NY shale prospects dim six years after leasing frenzy Industry faces mounting legal, economic hurdles

New York’s Marcellus Shale gas reserves, once thought to be world class, continue to lose their luster along with the gumption to develop them.

Shale gas proponents, once giddy with anticipation during the leasing boom of 2008, know now what they didn’t know then: legal hurdles to overcome state and local roadblocks look more formidable if not insurmountable with each passing court case and hearing, and the resource looks less and less worth the effort under today’s economics.

Given the inherent uncertainty in mineral exploration, much of the impetus behind it boils down to a mindset. While even some of the most ambitious extraction endeavors go bust, it’s a given that resources buried 5,000 feet deep will not be found where nobody chooses to look. And nobody is going to look if they are not allowed to, or if the effort of looking is deemed greater than the rewards anticipated under any scenario.

Two recent indicators of future prospects in New York have, for the most part, slipped under the radar of the mainstream press, but it’s a reasonable bet they have not escaped notice of prospectors and the people who finance them. The first indicator is the status of a lawsuit by industry and a group of landowners to legally force open the Marcellus frontier in New York. I’ll get to that in a minute. The other indicator is the latest assessment of economically recoverable reserves under current market conditions, if the moratorium were lifted or bypassed.

First the economics. Although it may be a fading memory for many, stakeholders will remember a time when New York was expected to join Pennsylvania as a global energy producer with gas from the Marcellus Shale. Many will recall the summer of 2008, when the leasing frenzy – whipped up by a $110 million deal between XTO Energy and landowners in Deposit, New York – sent lease prices soaring along the relatively unexplored fringes of the Marcellus in the Southern Tier of New York.

Since then, the price of natural gas has fallen by more than two thirds. Moreover, New York state’s moratorium on shale gas development, pending a review originally expected to last a year, is about to begin year seven, with no end in sight. In the meantime prospectors have moved on to other ventures, leaving many to wonder when and if they will return to the Empire State. The answer is simple: They will return when and if a) it’s allowed and b) it’s profitable.

The League of Women voters became interested in the profitability issue when the state released its 2014 Energy Plan, which includes vague references to shale gas development within New York’s borders. To help bring things into focus, the league  commissioned petroleum geologist Arthur Berman and petroleum engineer Lyndon Pittinger to assess the potential of the shale gas under New York state in the context of market viability.

The result, a report titled Resource Assessment of Potentially Producible Natural Gas Volumes from the Marcellus Shale, State of New York, was released last month. It begins with varying projections of the Marcellus Shale potential from credible sources that show, if anything, just how uncertain the starting point of that calculation is and always has been. Estimates of the recoverable reserve range from those posed by Penn State geologist Terry Engelder in 2008 -- 489 trillion cubic feet (tcf), with about 71 tcf under New York stat – to those offered by The United States Geological Society in 2011: 84.2 tcf for the entire Marcellus play extending through Pennsylvania and four other states.

To clear up a point of common confusion, these numbers represent “technically recoverable” gas. As Berman and Pittinger point out, the “economically recoverable” figure, which is more relevant, is bound to be lower. Both figures are moving targets. That which is technically recoverable changes with technological advances; economically recoverable resources change with economy, and specifically with the value of the resource. The  value, in turn, is influenced by supply, demand, and infrastructure to get it to market. All of these things are influenced by regulation, which in New York remains unknown.

In a nut, the League of Women Voters report found that the business of fracking in New York, moratorium aside, would not be viable at today’s price -- between $4 and $4.50 per MMBtu, or Million British Thermal Units. The price would have to rise to $6 per MMBtu to encourage exploration and even then production would be modest -- between the 0.8 and 2.5 Tfc. A price of $8 MMBtu would encourage production between 2 to 9.1 tcf -- more than marginal but hardly the bonanza that people were expecting in 2008. For gas to reach $6 MMBtu, Berman notes, “Substantial unforeseen changes in the natural gas supply/demand balance would need to occur.”

(You can hear Berman discuss his report with Capitol Press Room Host Susan Arbetter here.)

It’s fair to note that Berman has long been a critic of shale gas development, and his projections tend to reflect a broader notion that its economic sustainability falls well short of expectations promoted within the field. But he is respected, and even shale gas proponents such as Engelder, given the chance, show no eagerness to flatly dismiss his assessment of New York. “Art may not be that far off the mark although he is usually low relative to other analyses,” Engelder said in a recent email, asking his take on Berman’s work.  “Maybe some of Broome County works at $4 gas,” Engelder added.

It’s also worth noting that Berman’s analysis draws on and expands the same school of thought developed last year by a team comprised of a cross-section of professionals, led by investor Chip Northrup, who happen to be upstate New York residents and who have been conspicuous in the battle to keep fracking out of their state. The team also includes Lou Allstadt, a retired Mobil vice president, Brian Brock, a geologist, and Jerry Acton, a retired systems engineer for Lockheed Martin. (Here's link to Northrup's blog, No Fracking Way.)

Within days of the release of the report by the League of Women Voters, shale gas proponents suffered another discouragement on the legal front. First, some background: Undaunted by a string of defeats in state court that have consistently ruled in favor of municipalities’ rights to ban drilling, a legal team representing landowners and industry filed a suit against New York that claims the indefinite moratorium on shale gas development violates the state’s own policy under the State Environmental Quality Review Act. The state filed a motion for dismissal on the grounds that the plaintiffs had suffered no damages and the moratorium fell well within the state’s right in establishing policy on shale gas, regardless of how long it took to review all the factors.

The complaint was filed by the Joint Landowners Coalition of New York, represented by Scott Kurkowski and funded by the Mountain States Legal Foundation, a group founded by the Koch brothers to fund conservative legal causes. A companion suit was filed by industry lawyer Tom West on behalf of Mark Wallach, a trustee of Norse Energy, a bankrupt drilling company with interests in upstate New York. Morgan Costello of the attorney general’s office provided council for the state.

On April 24, both sides appeared in a hearing before state Supreme Court Judge Roger McDonough. It’s often tough to tell the outcome of a case based on a hearing and prior to a ruling, but by all counts, the judge seemed to lack sympathy for the landowners, and pressed them on the merits of their complaint against the state. Here’s an excerpt from an account posted April 26 on the Joint Landowners website:

Judge McDonough asked if the executive branch can delay forever. Ms. Costello’s answer was that it can take extended time. Judge McDonough seemed to agree with Ms. Costello on the executives role, calling it “separation of powers 101.”

Attorney Tom West for Norse spoke next. The Judge focused on time limits in SEQRA. There are none. He suggested that this should be remedied in the legislature or in the executive branch. As Attorney West kept hammering at the history of delay and the ongoing wrong, the Judge said that he can only take the executive on its word at this stage of the process. (Editor’s note: Motive will emerge in discovery, but we have to get past the motion to dismiss in order to get to discovery.) The Judge sympathized with the frustration but kept returning to time limits in the law.

The blog concluded optimistically that the “judge reserved decision” and though he did not recognize the fracking moratorium as an “illegal delay” under the state’s SEQR policy, there may be an opening for an argument of “unreasonable delay.”

That optimism was not shared by West. In a recent email in response to my query about the status of the case, West was blunt:  “We are not expecting a positive decision based upon the way that oral argument went.” The West Law firm took down the links to the complaints once posted on its website.

While the jury is still out, so to speak, there is little good news based on these recent events for those counting on a near-term future in shale exploration and development in New York, and plenty of good news for those hoping to see New York lay the groundwork to establish itself as an alternative energy trend-setter.

But the story is not that simple, of course, with plot lines extending well beyond New York, and woven deeply into the national and global circumstances that will determine the future of fracking. Those plots are quickly evolving.

One example: The U.S. Energy Information Administration has just cut its estimates of recoverable reserves in the Monterey Shale in California by 96 percent. California, like New York, is politically influential, and it’s hard to ignore other similarities regarding their roles in the fracking saga. In California, the notion that the geology cannot support the hype has enlivened the argument that the fracking bonanza was a bust from start, and has encouraged legislation for a moratorium similar to New York’s.

But while shale gas prospects are dimming in New York and California, they are getting a big push from places inbetween as well as other parts of the world. Global forces are encouraging development of gas reserves in dozens of other U.S. states to capitalize on growing international demand for cheap and readily available fuel sources, with the economic and political equation favoring expediency over externalized costs. Those demands, already substantial and growing in Asia, have spiked in Europe. The age-old call for energy independence is again taking on a new urgency in the Free World, with the Ukraine crises vividly illustrating the danger of energy dependence on unpredictable and unfriendly governments – in this case, Russia.

Many think more gas from the U.S. and a global spread of the fracking gospel is the answer. Michael Lindenberger of the Dallas Morning News, recently reporting on the significance of a deal for Russia to strengthen it’s economic status with a $400 billion deal to export gas to China, cited Texas Senator John Cornyn as characterizing the broad political push for policy to encourage more U.S. exports. More exports, according to Cornyn, make economic sense but, moreover, are justified “because of the competition it would provide for Putin and the Russian monopoly.”

Of course, we are talking about shale gas and fracking, so it comes as no surprise that there is little consensus and much division on the topic. Seamus McGraw, author of End of County, Dispatches from the Frack Zone, has been following the fracking issue since he began writing his book as the shale gas boom first developed in Pennsylvania. He points out that the global economics of shale gas cannot be isolated from the economics of other energy sources, including coal. The political urgency provoked by international threats in areas involving key American interests must account for the practicalities of various solutions. And a primary practicality  of shale gas exports involves infrastructure in place to get energy where it needs to go today, not years from now. And here I will give McGraw the last word. In a recent discussion on my Facebook page, he posted:

You're not going to break Russia's stranglehold (on natural gas exports) because a) they've got pipelines which beat LNG (liquid natural gas) every time, and b) because they can set the price as low as they want to drive us out of market and then jack it back up at will. All this is going to do is drive up prices here to the point that gas may no longer be reliably competitive with coal, choke off any ancillary economic benefits to manufacturing, and concentrate what advantages there are entirely in the industry itself. And even that, as the Russia/China deal demonstrates, isn't going to be nearly as lucrative as the industry imagines. It's a bad deal all around.

Ultimately, global markets along with political considerations will shape the deal, good or bad, and determine whether the value of gas in places like New York ever justifies the costs of extracting it.

NY nat' gas projection exemplifies doublespeak on fracking Cuomo plan bases outlook on conflicting scenarios

Will Fracking be part of New York’s energy picture for the next 20 years, or not? The state’s draft 2014 Energy Plan is supposed to answer this kind of question, and the fact that it appears to but doesn’t represents the politically unwieldy position Governor Andrew Cuomo finds himself in with the fracking debate.

In a recent post, I wrote that the plan “makes no mention of developing New York’s shale reserves through fracking, a discussion that remains the elephant in the room. But the plan gives a nod to the role of natural gas and more infrastructure as part and parcel to some very ambitious, of very broad, goals.”

An astute reader, Keith Schue, flagged this. He pointed out Cuomo's plan does in fact mention fracking, albeit in a convoluted and (in my view) meaningless way. Schue directed me to “Volume 2 – Sources,” and a subsection on p. 88 titled "New York Production Forecast." (Embedded below)

My own review of this section found several things worth noting.  First, the forecast, accompanied by a chart, extends through 2035. During that time, the state’s natural gas production is “expected to decrease significantly,” according to the text, due to a “decline in existing formations” and “lack of new wells being drilled.”

Yet, oddly, the line plotted in the accompanying “figure 32” gas production climbs impressively through that period.

The text attempts to explain this, ignoring the inconsistency in the original analysis that gas production was expected to decline. The graph illustrates “a conservative Marcellus Shale natural gas production level.” This “conservative” level accounts for “potential (my emphasis) permitting and production difficulties related to horizontal drilling and hydraulic fracturing.” It offers this elaboration. “If these difficulties are minimized, Marcellus production levels could potentially be higher.”

Finally, it explains that the graph “would show a forecasted overall decline in production continuing through 2035 if the current prohibition on shale development continues.” It concludes that “Regardless of actions within New York boundaries,” ample supplies of gas exist elsewhere “as long as the interstate pipeline capacity exists.”

In a nut, the plan says that Marcellus gas will make production go up, contingent on unknowable factors if it happens, and go down if it doesn’t; and New York can get gas elsewhere anyway, if their are enough pipelines.

To my eye, the analysis appears at first blush to be vague to the point of meaninglessness. But I will grant that it provides a baseline for discussion and many will find that the very dance around the Marcellus question along with the excruciating qualifications and parsing of language are emblematic of the ambiguous state of our energy future.

Shue, who is working with various environmental and anti-frcking groups, explained in an email that he and others were in the process of “writing an exhaustive critique of the energy plan and will be shining a spotlight on this sly mention of fracking at the hearings too.” I am happy that others are looking carefully at this, and I welcome their assessments.

2014 Draft Nysep Vol2 Sources (Page88) 1

Moratorium or not, NY begins to feel fracking’s impact Outcome rests with future of consumption, production

While New York’s governor Andrew Cuomo has officially tabled a decision over the politically explosive issue of fracking until sometime after elections, his state’s energy dilemma continues to simmer.

For worse or better, the Empire State will continue to feel impacts of the fracking boom for the next decade or more. The question is how big those impacts will be. The answer, to a large degree, rests with the governor, who can direct policy encouraging or discouraging both production and consumption of natural gas, and/or alternatives.

Even with no decision to allow shale gas wells to be permitted within the state, fracked natural gas and oil are flowing into or passing through New York at an accelerated rate as the on-shore drilling boom continues to ramp up nationwide. Crude oil from the Bakken shale in North Dakota has begun passing through New York at an annual rate of 2 billion gallons, traveling by rail to Albany and then down the Hudson River on tankers and on to refineries in New Brunswick Canada. (The oil carries unusual risks. With relatively high concentrations of gas, it has caused explosions after four separate rail mishaps in North America, including one that killed 47 people in Lac Megantic, Canada.)

Numerous infrastructure plans to store and transport natural gas within New York are also well underway. Liberty Natural Gas has proposed a terminal to import gas to communities in New York and New Jersey. The Port Ambrose facility, proposed 19 miles off Long Island, would take in liquefied natural gas (LNG) from ships, convert it back into gas, and pipe it to markets in New York and New Jersey now dependent on heating oil. Anti-fracking activists fear the port will be converted to an export facility. In addition to various pipelines on the drawing board and underway throughout upstate and downstate, there are plans to increase storage capacity. In the Finger Lakes community of Seneca Lake, Inergy Midstream is seeking final approval from the Department of Environmental Conservation to store propane in depleted salt mines, which would serve as a distribution hub through the region. The project faces intense opposition from grass roots and institutional environmental causes.

Over the long haul, the impact of regional and national shale gas development on New York rests with two primary factors: How much gas the state consumes, and how much it produces.

On the consumption side, natural gas is a primary fuel for heating and electricity generation. Based on a draft of the New York State 2014 Energy Plan, recently released by the governor’s office, that trend is destine to continue, like it or not. The plan calls for expansion of natural gas infrastructure to replace heating oil – which is both dirty and expensive -- in urban areas downstate and elsewhere.  Initiative 9 on p. 44 states it this way:

Reduce reliance on petroleum products for heating buildings by supporting the use of clean alternatives to heating oil and expanding access to natural gas in the near term while pursuing strategies to reduce natural gas leakage.

Simply put, natural gas consumption will continue to be a staple in the state’s energy diet with intended improvements to its leaky delivery system.

The plan talks much about consumption and infrastructure of natural gas, but little about production. It makes no mention of developing New York’s shale reserves through fracking, a discussion that remains the elephant in the room. But the plan gives a nod to the role of natural gas and more infrastructure as part and parcel to some very ambitious, if very broad, goals. An overriding goal (rooted in policy from Gov. David Paterson's administration) is to reduce the amount of greenhouse gasses emitted in the state by 80 percent by 2050. It’s important to note that the gauge for measuring this goal is predicated on carbon; and that fuel oil – like coal -- emits much more carbon than gas. Critics like Bob Howarth feel the plan falls well short of fully accounting for the impact of methane. Howarth, a Cornell University ecology professor, is one of several co-authors of a paper challenging the notion that methane is an environmentally sound alternative to coal or other fossil fuels for that matter. “Natural gas is a disastrous fuel,” he said.

There are other aspects to the 2014 Energy Plan, including a $1 billion “New York Green Bank” to invest in “clean energy projects”; an initiative that lists “increased transportation alternatives”; and independent “microgrids” that can offer alternative and backup sources to communities apart from primary  grids.

The plan is easy to look at, with an abundance of glossy and marginally relevant pictures of happy people in scenic landscapes, but difficult to read with bureaucratic jargon that is simultaneously dense and vague. Some critics called out the report for a lack of specifics and the preponderance of gloss. Andy Leahy, a drilling proponent and blogger who has been following developments in New York, wrote in Shale Gas Now that the Energy Plan was “governance of wishful perception” and he suggested it was “catering to the uninformed, wishful desires of everybody in New York who wants to feel vaguely good about the future, but to stay lit and warm throughout, burning what's extracted out of Pennsylvania.”

Others were enthusiastic about the plan. Pierre Bull, a policy analyst for the National Resources Defense Council, wrote on the agency’s blog, Switchboard:

The already-impressive NY-Sun Initiative is about to become one of the most ambitious solar programs in the nation, with the governor committing, through a filing with the state’s Public Service Commission, $1 billion to the program—that’s right, $1 billion—over the next 10 years. (Governor Cuomo’s text also announces a major new program to help K-12 schools throughout New York go solar. You can read more about that here.) The governor’s goal is to install 3,000 megawatts of solar across New York. That’s enough solar to power 465,000 New York homes, cut greenhouse gas emissions by 2.3 million tons annually—the equivalent of taking almost 435,000 cars off the road—and create more than 13,000 new solar jobs. 

If New York expects to become a national showcase for how to dramatically reduce greenhouse gasses, it has plenty to work with. But assessing how that measure is made – and the degree that it includes natural gas -- is critically important.

By design more a PR gloss and political showcase than a technical document, the daft energy plan still serves a critical role as a catalyst for public discourse and involvement on the politics and technicalities of energy delivery. To that end, public hearings will be held around the state in February and March. (Full schedule here.)

The primary question not mentioned in the energy plan is whether New York will allow exploration to begin for shale gas production. With a recent announcement from Department of Environmental Commissioner Joseph Martens that the state will not issue permits until at least 2015, the governor’s staff has put speculation to rest that we will see fracking in New York anytime soon.

But both landowners and industry interests are mounting legal challenges in an attempt to force the governor’s hand. Tom West, an industry lawyer, is a primary figure behind the challenges, which I wrote about here. (Note that a hearing for West’s case, Wallach v New York state, has been postponed until March 7. This is so the complaint can be filed with a parallel case by the Joint Landowners Coalition, represented by attorney Scott Kurkoski of Levene, Gouldin & Thompson and funded by the Rocky Mountain Legal Defense Fund, an NGO that supports conservative causes.

Regardless of how the challenges to Cuomo’s indefinite delay on fracking turn out, another group has brought up a nagging question about the extent of New York’s shale reserves, and whether development is even viable at current prices. Chip Northrup, a former industry investor, accompanied by a group of critics with backgrounds in geology and industry, have been making presentations, most recently to a state Senate committee. The thrust of their argument is that geological data suggest New York’s shale gas reserves are not worth the bother, but speculators who gamble on them may still cause significant environmental headaches for the greater public.

All the speculation, either supporting or undermining the size of the state’s fossil fuel assets, won’t change this underlying reality: Upstate and New York City need lots of energy now, and tend to consume it in its cheapest and most available form.

Will law suits bring transparency to NY Fracking decision? Challenge tests Cuomo’s rights to keep review private

New York’s Governor Andrew Cuomo has avoided a decision over the polarizing and potentially damaging issue of fracking for his entire first term, so there is little expectation that he will voluntarily change course during an election year. Yet the governor’s handling of the fracking dispute may become a prominent issue as election time nears, pending the outcome of two law suits that could pry lose information.

How relevant and damaging that information is to either side of the debate remains to be seen, but it will provide potential leverage for both fracking proponents unhappy with the governor’s inaction on the matter, and opponents unhappy with the administration’s secrecy over policy development.

The state’s last public review of draft policy to allow fracking was finished in 2011. Since then, mainstream media outlets have reported on several occasions that a decision was imminent.  In June, 2012, Cuomo staffers told New York Times reporter Danny Hakim that the administration would allow fracking in areas where local officials wanted it -- news that prompted protests and organized opposition from fractivists. Four months later, DEC Commissioner Joseph Martens announced that the agency’s decision would depend on a review of fracking’s impact on public health from New York State Health Commissioner Nirav Shah.

Since then, Martens announced on several occasions that the review would be completed in “a matter of weeks.” Yet that proved to be wrong each time, and lacking any formal timetable, predictions were speculative, based on what appeared to be indecision by the governor himself.

Cuomo has been reluctant to talk about the matter, much less share his strategy on how, when, and whether New York will allow shale gas development. His refrain is “let the science decide,” and with that, he has deferred to Martens. Martens has deferred to Health Commissioner Shah, who is purportedly heading up the health review, which is yet to be shared in any public form. (In his state of the state address last week, Cuomo made no mention of fracking. Moreover, his recently released energy plan calls for increased consumption of natural gas, but doesn’t address the status the state’s policy on whether to allow production.)

Administration officials won’t talk about the fracking issue except in most vague terms, nor will their media staff.  Outside experts hired to make key assessments are bound by contracts that include a clause prohibiting them from disclosing or discussing the proceedings or records involved.

Recently pressed by a reporter on when the public would be able to see the work, Shah replied “When I’m done.” Jon Campbell, of Gannett’s Albany Bureau, reported that quote in an update last month, along with this:

“For the last few months, I’ve said that as the science evolves, we will reflect the science in my recommendations,” Shah said. “As recently as a month ago, we got new data from Texas and Wyoming ,and until I’m comfortable with the state of the science, I’m withholding my recommendation.”

Cuomo said that while his administration has moved quickly on other efforts, such as building a new Tappan Zee Bridge in the Hudson Valley, fracking is a complex issue.

“I want the right decision, not necessarily the fastest decision,” Cuomo said Monday. “When it’s appropriate to move fast, we can move fast. I think we’ve shown that over and over again.”

Cuomo said Monday that there is no timeline, though he “would expect” a decision before Election Day. He said he wouldn’t pressure Shah into a decision.

“But my timeline is whatever Commissioner Shah needs to do it right and feel comfortable,” Cuomo said. “It’s a major decision.”

The reason why the governor is keeping the internal workings of this decision from public view is easily understood but not easily defensible. (More on that here.) From a politician’s view, fracking represents a quagmire of dissention and criticism as much as an economic promise or environmental threat, and Cuomo would be better off without having to make a decision. The next best thing he can do is put if off until after elections.

But that might not be possible. The public expects its elected officials to be up for making hard decisions while accounting for them publically. Cuomo’s unwillingness to share a timeline, protocol, or update on the review (which is subject to public discourse under the State Environmental Quality Review law) has predictably raised challenges from critics, who are now taking the matter to court

Late last summer, the Seneca Lake Pure Waters Association, represented by attorney Rachel Treichler, filed a complaint in state Supreme Court seeking records detailing the mechanics of Cuomo’s administrative directive on fracking. The goal is to assess “what factual information was being collected and reviewed by DOH and the instructions given to DOH staff regarding the DOH health impact study,” according to a statement from the association. The action follows the organization’s unsuccessful attempts to view records related to the study under the Freedom of Information Law.  The DOH denied that request on grounds that the information comes under the category of “exempt intra-agency or inter-agency records.”  The state is now negotiating the case with the advocacy group, with an outcome expected within months, according to sources.

More recently, industry attorney Tom West has filed a complaint on behalf of landowners and Norse, a bankrupt drilling company that operated in upstate New York. The suit, Wallach v. New York State, references State Environmental Quality Review (SEQR) law, which requires environmental reviews to be completed in a timely and public manner. It claims that the delay led to Norse bankruptcy, and is “legally unjustifiable” as well as “arbitrary, capricious and an abuse of discretion.” In an interview last week, West likened the situation to “giving a fan a football during a football game and letting him walk out of the stadium.”  He elaborated: “Government is not allowed to simply shut down this process. They have to finish the game. If they want to say fracking is not safe, then they have to say it. If they want to say fracking is safe within standards, then they have to say it.”

The complaint is scheduled for a hearing Jan. 24. If the case progresses, it will give the plaintiffs leverage of subpoena to produce records and emails that will undoubtedly produce fodder for criticism of the administration’s private handling of the fracking.  A likely outcome of both the Wallach v. New York State and the SLPW case is that the fracking story will morph again from a scientific to a legal to a political issue at a time when the governor is vulnerable to outside pressure.

Will Utica, Marcellus remain non-starters in Empire State? New theory holds geology, not politics, thwarts NY fracking

Cabot Oil & Gas Map showing thickness of Marcellus shale, one measure

of it's viability. Other factors include depth, organic content,

thermal maturity, and myriad political and market factors    

A collection of factors stalled the Pennsylvania shale gas rush at the New York state border, including grass roots opposition, a market glut, the threat of local bans and --  above all -- the state’s reluctance to complete permitting guidelines without more information about health impacts. That, at least, is the familiar version of the story recounted through the popular press. But a group of activists – some uniquely qualified – are building an argument that something more profound and fundamental is at work: A lack of gas.

“Simply put, we now know that the Marcellus is likely only marginally productive in a few townships by the border - and may not be economic there until after 2020,” said Chip Northrup. “The Utica may not be here at all - or in a few pockets.”

Next week, Northrup, a former oil and gas investor from Texas, will publically make this case along with a select group of anti-fracking activists, some with industry resumes. The event is scheduled for 7 p.m. at Cornell University’s Hollister Hall Auditorium. In addition to Northup, presenters will include Lou Allstadt, a retired senior vice president for Mobil Oil, Jerry Acton, a systems analyst for Lockheed Martin, and Brian Brock, a retired geologist. The event will be moderated by Tony Ingraffea, a Cornell engineering professor specializing in fracturing mechanics that are integral to shale gas production.

The argument isn’t really about whether there is gas under New York – geologists agree that multiple gas-bearing formations, conventional and otherwise, lie beneath upstate’s countryside from the Catskills to the Allegany region. It’s a question of whether the broad mantels of Devonian shale, which hold prospects of drilling, fracking, and infrastructure development on an unprecedented scale, are economically viable under current or future market conditions.

Interest in New York’s unconventional reserves peaked in 2008, when the price of natural gas was three to four times higher than it is now. Since then, production of Marcellus wells coming on line in Pennsylvania and West Virginia has soared, contributing to a price collapse that is not forecast to change anytime soon. While this is a contributing factor, Northrup argues that the much-hyped future for shale gas as an economic engine for New York was a bust from the start. The team of presenters next week at Cornell will base this outlook both on analysis of available geological records and the status of leasing and development trends by major oil and gas companies. So far, only one major, Exxon Mobil, holds significant leases in New York – 50,000 acres in Broome and Delaware counties, near the Pennsylvania border. Moreover, Northrup said, analysis of well data filed with the DEC shows a range of major companies including Chevron, Gulf and others, tested upstate reserves prior to the “the fury” of the gas rush unfolded in 2008. “They kicked the tires and left well before the moratorium was in place,” he said.

Since the moratorium preventing high volume hydraulic fracturing began in the summer of 2008, midsize companies have faired poorly in their shale gas quest in New York. Norse Energy, a Norwegian company, was planning to tap Marcellus reserves in Oneida and Chenango counties. But officials recently announced they will close operations that remain insolvent after the company’s failure to sell pipeline rights of way and gas leases on 130,000 acres to pay debts. Chesapeake Energy, meanwhile, is letting its leases in New York expire after losing a legal battle to extend them indefinitely (through a process called force majeure) while waiting out the resolution to the state’s moratorium. Prior to that, Talisman, a Canadian company that was a big player in New York’s Trenton Black River boom, began shifting it’s operations from conventional resources in New York to Pennsylvania’s shale gas.

Interest from major oil companies is one of multiple measures of shale gas prospects, and it is not always a defining one. As Russell Gold recently reported for the Wall Street Journal, majors have not typically thrived in the natural gas business, and Shell Oil is selling off some assets in Texas after suffering from a market glut that has held prices down to below $4 per thousand cubic feet for several years. The industry moves in cycles, however, along with prices and demand, and independents play an important if not critical role in exploring resources that might otherwise go undiscovered as business cycles ebb and flow. Gold explains:

Smaller producers have tended to be more successful in shale than major oil companies, in part because they can move more quickly to lease up acreage before land prices rise and are more nimble at experimenting with different well designs to maximize output and drive down unit costs.

In short, smaller independents commonly venture where majors don’t. There is a lower barrier of entry to leasing, exploring, and experimenting in unproven areas, and rewards of discovery are greater. So are the risks.

This is a concern for Allstadt, who has led the push for a precedent-setting municipal ban (now being tested before the state’s high court) on drilling in Cooperstown. He has told me he does not generally fear the work of major oil companies, but he is wary of wildcatters – independents with limited capital who live or die in the world of speculative ventures. “They (Independents) play on the fringes,” Allstadt said. “They are the ones most likely to screw things up.” (Drillers have already left a legacy in upstate New York. Regulators estimate there are 57,000 abandoned and orphan oil and gas wells statewide, many of them left by firms that went broke or walked away from them.  Of these, the state has listed 4,722 as a priority due to health and safety risks, but lacks funding to plug them.  More on that here.)

In addition to a market evaluation, Northup said the presenters at Cornell will offer geological data that shows underwhelming results for shale gas samples collected from wells drilled in the 1990s and the early part of this century targeting conventional formations – mostly the Trenton Black River. Operators had to drill through the Utica and Marcellus to get to the Trenton Black River, which provided a small boom of its own when natural gas prices began rising several decades ago. The Marcellus is generally thought to be too thin and too close to the surface to be effectively developed in western New York, where most of the Trenton wells are drilled. But some geologists have argued that the prime drilling fairway of the Utica shale, which is providing productive wet gas and oil wells in eastern Ohio, may overlap the Trenton fields in western New York. Northup argues the opposite. “If those had shown Utica potential, all the majors would be here - and they never were,” he said. Take into account these factors, plus limitations imposed by natural barriers, topography, and regional no-drilling zones the state has imposed for ecological reasons, the much-touted drilling fairway for shale gas extending into New York’s Southern Tier “looks more like a putting green,” Northrup quipped on a recent appearance on Liz Benjamin’s Capital Tonight.

Terry Engelder is a geologist from Penn State whose career has been defined by his knowledge of Devonian shale. In a series of calculations in 2008 and 2009, he estimated that the Marcellus contained enough recoverable gas – nearly 500 trillion cubic feet -- to last decades, and his very public encouragement to investors and the media served as a catalyst to the gas rush in Pennsylvania. Now, with prices a fraction of what they were, Engelder is cautious about assessing the economic breakeven point of New York’s shale reserves, which, he said, “need careful evaluation.” In an email this week, he responded to my requests to assess the validity of claims by Northrup’s team that New York’s reserves are too small and problematic to be worthwhile.

Now it may turn out that shale gas in New York will not work for less than, say, $5.00/MMcf, BUT the the state should thoroughly evaluate this possibility and not have a bunch of born-again anti-frackers shout the industry down before sensible geologists and engineers really understand what the possibilities are.  

His dismissal with the anti-fracking movement aside, Engelder’s cautionary theme is a contrast to brimming enthusiasm he expressed along with lawyers, elected officials, landowners, and landmen that reflected a sense of giddiness over prospects of the shale gas boom in 2008. Interest in New York peaked in the summer of 2008, after a coalition of landowners near the Pennsylvania border landed a deal with XTO Energy (later bought by Exxon Mobil) to open 50,000 acres for development for $110 million plus royalties. Although that acreage remains undeveloped due to the moratorium, Engelder’s estimates were supported by production figures as the shale gas rush took shape in Pennsylvania over the next few years. By early 2009 drilling proponents in Pennsylvania and New York began looking for political leverage to encourage government support of the industry. As the economy sunk into recession, the case for jobs seemed to be the hot button. Stakeholder-funded studies purported to show economic potential that, in retrospect, stretch the limits of good sense in some cases.  An enthusiastic Broome County legislature paid University of North Texas scholars for a study that concluded Broome County was “fortunately located in the epicenter of the play” and shale gas development would produce 4,000 wells that would bring $15 billion to the economy, create 16,000 jobs, generate $792 million is salaries and $85 million in tax revenue.  The study encouraged county officials – before a single well was drilled or land leased -- to budget $5 million of expected lease payments on county-owned land near the landfill. Five years later, the county is yet to collect a dime from its shale gas assets, whatever they may be.

Engelder’s predictions remain controversial. And while early production numbers in Pennsylvania have met and in some cases exceeded them, questions about production have given way to questions about sustainability. (Will Bunch, of the Philadelphia Daily news, explores unmet expectations in Pennsylvania’s gas rush here, and Kevin Begos, of the Associated Press, looks at the concern of pension fund managers over the long-term profitability of the industry here.)

Chris Denton, an attorney who represents landowner coalitions, has seen the rise and fall of gas prices and corresponding interest in shale gas leases in New York. He pointed out that geological assessments are unique, piecemeal, and often proprietary, so it’s hard to usefully extrapolate figures from conventional wells, many which are in western New York, to the parts of the Marcellus shale thought to have the greatest potential, which are more toward the east. “I don’t really pay much attention unless it’s hard data from wells,” said Denton, who added that there is no mystery to why shale gas has not taken off in New York while it’s flourishing just across the boarder in Pennsylvania. “We’ve spoken with a lot of interested parties, and as it stands, it’s really too easy for them to go someplace else. They tell us, ‘call us after the moratorium’s been lifted.’”

For every argument against shale gas, it’s easy to find a countervailing argument. Theories about the geology in New York bring a chicken-or-egg quality to the discussion. Denton says the geology has not been proven because of the moratorium. Northup says the lack of interest – based on available geological data -- makes it politically comfortable for Governor Andrew Cuomo to extend the moratorium indefinitely.

The argument for or against the geology aside, there are new signs that Northrup has correctly pegged the political atmosphere. In an interview earlier this week in the Syracuse Post Standard, DEC Commissioner Joe Martens told reporter David Figura the health review needed to complete the state’s permitting policy is “going to take some time… We really don’t feel that there is any great urgency. People really want to be satisfied that this can be done safely and that's what [Department of Health Commissioner] Dr. Shah is trying to get to the bottom of.”

Will the geology of New York support a full-scale gas development by major energy companies or even speculative exploration by wildcatters? For now, a number of influences – including markets, political pressures, and unproven geology -- have created a feedback loop that favors the status quo.

Western NY brine plant becomes emblem of fracking flap Town officials: negotiations between industry, DEC secret

Update Oct. 21 New York state officials will hold a forum in early November to address community concerns and questions about the status of the failed Akso salt mine and related pollution and treatment operations. Representatives from DEC and the State Attorney General’s Office will lead a discussion by technical experts at Geneseo University, Newton Lecture Building, on Nov. 6 from 6:30 p.m. – 7:30 p.m., followed by a public comments and questions. DEC spokesman Peter Constantakes said the forum is a result of concerns expressed by local officials about the future of brine treatment operations to protect water supplies in Livingston County.

* * *

Shortly after the Marcellus Shale gas boom began in 2009, a tanker truck delivered 3,000 gallons of fracking waste from a Pennsylvania drill site to a treatment plant in a rural community outside of Rochester, New York. The delivery – a drop in the bucket by shale gas standards  -- was an experiment. The plant was designed to treat waste leaching from an imploded salt mine in the Town of Leicester -- the product of a mandate from the New York DEC after the geological catastrophe in 1994.  The mine’s owner, AkzoNobel, ever vigilant of costs of the ongoing operation and ways to reduce or offset them, is now negotiating terms with the DEC to shut the plant down. Meanwhile, interested parties have considered the potential to repurpose the plant – which employs 15 people and is running far under capacity -- to receive fracking waste. In that regard, the 3,000-gallon test was a success, at least in the minds of those eager to see the plant remain in operation, or perhaps even dismantled and moved to Pennsylvania.

Some of these facts, which I confirmed this week through an informed source speaking on the condition of anonymity, are just coming to light at town and county meetings as residents try to piece together something they feel has a lot to do with their well-being: the status and future of a treatment plant that was originally built to protect their aquifer from the threats of brine leaking from a failed salt mine, and now being considered for decommission or possibly as a source for fracking waste.

The mine collapse that started it all was a major event that ruined water supplies and swallowed significant portions of the landscape. In a recent overview of the dilemma, Gannett’s Steve Orr aptly describes lingering associations:

People can't help but remember the sinkholes, land subsidence, a creek that disappeared underground and basements suddenly filled with explosive methane, the closed roads and ruined bridge that marked 1994 and 1995 in western Livingston County.

Orr also summarizes the conclusions of conflicting geological reports -- one by a U.S. Geologic Survey researcher and the other by a consultant in Albany -- regarding the consequences of shutting down the treatment operation after more than 15 years. Without the treatment, the salt will drain into a deep aquifer not currently used as a fresh water source. There is a debate whether the current quality of the aquifer justifies saving it from the discharge, and whether it might in fact be a necessary source of freshwater in the future.

It’s about the aquifer, but the DEC’s handling of the situation behind closed doors represents a broader political issue: the degree local governments trust the state’s ability, willingness, and sincerity in openly overseeing environmental protection in the face of industry interests. Perhaps nowhere is this issue hotter than with shale gas development.

Town of Leicester supervisor Lisa Semmel was among a small party of local officials who met with staff from the DEC and the Attorney General’s office last month. It was here she first learned of Akzo’ negotiations with the state to close the treatment plant, she said, but she could get details. The state officials asked her to keep the meeting confidential, she added, a request that she finds unacceptable. “We’re not keeping it quiet any longer because they are not giving us any answers,” she told me this week. “We’re kept in the dark, like everybody else.” Semmel is especially concerned about the implications of the undisclosed delivery of fracking waste at the plant – which she learned through a report last month in the Genessee Sun.

The production of shale gas from a single well produces millions of gallons of flowback  -- liquid waste that contains additives and naturally occurring hazardous substances including metals, solvents, chemicals, radionuclides, and various dissolved constituents. But its most obvious ingredient is brine, which can foul fresh water systems if not removed before the effluent is discharged into rivers and streams. Because drilling waste is exempt from federal hazardous waste laws, operators can run flowback through conventional treatment and desalinization plants not equipped to remove hazardous waste.

New York currently has a moratorium on shale gas production due to unknowns about its impacts on health and environment. But a lack of a stated policy on waste imports from Pennsylvania, an air of secrecy regarding the health department’s current evaluation of health risks, and general difficulty local officials are experiencing in prying loose information have encouraged town boards to challenge the state’s qualifications to oversee the industry in the best interest of the public. For these reasons, and questions over the state’s handling of the Leicester treatment plant in particular, the Avon Town board passed a resolution last month to re-impose a 12-month moratorium on natural gas exploration and extraction.

Avon Town Supervisor David Lefeber, quoted by Genessee Sun reporter Josh Williams, explained it this way:  “Since we talked about this operation [hydrofracking], we thought the State was going to issue permits, the State was going to monitor things, the State was going to make sure that our resources are protected … Businesses come and go, but our ability to produce food and have fresh water is a huge thing and somebody’s got to protect that.”

Avon’s resolution is one of more than 170 bans imposed or considered by municipalities statewide, and the validity of many of them rest on the outcome of a landmark case now before the state’s Court of Appeals testing jurisdictional limits of shale gas regulation known as Home Rule. (More on that here.) After five years, the state is yet to finalize its own policy on permitting shale gas development. Although Gov. Andrew Cuomo’s administration is not allowing fracking until its review is complete, it has not prohibited the importation of fracking waste from other states.

In response to my email query this week, DEC spokesman Peter Constantakes said Akso and its insurance carrier, Zurich, want to discontinue operations to treat the discharges from the ruins of the salt mine in Leicester, which they characterize as “impractical and not cost-effective,” The DEC is considering a monetary settlement for the plant’s closure, but no decision has been made. Constantakes did not address whether the plant could be repurposed for fracking waste.

Robert Middaugh, a spokesman for New York State Attorney General’s Office, said Akso is planning to dismantle the plant, and he knew of no plans to process fracking waste there. The AG’s office has been in touch with county officials about the plant’s status, he added, and has asked that only matters dealing with litigation be kept private.

Those matters could be varied, numerous, and far reaching, of course, and it’s hard to reconcile this vague answer with the claim from local town officials telling reporters they are being kept in the dark, including this in the Genessee Sun from Jim Campbell, an attorney who represents the Towns of Avon, Leicester and York:

These towns are justifiably concerned that the State and the DEC are attempting to delay this information from being made available to the public … Our concern is that the ink might already be dry on a deal between the New York State Attorney General, the DEC, and Zurich. Such a deal could have profound impacts for Livingston County and should only be considered after adequate dissemination of the facts and an opportunity for public input.

“We need a public discussion of exactly what’s going on,” Livingston County Administrator Ian Coyle told me this week. He has asked DEC officials to hold a hearing on the matter in a school or auditorium. He is still waiting for a response.

While the politically explosive option of allowing the Leicester plant to process fracking fluid may be off the table (or not), it’s hard to know exactly what’s going on behind the scenes. If the state has allowed this kind of testing for one plant, what about others? The current draft of the Supplemental Generic Environmental Impact Statement – the state’s pending overview of permitting considerations for high volume hydraulic fracturing -- identifies 130 municipal waste treatment plants in appendix 21 that have equipment that makes them eligible for fracking waste permits.

Liquid waste from gas production is just one part of a much broader metric. Shale gas development also produces solid waste, including drill cuttings tinged with varying degrees of metals, solvents, and naturally occurring radio active material (NORM) from deep in the ground. Like flowback, this waste is also exempt from federal hazardous waste handling laws, and at least four New York landfills are accepting it under protocols designed for industrial waste: Hakes Landfill in Painted Post, the Chemung Landfill near Elmira, Seneca Meadows Landfill in Waterloo and the Allied/BFI Waste Systems landfill in Niagara Falls. According to figures compiled by Fractracker (which compliles industry reports filed with the state) operators in Pennsylvania imported 29,662 tons of solid waste and 6,000 gallons – a relatively small amount -- of fracking fluid to New York destinations in the first half of 2013.

There are incentives and rationale for accepting waste from shale gas operations: It has to go somewhere; it is an unpreventable byproduct of cheap energy that we all use; it is not perceived as dangerous; it is handled appropriately and sufficiently as industrial waste; and it can generate millions of dollars of revenues for municipalities and private companies as part of the larger economic incentive for shale gas development.  But given the tenacious and organized resistance that has stalled fracking in New York, it will be a hard political sell for most New York communities to knowingly allow the importation of Pennsylvania fracking waste under incomplete and seemingly discretionary state policy and it’s growing reputation for secrecy. Yet, as things stand, it remains a legally viable option, one that does not require public hearings, and one that is difficult to track.

Diesel not allowed for fracking, except when it’s allowed State, federal policies leave door open for petro-distillates

Conventional wisdom and certain regulations suggest that injecting diesel fuel into the ground is generally not an environmentally sound idea. Diesel fuel, to nobody’s surprise, contains toxic and carcinogenic chemicals, including The Big Four: Benzene, Toluene, Ethylbenzene, and Xylene, collectively known in regulatory terms as BTEX. While part of a potent energy formula that has added vitally to the industrialization of our country – these compounds cause serious risks when let loose in nature. They can cause cancer, damage vital organs and wreck nervous systems. They dissolve easily in water. They are toxic at very low levels. Their individual dangers are compounded when they are mixed.

Diesel fuel contains all of these compounds, and despite calls for an outright ban of diesel as a primary fracking agent, it’s allowed with a Class II injection permit from the Environmental Protection Agency. There are also ways around the federal permitting process. Operators can add BTEX to fracking fluids and avoid federal regulations as long as the hydrocarbon mix doesn’t meet the technical definition of diesel. It’s up to states to regulate fracking, and because fracking is exempt from the federal Safe Drinking Water Act, there are few restrictions on additives or requirements for their public disclosure.

The well service industry likes to use petroleum distillates because they are cheap and effective. According to a report from a U.S. House Committee on Energy and Commerce, BTEX compounds appeared in 60 hydraulic fracturing products between 2005 and 2009. During that period operators knowingly injected 11.4 million gallons of products containing at least one BTEX chemical. Despite all the talk about “green fluids” from the PR branch of the industry, many operators favor petroleum distillates to produce shale gas, and have fought hard to keep them in the mix.

Recent legislation passed in Illinois, a place where state officials have touted rules as the toughest in the land, is an example. What I find striking, after being tipped by comments from several SGR readers on my last blog-post, are eleventh hour revisions to the Illinois statute dealing with the issue of petroleum compounds as fracking agents. HB 2615, the original version of the bill, would have made it “unlawful to perform any high volume horizontal hydraulic fracturing operations by knowingly or recklessly injecting diesel or any petroleum distillates.” (Emphasis my own.) In the face of industry resistance, the final bill (SB 1715) dropped the term “petroleum distillates” and, further, defined diesel as any one of six particular chemical profiles listed by the Chemical Abstracts Service, or as “additional substances regulated by the United States Environmental Protection Agency as diesel fuel.” (The National Resources Defense Council, one of many environmental groups with mixed reviews of the Illinois regs, characterized them as falling short of safeguards, but better than "a very bad situation" of proceeding with no policy at all. You can read NRDC staffer’s Ann Alexander’s blog here. Sandra Steingraber, an environmental activists, characterized the Illinois legislation as a lame compromise at the expense of open government and public health.)

That federal policy, meanwhile, remains inconclusive and incomplete after a history of ineffectiveness.  After determining in 2004 that fracking with diesel “may pose environmental concerns,” the EPA worked with delegations from some of the largest well service companies, including Halliburton, who agreed in a memorandum of understanding to voluntarily remove diesel fuel from fracking fluids. But when the companies found that diesel suited their needs in the field, they used it anyway. According to an ensuing Congressional investigation, oil and gas service companies injected over 32 million gallons of diesel fuel or hydraulic fracturing fluids containing diesel fuel into wells in 19 states between 2005 and 2009. For this, there were no permits issued, nor were fines levied. Since then, the EPA has begun a process to update its regulations on diesel and fracking and to provide a statutory definition of diesel. A precise definition is still pending along with final policy.

New York, the only state with major shale gas potential where permitting remains on hold, is also working on regulations that state officials have touted as the “best in the country.” Yet these regulations, as proposed, do not outlaw BTEX and other petroleum distillates. Nor do they forbid diesel fuel unless it is used as “a base fluid.” In other words, diesel can be added to fracking recipes, as long as the fluid is not the base ingredient. (In that case, operators would have to get a permit under the still undeveloped federal policy.)

The use of petroleum distillates to serve our lives is not unusual or categorically dangerous – Gasoline after all contains BTEX and inherent risks, and there is little doubt about consequences of using it improperly. Yet most of us encounter the handling and burning of gasoline in our workaday travels. This is because the use of gasoline – and risks related to spills or dumping – are tightly controlled.

With fracking, the regulatory controls are much weaker, due largely to the failure of state and federal governments to keep pace with the rapid advancement of the domestic shale gas industry along with its monumental stakes on public welfare.

Court rules against Binghamton fracking moratorium: Home Rule supporters win key points in broader fight

In another test case for Home Rule, the New York State Supreme Court struck down a moratorium by the City of Binghamton on shale gas development, but upheld the foundation of a legal argument on which local municipalities are basing efforts to control or ban drilling and related operations within their borders.

Both sides of the debate claimed victory in a ruling Tuesday by New York Supreme Court Judge Ferris Lebous. Lebous ruled that the city’s moratorium on drilling was not valid because drilling was not proven to be an impending crises and the city lacked a dire need to prevent it. That ruling was a clear victory for a group of landowners who had brought the suit against Binghamton Mayor Matt Ryan and the City Council, which enacted the moratorium last December. The law would have prohibited drilling, exploration, gas storage and disposal of drilling waste within the city limits.

The Marcellus Drilling News, a pro-fracking blog, summed up the position of those eager to see the industry begin developing the Marcellus Shale and other formations underlying Upstate New York: “All in all, Lebous’ ruling was a victory for landowners and for those who support the right of landowners to allow drilling on or under their property if they want to.”

The influence of the ruling (embedded below) on future cases will likely run deep, and possibly counter to the interests of fracking supporters. While Lebous struck down the ban due to circumstances and context unique to the Binghamton case, he affirmed the state’s ruling in favor of bans in two other controversial cases that collectively represent a key bit of case law in the larger home rule debate. In supporting bans in the town’s of Dryden and Middlefield, Lebous wrote:

In well-reasoned, well –founded decisions, determined that ELC-23-0303(2) [the state law governing gas development] does not supersede local government’s rights to regulate the use of lands within their jurisdictions.

Helen Slottje, who represents municipal interests in controlling shale gas development, saw the Lebous ruling as “a huge victory.” (Click here for a full statement from the Community Environmental Defense Council.) Slottje explained:

On the narrow question of the specific (non—land-use) enactment mechanism relied upon by the city in connection with passage of its two-year law, the court found the city’s law was invalid because … the law should have been enacted on a different basis. But on the broader question of the city’s legal authority to enact a pro-active law prohibiting gas exploration, extraction and storage activities the court explicitly adopted the “well reasoned and well founded” decisions in the Dryden and Middlefield cases.

The court also ruled that local laws (as with Dryden and Middlefield) are not pre-empted by the state’s Gas Mining Law, the interpretation of which is a crucial aspect in all home rule cases in New York.

The issue is far from resolved. The New York State Supreme Court, the state’s lower court, is the starting point of a legal contest weighing people’s rights to exploit their land against a town’s rights to determine land-use policy in the best interest of local residents. The industry is working on an appeal to the Dryden and Middlefield cases, which will be filed this month, according to industry lawyer Tom West.

New York’s shale gas future tied to battle over land rights

The Decker farm, where Exxon Mobile is extending its drilling rights
PHOTO JAMES PITARRESI 

While companies publically threaten to drop their drilling ambitions in New York state, they are privately clutching their leaseholds with all their legal might.

Multi-national energy companies are using force majeure, the legal tool to extract a party from contractual obligations in the event of unforeseen circumstances and acts of God. Companies such as Chesapeake Energy are invoking force majeure after Governor David Paterson ordered an environmental review on the safety of high volume hydraulic fracturing in 2008. As most following the Marcellus shale story in New York state know, Paterson’s order was accompanied by a de facto moratorium on permits for shale gas extraction until the new permitting guidelines are finalized. Chesapeake and other companies are using this as a reason to extend their claims to the land under force majeure, even though conventional drilling and fracking are still allowed to explore the Marcellus or Utica shales, or to develop conventional horizons.

From here, the plot thickens. A market glut caused by a surge in shale gas production nationally combined with sluggish demand are forcing companies to scale back drilling operations and curb production in the Marcellus. In this context, it’s interesting that Chesapeake Energy and other companies reigning in operations are pointing to New York’s moratorium on high-volume hydraulic fracturing as justification to extend leases. There are market risks in doing business, of course. In the case or the drilling industry, operators are not shy about applying their considerable legal wherewithal to divert those risks to landowners. As noted by Sue Heavenrich, a reporter covering gas exploration in Western New York, gas companies are in some instances using force majeure as a blunt tool to gain control over leaseholds, even though (common to popular belief) drilling in New York has not been prohibited. Over the past five years, the state has issued 166 permits to Chesapeake for conventional wells.

The industry’s effort to press legal claims to New York’s Marcellus Country, even after leases have expired, runs counter to this theme commonly articulated by industry proponents: Delays and overbearing regulation in New York will surely kill drilling plans here. This view holds that the drilling companies are victims. Brad Gill, executive director of the Independent Oil and Gas Association of New York, recently made this very point to an audience at a forum hosted by the Binghamton Press & Sun Bulletin and the Greater Binghamton Chamber of Commerce: “I can tell you right now, this will drive an industry out of the state that is trying to get established, especially with [the same opportunities in] Ohio and Pennsylvania, and as uncompetitive as we are in New York.”

There are plenty of people on the other side of the issue who find the portrayal of the drilling industry as a victim laughable. But even within the pro-drilling camp, the force majeure battle is causing a new set of stress fractures among landowner groups. Some are banding together to fight the claims to their land in court. Others are not.

Dewey Decker, a drilling supporter, is among those landowners who are not. Decker, longtime supervisor of the Town of Sanford, leads a coalition of farmers in Broome and Delaware counties who leased 45,000 acres to XTO Energy (now owned by Exxon Mobile) for $110 million in 2008. The lease is schedule to expire next year, at which time the company would owe landowners another $110 million for a 5-year extension. Decker, who became a multi-millionaire from a lump-sum lease payment, told me this week he is “unhappy” about the claim to extend rights to his land without additional compensation. But he also wants to see drilling to come sooner, rather than later, and he blames the environmental movement and anti-fracking campaigns for stalling it.

Dewey Decker
PHOTO PITARRESI

“It’s the environmentalists’ fault,” Decker said as he took me on a tour this week and showed me his family’s once flourishing dairy farm. Decker, a fourth generation farmer, has sold his herd, and now the massive barns are vacant and the computerized milking equipment and stainless steel tanks sit idle. Dewey is hoping the land will soon yield a new era of production through natural gas development. Given the sum of money that XTO invested to acquire the mineral rights, that prospect once looked like a sure thing. Now it is not. The majority of XTO’s leasehold is in the protected Delaware River Watershed, where the future of drilling is complicated by jurisdictional issues that go beyond the growing tensions between local, state and federal government control, which have become the latest in a rush of developments that characterize the debate over shale gas development and onshore drilling. More than 80 percent of the XTO leasehold falls under the regulatory  watch of the Delaware River Basin Commission, and 10 percent of it is in the New York City Watershed, which respectively have various levels of protection. The front line of the fracking battle formed along this area on the western fringes of the Catskill Mountains, and it’s where environmental activists have focused their most devoted efforts.

Although the arguments for and against fracking are multi-dimensional – water quality concerns, market pressures, transparency, enforcement wherewithal, Decker, like many caught up on the fight, sees the issue as being pretty straightforward. In his view, it’s largely about restrictions on upstate landowners based on downstate interests. It’s a beef he holds dating to the early 1960s, when authorities bought out and flooded Cannonsville, a berg that had been an important market for the family’s creamery, to make a reservoir to supply New York City. Then came Route 17, which claimed some of the family’s farm buildings through eminent domain in the process of further connecting downstate with upstate.

Now, Dewey said, “They’re getting all our clean water. And then they send their trash back up Route 17 to be buried in upstate landfills. I resent that. They are not the only ones that care about the water, but they act like they are.”

Decker’s farm sits less than 10 miles from the border with Pennsylvania, and just south of this border federal EPA officials are sampling water in at least 60 homes after the agency identified health concerns from contamination associated with intensive shale gas development in Susquehanna County. Decker sees the complaints related to spills as exaggerated and unhelpful. I was in Dimock, Pa. last week, and I met residents with contaminated wells waiting on EPA deliveries of fresh water who would disagree.

Dimock story continues to gain traction in New York state Senator Ball latest to call for fracking ban after Pa. visit

The rush for shale gas in Pennsylvania, unhindered in the absence of regulatory burdens under Governor Tom Corbett’s administration, continues to provide fodder for skeptics in New York.

Greg Ball, a 35-year-old Republican senator from Carmel, is the latest New York state politician to hold Pennsylvania up as an example of how to botch shale gas development. Today Ball is schedule to meet with residents of Dimock, Pennsylvania who claim water and property have been degraded by shale gas development. The meeting is a backdrop for the senator’s push for a one-year ban on hydraulic fracturing in New York.

Ball said he believes the shale gas development can help New York’s economy, but not the way it is unfolding in Pennsylvania. In a recent Town Hall meeting in Milan, Ball explained the challenge of getting to the bottom of the rhetoric that typifies the debate about the merit of hydraulic fracturing. “The industry will tell me one thing – ‘you can drink the fracking fluid – don’t worry about it, there are no issues whatsoever. And those 20 cows that died?  That was just a mistake, that really never happens ‘… And you have the anti-frackers who say there are four-headed fish and they are walking down the streets and its Armageddon.”

NY’s drilling ban sprang from seeds sown by Tier residents

It’s easy to associate the organized movements that characterize the shale gas impasse in New York --- now heading into its fifth year --- as forces responsible for that state's drilling moratorium. The most recent chapter of this saga ended Wednesday as the public comment period for New York’s shale gas policy drew to a close. (The New York DEC received more than 18,000 comments noting the deficiency of the SGIES  -- the document that will guide permitting guidelines for high volume hydraulic fracturing.) 

While groups like the Sierra Club, EarthJustice, and Shaleshock continue to leave indelible marks on the discussion, it’s important to keep in mind the origins of the controversy, which had very little to do with institutional environmental causes.