AP Story: NY Should Give Up on Drilling Before It’s Begun

An AP story that appeared over the weekend attempts to make the case that Pennsylvania is so far ahead in the natural gas game that New York shouldn’t even make an attempt to allow fracking. The opening paragraph compares the situation to a runner with a huge lead in a foot race—PA will dominate natural gas for years to come.

The logic of the AP writer goes like this:

Drillers already have billions invested in PA. It’s the “devil you know” argument:

With billions of dollars already invested in leases, wells and related infrastructure, the state is a cost-effective place to do business. And a plunge in wholesale prices has made being thrifty a must for some companies, dealing a potential blow to would-be upstart New York.

"The industry will always stay with what they’ve got," said [Fadel Gheit, an oil and gas analyst with Oppenheimer & Co.], adding that for many companies, there’s less risk sticking with a state – and with regulations – they know. New York, he added, is generally seen as a more liberal state than Pennsylvania, and thus more prone to imposing stricter rules on drilling.*

MDN observation: The same NY liberals who are demanding the strictest laws in the country for drilling are using the threat of those laws to say, “you won’t want to drill here, it’s too strict.” Is there any doubt they simply don’t want drilling, even while they demand ever more strict rules for it? Chief among those who don’t want it is liberal Joe Martens, Commissioner of the state agency in charge of drilling, the DEC. He continues to drag his feet on approving the SGEIS (the new drilling rules for shale gas fracking).

Next, the AP says pipelines and cracker plants will encourage drillers to stay in PA:

An existing base of suppliers also helps, Gheit said, as well as a growing network of pipelines linking the Pennsylvania wells to regional and national hubs.

Shell Oil Co. has also chosen western Pennsylvania as the site for a huge new petrochemical plant because that region has more of a type of gas that can be turned into industrial and consumer products, such as plastics.*

No question that the pipeline network is well-developed in PA, and that counts for a lot. And that PA has landed one of the biggest economic prizes of the drilling game—an ethane cracker plant, due to be built in the coming half decade. But the ethane cracker is situated about 15 miles from the borders of West Virginia and Ohio. It’s not a PA-only thing.

The AP goes on to say there’s a big backlog of partially completed wells in PA. With the commodity price of natural gas so low, it makes more sense economically to finish the wells already under way than to try and drill new ones from scratch in someplace like NY:

In Pennsylvania thousands of wells have been put into production over the past four years, but about 2,000 more have been drilled but not completed, leaving plugged holes in the ground. The backlog means it is far cheaper for a company to bring those wells into production than to start others from scratch in neighboring states.

A new report from Bentek Energy, which examines national industry trends, estimates that even if companies stopped drilling new wells in northeast Pennsylvania, production could grow by 31 percent over the next 16 months as the partly drilled wells get hooked up.

"In order for the industry to really breathe easier, you need $4 gas. Anything below that is survival mode," Gheit said, noting the current price is about $2.70 per wholesale unit. Earlier this year, prices fell as low as $2.*

Other new kids on the block, like OH and WV stand a better chance competing with PA because they have geographies where natural gas liquids and even oil are present, whereas NY is just dry gas, or methane-only.

Gheit said price pressure has led to other trends that favor upstarts Ohio and West Virginia over New York. Many drillers are shifting rigs away from so-called dry natural gas – roughly like what a stove uses. Instead, they’re seeking oil deposits or "wet gas," which fetches a premium price because it contains more raw energy and can be used for petrochemical plants like the one Shell plans. But the most promising wet gas areas are in western Pennsylvania, Ohio and West Virginia, not New York.*

And finally, back to NY will heavily regulate the industry, so might as well just stay away.

Patrick Creighton, a spokesman for the Marcellus Shale Coalition, an industry group, noted that some major companies have already signed leases to drill in New York. If that state allows Marcellus drilling with manageable regulations, he expects those companies to move ahead. But Creighton said that if New York’s regulations end up being far more restrictive than other states, drilling will move very slowly.*

The purpose of the story? To dispirit those who support drilling in New York, and give political cover to spineless politicians who may decide to ban it altogether. Why even try to drill? It’s already going full steam ahead in PA and OH and WV? NY should just give it up now, right?

MDN finds such logic and attitudes repugnant. It’s defeatest. It’s the attitude of losers. There will always be naysayers and people who tell you it can’t be done, shouldn’t be done, won’t be done, it’s easier to give up before you’ve even begun. Such people underestimate the American spirit and our ability to innovate—to figure out a way to go around problems and obstacles. To figure out a way to live with restrictive regulations.

MDN’s advice to my fellow New Yorkers: Don’t listen to the naysayers, and don’t believe most of what the AP writes! Yep, drilling may take off slowly in NY, but let’s at least give it a chance and not abort this nascent industry before it’s even born.

*Binghamton (NY) Press & Sun-Bulletin (Jun 2, 2012) – Pa. to remain center of natural gas drilling, experts say