Thursday, December 31, 2009

Economics and Gas Drilling in the Marcellus Shale

From the beginning of the Marcellus gas hoopla in our region, I’ve been hearing about the local benefits that drilling will bring to local communities, including my little town in the New York Catskills. Set aside for the moment the environmental issues that are getting all the press. I’m talking here about economics. Gas drilling will bring jobs, jobs, jobs, we are urged. It will bring other wealth in the form of stimulus to business activity and royalties to local landowners. We, the locals, will enjoy the benefits of the cleanest form of fossil energy, even while we’ll be doing our part to free the U.S. from dependency on foreign oil. These are the reasons we should bow to the wisdom of our state governments and welcome out-of-state developers to dig for gas in our hills and valleys.

None of these “benefits”seem to me to pan out, at least not at the end of the day. Here’s my take on them, below. If you disagree, I invite you to refute what I say, but with facts, please, not rhetoric. And that's not just rhetoric on my part;I really do want to receive some feedback from both sides of the gas drilling debate.

Jobs: Start with on-site jobs. The best of the jobs, I’ve been informed, come along with the gas operators. These are professional and management posts, and the rig jobs that are filled by highly paid itinerant workers. No kidding, these rig operators pull down some $75,000 a year and up. Do these jobs figure into the impressive Pennsylvania statistics that we’ve seen, for example, on gas play job growth? They shouldn’t. These workers are residents of other states whose local jobs will end and who are not likely to stay or to invest their riches locally. We’re told that the well drilling and fracking processes will be completed in a matter of weeks or a few months, so that rig workers, and presumably the managers, professionals, foremen, et al, will at that point move on. What seems to be in the offing for locals in the way of industry jobs are truck driving, security, and some low-level office work

Non-industry jobs and business development: Yes, the workers will need to be housed and fed as long as they are around, so there will be new staffing at delis, restaurants, bars, and real estate agencies. For how long? Weeks? I’m hearing the sound of a quickee boom, and then a bust. Gravel quarries will do well in the longer haul. But what the yea-sayers are leaving out is that much of the other work that will generated by the gas play will be in the nature of policing, social services and cleanup. And that will need to be funded, not by the gas companies or out of gas income, but by the same strapped taxpayers who will not have benefitted from the gas play in any way, including those whose real estate values have plummeted through proximity to it.

Landowners: Those who have entered into well-negotiated leases will certainly come out ahead economically. Even many of them may be unsettled to learn of the extent to which their lives and their land will be disrupted, but they will probably be rewarded in due proportion to the harm that comes their way. That is, a protracted disruption will be due to high production which will also produce substantial royalty payments. So, the more damage is done, the more likely it is that they will move away, leaving their property desolated and taking their disposable income with them.

Clean energy: Many reporters have noted the distinction between the environmental effects of the harvesting process and those of the use of gas as a heating fuel: the former is very dirty; the latter is clean as fossil fuels go. The people in the Marcellus will be getting the dirty. Many will not get the clean, as there is no natural gas service throughout large rural reaches of the region.

Patriotism: Finally, there’s the What’s Good for the Country is Good for You argument. “Our” gas will be used in the U.S.and help to wean our country from reliance on wicked oil suppliers in the Middle East. Nonsense, I say. We’re not geared to keeping the gas here for future use, and have nowhere to put it all. I’m certain that much of Pennsylvania’s gas is already destined, if it has not been delivered, to overseas markets. Who is it that controls where the volumes pumped out of the Marcellus via the massive pipelines, such as the newly expanded Millennium, will go? It’s the gas companies, including the foreign entities like Statoil that hold substantial interests in them, who will decide. It won’t be Uncle Sam.

So, if these arguments are supposed to be delivering the good news on gas drilling, they’re lost on me.

Wednesday, December 23, 2009

Letter To Chesapeake Energy Re: Marcellus Shale

Welcome to Gracenomics. I'm opening with the theme of drilling in New York's and Pennsylvania's gas-rich Marcellus Shale. Recently, one of the major industry players, Chesapeake Energy, announced that it would not be doing any development within the New York City watershed, although it is the sole gas leaseholder of properties there. The announcement was taken by many city dwellers as an admission that hydrofracking poses a danger to drinking water. Today, Mayor Bloomberg joined the rising throngs opposing its use. I give grudging credit to Chesapeake for helping to bring that about.

Mayor Nutter of Philadelphia and other mayors should be urged to oppose fracking wherever their communities' water supply may be at risk. Here's what I wrote to Chesapeake's CEO last week:

"December 11, 2009

Mr. Aubrey McClendon
Chesapeake Energy Corporation
Post Office Box 18496
Oklahoma City, Oklahoma 73154-0496

Dear Mr. McClendon:

As a part-time resident of New York City, I was very happy to learn that Chesapeake Energy voluntarily decided not to drill for natural gas in the City’s watershed, owing to concerns about water contamination. As you know, you are several steps greener than our Department of Environmental Conservation in that regard.

I am also a part-time resident of Sullivan County, New York, below the watershed but less than two miles, as the bird flies and the water flows, from the Upper Delaware River. Next door to me is a hunting parcel that has been leased to Chesapeake-Appalachia LLC, which I take to be a wholly-owned Chesapeake Energy subsidiary. Most of the groundwater on the particular parcel flows across and under mine, as it does those of my lateral neighbors, and, during seasonal flooding, it gushes without any filtration into the Delaware. I have personally tracked it doing so. I surmise that the same can be said of the water on and under virtually any property in this hilly, wet region that is within a few short miles of the river on either side.

I am concerned, of course, for my own water well in the event that natural gas drilling takes place next to me. But the river itself provides drinking water, I’m told, to some 18 million people, even more than the New York watershed does. Philadelphia is just now waking up to the possibility of contamination from gas drilling. You would win millions more fans if you would make the same pledge to them that you made to Gotham.

The Delaware, of course, is vital not only as a drinking water source but as a federally designated Wild and Scenic River and a recreational resource. I would like to propose a protection zone from drilling of three to five miles from the river’s edge, and hope you would find such a gesture appealing and worthwhile. Wishing you success in your commercial ventures and your pro-environment initiatives, I am

Sincerely yours,"