Things are not moving in New York, where for years shale gas has been pitched as an economic gift – a windfall for the taking -- by industry public relations campaigns, lobbiest, and landowners seeking lucrative contracts with drillers. Now, fracking critics are drawing on industry’s own data to build a case that the New York’s shale prospects amount to a stillborn promise.
Chip Northrup, a former oil and gas investor from Texas, led a team of professionals who made this case Wednesday night at Cornell University. Presenters also included Lou Allstadt, a retired Mobil vice president, Brian Brock, a geologist, and Jerry Acton, a retired systems engineer for Lockheed Martin. The team, moderated by Cornell engineering professor Tony Ingraffea, spoke at a 200-seat lecture hall brimming with a supportive anti-fracking crowd that laughed and applauded in response to occasional quips and deadpans by Northrup. (Example: “In Texas, they know better than to spread radio-active flowback on roads…. They use it to induce earthquakes by injecting underground.”)
In a presentation that lasted close to two and a half hours, Northrup and his colleagues drew on data from a handful of exploratory wells in New York and extrapolations from thousands of production wells in Pennsylvania, along with prevailing social factors. Their conclusion: Viable shale reserves in New York are too limited and social resistance too great to produce major development at current prices. Rather than blossoming into the mega-billion dollar industry, as promised, the play is more likely to attract highly speculative exploration around the fringes by wildcatters, storage facilities and pipelines to get Pennsylvania gas to market, and geology that is uniquely suited for the injection of fracking waste from out-of-state operations – factors that Northup likens to “a hangover without the benefit of the night on the town.”
For years, the anti-frackers have waged their war against shale gas development predominantly on environmental grounds with arguments that it’s unsustainable and acutely and chronically damaging to the ecosystem. Wednesday’s presentation shifted the fight to economic grounds, at a time when the industry is sensitive to talk that can discourage investors. Natural gas prices are expected to remain at historic lows for the foreseeable future, cooling enthusiasm to sink capital into exploration and production efforts in new and unproven areas. (In many ways, the industry is victim to it’s own prolific success in Pennsylvania. Landowners are anticipating the market glut will soon exceed storage capacity, portending even further suppression of prices or a scale back in production. For a recent assessment of the market glut from the view of landowner's forum, click here.)
Economic prospects in New York, meanwhile, are further weakened by regulatory uncertainty. After more than five years of an environmental review, state officials are yet to finalize permitting policy pending questions about public health, and Governor Andrew Cuomo’s lack of commitment is grounded in coordinated opposition from both grass roots and institutional campaigns that represent a significant part of his political base. (Significantly, Northup and Allstadt are among leaders of their own political action campaign to ban fracking near their homes in Cooperstown. Their fight to put shale gas development in the hands of local town leaders rather than state officials boils down to the outcome of a landmark case now before the Court of Appeals.)
Just as gas proponents were using the promise of wealth to urge state government to begin permitting gas wells when prices were high and interest was booming, critics are now presenting evidence of a flat-out bust as all the more reason to hold back.
|Acton's analysis shows colored dots representing viable shale zones|
At Wednesday’s presentation, Brock provided a geological assessment that explained what is widely known about the Marcellus: Production is most viable in the thickest, richest sections at a certain depth, which tapper exponentially from an area just south of New York’s border with Pennsylvania. Acton supported Brock’s characterization with a separate analysis, now circulating on the Internet. Acton used production figures from Pennsylvania wells to assess yields corresponding with certain physical parameters of Marcellus geology, including depth, thickness, and thermal maturity, and then extrapolated the Pennsylvania data to model New York’s production. His conclusion: Reserves under the Empire State remain mostly unviable, with the exception of an area extending slightly into the Southern Tier, just north of the most lucrative part of the reserve in Susquehanna County Pennsylvania.
As with many arguments over shale gas, this one is not so much about the data, but how the data is framed in a broader campaign for or against development. Much of Thursday’s presentation amounted to casting old information in the context of current market conditions. Acton’s map, in fact, was similar to a map created by Terry Engelder, a Penn State geologist and shale authority who has prominently argued in favor of the economic benefits of drilling. Allstadt later used Engelder’s map to support the theme of the Cornell presentation: The New York shale gas cup is far more empty than full.
|A map by Engelder used by Allstadt shows conflicting interpretations|
Allstadt presented evidence that major companies have tested both the Utica and Marcellus shales in New York and found them unworthy. He cited a handful of test wells with underwhelming results drilled by companies such as Chevron, Gulf, Anschutz, Chesapeake and others prior to the shale gas boom. His point is worth noting, but also in need of context. These test wells were small in number and scattered over a large area. They were vertical wells that used low volumes of fracking solutions, prior to refinements and breakthroughs to adapt the process to Devonian shale. And they don’t correspond with leasing trends that took shape with a better geological understanding of the play that came after 2008. (XTO Energy, later bought by Exxon Mobil, paid $110 million dollars for leases on 50,000 acres spanning parts of Broome and Delaware County in the spring of 2008 after wells were proven in northeastern Pennsylvania.)
By the account presented by Northrup and his group, New York is missing or has already missed the shale gas party. As for what Northrup characterizes as the hangover: New York remains an attractive disposal option for Pennsylvania producers because New York regulations, which haven’t been updated since the late 20th century, allow flow-back to be spread on roads and drill cuttings to be disposed of as conventional waste. Additionally, conventional wells in New York that were drilled and depleted decades ago make, by industry standards, suitable repositories for shale gas waste. From a geographical standpoint, New York is a strategic spot for infrastructure projects to store and transport gas to major northeast markets, and some of these projects are already well underway, including various pipelines and a controversial project to convert old salt mines on the shores of Seneca Lake to natural gas and propane vaults.
Given all these factors, what does New York’s future look like? Allstadt, who has both ample industry experience and a stake in development as an Upsate resident, said a drilling boom is unlikely, but expect some intensive drilling by maverick companies in communities bordering Pennsylvania. “There’s always somebody who has to take a shot somewhere, and instead of going to a casino they will drill,” he said. “These are the least reliable outfits. They will drill the wells as cheaply as possible.”
Predictably, the presentation drew admiration from anti-fracking activists and criticism from industry supporters. And while it was an academic exercise that will not alter the geology and arguably has little baring on markets or regulations, it represents a piece to a much larger rhetorical tug-of-war for the hearts and minds of policy makers and politicians. Science can be found on both ends of the rope. Bruce Selleck is a geologist at Colgate University who has identified the prospective area for shale gas development – or “fairway” -- in New York to extend well into upstate New York, west to Chemung County, east to Sullivan County and north to Oneida County. The Marcellus shale alone is capable of producing 5 trillion to 10 trillion cubic feet of gas in New York, by Selleck’s estimate. His take on the presentation at Cornell? “All the blah-blah-blah rhetoric in this 'finding' makes it clear that the folks involved don't want to see gas development in New York - not surprising given the 'experts' involved.” He offered his assessment in a recent email, along with this elaboration:
That companies are dropping leases simply means they are not planning to drill the properties anytime soon, indicating their estimation of the value of the recoverable gas at current prices makes development in these frontier areas non-economic, in the near term. The dry gas market is flush right now, and will likely remain that way for 3-5 years. The lack of permitting of HVHF in NY is of course an additional factor.
Even if the Marcellus reserve is in the 5 TCF range in NY, development could prove attractively economic down the road when gas prices are higher. Five TCF of gas would require 2500-4000 wells to ultimately recover that resource. That scale of development would still bring significant royalties to landowners, along with other economic benefits, and all the negative impacts, as well.
The Utica is even more of an unknown in NY, so any statements made about its potential are based on very little data. I expect a few of the companies in NE PA will try the Utica at some point soon.
Policy is made at the crossroads of science and politics. The argument that Upstate New York’s celebrated shale reserves have already been passed over by major players challenges proponents painting the industry as economic salvation for upstate New York, and their corresponding push for legislators and the governor to create a policy infrastructure that enables it. But it’s hard to know exactly where it will lead. The assessment by critics that reserves are economically viable only in a small part of the Southern Tier may give Cuomo political cover to proceed with a plan he has already proposed: Begin issuing permits for wells in areas along the Southern Tier where local officials feel their communities stand to benefit, and see what happens.