Lets Keep Developing Marcellus Gas in Pennsylvania!

2009 was a boom year for Marcellus shale gas exploration. Will the good times continue in 2010?

For Pennsylvanians, shale gas exploitation is jumpstarting the economy of the chronically depressed northern regions of the Commonwealth. Jobs, lease fees and associated gas industry spending are already giving the region’s economy a much-need boost.

Benefits of shale gas production are not limited to Pennsylvanians; all Americans stand to gain from the gas bonanza. Development of Marcellus shale gas will allow our nation to use domestically produced natural gas instead of foreign-produced oil to generate electricity and heat our homes. Clean-burning natural gas makes excellent fuel for our nations electric plants, reducing greenhouse gas emissions by burning less oil and coal.

So, what could possibly slow down rapid development of Pennsylvania shale gas? Three words: uncertainty, uncertainty and uncertainty.

Demand Uncertainty
– When the rush to develop Marcellus gas reserves began in earnest way back in 2007, the price of natural gas was climbing to record-highs. Today, in the midst of the Great Recession, demand---and price---have plunged, leaving smaller gas companies rich in the number of gas leases they hold but short on dollars to sink wells and develop the infrastructure needed to bring the gas to market.

Investment Uncertainty – Despite enormous financial bailouts and generous lending rates by the U.S. Federal Reserve, American banks are not loaning money to American businesses and entrepreneurs, including energy companies. The banking industry is not helping our country get back on its feet. It appears that bank executives would rather invest money in risk-free government bonds or charge credit card holders shylock-like rates on late-fees and credit card debt than invest in American businesses that create jobs and make America more energy-independent.

Regulatory Uncertainty - Despite Exxon Mobil Corp. Chief Executive Rex Tillerson testifying before the House Subcommittee on Energy and Environment that the energy industry "can now find and produce unconventional natural gas supplies miles below the surface in a safe, efficient and environmentally responsible manner," questions remain about the environmental costs of the drilling process. The likelihood of the federal Environmental Protection Agency (EPA) stepping in and regulating shale gas drilling is high; the mere threat has already derailed New York’s effort to develop state-based regulations for drilling.

So, what can we do? Here are a few suggestions on what can jump-start Pennsylvania’s shale gas industry.

Demand Certainty - As blog reader Ruby_99 brought to my attention a week ago, http://www.pipelineandgasjournal.com/sailing-unknown-waters-new-wor... predicting natural gas prices in today’s chaotic world is extremely difficult. However, we can be (reasonably) certain that we have hit the “bottom” or lowest foreseeable rate of demand and price. Energy companies now have a critical piece of data to use to revise their projections on what constitutes a profitable well. Government and industry can now revise their forecasts accordingly.

Investment Certainty
- Banking regulation promises to be THE hot issue on Capital Hill this spring. When the contents of the new legislation is finally resolved, the banking industry will be more inclined to increase business lending (remember, bankers HATE uncertainty). Support the bill (Republican or Democrat-sponsored) that does the most to get banks loaning money to businesses big and small.

Regulatory Certainty – The sooner the EPA decides to enter the shale gas fray and draw up reasonable, comprehensive regulations for shale gas drilling, the sooner gas companies can begin to cost-out their true price of gas drilling is and what their profit margins will be. State-by-state regulation can lead to a maze of conflicting regulations and red tape, creating a hostile business climate for companies. Reasonable Federal regulation will give gas companies a single standard to adhere to, no matter where they are drilling.

The U.S. government wants hydraulic fracturing to work. According to Energy Secretary Steven Chu, "the question is, 'can you do this right so it doesn't leak into the water table?'" His answer? "I think you can."

So, what will keep the Marcellus shale gas industry thriving in 2010? Revised gas price expectations, improved banking regulations and comprehensive (and reasonable) Federal drilling regulation.

Common sense tells us that in the long run, America will be stronger if we can develop ample domestic natural gas supplies. We can’t allow the progress of shale gas exploitation to languish because of too-little---or too much---government interference.

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Comment by daniel cohen on January 27, 2010 at 2:18pm
Dear Joe, you said"We need to protect the environment And get the gas and I know we can do both if we are careful and dilligent." Could you be more specific on the steps you would advise we ought to be doing to implement your thoughts?
Comment by Joe Cichocki on January 27, 2010 at 2:05pm
People still don't get it. All they talk about is big corps making money, not the little guy. I try to explain that it is the little guy, us, for a change that is going to finally be able to make some money if the government doesn't come and tax us to death or tax the gas companies out of here Before they get started. We need to protect the environment And get the gas and I know we can do both if we are careful and dilligent.
Comment by daniel cohen on January 25, 2010 at 6:33pm
Dear Scott, your blog presents much needed information with a minimum of distracting hype. Your focus on the economics and political realities that are at play are valuable to help us see the broader picture. My personal focus is much more narrow-first and foremost I see myself as a custodian of the land we own, and expect to pass it down through the heirs to follow. The mineral wealth is a gift, but it needs to be very carefully evaluated to make sure that we do our job as custodian, well. We need to protect the aquifer, while reaping the rewards of the mineral gift. I'd sure like to see you focus a bit more in that direction.All good thoughts,
Comment by Tom Copley on January 25, 2010 at 3:33pm
Scott-- The threat of unanticipated or unpredictable regulatory activity contributes much to an atmosphere of uncertainty. It recalls Henry David Thoreau's aphorism that government is best which governs least. --Tom

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