There's been plenty of debate over the Marcellus Shale
natural gas field, but new research adds a twist that could impact political
and environmental battles. Two independent financial firms say the Marcellus
isn't just the biggest natural gas field in the country — it's the cheapest
place for energy companies to drill.
One of the reports adds that the Marcellus reserves
that lie below parts of Pennsylvania, West Virginia, Ohio and New York are far
larger than recent government estimates, while another said the powerful
combination of resource, cost and location is altering natural gas prices and
market trends across the nation.
The Marcellus could contain "almost half of the
current proven natural gas reserves in the U.S," a report from Standard
& Poor's issued this week said.
Another recent report from ITG Investment Research, a
worldwide financial firm based in New York, found that a detailed analysis of
Marcellus well production data suggested that federal government estimates of
its reserves "are grossly understated,"
The new information increases the likelihood that
natural gas will be used for more and more energy needs, such as city buses,
industrial use, and electric power generation, according to Manuj Nikhanj, the
head of Energy Research at ITG. And though 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.
The Marcellus is a gas-rich formation thousands of
feet below much of the four states, but current production is centered in
Pennsylvania and West Virginia.
Earlier this year, the federal Energy Information
Administration sharply lowered its estimates of Marcellus reserves, from 410
trillion cubic feet down to 141 trillion cubic feet. That adjustment was widely
reported, including by The Associated Press.
But that lowered estimate doesn't correspond with
actual well production, said Nikhanj. He said their analysis shows that the
Marcellus contains about 330 trillion cubic feet of gas, more than double the
size of the next largest field in the nation, the Eagle Ford in south Texas.
Some financial firms and critics of gas drilling had
suggested that the EIA estimates supported theories that Marcellus production
might decline more rapidly than expected, and thus be far less profitable for
energy companies. But Nikhanj said a review of actual Marcellus well data shows
that on average they're producing more gas than expected, not less.
Jonathan Cogan, a spokesman for the EIA, pointed out
that its reports have always noted that Marcellus estimates "are likely to
continue evolving as drilling continues and more information becomes publicly
available." Serious drilling in the Marcellus began only a few years ago,
and many areas still have few or no wells, which makes the task of estimating
reserves more difficult.
The S&P report said the growing output from the
Marcellus is putting pressure on energy companies in Canada and the Rocky
Mountains, which have traditionally exported large amounts of gas to the
lucrative Northeast market. But it appears that in the near future, the
Northeast will get most or all of its gas from the Marcellus.
The S&P report also said Marcellus production also
means there will likely be more and more pipeline construction in the
Northeast.
"As people get more comfortable with the total
amount of resource that has now been discovered, as that starts to sink in, I
think natural gas will continue to be a fuel of choice," Nikhanj said.
Even critics of gas drilling should accept that it
isn't going away, said the head of one leading Pennsylvania environmental
group.
"We should realize by now this is not going to be
a short play. It's going to be here, probably for generations, because it's so
productive," said George Jugovic Jr., president of PennFuture.
That's a mixed blessing for environmental groups,
Jugovic said.
"It lengthens the horizon. It means that we have
time to get it right because they're not going to be in here and out,"
Jugovic said of drilling companies, yet "at same time that it raises the
imperative of getting our regulations in order."
Ironically, the vast production coming out of
Marcellus wells in Pennsylvania and West Virginia may have given some breathing
room to New York, where residents, government officials and gas drillers are
engaged in an extended debate over whether to allow the new gas production
method known as hydraulic fracturing, or fracking. Fracking is under moratorium
in New York until the debate is resolved.
Hydraulic fracturing has made it possible to tap into
deep reserves of oil and gas but has also raised concerns about pollution.
Large volumes of water, along with sand and hazardous chemicals, are injected
underground to break rock apart and free the oil and gas.
Regulators contend that overall, water and air
pollution problems are rare, but environmental groups and some scientists say
there hasn't been enough research on those issues. The industry and many
federal and state officials say the practice is safe when done properly, and
many rules on air pollution and disclosure of the chemicals used in fracking
are being strengthened.
"This excess production has really taken the
pressure off New York's moratorium. It's given them more time" to decide
whether to allow drilling, Jugovic said.
Nikhanj said that strictly from a market standpoint,
New York's share of the Marcellus may not matter.
The talk of a continued boom had one energy expert
urging caution.
"Sounds hopeful for the local economy, but the
energy business has always been boom-and-bust, so long-term predictions are
pretty risky," Carnegie Mellon University professor Jay Apt wrote in an
email.
"Perhaps we will get lucky," Apt wrote, but
added that because Pennsylvania doesn't directly tax gas output or deposit some
of the proceeds of its fee into a trust fund, the Marcellus benefits will run
out one day. That's in contrast with Alaska, where residents "get an
annuity check from the Permanent Fund set up with their severance tax."
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