Sustained Outrage

DOE slashes estimate of Marcellus Shale reserve

In this July 27, 2011 file photo, Range Resources site manager Don Robinson stands near the well head by the drill that goes into the shale at a well site for natural gas in Washington, Pa.  (AP Photo/Keith Srakocic, File)

Significant news out this morning from the U.S. Department of Energy’s Energy Information Administration:

… The estimated unproved technically recoverable resource (TRR) of shale gas for the United States is 482 trillion cubic feet, substantially below the estimate of 827 trillion cubic feet in AEO2011. The decline largely reflects a decrease in the estimate for the Marcellus shale, from 410 trillion cubic feet to 141 trillion cubic feet.

Now, this comes after last summer’s fairly confusing release of a new U.S. Geological Survey analysis of the Marcellus Shale reserve, and in the wake of other reports that have warned the Marcellus is not nearly as huge as some hopeful reports from the media, industry and political leaders have said.

In today’s early release of a summary of its 2012 Energy Outlook, the EIA explained its new figures this way:

Both EIA and USGS have recently made significant revisions to their TRR estimates for the Marcellus shale. Drilling in the Marcellus accelerated rapidly in 2010 and 2011, so that there is far more information available today than a year ago. Indeed, the daily rate of Marcellus production doubled during 2011 alone. Using data though 2010, USGS updated its TRR estimate for the Marcellus to 84 trillion cubic feet, with a 90-percent confidence range from 43 to 144 trillion cubic feet—a substantial increase over the previous USGS estimate of 2 trillion cubic feet dating from 2002. For AEO2012, EIA uses more recent drilling and production data available through 2011 and excludes production experience from the pre-shale era (before 2008). EIA’s TRR estimate for the entire Northeast also includes TRR of 16 trillion cubic feet for the Utica shale, which underlies the Marcellus and is still relatively little explored.

Interestingly at about the same time the EIA was briefing the media on its new report, Chesapeake Energy announced this news, what it called an update on additional steps it is taking to continue creating shareholder value in response to the lowest natural gas prices in the past 10 years:

Chesapeake plans to further reduce its operated dry gas drilling activity by 50% to approximately 24 rigs by the 2012 second quarter from 47 dry gas rigs currently in use and by 67% from an average of approximately 75 dry gas rigs used during 2011 … Specifically, during the 2012 second quarter, Chesapeake plans to have reduced its drilling activity in both the Haynesville and Barnett shales to six operated rigs each and to 12 operated rigs in the dry gas area of the Marcellus Shale in northeastern Pennsylvania.

And even in the so-called “wet gas” areas of the Marcellus like West Virginia (those areas where the natural gas reserves also contain significant amounts of potentially profitable other materials like ethane, butane, propane, and pentane), Chesapeake said:

Chesapeake plans to further reduce its undeveloped leasehold expenditures, the majority of which have been focused on liquids-rich plays during the past three years. The company is now targeting to invest approximately $1.4 billion in undeveloped leasehold expenditures in 2012 (net of joint venture partner reimbursements), of which approximately 90% will target liquids-rich plays and 100% will be in plays where the company is already active. This compares to undeveloped leasehold expenditures, net of joint venture partner reimbursements, of approximately $3.4 billion and $5.8 billion in 2011 and 2010, respectively.

Chesapeake CEO Aubrey McClendon said:

We have committed to cut our dry gas drilling to bare minimum levels that are likely to be maintained until expected drilling economics on dry gas plays return to levels competitive with expected returns in Chesapeake’s lineup of liquids-rich plays, which we believe is the best in the industry. As in previous natural gas pricing downturns, Chesapeake is promptly responding to rapidly changing market conditions, and we hope today’s announcement helps disprove the view held by some industry observers that producers fail to act rationally in times of unusually low natural gas prices.

The Marcellus Boom: How much shale gas is there?

Protesters stand in front of the Academy of Natural Sciences in Philadelphia before an appearance by Environmental Protection Agency (EPA) Administrator Lisa Jackson Friday Jan. 13, 2012.  Residents of the small northeastern Pennsylvania town of Dimock,  at the center of the political fight over natural gas drilling, joined environmental activists from elsewhere to rally Friday outside a conference on urban environmental issues.   About a dozen residents of Dimock have sued Cabot Oil & Gas Corp., claiming the energy company caused contamination of wells when it extracted natural gas using a process known as hydraulic fracturing, or fracking.  (AP Photo/Jacqueline Larma)

While the U.S. Environmental Protection Agency steps in to protect water supplies for the people of the Pennsylvania town of Dimock from natural gas drilling, West Virginia lawmakers are right now debating the huge tax breaks that Gov. Earl Ray Tomblin wants to offer to try to lure a natural gas “cracker” plant to our state to further the Marcellus Shale drilling boom.

We’ve written before about questions regarding the governor’s proposal, and about his overstating the potential job impacts of this sort of a facility. It’s clear that West Virginia and surrounding states are going to fall all over themselves trying to come up with giveaways for the cracker (despite questions about whether such programs are built on a strong foundation to protect the public’s investment, as these reports from Good Jobs first suggest).

But how sustainable is the Marcellus Shale boom?

Sen. Joe Manchin, D-W.Va.,  has told us:

We all know that Marcellus Shale could truly be a game-changer for our great state. We are literally sitting on top of tremendous potential with the Marcellus Shale, and we need to work together to chart a path forward in a safe and responsible way that allows us to produce energy right here in America and create good-paying jobs for hard-working Americans.

The potential of Marcellus is truly remarkable. From an energy-development standpoint, we are on the cusp of something that could help us reduce our dangerous dependence on foreign oil that threatens both our national security and our economic security. It’s so important that we develop our resources here at home, rather than continuing to rely on countries that don’t like us very much and wish to do us harm.

Still, serious questions are being asked — not by political leaders, of course — about all of this. Some of these are summarized clearly in a piece by Chris Nelder for the online magazine Slate:

The recent press about the potential of shale gas would have you believe that America is now sitting on a 100-year supply of natural gas. It’s a “game-changer.” A “golden age of gas” awaits, one in which the United States will be energy independent, even exporting gas to the rest of the world, upending our current energy-importing situation.

The data, however, tell a very different story. Between the demonstrable gas reserves, and the potential resources blared in the headlines, lies an enormous gulf of uncertainty.

We don’t yet know how much of the estimated gas resources will be economically recoverable or whether the projected production rates for some wells might be off by a factor of 10. We might have a 100-year supply of gas, or we might have an 11-year supply. We might realize economic and environmental benefits by transitioning trucking and coal-fired power generation to natural gas, or we might do so only to find ourselves out on a limb far more economically dangerous than the current peak and impending decline of world oil supply. We simply don’t know, and we may not know for years to come.

Wonder if Sen. Manchin will hold a field hearing to address these questions …

MIT paper: Shale gas could crowd out clean energy

There’s an important new paper out from scientists at MIT, published in the inaugural issue of a new journal, Economics of Energy & Environmental Policy. The paper is called, “The Influence of Shale Gas on U.S. Energy and Environmental Policy,” (sign-in required) and it concludes:

… The gas “revolution” has important implications for the direction and intensity of national efforts to develop and deploy low-emission technologies, like CCS for coal and gas.

With nothing more than regulatory policies of the type and stringency simulated here there is no market for these technologies, and the shale gas reduces interest even further. Under more stringent GHG targets these technologies are needed, but the shale gas delays their market role by up to two decades. Thus in the shale boom there is the risk of stunting these programs altogether. While taking advantage of this gift in the short run, treating gas a “bridge” to a low-carbon future, it is crucial not to allow the greater ease of the near-term task to erode efforts to prepare a landing at the other end of the bridge.

As explained in a National Geographic online article:

A team of researchers at Massachusetts Institute of Technology used economic modeling to show that new abundant natural gas is likely to have a far more complex impact on the energy scene than is generally assumed. If climate policy continues to play out in the United States with a relatively weak set of measures to control emissions, the new gas source will lead to lower gas and electricity prices, and total energy use will be higher in 2050.

Absent the shale supply, the United States could have expected to see GHG emissions 2 percent below 2005 levels by 2050 under this relatively weak policy. But the lower gas prices under the current shale gas outlook will stimulate economic growth, leading GHG emissions to increase by 13 percent over 2005. And the shale gas will retard the growth of renewable energy’s share of electricity, and push off the development of carbon capture and storage technology, needed to meet more ambitious policy targets, by as long as two decades.

“Shale gas is a great advantage to the U.S. in the short term, for the next few decades,” said MIT economist Henry Jacoby, lead author of the new study. “But it is so attractive that it threatens other energy sources we ultimately will need.”


How many jobs would a ‘cracker’ plant create?

Gov. Earl Ray Tomblin waves to the crowd Wednesday, Jan. 11, 2012 prior to delivering his state of the state address at the Capitol in Charleston, W.Va. (AP Photo/Jeff Gentner)

Gov. Earl Ray Tomblin focused attention during last night’s State of the State address on his administration’s efforts to land a “cracker” plant that would create spin-off jobs based on the boom in natural gas drilling in the Marcellus Shale fields across West Virginia. The governor promised:

I will do everything in my power to make sure that West Virginia is positioned to take full advantage of this opportunity. I will not limit our efforts to just one project or even two. We will compete for every project — every dollar of investment and every new job that relies on the natural resources with which we have been so blessed.

Among other things, Gov. Tomblin said he plans to introduce legislation “to further refine our incentives in a fashion I believe will strengthen our competitiveness,” a proposal that the West Virginia Center for Budget and Policy have already explained is based on pretty questionable math.

But the governor also made this statement in his speech:

The American Chemistry Council estimates that we could create an additional 12,000 manufacturing jobs in West Virginia with the construction of an ethane cracker.

Now, when you think of manufacturing jobs, you think of pretty darned good jobs, right? Overall, the manufacturing sector in West Virginia pays about a third more in weekly wages than the private sector as a whole.

But Gov. Tomblin got this one wrong … Take a look at this two-page summary put together to describe the calculations the American Chemistry Council did of the economic impact of locating a cracker plant in West Virginia (for that matter, take a look at this fancier one-pager put together by the council’s communications department).

Table 1 outlines the estimated ongoing (permanent) jobs that might be created if a company invests $3.2 billion in a major cracker facility here: About 12,300 total jobs. That figure includes 2,500 direct jobs, 6,300 indirect jobs and 3,500 induced jobs. As Kevin Swift, the council’s chief economist, just explained to me, that total number of jobs — the 12,000 figure the governor cited in his speech on statewide television and radio, before a joint session of the Legislature — includes all manner of jobs. It is not only direct manufacturing jobs, but positions with suppliers and support industries — everything from a waitress at a new cafe across the road from the plant to a doctor who starts a practice to serve residents in a growing community.

But they’re not all manufacturing jobs, and the ACC study doesn’t provide more detail that would give a clearer picture of how many jobs in various sectors with various levels of pay and benefits might be includes. You can get perhaps a bit more information by looking at the average wages for each category — $112,000 annually for direct jobs and $34,000 for indirect. But that’s a basic average, and may not tell the whole story.

For those who want to understand the methodology of the industry study, you might check out this more detailed analysis that looks more broadly at impacts from expansions of the chemical industry associated with the natural gas boom and any accompanying cracker plants. It’s also worth remembering that these industry-produced studies are not necessarily the most helpful source for these sorts of projections, as we’ve reported before here.

Study: Public health left out of drilling decisions

We’ve written before about the work of an Obama administration Department of Energy panel examining drilling for natural gas in shale formations (see here and here).  And over at the Coal Tattoo blog, I’ve covered the problems with the fact that West Virginia’s Department of Environmental Protection doesn’t really have staff with an expertise or focus on human health issues.

Now a new article in the journal Environmental Health Perspectives discusses the lack of input from public health professionals in studies and regulatory actions regarding shale-gas drilling:

We review the extent to which advisory committees formed in 2011 by the US Department of Energy and the states of Maryland and Pennsylvania contain individuals with expertise pertinent to human environmental public health. We also analyze the extent to which human health issues are of concern to the public by reviewing the presentations to the public meeting of the Secretary of Energy’s Advisory Board Natural Gas Subcommittee.

At a public hearing held by the President’s Natural Gas Subcommittee 62.7% of those not in favor of drilling mentioned health issues. Although public health is specified to be a concern in the executive orders forming these three advisory committees, we could identify no individuals with health expertise among the 52 members of the Pennsylvania Governor’s Marcellus Shale Advisory Commission; the Maryland Marcellus Shale Safe Drilling Initiative Advisory Commission; or the Secretary of Energy’s Natural Gas Subcommittee.

The conclusion:

Despite recognition of the environmental public health concerns related to drilling in the Marcellus Shale, neither state nor national advisory committees selected to respond to these concerns contained recognizable environmental public health expertise.

Should W.Va. give ‘cracker’ plant a big tax break?

My buddy Ry Rivard over at the Daily Mail broke an interesting story today, reporting:

West Virginia officials are considering a new tax incentive to help lure a massive petrochemical facility to the state.

Under the plan, which must be approved by the Legislature, the owner of a facility known as an ethane cracker could save about half a billion dollars in personal property taxes over the next 25 years, Commerce Secretary Keith Burdette said in an interview last week.

The incentive would help counteract West Virginia’s personal property tax, which the business community has long complained deters investment in the state.

Later in the day, the good folks at the West Virginia Center for Budget and Policy posted a pretty strong take-down of this idea, explaining that West Virginia property taxes might already be cheaper than Ohio for one of these “cracker” plants that Gov. Earl Ray Tomblin is chasing so hard:

… Since West Virginia taxes business personal property and other states don’t, we need to create expensive tax incentives because of that built in disadvantage, right? Well, it turns out that the disadvantage created by business personal property tax is easily cancelled out once you remember that West Virginia has incredibly low real property tax rates.

Using some average tax rates and an average breakdown of real and personal property for businesses statewide, the Center came up with this handy chart:


In the wake of last week’s passage of a much-weakened version of legislation to put new regulations on natural gas drilling in West Virginia, Gov. Earl Ray Tomblin’s office titled the governor’s weekly commentary, “Our Future: Marcellus Shale.” The piece concludes:

West Virginia can help bring an end to our nation’s reliance on foreign sources of energy, while being environmentally responsible within our borders. Our children and grandchildren need not be dependent on foreign sources of energy. We have the power today to insure that domestic energy will propel us into the future. I am mindful that the steps we take today will allow our economy to blossom, giving rise to greater educational and employment opportunities for our citizens. These are the long-term benefits directly related to economic stimulation driven by Marcellus Shale development in West Virginia.

But a new report from neighboring Ohio raises more of the same questions — those political leaders seem to want to ignore — about the economic benefits of West Virginia’s Marcellus boom. The report is called Economic Value of Shale Natural Gas in Ohio and was done by rural economics experts from The Ohio State University. It concludes:

Does all of this also mean that natural gas will create significant numbers of job for Ohioans? Previous studies on the economic impacts of natural gas appear to have widely overstated the economic impacts. This is not surprising, as these studies are typically industry-funded and industry-funded studies are usually not the best sources of information for economic effects (regardless of the industry).

Even if the natural gas industry experiences significant job growth, its employment share is too small to have any significant effect on unemployment rates and on the economy (with the exception of remote rural areas such as in rural Western North Dakota). Previous studies on the economic impacts also fail to account for the displacement effects that the natural gas industry will have on other industries. Finally, from a national perspective greater natural gas production will displace other fossil fuels and their workers as they are no longer needed, in particular coal.

Raising expectations that natural gas will not be able to meet is setting Ohio residents up to be disappointed. The true benefits of natural gas need to be highlighted while putting the costs into perspective. Likewise, Ohio needs to plan today about how to make some of the gains from the energy boom permanent. Among many things, this will require innovative policies and funding models to ensure that infrastructure is paid for today and there is adequate funding to maintain that infrastructure in the future.

Much as the industry and its supporters would like the debate to go away, passage today by the Legislature of the new Natural Gas Horizontal Wells Control Act is certainly not going to end the controversy over West Virginia’s natural gas drilling boom.

Gov. Earl Ray Tomblin has called a press conference for this afternoon to discuss the bill, and it’s likely he’ll declare a victory and emphasize — as he has in the past — the belief that getting some new legislation on the books will help continue the boom and perhaps lure a “cracker” plant to our state.

The governor might, as some lawmakers did during floor debate today, argue that because industry wasn’t completely happy with the bill and citizen groups were likewise not happy with the bill, that the legislation is obviously a reasonable compromise. Such arguments ignore the overwhelming evidence that changes made by the governor’s office were almost exclusively aimed at pleasing industry and weakening the legislation (see here and here).

UPDATED: Gov. Tomblin said this afternoon:

For all West Virginians, the legislature and I have worked together to open the door to new job opportunities and reasonable regulations for Marcellus Shale development with the passage of the Horizontal Well Act. This landmark piece of legislation provides clear rules to the natural gas industry, protects our communities, surface owners and waterways while sending a clear message – West Virginia wants jobs and we will protect our rights and our environment.

Going forward, some of the more important questions about the future of the state’s natural gas industry:

— When will West Virginia policymakers even begin to consider the growing scientific questions about whether natural gas really is a viable bridge fuel to help deal with climate change or if the industry is just another fossil fuel that is delaying the needed push for cleaner, renewable energy?

—  How much good will the increased inspectors — 14 new staff will be funded by the increased permit fees — do when they get on board at the state Department of Environmental Protection? Are a lack of inspectors and the need for new rules enough, or are problems at DEP — an agency environmental groups don’t especially trust — bigger than that?

— What about the jobs? The governor’s office refused to support a requirement that drillers report to the state payroll information about where their employees come from, instead inserting language for a study of the issue. Is the current scramble to tap into the Marcellus Shale just more of the same old boom-and-bust economy for West Virginia, or will state leaders take steps to ensure it provides more long-term benefits for the region?

— What about surface landowners? Will this legislation help end the bitter disputes and horror stories coming out of the gas fields about how some drillers treat surface owners (for another example, of related problems, check out this recent Pittsburgh Post-Gazette story)? David McMahon and the folks at the West Virginia Surface Owners’ Rights Organization certainly didn’t think so, though some changes were made in the Senate that could help.


As lawmakers dig in for this week’s special session to consider Gov. Earl Ray Tomblin’s gas-drilling legislation, the governor’s bill is being strongly opposed by two organizations whose concerns are protecting the environment and the interests of surface landowners in gas-drilling areas.

Both the West Virginia Environmental Council and the West Virginia Surface Owners’ Rights Organization announced today that they are against Tomblin’s bill. They cite numerous ways in which the legislation is far weaker than a bill worked out and proposed by a special joint interim committee that spent most of this year working on these issues.

Among the top problems the groups point to with Gov. Tomblin’s legislation:

— The governor’s bill removes the public notice and comment provisions for permit applications to drill Marcellus shale gas wells from the Select Committee bill. It also eliminates the provision that allowed DEP to call a public hearing on a drilling permit application.

— The governor’s bill removes the Select Committee provisions that allowed DEP to “condition” or deny drilling permits based on proximity to water supplies, municipalities, and densely populated areas, impact on water tables, public resources, natural landmarks, archeological sites, historical areas, rare flora and fauna, and other special places.

— The governor’s bill allows drilling pits (drill cuttings and associated drilling mud) to be buried on site.

— The governor’s bill gives the Secretary of the DEP “broad authority to waive certain minimum requirements” of the bill. Similar language appears throughout the bill.

— The governor’s bill removes the Select Committee provision allowing the Secretary to increase the fee by rule. This insures that the funding of the DEP from fees is kept under the thumb of industry legislative lobbyists.

— The governor’s bill makes the surface owner “servient” to the “dominant” driller/mineral [owner] for horizontal wells. In 1981, the Legislature passed a surface damage compensation Act that said the rights of mineral owners and surface owners were equal. (Prior to that, common law was in effect that said the surface estate was ‘servient’ and mineral estate ‘dominant.’) But this language was not carried over to the governor’s bill so the old common law of servience and dominance would be in effect for horizontal wells.

— The governor’s bill applies only to horizontal wells (and not to all of those). It does not apply to vertical Marcellus wells that disturb 3 to 5 acres and use 1,000,000 gallons of water. Its notice and other provisions do not apply to the drilling of many conventional wells that cause problems for surface owners.

— The governor’s bill allows the center of a well pad to be 625 feet from a residence — so close the residents will not be able to sleep at night for months and months due to the noise — and allows the driller to get a variance to be even closer.

The West Virginia Surface Owners’ Rights Organization, in its fact sheet on the bill, concludes:

There is not time to fix this bill in a special session. This bill should die and this issue should be dealt with in the regular session.

I’ve also posted a copy of the West Virginia Environmental Council’s comments on Gov. Tomblin’s bill here.

It’s worth recalling that the governor’s office worked so closely with the oil and gas industry in crafting Gov. Tomblin’s previous executive order on drilling regulations that the governor’s office withheld correspondence with the industry, saying oil and gas lobbyists were acting as “consultants” to the governor’s office on the matter. And it’s interesting to re-read the governor’s press statement on Friday about this week’s special session, and see what interest Gov. Tomblin listed first in his comments:

We have the opportunity to pass landmark legislation that will be a significant step forward in the development of the Marcellus Shale in West Virginia. I believe we can complete the legislation next week.

Gov. Tomblin didn’t mention protecting the environment until the last paragraph of the release …

Gov. Tomblin to call special session on drilling

Here’s the press release from the governor’s office:

Gov. Earl Ray Tomblin today announced today that he will issue a proclamation calling the members of the Legislature into special session, beginning at 5 p.m., Sunday, December 11, 2011.

“We have the opportunity to pass landmark legislation that will be a significant step forward in the development of the Marcellus Shale in West Virginia. I believe we can complete the legislation next week,” Gov. Tomblin said. “I want to express my sincere appreciation to the legislative interim committee for their hard work in crafting a piece of legislation. Over the past weeks we have consulted with and sought the input of all stakeholders at this monumental juncture in our state’s history.

“As we move into this special Legislative session, I want to thank President Kessler and Speaker Thompson and their leadership teams for their efforts over the past weeks on this legislation. Working with Legislative leaders, I believe we now have sufficient consensus on a piece of legislation that is in the best interest of West Virginia. We look forward to working with the Legislature to pass legislation next week.”

The highlight provisions of the special session legislation include:

— Accepting the interim committee’s recommended permit fee structure of $10,000 for the first well and $5,000 for subsequent wells. This will enable more qualified inspectors to be on the ground enforcing necessary regulations and more permit reviewers to evaluate more permits in a more timely fashion.

— Requirements that operators obtain an agreement with the West Virginia Division of Highways to maintain and repair roads affected by drilling.

— Standards designed to protect the state’s water resources including private wells, streams, and wetland areas.

— Additional rights to surface owners where the drilling is expected to occur.

— Well location restrictions, including the setback from occupied dwellings of 625 feet, as recommended by the Legislature.

“In drafting this Legislation, my office has had one key goal in mind: protecting the environment while providing clear rules to the natural gas industry so that they may continue to develop job opportunities and invest in West Virginia,” Gov. Tomblin said.