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09/03/2013

Shale Gas in the Northeast: Market Opportunity Snapshot

Challenges and opportunities in the Marcellus, Antrim, Devonian and Utica shale plays

NortheastThis is part of a NAHAD series examining opportunities and challenges in shale oil and gas markets. This article provides a snapshot of opportunities and challenges in the Northeastern U.S.

One of the biggest shale boom areas in the country, the Marcellus formation, is located along the Allegheny Plateau region of the northern Appalachian Basin. It is one of three overlapping formations, including the Utica and Devonian formations.

The Marcellus, Devonian, Utica and nearby Antrim formations cover parts of Michigan, Indiana, Ohio, Maryland, Virginia, West Virginia, Pennsylvania and New York.

As a result, the Northeast has seen high levels of activity in shale oil and gas markets in recent years, but energy producers and their suppliers have run into their share of challenges, including stiffening regulations and city- and state-specific moratoriums.

Opportunities
Certain regions within Northeastern states with plentiful reserves are viewed as having more potential than others. Overall, some of the greatest opportunity in the region may be found in the following states, ranked in order of proved dry natural gas reserves (according to Energy Information Administration 2010 data).

Pennsylvania boasts 14 trillion cubic feet of proved natural dry gas reserves, according to 2010 data from the EIA. Production increased 619 percent between 2007 and 2011, and the state had 54,347 producing gas wells as of 2011. Between 2007 and 2010, 246 new natural gas fields were discovered.

In February 2012, Pennsylvania Gov. Tom Corbett signed a bill into law that supersedes local regulation of oil and gas drilling and related activities, according to the Huffington Post. The bill also established a drilling impact fee.

Campbell Fittings President Tom Paff says the low cost of gas has left much of the state’s potential untapped. “I think there’s a lot more gas that can be extracted out of the existing system that’s already in place in Pennsylvania that people just aren’t going after aggressively right now.”

West Virginia had 7 trillion cubic feet of proved reserves as of 2010, according to the EIA. Production increased 70 percent from 2007 to 2011, and the state had 56,813 producing gas wells as of 2011. In 2009 alone, 166 new fields were discovered there.

Michigan had 3 trillion cubic feet of proved reserves in 2010. According to the EIA, production dropped 47 percent between 2007 and 2011, but the number of gas-producing wells increased 14 percent to 11,100 during the same period. In 2009, 19 new fields were discovered, according to the EIA.

A recent collaboration between the industry and environmental organizations in the Northeast may provide some additional opportunities for distributors and manufacturers that provide products and services to the market.

In March, a group of organizations and energy companies, including Chevron and Shell, formed the Pittsburgh, PA-based Center for Sustainable Shale Development. CSSD President Andrew Place told NAHAD in an interview that the organization was formed to facilitate collaboration between those for and those against fracking and other forms of extraction.  “There was a sense that shale development has become really polarized here, perhaps more so than anywhere in the country,” Place said.

The center is in the process of developing a certification process for producers in the region who follow 15 safety and environmental standards. The certification doesn’t replace government standards, but according to Bruce Niemeyer, president of CSSD founding participant Chevron Appalachia, the collaborative effort will help achieve a consensus on regional performance standards.

Demonstrating to the community that air and water contamination risks are being mitigated through quantifiable, measurable standards gives those in the industry “the social license to operate,” Place says.

The establishment of industry standards may also create opportunity for manufacturers and distributors whose products can help operators come into compliance.  “As understanding of risks move forward and as science and technology continue to move forward, operating at that leading edge provides a significant business opportunity, whether it’s designing flares, completions equipment or water monitoring ,” Place says.

Standards cover surface and groundwater protection, including well casing design, wastewater disposal and closed loop drilling. Learn more about CSSD’s performance standards at www.sustainableshale.org.

Challenges
Distributors looking to serve the market face a challenge of convincing customers that buying higher-quality products is worth the investment. Paff says that during the initial rush in the region, people would buy any part they could get their hands on. “Now that the market has slowed a bit, you get people cutting corners even more because they are trying to shave dollars off of their costs,” he says.

Distributors and suppliers also face challenges due to regulatory or legal actions in the region. New laws and other bills under consideration have slowed or stilled development in some areas.

New York has had a moratorium on hydraulic fracturing since 2008, and the New York State Assembly passed a bill in March to further suspend permits for high-volume hydraulic fracturing until May 15, 2015. If the bill is ratified by the Senate, it will go to Gov. Andrew Cuomo for final approval. According to The Associated Press, Cuomo has repeatedly delayed the decision of whether to support the bill. The governor laid out a trial drilling plan for as many as 40 gas wells in late February before deciding to await the findings of a new study by the Geisinger Health System of Pennsylvania, according to The Associated Press.

Paff says if the moratorium is allowed to expire, “there would be an early, perhaps short-term rush to tap into the market, but I don’t think that would be real long-term.” If gas prices remain low, he says, business is unlikely to move forward at the rapid pace that it did five years ago.

In Indiana, the Terre Haute City Council passed a fracking moratorium in June, according to WTHI-TV, and several cities in other Northeastern states have done the same. More than a dozen similar bans have been enacted by Michigan city councils, and in April, Michigan’s Board of State Canvassers approved the petition language by The Committee to Ban Michigan Fracking, allowing the group to start gathering signatures for a 2014 ballot proposal, according to Michigan.gov.

An Illinois bill requiring permits for high-volume horizontal hydraulic fracturing operations, The Hydraulic Fracturing Regulatory Act, was signed into law by Gov. Pat Quinn in June, according to the official website for the state of Illinois. Under the new law, Illinois will become the first state in the nation to require hydraulic fracturing operators to submit pre- and post-fracturing chemical disclosures to the state, according to Illinois.gov.

Recent studies may fuel further legislative action in the region.

A study released in June led by Duke University Professor Robert B. Jackson, for example, indicated that stray gases such as methane, the most common component of natural gas, were found in increased abundance in drinking water wells near Marcellus shale gas extraction sites. Out of 141 drinking water wells tested in northeastern Pennsylvania, 82 percent showed had detectable methane, with average concentrations six times higher for homes less than a kilometer from natural gas wells. 


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