Thursday, October 28, 2010

Hinchey and Arcuri Stand Behind It:
The Californication of New York

Two Democratic Congressmen from upstate New York, Maurice Hinchey and Mike Arcuri, signed onto a thoroughly disingenuous effort put forth by anti-drilling activists this week — a demand that New York State throw out its entire environmental impact study on hydraulic fracturing (two-plus years of effort), and start over from scratch.

Arcuri appeared Oct. 25 in Trumansburg — at the most extreme southwestern fringe of his district — where "kill the drill" activists touted him for "a stupendous act of political courage and leadership."

Hinchey did the same deal two days later, Oct. 27, on the Commons in downtown Ithaca — at the most extreme northwestern nook of his long-ago-gerrymandered district.

These highly questionable moves — coming late in the run up to Election Day, Nov. 2 — show that these politicians have calculated they will gain more votes by siding with the most strident, anti-anything side in the Late Great Marcellus Shale Hydrofracking Debate — as compared to the votes they will surely lose by pissing off more and more of their own land-owning constituents.

In this crazy political environment — and to me, I gotta say, it looks as though we are right in the midst of The Californication of New York — they may be right.   But I so hope they guessed wrong, and that the Salt of the Upstate Earth — my kinda people — rise up against them next Tuesday.

Here's why:

Number One, Hinchey and Arcuri are federal representatives, whereas this hydrofracking environmental impact thing has been a state-level drama since the beginning.  It's true that everybody is entitled to their opinions — even good-looking-but-not-very-bright congressmen.  And it's true there are federal angles to the shale gas issue.  But New York's tortured Supplemental Generic Environmental Impact Statement process is definitely not one of those federal angles.  These two congressmen could have just said, "Look, we're federal representatives, and this is a state matter."  But they didn't.  Instead, they chose to go the extra mile in order to please The Ithaca People by butting into a state issue.

Number Two, Check out the mapped coverage areas in my graphic up top for both Hinchey's district, the 22nd of New York, and Arcuri's district, the 24th. Both districts encompass literally thousands of acres which are very likely to be eventually developable for natural gas in both the Marcellus shale and the deeper Utica shale.  Much of that undeveloped shale gas remains unleased, and is therefore 100 percent owned by Hinchey's and Arcuri's own constituents — ordinary landowners, of whatever particular party or persuasion they happen to be.  

Some landowners are all for drilling, and they are patiently waiting for a chance to combine forces in coalitions in order to collectively bargain with industry — whenever, and if ever, industry regains enough confidence in New York State's regulatory environment to make such an offer.  And some landowners are dead set against drilling, and they are free to vote against shale gas development by declining to sign any lease.  (Under the law, anti's need only line up 41 percent of the acreage — in either unsigned obliviousness or unsigned opposition — in order to put a stop to drilling in any particular locality)

And yet — rather than simply riding the usual fence, and saying they are all for careful, regulated drilling, after the environmental issues are thoroughly studied... blah, blah, blah... like you'd expect a politician to do... like future-governor-apparent Andrew Cuomo has done — Hinchey and Arcuri have chosen to take sides directly against the economic interests of their own constituents.

(Am I missing something, or is this nuts?  I mean — what kind of a politician ever does this kind of thing?)

Number Three, the greater community of environmentally persuasive people in New York is at this writing still wailing through Day Seven of the Public Martyr-fication of DEC Commissioner Alexander "Pete" Grannis — fired last week because the commish was not-so-quietly resisting the gov's drive for deeper and deeper staff cuts.  Every day, there has been another story in the papers about how the DEC is so overworked, and how the DEC is so understaffed, and — what with any further cuts — how can the DEC possibly oversee the boom in drilling in the Marcellus shale?  

Never mind that — having refused to yet let any frackers get fracking — very little drilling is actually going on in New York right now.  [Here's the evidence:  1) Zero rotary rigs active in NY in Sept. 2010. 2) Conventional drilling in NY down 44 percent in 2009.]  And never mind that the majority of the folks doing all this hand-wringing over DEC staff cuts are the exact same set of characters who are feverishly working to make sure that New York never allows any new drilling that its regulators would have to do the work of overseeing.

(I know, I know — it doesn't have to make any logical sense — it just has to be persuasive.)

But what do Hinchey and Arcuri say they want?  And what do the anti-drillers say they want?  Together, they're insisting that the DEC throw out its hydrofracking study — a comprehensive, 800-page analysis prepared between 2008 and 2009 by its own professional staff — and start over!

That's crazy talk!

I mean — talk about more work with less staff!

Wednesday, October 27, 2010

NY Has 51,764 Acres of State Land Under Lease to Drillers — Without Much Controversy

Here's the editor's introduction to an Oct. 25 article in The Odessa File, which appears to be a web-based news source for Schuyler County, NY, the county that wraps around the southern end of Seneca Lake, with Watkins Glen as the county seat:
"Burdett journalist Peter Mantius reports that Sugar Hill and four other state forests in Schuyler County are among those that could be changed forever by a plan to let gas drillers hydrofrack in them and criss-cross them with construction roads and gas gathering lines."
The headline is, "Lost in the Woods," and Mantius' first line reads, "It's open season on New York's state forests." 

Right away, I could hear a voice inside my head — slowly exhaling — "Here we go..."

There has been a lot of this kind of talk lately.  It's sort of a sidebar to the main column of environmental concern over Marcellus shalegas development in New York — and Appalachia, generally.  So far as I can tell, the attention was triggered by an otherwise obscure draft Strategic Forest Master Plan — aimed at guiding future management of 786,000 acres owned by the state (and held in the form of State Forests, not the Forest Preserve, which is a different kettle of fish).  Much of this acreage consists of once-cleared farmland that was bankrupted by poor soils, a shorter, colder, higher-elevation growing season — and Depression-era economics.  A lot of it's been in state hands ever since.  I've hiked and creek-walked and birded a fair number of these areas, and — like Mantius — I'm a big fan.

But, recently, environmental activists must have noticed that somebody within the New York State Department of Environmental Conservation included some language in that draft planning document which dutifully called attention to the fact that — in addition to timber cutting, hiking, hunting, birding, truck-driving, snowmobiling, and ATVing — oil and gas development also falls entirely within the range of legal, managerial, and strategic options for these public lands.  In fact, it's always been that way.

Already on alert due to the shale gas brouhaha, anti-drilling activists quickly added another layer of protest.  Translated loosely, they asked:
How dare the DEC plan in advance for this?  How can the DEC possibly say natural gas is clean-burning?  New York State never made any serious money on this kind of thing.  Do we really want our State Forests to look like this here aerial picture of the Allegheny National Forest in Pennsylvania? 
[Never mind that this last poke is a knowingly unfair comparison — for a number of geological and legal reasons that I don't want to get sidetracked into here.]

But hellzapoppin', in other words.  Save the forests.  Write a letter.  The deadline for comments is coming up soon, Oct. 29.

Here's the main problem I have with a lot of this instantaneous, un-selective, activist-led cause-mongering:  The drama — the concern, the hand-wringing, the alarm, the fear — is so focused on perceived future peril that it's completely ignorant of past actual experience.  In this case, that past experience has to do with New York leasing its own land — our own land — to the oil and gas industry.

Here, let me just use Mantius' article as a particular example.  [I don't mean to pick on this article, because it was a good article, and it triggered practically a whole day's unpaid research on my part, and it's good to see that somebody's writing about this land, which doesn't usually get a lot of attention, compared to the Adirondacks or the Catskills.]

But, in this case... Sugar Hill State Forest — I hate to be the one to break this to you guys — but New York State has already leased most of Sugar Hill!  In fact, most of Sugar Hill is still under a producing, indefinitely running oil and gas lease — tied to royalty-paying production from an indefinitely-flowing gas well.  The gas well has been right there behind some trees, just northwest of the intersection of Evergreen Hill and Donovan Hill roads, for ten years now (see aerial photo from Google above).

In 1999 — during the early years of keen private-sector interest in attempting to find natural gas in New York's portion of the Trenton-Black River (TBR) limestone — the state DEC held a lease auction.  On the block were five-year drilling rights to 11 tracts totaling 13,061 acres spread across three Southern Tier counties — Chemung, Schuyler, and Steuben — right in the heart of the TBR zone.  When the final gavel sounded, New York managed to generate $3,027,580 in bonus money. (This does not count any future delay rentals, fixed in advance by the state at $3 per acre per year, and it does not count any possible royalty, then customarily placed at 1/8th.)

The majority of the money turned out to be generated by the most desirable State Forest on the 1999 list: 6,900 acres (out of a total of 9,085 acres) in Sugar Hill.  East Resources was the winning bidder (though the lease ownership has almost certainly since changed hands), and the company paid what was probably at the time a state-record price of $312.54 per acre bonus for a five-year lease, or a total of $2,156,526.

[Remember, this was 1999 — nine years before Marcellus shale mania increased the per acre lease value of hypothetical oil and gas to thousands of dollars, rather than hundreds.]

Fast forward to 2009, when the DEC's annual state lands leasing report (online as a PDF here) includes a Schuyler County well named SRA 2 #1.  [SRA stands for "State Reforestation Area," and SRA 2, or Schuyler 2, were the lease auction shorthand names for Sugar Hill.]  This gas well known as SRA 2 #1 is still a producing well, and — reading between the lines — one can see that royalty from this well is still serving to hold and keep open that 1999 lease, under which industry was originally invited to get drilling.  All the leasehold acreage is held, not just the acreage from which the natural gas is presumed to flow.  

State records show the SRA 2 #1 was spudded and completed in 2000, was connected to pipeline by 2002, and has generated to the benefit of state taxpayers $1,001,594 in royalty through the end of 2009 — though production has been steadily declining.  It's currently operated by Talisman Energy USA Inc., which is the name of Fortuna's Canadian parent company. 

One last detail:  In order to allow this well to be drilled, the state's report shows that 2.5 acres of state forestland had to be disturbed.  Checking for it on Google maps, it looks like some plantation conifers were taken out, and a roadway and maybe also a pipeline corridor were created, both leading to and from what I presume is some valves and tanks in the middle of a grassy patch.  The wellsite is also near a prison that shows up on the web as the Monterey Shock Incarceration Correctional Facility, which apparently was also at some point in time developed, right plunk on top of the state's forestland. (Again, see picture up top.) 

But what's the point of all this?  The point is that New York State has already placed  significant chunks of state land, on the line, under lease, to the oil and gas industry.  As of the end of 2009, the state's reports show 63,676 acres were under lease, but that number includes 11,912 acres in storage leases (which are probably not written so as to have any development significance).  Leaving out the storage acreage, New York has 51,764 acres of state land out there that fall within the category of currently developable leasehold.

Most of this, 32,537 acres, including Sugar Hill, was being held indefinitely by virtue of industry having done all the work of achieving oil or gas production.  And 19,277 acres still had about two years left to go on the primary terms of leases granted during the state's 2006 lease auction. 

When, and if, New York ever gets its act together — and decides that it does, in fact, like Pennsylvania, have the necessary regulatory expertise to oversee horizontal drilling and hydraulic fracturing in its underlying black shales (and the political wisdom to encourage this sort of balanced, economically beneficial development) — then these already leased State Forest acres will be already available for industry to consider testing for shalegas.  These leases are still open and running, and they were written to cover all rock formations.  Sugar Hill is good to go, in other words — assuming that that gas well which holds the lease keeps on keeping on.

Industry might drill again in this and other leased State Forests, or it might not. Marcellus shale or Utica shale might not be worth trying to develop in these areas of upstate — at least not in the beginning.  That's just how it goes.


Reconstructing the past from documents the DEC still includes online, here's what appears to have happened to all the state acreage previously put out for lease (at least in the last 12 years): 

For the 1999 lease round, the state's followup annual reports are a little hard to follow.  Nonetheless, it appears that — out of the 13,061 acres leased in 1999 — a number of the leased tracts reached "held by production" (HBP) status by association with producing wells.  In addition to Sugar Hill, the HBP acreage appears to include part or all of Catlin State Forest (Chemung County); part or all of West Hill (Steuben County); and part or all of Goundry Hill (Schuyler County).

In 2003, New York leased 21 tracts totaling 26,534 acres in Steuben and Schuyler counties, generating $4,578,537 in bonus money.  By the end of 2008, after those five-year primary terms would have been fully up, 6,558 acres of these lands appear to have been converted to HBP.  The HBP acreage includes:  971 additional acres in Sugar Hill (Schuyler County); 1,787 acres in Cinnamon Lake (straddling both Steuben and Schuyler counties); and 1,818 acres in South Bradford, 1,451 acres in Meads Creek, and 531 acres in Erin Hollow (Steuben County). 

In 2006, New York leased another 16 tracts totaling 19,277 acres spread across seven different counties (Chemung, Cortland, Schuyler, Steuben, Tioga, Tompkins, and Broome).  As of the end of 2009, the state reports that not a single well had been drilled on any of this land, or in such a way as to include any of it in a unit.  If anything's happened so far in 2010, I can't say for sure, but it seems unlikely.  Most visible exploratory attention has shifted since 2008 to Marcellus shale — but only out-of-state Marcellus shale.  Sometime during 2011, these five-year leases running from 2006 onward are all due to expire — assuming industry does not find a way to produce gas in the months remaining, and assuming industry does not challenge the fairness of a state government that accepts a significant amount of money for oil and gas leases in one year, and then two years later strips away much of the value of those leases by regulatory fiat.

I know we can argue a lot of "Yeah, but's..." here.  We can argue about whether shale gas is or isn't "your grandfather's old gas well."  We can argue about whether a temporarily occupied, 6-to-10-acre well pad on the surface — drilling and fracking and draining 600-to-1200 acres of subterranean shale gas in all directions — might even have less environmental impact than those "traditional" wells (which the environmental community suddenly somehow seems to think were never any big deal).  Better not get me started, though.

But I don't think we can argue much about this:  New York's actual history of leasing its publicly owned lands to the oil and gas industry has been relatively peaceful, low-impact, non-controversial, and problem-free.  In fact, it's been so quiet that Mantius didn't even seem to know his beloved Sugar Hill was producing gas, and still under lease!


The state's 2009 report also includes these facts of note:
•  Out of 32 leases given since 1999, only 10 have either had wells drilled upon them, or been included in a production unit where the well was drilled upon a nearby party.

•  Out of nearly 59,000 acres of state land leased since 1999, only 37 of these acres have been disturbed by well drilling, or road or pipeline construction.

•  From 1999 to 2009, New York generated nearly $31.6 million from all lease-oriented sources combined — bonuses, delay rentals, storage fees, and royalties.

Thursday, October 21, 2010

"Past Mistakes Cannot be a Millstone that Impedes Economic Development"

[I happened to get a smile out of this nicely homespun writing below, and I wanted to preserve it for just a little while longer, just because — I dunno...  I've plucked it from the comments section immediately following a news article in the (Kingston, NY) Daily Freeman (and edited it lightly).  If you don’t want to click through the whole original article, I can tell you quickly it's just a news story about New Paltz-based FrackAction forming a PAC in order to support incumbent Congressman Maurice Hinchey (D-NY-22).  Hinchey is fending off challenger George Phillips in a close and closing race where the Late Great Hydrofracking Debate seems to be playing a key role.]

Viking1946 wrote on Oct 21, 2010 9:26 AM: 
What a surprise! Sad, that NYS gives more credibility to groups that oppose economic development.
The American spirit is, "Can do."  There was little that could not be safely accomplished with American exceptionalism. Today we have given it over to paranoid whiners that are content with the status quo. Unfortunately for NYS, the status quo is not satisfactory.
While the Liberal Progressives continue to demonize the private sector job creators, both large and small business, I believe the trend is turning.
What is a mystery to me is how a community that benefited so greatly from the jobs in IBM would today categorize it as an evil industry with the dread profit motive. If you believe it was responsible with the environment, look into the pollution associated with both the Kingston and Fishkill plants. The dangers were not known, and dumping chemicals into the ground was the easiest and lowest cost for the disposal. As bad as it was, and the contamination is still present today, it has not been catastrophic. It is being managed.
Accidents, malicious behavior and ignorance cannot be avoided, as long as humans are involved in any enterprise. We need to work with that reality. Specifically, fracking must be performed safely, and I believe that is possible. Past mistakes cannot be a millstone that impedes economic development in NYS. Answers are required, and questions that hang over the project for unlimited timeframes are no longer acceptable. I believe that America still has the exceptionalism that can meet the challenge, if allowed, and with an acceptable profit motive.

Thursday, October 14, 2010

NY Choices: Rosy Picture, or Catastrophic Vision?

[Submitted, but they never ran it.  I couldn't get it down to 600 words.]

The debate over New York producing its own shale gas seems to be polarizing into only two possible views — a Rosy Picture, or a Catastrophic Vision. The (Syracuse) Post-Standard’s editorialists Oct. 11 showed they have been swayed by the anti-drillers, and they can’t seem to see any sensible, workable middle ground.

“Go Slowly,” the headline read. But, to me, this is just opposition masquerading as caution.

Here's why: New York already looks headed for a stalemate on shale gas. Right now, it can’t go any slower — unless the state decides to permanently ban its landowners from arranging to develop this part of their land. Alone among states bearing significant fossil fuels, New York has temporarily frozen all full-frack shale wells since July 2008. Since that time, state experts have given the environmental impacts of this new technology extensive study, hearing much public commentary, before re-drafting the drilling regs. They say New York is going to have the toughest rules in the nation. Originally, they thought they’d be done by Spring 2009, but they’re now a year and a half late, and still not finished.

To me, it already seems pretty slow.

Meanwhile, Pennsylvania has seen the drilling of thousands of wells in Marcellus shale — about 1,800 as of the time of this writing. The resulting economic hubbub down there has been undeniable. Pennsylvania has also admittedly experienced two or three dozen cases of mishap — some fairly ordinary, some spectacular, some tragic, and all unfortunate. Keep in mind that what you hear about Dimock, PA, has long since exploded beyond the original issue (methane migration into water wells), or the uncontested need to make affected residents whole again. Instead, every nuance and angle in that case has been put to work in service of the much larger causes of confrontation and persuasion, including legal persuasion.

Now the Post-Standard van has arrived at the rear end of New York’s gridlock over hydrofracking, and it kibitzes, “Go Slowly.”  Among other things, this editorialist appears to have seen some allegations blaming drilling for “stillbirths, low fertility and no milk production in livestock.” To me, it looks like yet another person has wandered through one of the thousands of web pages out there crafted by somebody whose primary motivation is to freak out the next guy. Very little of this sort of activist literature is solid enough to hold up under scientific scrutiny, or even just a journalistic, fact-checking process.

To be sure, both sides are going to argumentative extremes to win this debate — often deploying intentionally dishonest misinformation — and both sides are also staging every “truth” and every “fact” before a backdrop of persuasive imagery — the Rosy Pictures, or Catastrophic Visions.

Rosy Pictures painted by industry are glossy hype, rooted in advertising industry techniques that pluck the heartstrings of America. The stuff I’ve seen lately looks a lot like political campaign advertising — with a certain warmly lit, flannel-shirted folksy charm.

If you’re skeptical, you should be.

Taking a look at the arguments of drilling opponents, we see images filtered by a Catastrophic Vision. We sense an unimpeachable aura that’s a mixture of heartfelt concern, outright fear, and cynical disbelief. We read claims that rural areas will be rendered “unlivable,” and water supplies will be “ruined,” and government is “powerless” to make it stop or make it right, and landowners will “lose everything.”

But, again, I’m skeptical. That's really the difference between my skepticism and the skepticism of drilling opponents: My skepticism cuts both ways.

I have identified myself as an environmentalist since the first Earth Day in 1970, and since the first energy crisis of 1972. I am pro-conservation and pro-renewables, and I believe we should use all fossil fuels sparingly. The easiest way to make that happen is to make the non-renewable stuff way more expensive now. Really, it should have been done years ago. But, here, let’s finally trigger some evolutionary changes, now that the shale gas is rising:

• Arm our regulators with tougher rules and more sophisticated technological expertise.

Force drillers to minimize their impacts, and to mitigate for them. 

Have a little faith in landowners, as they organize to protect themselves, and to demand the highest possible payback from this once-only harvest. (Here’s a really clever sign held up by a protesting landowner: “Pay Me, Not OPEC!”)

Tax the gas, already.

Actually, in the Northeast, especially PA, all these changes are already underway. It all helps to create a situation where we will, in fact, “Go Slowly.”

But something tells me that’s not what the Post-Standard was driving at. “Go Slowly” usually turns out to be a code phrase for a perpetually rolling moratorium, and for giving opponents plenty of time to stir up an obstructive ruckus, while another new panel gets assigned to study and re-study the issue, indefinitely.

I say it’s not all strictly necessary. Really — we can do this thing.

Sunday, October 3, 2010

PA's Natural Gas Tax: Questions I Hope Somebody Down There Is Asking

[Just so you know, up front, where I stand, here it is:  I am an upstate New Yorker, and I am pro-drilling, and even pro-fracking.  But I am also in favor of taxing fossil fuels.  In fact, I am in favor of taxing the hell out of fossil fuels — all of them, not just natural gas.  I think this kind of aggressive taxation is the simplest and most forceful way of, not only helping to run our government, but also getting our entrepreneurial sector finally moving toward alternative, renewable sources of energy.  This is pretty much the same idea as what most environmentalists say they want, but these guys also seem to be working overtime to choke off all drilling, especially shale gas drilling, by brute political force — which is an idea I don’t much cotton to.]
Close readers of the northeastern press will have recently witnessed a particularly touchy situation in Pennsylvania, where there has been unfolding a still-unresolved political struggle to enact a so-called “severance tax” on production of natural gas from Marcellus shale under that state.  I view the PA situation as a complete non-taxpayer in that state (except highly indirectly as a natural gas consumer, up here in New York, comfy and cozy, each and every winter — thank you very much), and as an observer with a certain amount of background knowledge of this industry and its sometimes counter-intuitive ways.  

Just observing, I’m not convinced that the citizens, or the citizen legislators, of the Keystone State have thought deeply enough about the full consequences of all their Marcellus shale tax proposals.  Here, let me explain by simply asking a number of pointed questions, from up here in upstate.
  • How shortsighted is it to tax natural gas from just Marcellus shale?  How long, for instance, will it be before we see more profit-motive-driven exploratory interest in the Utica shale, which sits deeper than the Marcellus?  Or, for that matter, are there any additional, soon-to-be-proven-viable shales under PA, or the rest of Appalachia?  (Is there a geologist in the house!?)  Maybe it would be smarter to tax all shale gas, and not specify the name of the actual layer of shale. 
  • Are these PA legislators, by the way they phrase their new tax, innocently neglecting a chance to generate public money on natural gas liquids?  A number of investor-oriented media articles have pointed out that much of the profit in the Marcellus and similar shale plays has less to do with natural gas, and more to do with longer-chained natural gas liquids — propane, butane, pentane, and beyond.  Pennsylvania legislators should double-check their fine print and make sure all this energy is taxed equally.  If they’re thinking of making a tax of so many cents per 1,000 cubic feet (MCF) of natural gas, for instance, they should instead phrase their charge against all hydrocarbons measured in 1,000 cubic feet equivalent (MCFE).
[I wonder how many millions in additional public dollars could get collected, every year, running forward, because somebody thought to include that one little extra word, “equivalent.”]
  • What about coalbed methane, which also usually requires intensive hydraulic fracturing for successful production?  Can’t coalbed methane also be developed (and taxed) in PA?  If you only tax shale gas in PA, aren’t you really just encouraging industry to set the shale aside and instead start fracking coal (which, by the way, usually sits way shallower and way closer to the domestic water table)?
  • For that matter, why stop with taxing only natural gas from tight, unconventional sources?  Why not tax natural gas from all possible sources, including existing, already-producing wells?  Why not also tax oil (which is still produced in Pennsylvania, pretty much right in the same region where it was first proven and developed as an industry)?  Also, why not tax coal?  If it’s all about mitigating impacts, as tax proponents claim, then let me be one voice in the wilderness pointing out that all of these resource-extraction processes have impacts.  Part of the reason I pose this sequence of tough questions is, if you only tax Marcellus gas, you’re creating incentives for industry to simply shift its focus toward meeting energy demands in other ways, such as different sources of natural gas, or coal itself, or oil (including foreign oil). [Or the alternatives, for which I fully support the notion of selectively encouraging though tax policy.] 
But, from a national point of view, how smart is this, really?  We Americans are expected to stand quietly by while certain states tax part of our own domestic supply of energy, but any supplier can go out on the international free market and substitute alternate BTU’s from Iraq or Kuwait or Russia or Venezuela — tax-free? 
  • What possible unintended consequences lurk behind the other PA severance tax proposal, which gives industry a break in each well’s early years?  Some of the more industry-friendly Republican legislators in PA have favored this kind of severance tax, which starts out at a low level in the early years of a gas well’s lifespan, but then gets steeper after the well ages and after it has already paid for itself.  If PA adopts this kind of tax, are we encouraging gas companies to over-produce their wells in the first year or two — even if that action physically and geologically injures the ultimate recovery from these wells?  And even if there’s a supply glut going on at the same time (and prices are consequently at rock bottom)?  Is there an old-school conservationist’s worst nightmare lurking here — a danger of tax policy unintendedly encouraging waste of a non-renewable resource?  (For god’s sakes, is there an environmentalist in the house!?)
  • Are Pennsylvanians really being honest with themselves about their reasons for this tax?  You ask me, I would say all levels of state and local government simply desperately need the money.  But proponents say it’s all about mitigating governmental expense and environmental impact (especially local impact, a pitch which always plays well, politically).  But, if that’s truly the case, then there’s going to be a lot of double-dipping going on here.  Industry is already getting tithed for its most obvious external costs.  Increased burdens of government inspection and oversight?  Industry already pays permit fees to cover this. (And some insiders have even suggested these charges should be dramatically increased.)  Road damage?  Most localities already know enough to insist gas companies buy road repair bonds before drilling (and to arrange for before-and-after video inspections).  Water contamination?  Well, in a methane-migration case such as Dimock, PA, the forces of contract (existing leases), ordinary lawsuits, the state’s written and unwritten environmental powers, and unprecedented public relations pressure are already combining to put the gas company (Cabot) on the hook for millions of dollars — even in order to fix things far beyond what any court of law would ever be able to conclude was caused by the drilling, or the fracking, in the first place.
  • Does taxing natural gas create a new, pro-drilling political constituency where one did not exist before?  Many Pennsylvanians probably assume the severance tax will slow down drilling — a scenario anti-drillers cheer, while pro-drillers fret.  But are both sides failing to appreciate the big picture?  This tax thing might just be a battle, but what about the war?  After the tax, down the road, how much harder will it be, politically, for PA, or any state, to increase controls on the oil and gas industry?  At some point in time, a much greater proportion of the public is going to see how much severance-tax-derived public money is at stake here.  It will be a Big Number.  And every proposed tightening of the regulatory screws is then going to be a Very Big Deal, politically.  In the future, I predict there will be some pro-gas howling — some of it possibly even coming from environmentally minded stakeholders, once they see their favorite programs threatened with de-funding. 
[This is kinda how it already works in the state of Alaska, where every citizen every year — even Total Granolas— receives a check written by a fund fed by oil and gas income on public lands.  When that happens, suddenly nearly everybody sees the benefit of oil and gas.  (I guess that’s probably how you wind up with somebody like Sarah Palin getting elected as governor up there, leading a crowd of supporters, chanting, “Drill, baby, drill!”)
  • Is the architect behind the PA flat gas tax idea sneakily intending to discourage production during time periods when the market value of gas is way low?  Remember OPEC?  OPEC is all about achieving for its members an “appropriate” international price level on oil by openly conspiring to stifle supply.  Within the United States, that sort of behavior is ordinarily considered illegal. 
But here’s the way the PA House passed its version of the severance tax: a flat $0.39 tax on 1,000 cubic feet of natural gas.  At different times, that tax is going to have different effects.  (I'm not saying it's wrong — I'm just saying it.)  The federal government’s most recent stats, available on the web, show a nationwide average wellhead price of $4.36 per MCF in July 2010, which is pretty low by modern standards.  This means the PA House’s tax would have been about a 9% tax over this past summer — which is a pretty steep tax, compared to other gas-producing states.  But if natural gas prices ever return to their record highs — for instance, $11.32 per MCF in July 2008 according to the federal tables— then the PA House’s tax is only a 3% tax.  (The Pennsylvanian tax passers say their tax will go up, if gas prices go way up, but I haven’t been able to find the necessary threshold triggers, and it all seems a little suspiciously vague to me.)

I predict that this PA flat tax will function as a legal scheme for helping stifle supply “when necessary.”  When wholesale prices are low, industry is going to be even more motivated to choke off the valves, and to put the rigs on standby, and to generally produce less gas than what’s technologically possible — because they are so much more strongly motivated, in order to avoid excessive taxes.  Right now, industry has no legal means of collectively making this kind of thing happen (without getting prosecuted for uncompetitive behavior).  But, if the PA flat gas tax law passes, that helps change things.

Anyway, in the end, I do hope PA finally gets some kind of significant, wisely constructed hydrocarbon tax approved, and that they raise lots of money for lots of good public causes by doing so.  It may seem painful, in the short run.  But, in the long run, I think this kind of thing has the potential to prove the value of shale gas for all of us, even hard-bitten environmental opponents.

Saturday, October 2, 2010

De-Propagandizing SDWA's Hydraulic Fracturing "Loophole" (Talk About A Lost Cause!)

[Text as it ran in The (Syracuse) Post-Standard, Aug. 10, 2010 = Darker Font]

[Text those guys lopped out in order to make it fit = Grayer Font]

You ran four anti-fracking letters on Aug. 6.  All of them directly or indirectly asserted that the oil and gas industry is exempt from one or more major federal environmental statutes. Though very commonly heard these days, these claims sit somewhere between being just plain wrong and completely misleading.

In fact, if there was any journalistic fact-checking applied before publication, a lot of this stuff would have to get deleted on grounds of being unhinged from reality.  I know this may be hard for your readers to believe, but I assert that these letter writers have been very successfully, and very intentionally, misled by anti-fracking propagandists.  In an effort to win the debate over applying hydraulic fracturing technology to black shales in the Northeast, these activists have orchestrated a virally contagious chorus of spin, distortion, and untruth.

The debate is fine. But I don’t like the lying — from either side.  Let’s just take two seconds and check out this one small part of it.

I’m going to have to leave aside the preposterous claims that the oil and gas industry is exempt from the Clean Water Act, the Clean Air Act, the Superfund law, and so on. Yes, there are industry-specific exemptions from relatively minor provisions — such as stormwater management on drilling sites under the Clean Water Act — but there is no such wholesale industry exemption from the meat and potatoes of these landmark statutes.  For instance, under federal or state law, this industry cannot just set up an outflow pipe and start spewing drilling wastewater into a river.

The history of the Safe Drinking Water Act, on the other hand, carries a slightly more interesting “kernel of truth,” from which the activists have sprouted their claims.  In terms of “command and control,” SDWA actually calls for regulation of really only two areas of activity:  public water systems, and fluid waste disposal through underground injection (a practice with which very few people in the Northeast are familiar).

For more than two decades since passage in 1974, no one in authority on any state or federal level interpreted underground injection control as encompassing oil and gas well “stimulation,” or fracturing, as had long been routinely deployed during development of these resources.  Then in the late 1990s there was a very effective lawsuit brought by an environmental group having to do with hydraulic fracturing for coalbed methane in Alabama.  This environmental challenger won a series of rulings on the question of whether hydraulic fracture for exploration purposes shouldn’t be treated as essentially equivalent to underground injection for disposal purposes.  That judge agreed with the environmentalists, and this ultimately compelled creation of an ad hoc federal regulatory program overseeing hydraulic fracture — but it only had jurisdiction in Alabama.

The Energy Policy Act of 2005, among many other things, rendered this Alabama legal decision ineffective by clarifying congressional intent within SDWA.  It said clearly that hydraulic fracturing was not meant, and was never meant, by Congress to be covered under the federal underground injection control program.  So that’s the exemption, the so-called “Halliburton loophole.”  It just confirmed the status quo, which is that the states remain the primary regulators of oil and gas exploration activity.

I would not have any objection if your letter writers honestly stated that hydraulic fracturing has never been historically regulated under the SDWA’s underground injection control provisions, and that Congress in 2005 specifically laid down language confirming that intention.

But that’s not how the anti-fracking propagandists phrase it.  Instead, they spin it this way:  The industry got itself a special exemption from SDWA in 2005.

To me, it is fundamentally dishonest to leave readers with the impression that the practice of hydraulic fracturing was at one time under federal oversight, but then in 2005 the industry succeeded in winning for itself this sort of exemption.  It is equally dishonest to take advantage of readers’ ignorance in order to leave them assuming that SDWA serves up blanket regulation over many enterprises — agriculture, manufacturing, recreation, and so forth — but that the oil and gas industry has won for itself special treatment.

That’s not how it goes, that’s not how it’s been.  I just really wish we could have an honest debate here, if possible.