. These uses include, city buses, industrial use, and electric power generation, according to Manuj Nikhanj, the head of Energy Research at ITG. Albeit low wholesale prices have squeezed drilling companies’ revenue, the S&P report says the Marcellus has the lowest production cost of any natural gas field in the nation, adding to the likelihood of a continued boom.
"The amount of resource that’s available at relatively low cost is fairly enormous," Nikhanj said.
David N. Taylor, Executive Director of the PMA, warns, however, for that to happen we need to ensure that the business climate in Pennsylvania is prepared for an ever changing natural gas market.
"The Shale is a tremendous opportunity that could slip through our fingers if we forget that we are not just competing against other states but other countries that are now using fracking in drilling," Taylor said. "We have to be constantly vigilant to keep capital costs as low as possible."
At the same time, Taylor praised the Administration and the General Assembly for their work with industry. "We’re fortunate to have a majority of lawmakers and a Governor who understand what the Shale means for manufacturing in this state," Taylor said.
Our own abundance is partially to blame for revealing our competitive weaknesses. "On average it costs $1 million more in capital investments for a well in Pennsylvania than most other states," said Terry Bossert, VP of Public Affairs, Chief Oil & Gas. "Some of that is because of Pennsylvania’s topography, but some of it is the regulatory environment. The added cost to drill becomes a bigger issue as gas prices fall. It simply becomes cheaper to drill in other states and other countries."
The other, and potentially far costlier problem, is a patchwork of local government ordinances, some in place solely to prevent drilling. Act 13, signed by Governor Corbett in February, prohibits local governments from using their zoning ordinances to block drilling. But in July a Commonwealth Court judge overturned that provision in the law. The Corbett Administration appealed immediately and the state Supreme Court heard oral arguments in October.
"It’s vital that given the capital investments in each well that drillers stick to their schedules," said Travis Windle, spokesman for the Marcellus Shale Coalition. "And trying to manage hundreds of different ordinances can throw a driller way off schedule."
For now, the news remains positive.
In June, the General Assembly approved the Administration’s proposal for a tax credit that sealed a deal for the Shell Oil Co. to build a multi-million dollar petrochemical plant in western Pennsylvania. Now the Governor’s Department of Community and Economic Development (DCED) is in talks with two other companies looking to build petrochemical plants.
"We don’t want to identify them but let’s just say it’s gotten beyond the first call," said DCED spokesman Steve Kratz,
Just two weeks ago a Virginia energy company, Moxie Energy, LLC, announced that two power plants burning shale gas would be built in Bradford and Lycoming Counties in northern Pennsylvania. Costing around $800 million apiece, the plants would each generate about 800MW, or enough to power about 1.5 million homes in total.
"We’re looking at ramping up to 500 workers at each plant over the two to three years of construction," said Kent Morton, a Moxie Energy Vice President. "Once they are up and running each plant will require about 50 highly paid workers."
In addition, Pennsylvania could be in a strong position to attract the fertilizer industry, which relies on cheap natural gas. "In the past ten years half of our fertilizer manufacturing business has gone overseas," Geoff Styles said. "We will start to see that come back."
Finally, local governments in Pennsylvania are now receiving their shares of over $200 million in impact fees (part of Act 13) paid by the drillers to cover the 2011 calendar year. A Public Utility Commission spokesperson expects that number to increase each year. The money comes in addition to the millions of dollars the companies and their employees pay in taxes each year to local, state, and federal governments.