Shale Gas Roundup

Potter County, Pa.

September/October 2012

A publication of the Natural Gas Resource Center

Local Gas Drilling: When Will It Return?How long will the horses remain in the starting gate? That seems to be the question on many people’s minds as they wait for the widely predicted natural gas “rush” to hit Potter County. Industry analysts are unanimous in their belief that gas exploration and production will be picking up, but they’re hedging their bets on when that will be. Market forces will drive the pace. The lack of pipeline distribution networks and economic recession are

factors cited by analysts to explain the slowdown, which started in the first quarter of 2011 and has shown no sign of ebbing. The logjam will likely continue well into 2013.

Steady decline in wells. In 2010, there were 33 shale gas dwells drilled in Potter County. Last year, 16 were drilled. In 2012, DEP reports that through Aug. 1 there were 18 permits issued, but no wells drilled. Yet, companies drilled 101 deep wells in Tioga County, 112 in Bradford, 117 in Susquehanna, and 131 in Lycoming. Gas prices are around $3.00 per MCF. Experts say they have to be at least twice that to produce a good profit. Prices swing widely – they averaged more than $8.00 as recently as 2008.

Clear picture emerging. Data from seismic testing and experimental drilling continue to come in for analysis as companies plot their strategies. Shale thickness, distance from the surface and the proportion of moisture in the gas vary. Some companies have run short of cash as prices lag. Gas output has climbed, contributing to a glut, as drilling has unlocked fuel-rich shale formations. The mild winter of 2011-12 kept market-ready gas in storage. Experts say a cold winter of 2012-13 could break the cycle.

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Production/consumption trends. With prices so low, a number of producers have shifted to drilling for gas liquids (“wet gas”) and oil until there is greater demand. In the long term, that is expected to come with expanded exportation, as well as conversion of electricity generation and motor vehicles to natural gas. Meanwhile, the gas that was tapped in 2008-11 is flowing. The January through June production from the Marcellus shale play in Pennsylvania was up more than 80 percent in 2012 from the 2011 totals.

‘Tap and cap.’ Experts say there will likely be scattered “tap and cap” drilling operations in the region over the next couple of years. Some leases with private landowners are automatically extended – typically, the terms are for five years – only if some gas is produced. Companies do not want to lose the favorable terms they’ve negotiated, so they will meet the minimum drilling requirements to trigger a lease extension.

Where the wells are. The Pa. Dept. of Environmental Protection has issued a color-coded map that illustrates the areas where shale gas drilling (in red) and traditional wells (in blue) can be found. DEP’s website contains numerous databases covering well locations, production data, permit applications and many related topics. It can be found at depweb.state.pa.us (click on “Office of Oil and Gas Management”).

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Pipeline Growth May Not Ease Gas Glut

Gas pipeline construction is exploding all across the country. Much of it is targeting the gas-rich counties of northern Pennsylvania, which have long been the hub of a massive distribution and storage network. More than a dozen gas pipeline projects are going into service in the Northeast by year's end. However, industry experts say the impact could be overstated.That’s because the lines will allow more wells to be swung into production, adding to a glut of gas, but there are still bottlenecks in getting the product to some of the metropolitan areas where demand is high and growing.“Supply gains are led by a rampant increase in production out of northeast Pennsylvania — the dry, sweet spot of the Marcellus,” according to Bentek Energy. "This is like putting a bandage on a fatal wound. Takeaway is playing catch-up to production and all this means is volatility. We're seeing a number of large pipes, but there is still a tremendous need for connecting to pockets of demand."Three of the expansion projects are designed to increase delivery of U.S. gas, primarily from the Marcellus, into Ontario, where power generation is switching from coal to gas. Such a major shift takes several years."I think prices will definitely rebound and that will probably inspire some producers to increase production again and fill it up again," said one Marcellus trader. "Every time there's an expansion project, it might alleviate the bottleneck for a few months, but then that bottleneck is going to come right back."

(Photo courtesy of Potter County Conservation District from El Paso “300 Line” pipeline construction in northeastern Potter County).

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Cooperative Study Tracks Wells With Technology

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coalition of academics and scientists has launched a collaborative effort to chart the spread of shale gas drilling in northcentral Pennsylvania through technology. Its goal is to share data, research findings and reliable scientific information with government, industry and academic users. Tioga County Planning Director Jim Weaver guided an aerial tour of the region that combined cutting-edge technologies with the expertise of at least nine different nonprofit organizations and government partners. A key player is The Shale Network, consisting of Penn State, the Alliance for Aquatic Resource Monitoring (ALLARM) and University of Pittsburgh. “With roughly 2,000 sites permitted across a five-county region that includes remote state forest land, information gaps are inevitable. The science isn’t here now to understand the impacts for the long term,” according to ALLARM director Julie Vastine. Upper photo shows the flight path over Tioga and Potter counties. Selected monitoring targets are labeled and highlighted with blue dots; other targets are highlighted with red dots. The blue shaded area encompasses the Pine Creek watershed. Lower photo was taken during the aerial tour at the Scheible Drill Site operated by Royal Dutch Shell near Knoxville. (Photos courtesy of Amy Mathews Amos.)

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Potter County Group Vigilant About Water QualityA Water Quality Work Group gathers regularly in Potter County to coordinate many efforts geared toward protection of the county’s water resources. During the group’s meeting in August, members discussed ways to inventory the dozens of abandoned and orphaned gas and oil wells in the county. These wells, many of which were drilled more than a half-century ago, have been described as “ticking time bombs.” As their casing corrodes and as nearby drilling activity picks up, they have the potential to pose serious pollution risks unless they are located and retired. However, finding them is a big challenge and capping/retiring them could cost upwards of $250,000 each. Pennsylvania has established a fund to pay for capping of abandoned and orphaned wells, but the demand for funds far

exceeds the available money. On a brighter note, energy companies looking to drill into nearby acreage to tap shale gas have been retiring some of these abandoned wells to protect their own assets. Work group members decided to confer with local watershed protection organizations and the Triple Divide Watershed Coalition to determine how they might work together to establish a better inventory of the abandoned and orphaned wells. Members also discussed the shortcomings of state regulatory policies covering private water sources. Pennsylvania is one of just two states that have no standards for water well construction. Public education is the key to that issue and many others involving water quality, members agreed. They discussed the possibility of scheduling a “WaterBlitz” next spring, patterned after the successful “BioBlitz” held at the Austin Dam Memorial Park in 2009.

Resource Center Using Website as Focal PointA Natural Gas Resource Center formed as a partnership between the Potter County Board of Commissioners and Potter County Education Council is off and running. Members of the center’s volunteer steering committee, meeting recently, laid the groundwork for their next public meeting. It will be held on Tuesday, Sept. 25, at the Gunzburger Building in Coudersport and focus on air quality implications of shale gas production. Details will be announced. The steering committee is made up of people with involvement in employment and training, environmental stewardship, energy production, public safety, economic development, housing and public education. A major focal point for the Resource Center is a website designed as a one-stop shop for public/general information, business

connections, job training, employment opportunities, government agencies and community resources for Potter, McKean and Cameron counties. The site, still under construction, can be reached at www.naturalgasresourcecenter.com. Public meetings will be held quarterly. Phone number for the Natural Gas Resource Center is at (814) 260-5625.

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Study Produces Forecast Of Housing ImpactsImpact of a gas rush on housing was the focus of the Natural Gas Resource Center’s first public meeting in June. Featured speakers were Drs. Jonathan Williamson and Bonita Kolb from the Center for the Study of Community and the Economy at Lycoming College in Williamsport. They co-authored a regional study, “Shale Gas Development’s Effect on Housing in Pennsylvania.” Joining the guests on the speaker panel were three local experts in real estate,

housing trends and social service programs – Bill Hunter, John Wright and Melissa Gee. Drs. Williamson and Kolb shared aspects of their research that could apply to Potter County:

• Impacts in Potter County will likely mirror those documented in other rural areas. Initial indications are that Potter County will see increased drilling, but will not be a site of development frenzy, such as that experienced in Bradford County.

• Employees arriving during the initial development will be satisfied with temporary housing such as motels, small apartments, and campgrounds. An exception would be in the unlikely event that a gas company or an associated business opts to set up headquarters for distribution, field services or office operations.

• Private sector developers will respond to needs through the conversion of older homes into more attractive properties and/or apartments, or through construction or expansion of motels.

• Home prices and rents will continue their upward climb. Some low-income residents will be unable to afford suitable housing. Drs. Williamson and Kolb recommend development of housing units for older residents. This would, in turn, free up a larger number of family-sized homes for families. It would have a ripple effect in terms of adequate housing availability and market-based rent restraint.

ShaleNET Gas Job Training ContinuesNot everyone is cut out for a job in the gas industry. But opportunity abounds for those who have the skills and flexibility companies are looking for. They’re seeking drivers, roughnecks, derrick hands, soil scientists, equipment operators, sales representatives, cement mixers, land agents and more. A job-seeker who is trained and is willing to travel stands an excellent chance of being hired. Seneca Highlands Career & Technical Center in Port Allegany, in partnership with the Potter County Education Council (PCEC), is a federal ShaleNET training partner. That allows PCEC to offer free training for those who are interested in landing a job as a floor hand. Topics include employability skills; basics of natural gas; rig components and electrical systems; hydraulics, pressures and forces; well control; spill prevention; safety; driving; aerial work platform basics and rough-terrain forklift. There is no tuition, but participants are responsible for pre-admission clearances, physical examinations, and drug testing. Anyone interested in learning more should call (814) 545-1333

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Guest Columnist/John Hanger

Burden Is On Gas Industry To ‘Get It Right’

(John Hanger served as Secretary of the Pennsylvania Department of Environmental Protection in the Rendell Administration. Now in the private sector, Hanger is considered one of the nation’s leading authorities on the energy industry. As an advocate of shale gas development to bridge the U.S. between an energy marketplace based on fossil fuels and nuclear generation, and a future system relying primarily on renewables, Hanger has come under fire from both sides of the “green energy” debate).

Often, the pollution of a water well has nothing to do with hydraulic fracturing, but instead results from mistakes in drilling and cementing the gas well.

Frack fluids and chemicals are not returning from depth. Getting clarity about what the problem is, and what it is NOT, is imperative. The gas industry must routinely recognize, accept, and fix its mistakes. It’s not perfect and never will be. But it can be better -- even excellent.For excellence in operations to be achieved, every company and employee in the gas industry must treat gas migration as a real problem that should be a top priority. Strong rules and strong enforcement of rules can make a major difference, but excellent operations makes the biggest difference of all.Right now, the number of mistakes that lead to gas migration remains higher than should be the case, if operational excellence were the standard at every gas well. More leadership is needed within the industry, because the results are not where they should be.As a result, landowners in leases and regulators need to consider measures to drive more industry focus on preventing gas migration by each and every gas drilling company and all of their contractors.Gas migration to a private water well is a major problem for any family so impacted. The problem when it occurs must be fixed and compensation paid. And more needs to be done to prevent the problem in the first place.Having said all of that, the damage done by pollution pouring from sewer plants, run-off from streets, lawns, and fields, acid mine pollution from coal piles or old mines dwarfs the harm done to Pennsylvania's waters by migrating gas to probably about 100 water wells in Pennsylvania. That is not a reason to ignore the gas migration issue. It must not be ignored. But gas drilling's impacts on Pennsylvania's waters would not rank in the top 5, or even the top 10, of the causes of water pollution here.That, too, must not be ignored.

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News And Notes Of Interest

New Website On Gas Well Site Issues. A new website, marcellusfieldguide.org, offers resources and suggestions on land management issues related to shale gas well site decisions and related topics. It’s a joint project of Penn State Extension and the PSU College of Agricultural Sciences. Focus includes ecological issues, habitat fragmentation and restoration, potential impact of gas-drilling on agriculture and forests, soil erosion and control of site activity.

Natural Gas Vehicles Coming. Two local representatives attended a recent forum in Corning, N.Y., on the development of compressed natural gas (CNG) to power motor vehicles. Susquehannock District Forester Chris Nicholas and Natural Gas Resource Center steering committee member Curt Weinhold heard a detailed presentation by Aron Lantz, an innovation engineer, on the challenges and the potential of CNG to power fleets and

even personal cars and trucks. DEP has launched a website to help fleet owners make informed decisions about converting to compressed natural gas and liquefied natural gas. Act 13 of 2012 authorizes DEP to distribute up to $20 million in grants over three years to help pay for purchase and conversion costs of natural gas fleet vehicles. Companies, schools and governments who are adding at least five CNG-fueled vehicles are eligible for grants of up to $25,000 per vehicle. Those who register on the website will be notified of workshops, grant openings and other outreach. For more information, visit www.dep.state.pa.us (click on the Natural Gas Vehicle Grant Program.)

Shale Coalition Launches Business Website. A new website launched by a shale gas industry trade organization is geared toward bringing together area businesses with companies involved in gas drilling and production. Marcellus Shale Coalition (MSC) launched the website to forge connections between small- and mid-sized businesses who provide goods and services and energy companies,

contractors, and suppliers in Pennsylvania, New York, West Virginia, Maryland and Ohio. MSC is also partnering with economic development organizations to spread the word to local vendors, suppliers and service providers.

This publication is produced by the Natural Gas Resource Center in Coudersport, Pennsylvania. Previous editions are available in the website, pottercountypa.net. Anyone with story ideas or comments should contact Paul Heimel (pheimel@pottercountypa.net).

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