Will NY be Too Expensive to Drill in the Marcellus?

Yesterday’s Buffalo News has an excellent analysis for the prospects of shale gas drilling in New York, given New York’s extreme delays and proposed restrictive drilling regulations. MDN is a supporter of drilling in New York and has nothing but best wishes for landowners in our home state. But the stark reality, as we’ve been pointing out, is that “if you build it, they will come” makes for a nice movie, but doesn’t necessarily translate into reality for drilling in NY.

Drillers’ less-than-enthusiastic response to New York is chronicled in the article, which points out Talisman Energy, one of the state’s largest leaseholders in the Marcellus region, moved its U.S. headquarters from Chemung County, NY to Pittsburgh. Seneca Resources, the drilling arm of National Fuel Gas, also moved from Buffalo to the Pittsburgh region. And Seneca says they have no plans to lease land in the NY Marcellus at this time. There are many smaller drillers in New York who are struggling and laying off workers because shale gas drilling hasn’t yet happened.

But the fact that drilling is still not allowed—the waiting—isn’t the only reason drillers are not enthusiastic about New York:

They’re also concerned about the strict environmental regulations the state has proposed, which will be discussed at the upcoming public hearings.

Raising the most concern are the “setback requirements,” which ban all drilling within 4,000 feet of the New York City and Syracuse watersheds, within 2,000 feet of any public water supply and 500 feet of any primary aquifer.

While the DEC argues that those rules would leave 85 percent of the state’s portion of the Marcellus Shale open to fracking, other research puts the figure at less than 40 percent, said Cathy Kenny, associate director of the New York Petroleum Council.

The setback requirements would make it more difficult for gas companies to find sites for productive wells while increasing drilling costs, industry experts said.

That raises a hugely important question.

With natural gas prices falling almost by half in recent years thanks to the huge supplies pouring out of Pennsylvania’s part of the Marcellus Shale, will drilling in New York be too expensive to bother with?

“Right now, we’re going to be uncompetitive out of the gate,” conceded Gill, of the Independent Oil and Gas Operators Association.

Of course, to environmentalists, that would be a blessing.

“New York is just not ready to take on a large-scale industrial process such as this,” said Sarah Eckel, legislative and policy director for Citizens Campaign for the Environment.

But those allied with the oil and gas industry see things differently.

[Tom] West, the gas industry lawyer, said that years from now, “The way New York has handled this will be perceived as an economic blunder.”*

*Buffalo News (Nov 13, 2011) – Fracking boom could go bust in N.Y.