FEATURE: No gas rush seen even if New York fracking ban lifted
Washington (Platts)--22Oct2012/156 pm EDT/1756 GMT
If New York were to lift its fracking ban today, drillers would have
little incentive to begin tapping Marcellus Shale gas beneath five Southern
Tier counties anytime soon, according to industry officials and analysts.
"Very little would happen for a long, long time," said Rice University
applied economics professor Bernard Weinstein.
He and others said New York's potential gas production would be stymied
by a host of factors: low commodity prices, a lack of takeaway pipeline
capacity, political pressure, and restrictive rules already written into the
state's draft fracking rules.
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The Southern Tier holds an estimated 20% of the roughly 300 to 500 Tcf
of gas reserves in the Marcellus, which stretches from New York through
Pennsylvania and into West Virginia.
While the latter two states have opened their doors to drillers eager to
cash in on that wealth of gas, New York has had a years-long ban on fracking
-- the drilling-completion process required to extract gas from shales --
while the state drafts regulations.
The process seems to have stalled, with Governor Andrew Cuomo tacking on
a new review of the supplemental generic environmental impact statement by
the state Department of Health. That review is expected to drag the
rulemaking process into 2013 and will likely require the SGEIS to be reopened
for another round of public comment.
Even without any further delay, however, drillers would be wary of
launching operations in the Empire State, at least for a while, experts say.
Three years ago, Weinstein co-authored an economic impact study for
Broome County predicting that over 10 years, drilling there would create
16,000 direct and indirect jobs with an economic impact of $15 billion. It
used a price gas assumption of roughly $6/Mcf.
Last week, Weinstein said that scenario has been flipped on its head.
"Not if prices stay as low as they are," he said when asked if producers
would jump at the chance to drill, adding that the industry also will have to
fight political opposition in New York and a not-in-my-backyard mentality.
"I think the quick answer is 'no,'" Chris Faulkner, CEO of Breitling Oil
& Gas, said in answer to the same question. "Dry gas is uneconomical below
$4/Mcf. Dry gas will be dead until $5/Mcf and my analysts don't see that
until 2016, 2017."
"There are other plays with more sex appeal," Faulkner added.
New York political consultant Jerry Kremer, chairman of lobbying firm
Empire Strategies and a state legislator for 23 years, was more optimistic,
saying the first movers in New York will likely be larger companies such as
ExxonMobil that can think in terms of decades, not just their next quarterly
Even if ExxonMobil or Chesapeake Energy, currently the top leaseholder
in New York, take a pass, Kremer said "the small guys will come" eventually
because of the Southern Tier's proximity to the premium New York City market.
"It's about getting on the ground here for the next five to eight years," he
"You will see some drilling in New York," Utilis Advisory Services
principal and Oxford Princeton faculty member Alan Herbst said. Utilis
provides consulting advice on unconventional North American gas and Oxford
Princeton provides training for energy executives.
Herbst said the Southern Tier counties could see 300 to 400 wells within
five years once the current fracking ban is lifted, with about 1 Bcf/d of
production. "Some companies will take a slow approach," he added.
And the pace of initial development may be faster than Pennsylvania's if
drilling is allowed, according to Herbst.
Forth Worth, Texas-based Range Resources drilled its first Marcellus
horizontal well in Pennsylvania in 2004, and by 2008 there were only 161
producing Marcellus wells in the state, according to the Pennsylvania
Department of Environmental Protection.
It was not until after that that the Marcellus in Pennsylvania exploded,
with hundreds of wells drilled annually.
"Maybe it will happen faster a little faster in New York," Herbst said,
noting that the rigs and service infrastructure are already present across
the state line in Pennsylvania's Bradford and Susquehanna counties.
If drillers did begin to produce shale gas in New York, they face an
additional obstacle: getting the new supply to market.
"There is no pipeline capacity to take additional gas from New York,"
said Jennifer Robinson, an analyst with Platts unit Bentek Energy.
Even in Pennsylvania, pipeline companies are still working to catch up
to the drilling boom and, as a result, hundreds of wells sit completed but
not yet hooked up to the grid.
And then there are the political ramifications. "Can you really trust
the state of New York?" is the question that former US Federal Energy
Regulatory Commission member Marc Spitzer said operators will have to ask.
Spitzer, now a partner with law firm Steptoe & Johnson in Washington,
said that unlike Pennsylvania, where rural districts have some weight in the
state legislature, urban districts dominate Albany. "The votes are Manhattan
and the five boroughs," as well as the suburbs, and "those folks don't like
energy," he said.
"New York would be a tough environment," said Spitzer, a Republican,
adding that he expects many producers to just take a pass on the state.
"There are too many variables to predict" what the first years of an
"open for business" New York would look like, New York Independent Oil & Gas
Association spokesman Jim Smith said. "It's going to be up to the operators."
Assuming the already published draft of the SGEIS becomes the rule in
New York, Smith said, operators are going to face hurdles.
NYIOGA expects that the SGEIS setbacks and other rules would cost
operators an additional $1 million/well, and "we're going to get lawsuits
either way" from both landowners restricted in leasing and from environmental
groups still looking to halt fracking.
"I would not characterize it as 'missing the boat,'" Smith said of New
York's drawn-out process. "Natural gas consumption will continue to go up. We
would still view [lifting the fracking ban] as progress."
--Bill Holland, email@example.com
--Edited by Keiron Greenhalgh, firstname.lastname@example.org