New York Considers Ban On Shale Drilling

Jim Brown
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The Marcellus Shale may become a ghost town for drilling derricks if the State of New York passes a ban on shale gas drilling. The proposed ban would suspend drilling until next May while the state analyzes the fracking process and determines if it is hazardous to underground water supplies.

I have written about this before and I believe it will get worse. I am reprinting the Bloomberg article in its entirety to provide background and current actions. This is going to be a serious problem for gas drillers if it occurs.

Bloomberg, Aug 3, 2010, By Jim Efstathiou Jr.

Companies led by Chesapeake Energy Corp. would be banned temporarily from drilling for natural gas in shale in New York under state legislation proposed because of disputes over environmental risks.

The measure would suspend drilling until May 15 in New York's portion of the Marcellus Shale formation for further study, said Kate Sinding, senior attorney with the New York- based Natural Resources Defense Council. The drilling moratorium may come up during a special session weighing legislation to close a $9.2 billion gap in the state's $135.6 billion budget.

To get gas from shale, companies use hydraulic fracturing, or fracking, in which water, sand and chemicals are injected deep underground to break up rock and allow gas to flow. The U.S. Environmental Protection Agency is planning a study to determine whether fracking fluids have contaminated drinking water.

"We have strong indications from Senate leaders they will bring the moratorium bill to the floor for a vote, hopefully today," Sinding said in an interview. "There's no way that they're not feeling the pressure from all of the public opposition."

The measure would postpone a potential revenue source for the state. Drilling revenue in New York could reach $1.9 billion in 2015, according to a study from Laramie, Wyoming-based Natural Resource Economics Inc.

Revenue from Marcellus shale lease payments, royalties, taxes and pipeline and plant construction in Pennsylvania and West Virginia totaled $5.8 billion in 2009, according to the July 14 study prepared for the American Petroleum Institute, a Washington-based group that represents oil companies.

58 Applications Filed

Chesapeake is one of three companies that have filed a combined 58 applications for drilling permits in New York. The proposals are on hold while the state Department of Environmental Conservation reviews guidelines for gas drillers.

In April, the state agency said it would offer guidelines for drilling in the watersheds for New York City and Syracuse that are tougher than planned for the rest of the state. Water feeding both cities is so clear it is exempt from federal filtering requirements.

"The technology is proven," Dave Palmerton, a Syracuse- based industry consultant, said of shale drilling. "That's not to say that some accident can't happen. Compare the natural-gas industry in New York state to any other industry and the environmental track record is far superior."

Doubling Reserves

Since 2007, discoveries of unconventional gas including shale gas have more than doubled the estimate of North American reserves to 3,000 trillion cubic feet, enough to meet 100 years of demand, according to energy consultant IHS Cambridge Energy Research Associates in Cambridge, Massachusetts. The Marcellus Shale formation, which extends from West Virginia through Pennsylvania and into New York, may contain 50 trillion cubic feet of gas.

Chesapeake, based in Oklahoma City, Calgary-based Talisman Energy Inc. and privately held Vertical Resources Inc., based in Sugar Grove, Pennsylvania, all want to drill in New York. Chesapeake spokesman Jim Gipson declined to comment.

"Fundamentally this is the same process we've used up there for generations," Chris Tucker, a spokesman for Energy In Depth, a Washington-based industry group, said in a statement. "These legislators are badly informed, and apparently unmoved by the idea of converting these resources into tens of thousands of jobs in a state where nearly a million folks are currently unemployed."

Cumulative Effects

Guidelines originally issued by the New York Department of Environmental Conservation failed to consider the cumulative effects of drilling as many as hundreds of thousands of wells across the state, Sinding said. Questions about how lax oversight by federal regulators contributed to BP Plc's Gulf of Mexico oil spill have fueled public concern, she said.

"The Gulf is certainly a factor," Sinding said. "You can't help but look at the disaster and recognize the parallels with onshore gas development, whether it's captive regulatory agencies or a lack of understanding the technology by regulators."

New York City Mayor Michael Bloomberg has said drilling in the portions of the Marcellus Shale beneath the city's watershed "must be treated differently."

The most-populous U.S. city receives 1.3 billion gallons (4.9 billion liters) a day of water through a network of gravity-fed aqueducts from 19 reservoirs as far away as 125 miles (200 kilometers). It's the largest unfiltered water- delivery system in the U.S.

I believe the growing problems with fracking and the rapidly declining production from existing wells is why the shale drillers are announcing sales of existing acreage nearly every week to offshore companies. They are scrambling to recover some of their investment before the fracking process is outlawed in the highly populated northern states. There was an announcement today that India's Reliance Industries paid $372 million for 60% of Carrizo's Marcellus Shale assets. The drillers are shedding assets and offshore companies late to the party are being sold these assets at top prices. This bubble is about to burst.

Jim Brown

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