Monday, February 20, 2012

Ten Reasons Why NY's Drilling Boom will be Really More of a Slow-Mo Boomlet

[Originally posted February 18, 2012, but later internally updated.]

Until very recently, such as this today from Jon Campbell of Gannett, I believe that Joe Citizens of New York State have been very badly misled as to the expectable pace and extent of shale gas drilling hereabouts — should their environmental regulators, and their political overseers, ever manage to get their respective acts together, regarding the permitting plan for this new enterprise.

I assert this is because both sides in the Ongoing Persuasive Contest over hydraulic fracturing are, on this point, in rare, un-conspired sync with each other — both having a hidden manipulative interest in hyping the scope and sprawl of the drilling forecast for NY. 

And this is furthermore because virtually all mainstream media observers lack the sophistication to even begin to correct for this hype. 

Here's how public perception has been led off the mark for most of the last four years: 

The anti-drilling side has desired to pump up opposition as far west, north and east as the outskirts of Buffalo, Rochester, Syracuse, Utica, and even Albany extending down into the Hudson River Valley — where much of their base comfortably resides, cozily burning inexpensive natgas all winter long (as I have done), as they sit back, clucking their tongues at the latest glossy screed from the NRDC.  To do that, the green pro's have consistently emphasized that shale gas drilling is inevitably going to be clamoring at the doors of these educated, professional, suburbanized, and more-liberalized communities.  In other words, to "win" in New York, the opposition wants as many of these far-removed folks as possible — together with even-further-removed Downstaters — thoroughly freaked out about fracking.  And, sorry to say, they have done a bang-up job of this.

Remarkably, the pro-drilling side has also nursed the same persuasive motivation, but for opposite reasons.  These message-bearers — some pro-enterprise thinkers, some hopeful landowners, some with livelihoods riding with the fortunes of industry (such as myself), and some working directly or indirectly within the PR side of industry's business — have kept alive the as-yet-unproven hopefulness that development of shale gas, from either the Marcellus or Utica formations, could eventually extend over a huge chunk of Upstate's terrain, from the Thruway south.  They want as many landowners, Chambers of Commerce, and pro-business pol's as possible, pushing the state to do its job already.  And the best way to persuade anybody is to simply tell them something they already want to hear, no matter how far flung sits their acreage, or their local economies.

Both sides have essentially wound up working together in saying shale gas in New York is going to be a huge drilling boom — an unstoppable rush — just like in PA.  And both the Sky-Is-Falling Media, and the Opportunity-Knocks Media, have amplified this message by beating either side of these very same drums. 

But, for the precious few people out there who actually care about Truly Foreseeable Reality, I'm going to spend some of my free time this Saturday talking about why New York's shale gas story won't turn out that way.  Here are Ten Reasons why New York's Long-Supposed Drilling Boom will actually turn out to be really more of a Slow-Mo Boomlet:

1) Let's start with the geology, which nobody can do anything about, anyway.  The shallower shale zones — the Utica roughly from NY's Route 20 corridor northerly, and the Marcellus running north from somewhere south of that — are way less likely to be viable on physical, economic, and regulatory grounds.  Not enough rock pressure.  And not enough of a separation between the frack layer and the groundwater layer to meet the DEC's already announced thresholds, which I'm willing to assume are reasonable.  [Despite these realities, well-meaning-but-clueless northerly local governments, such as my own City of Syracuse, have taken symbolic (and technically illegal) steps to ban hydraulic fracture from on or under their municipal limits — even though, in the case of the Salt City, the jurisdiction sits in a spot where all of the Marcellus has been washed away by glaciers long ago, and the Utica lays much too shallow to be drill-worthy.

2) The thinner Marcellus or Utica zones — basically anywhere trending toward WNY — are likely to be Plan D, or Plan E, efforts, compared to what's thicker and deeper, closer to the Route 17/Route 86 corridor,
hugging the PA line, from Corning, Elmira, Waverly, Owego, Binghamton, on into the westerly Catskills.

3) Leaving aside either depth or thickness, the Utica remains much shakier of a prospect this far into the Northeast.  There has been as yet virtually no Utica exploration in NE PA  (SW PA and OH, yes), though that could be solely because the Utica is just too deep in this area — which could become less of an economic issue, down the road.  But, so far, NE PA shale gas drilling has been practically all Marcellus, and so, as a consequence, the Utica resource's richness on either side of the PA-NY state line can really only be guessed at.  Anybody who says anything different is working more from hope or fear than data.

4) Except possibly for some as-yet-obscure, relatively shallow Upper Devonian shales (about which I've lately been hearing some intriguing whispers in NW PA and WNY), most of the Empire State's unconventional resource is virtually pure, dry, lower-valued methane.  [As referenced above, Jon Campbell's piece
focused for the first time on mainly this point, and ran in most Gannett-supplied Upstate cities Feb. 18.  For some reason, however, his own editors appeared to flinch from running this story in his own Binghamton outlet — until, that is, it came time for throwing together Binghamton's Feb. 20 edition.  That shuffle occurred about five hours after I publicly accused them of censorship on Twitter.]  Unlike OH, or SW PA, there is little significant contribution to the mix from the longer-chained, higher-valued natural gas liquids — ethane, propane, butane, pentane, and beyond (including shale oil).  The current natgas-glut-caused pricing lows, triggered by the success of the Shale Gas Technological Revolution, have already economically forced industry to shift into wetter and oilier areas.  For months, they have been in the process of (for the time-being) retreating from their dry gas prospects — at least until the supply-demand cycle comes back into proper alignment, which could be years away.  For this, and for a number of other reasons, which I'm getting to, it's entirely possible NYS could in 2012 finally open its doors to drilling permits, and the reply from industry will be something like the Deafening Sound of Crickets.

5) Given the over-wrought political dynamics in New York, the Cuomo Administration is highly likely to Slice the Baby One More Time, the same scheme of political compromise it has already adeptly wielded on a number of other nettlesome issues long haunting the Vampire State.  The way Cuomo & Company will do this will be to — sometime this Spring — announce a temporary, limited, tentative, pilot drill permitting plan for shale.  This will take the form of a temporarily limited number of permissible wells per year (justified by the not-entirely-valid excuse that — for some reason, unlike PA, or WV, or OH — NY regulators will need time to ramp up their staffing and experience).  And it will also take the form of a temporarily limited geographic extent (quietly justified by the political reality that certain areas of Upstate are basically Raring to Go on Shale Gas, while other areas are already On the Brink of Devolving into Class-Based Civil War over this issue).  Even if the economics of shale gas get back to the way they were in 2008, this is going to hold things up, needless to say.

6) There is the practical certainty of obstructive lawsuits on procedural grounds from the anti's, which might temporarily — but not permanently — hold up both drilling, and the necessary pre-cursor of leasing interest from industry.  NY will go slow, because many operators will prefer to wait until somebody else spends the time and trouble, settling all that dust.

7) A similar legal risk is posed by the activist-promoted mania for getting gullible towns to pass drill bans, gloming onto a desperate legal theory which the courts have not yet had a chance to shoot down (ruling the state has already clearly given itself supremacy over this kind of localized obstruction).  In addition to all the usual risk assessments, industry now must also measure the risk that the unthinking State Legislature will intentionally balkanize its own heartland, with bills endorsing the sounds-reasonable home rule concept.  Or it must also measure the risk that one town or another is demographically likely, come each November, to suddenly swing against the enterprise.  Either way, such turns of events have the effect of burning up all that private-sector investment in very public bonfires of free speech, smoke, and lawyer's fees.  In short, it's not good for business.  Yet more reasons to let some other operator go first.

8) There is the fact that industry is obligated, under current state law, to of course have a deal with the host owner of the drillpad location, but also to directly or indirectly have deals with at least 60 percent of the ownership of the rectangular, 600-acres-plus unit.  You can't drill in NY without getting over these requirements, the bar for which could easily be raised in the future by the already panicky State Legislature.  Because of overwhelming social and persuasive pressure in many communities of Upstate — very little of it well-informed, honest, or based in reality — these fundamental requirements will be difficult to meet in certain rural zones — at least until the populace ultimately learns firsthand that there's much less to fear than they've been so far misled to believe.

9) Upstate's ever-hopeful, as-yet-unleased landowners — God bless 'em — have been routinely running their calculators, over the past four years, every time there's another out-of-state coalition leasing deal struck, involving record bonus, or royalty, or both.  They are going to be stubbornly reluctant to sign for less, anytime soon, even though New York is Not Pennsylvania, and Now is Different than Before — and so that disappointment is going to hold things up.  (They will be entitled to their disappointment, I say, but it's not going to change the game, running forward.)

10) NY's expected regulations, fees, and oversight will be so new, so involved, so high, and so cumbersomely deployed, it will turn out the state has (wittingly or unwittingly) made drilling much more uneconomic, compared to other areas of the U.S.  This has already been warned of, but to no noticeable effect.

Anyway, when it does go, I think NY will go slow, for all these reasons.  My only hope is that this might give New Yorkers a chance to learn more, and to fear less.  (But, from what I've seen, I do have my doubts.)

1 comment:

Anonymous said...

Subbed. Awsome blog. So refreshing to find someone with the correct attitude about energy dependency. Keep on writin', we'll keep on readin'.