Pennsylvania: The Epicenter of the National Hydraulic Fracturing Debate

HBW Resources Review of Shale Development
        

Pennsylvania: the epicenter of the national hydraulic fracturing debate

By Bo Ollison–Senior Policy Director, HBW Resources

OVERVIEW

The dramatic increase in domestic natural resource development over the past few years has been largely due to the innovative process of hydraulic fracturing. According to the Energy Information Administration (EIA) U.S. natural gas proven reserves has increased from 192.513 trillion cubic feet in 2005 to 304.625 trillion cubic feet in 2011. U.S. natural gas production has increased from 18,051 billion cubic feet in 2005 to 24,063 billion cubic feet in 2012. This increased production has allowed for an increase in U.S. consumption as well. In 2005, U.S. consumption was 22,014 billion cubic feet while in 2012, it was 25,505 billion cubic feet.[i] Shale gas plays in North Dakota, Texas, Ohio, West Virginia and Pennsylvania have helped stimulate a dramatic reduction in prices consumers, as well as manufacturers, pay for cleaner less expensive energy while also creating new investment, jobs and state revenue from royalty payments. According to a study from the consulting group HIS, estimates are that the average family saves $1,200 per year based upon the expanded use of natural gas with anticipated savings of $2,000 annually by 2015 and $3,500 by 2025[ii].
No where are the benefits of natural gas development more apparent than in the state of Pennsylvania. With the state having access to the Marcellus shale as well as the Devonian and close access to the Utica shale plays, the Pennsylvania economy has significantly benefited. $731 million in royalty payments last year greatly benefited all aspects of the Pennsylvania economy, according to an analysis by the Allegheny Institute for Public Policy. That was a staggering 6,600 percent increase in just five years. In 2012, Pennsylvania wells produced 2.065 trillion cubic feet of natural gas. What is even more interesting is that the dramatic increase in royalty payments has come as the price for natural gas has dropped broadly. The average price for natural gas was $2.83 per thousand cubic feet in 2012, which was less than a third of the 2008 price of $8.90 per thousand cubic feet.[iii]

According to reports, the natural gas industry invested more than $12 billion in Pennsylvania in 2011 while supporting more than 200,000 good paying jobs. In addition to the direct investment and job creation, the industry has generated more than $1.8 billion in tax revenue and invested more than $500 million in rebuilding roads and bridges since 2006, in addition to $406 million in impact fees paid by natural gas drillers since last year.[iv]

Another benefit of natural gas development to the state involves the Pittsburgh International Airport.  Consol Energy will begin shale gas drilling on 9,000 acres owned by the airport. The deal figures to be lucrative for the airport over the 20-year lease and could eventually offer additional benefits to air cargo in the region. The airport, which sits in the middle of the Marcellus Shale field, received a $45.3 million payment from Consol within an hour of the deal being approved in February. It will also receive 18 percent royalties based on production, which could turn into $500 million over 20 years. Consol’s plan calls for development of six to eight well pads, which are 5-acre-square areas. Eight to 12 wells will be drilled on each pad, which will be on airport property but several hundred feet off to the side of the airport itself. Construction of the well sites, three centralized impoundments and pipelines are expected to start in the second quarter of 2014. Drilling is anticipated to begin in July 2014 with two vertical rigs. The oil and gas money will provide two benefits to air cargo: operating costs for carriers will be reduced, and the funds will allow the airport to improve its infrastructure and build new facilities. Infrastructure improvements could eventually include new taxiway connections to new cargo aprons. The remainder of the money will go toward capital improvements or economic development projects at the airport. As the drilling ramps up, there is also likely to be demand for just-in-time, via airfreight, delivery of equipment and critical supplies.[v]

Consol could also have a big payoff for residents near the airport. The company is planning to buy its water from the cities of Findlay and Moon to supply all of its hydraulic fracturing operations when it drills for Marcellus shale gas under the airport. Consol estimates it will need about 300 million gallons of water for fracking. It will drill 47 wells over four years — using an average of more than 1 million gallons a day. That would immediately make the company the largest water customer for both townships, pumping millions of new revenue into the two municipal water authoritiesbetween 2015 and 2018, their managers said. Neither plans to cut rates, but the influx of cash will likely help keep rates stable while the authorities make needed pipeline and sewer improvements, they said.

Infrastructure investments have led to a 51 percent surge in Marcellus shale gas production over the last year, EIA reported. Between July and September 2012, key projects boosted production capacity in the region expanded nearly 1 billion cubic feet per day:
·         In July, Equitrans brought its Sunrise Project online. The pipeline has the capacity to carry 310 million cubic feet per day from Wetzel County, WV to Greene County, PA, and also provides access to five other interconnections that serve companies throughout the Mid-Atlantic region.
·         In September, Dominion Transmission began service on its Appalachian Gateway Project, which features four new compressor stations and 110 miles of new pipeline. That project can handle up to 470 million cubic feet of natural gas per day, transferring it from production areas in West Virginia and southern Pennsylvania to an interconnect with the Texas Eastern Transmission Pipeline.[vi]

Taking into consideration the economic benefits provided by the development of natural gas within the Marcellus Shale, how has the Pennsylvania government, elected officials and political party’s approached natural gas development? Over the past year, there have been numerous legislative efforts to revise Pennsylvania statute, including most notably an effort by the Pennsylvania State Democratic Party to ban the practice of hydraulic fracturing all together.

STATE ACTIONS

At its Committee meeting on June 13, 2013, the party passed a resolution in support of a moratorium on the practice of hydraulic fracturing in the state by a vote of 115-81[vii]. What was the basis for this decision? Why would a party in a state that is so clearly benefiting from responsible natural gas development try and eliminate it? According to Republican strategist Brennan Hart, who has run recent statewide campaigns, “The reason, I would guess that the Democrats decided to make that leap, with redistricting in the state, it is so divided. East of Harrisburg, there isn’t any drilling. Most Democrats in the state legislature are located in areas where there is no drilling – the southeast portion of the state and directly within Pittsburgh. It was a ‘safe’ vote for them since it doesn’t impact them, or their constituents, directly. This decision really only impacts Democrats from the western portion of the state where the drilling is actually happening. Those legislators don’t know what to do. Their constituents are making money. Another big issue to consider is that if the state were to ban hydraulic fracturing, where would the budget shortfall be made up? Are the Democrats willing to cut education and transportation funding?”

Even Democratic candidates for Governor and legislators have come out against this policy. Kathleen McGinty, the former state Department of Environmental Protection Secretary under former Governor Ed Rendell, who is running for the nomination to oppose Governor Tom Corbett next year had her staff announce her opposition to the moratorium proposal. Her campaign manager, Mike Mikus (full disclosure, Mike has been associated with an HBW client, the Consumer Energy Alliance), said she opposes a statewide moratorium “because she believes that we can produce energy here, and create good jobs while protecting the environment.”[viii]

Another issue facing natural gas development in Pennsylvania is a proposal from Rep. Allyson Schwartz (D, PA 13) who is currently running for the Democratic nomination for Governor. Earlier this month, Rep. Schwartz proposed that as governor, she would impose a five percent severance tax on Marcellus Shale production. Her “reasonable, fair, moderate tax” proposal would generate $612 million this year and nearly triple to $2 billion in ten years. Schwartz would use that revenue to invest in education and transportation infrastructure. The tax would be levied against drillers in Pennsylvania in addition to the existing impact fee passed by the state legislature last year.

Recently, eighteen Democratic members of the Pennsylvania House wrote to State Party Chairman Jim Burn, to “express their concerns regarding the decision by the Pennsylvania Democratic State Party on June 13, 2013, to pass by a margin of 115 to 81 votes a resolution in support of a moratorium on the practice of hydraulic fracturing in Pennsylvania.”[ix] Multiple email requests to the state party’s Communication Director Nick Nicastre, Rapid Response Director Marc Eisenstein and Deputy Rapid Response Director and Deputy Press Secretary Beth Melena for comment related to the ban have not been returned.

Will the proposed ban impact next year’s race for Governor and other races in Pennsylvania? A recent poll conducted by Harper Polling, showed that only 26 percent of those surveyed believe that the Governor merits re-election.[x]

According to Hart, “Within the Democratic primary, with four officially declared candidates and three to four tipping their toes into the race, most are pretty liberal and all are from the eastern part of the state. Are they going to run on the ban? The southeast portion of the state is the only portion that matters to them at election time. In 2012, Governor Romney won 55 out of 67 counties, but lost the big ones and lost the state. Governor Rendell when he was elected, won only five out of the 67 counties. The ban helps the Republicans in two ways. Governor Corbett has a problem with his base. This is an issue that will likely get the Republican base fired up, lefty environmentalists trying to kill jobs in Pennsylvania. Thousands have been employed, funding in rural areas where manufacturing died are now set for life. While the unemployment rate is still fairly high, it has gone down and they are trying to kill jobs. Also, the epicenter of drilling is in Beaver and Washington counties, which are solid Democrat districts, old steel towns who have seen a resurgence due to drilling. I wouldn’t be surprised to see a lot of them come out against the proposal. No matter what happens next year, the ban is never going to become law. The legislature will never allow it.”

There are additional potential political concerns related to hydraulic fracturing ongoing in Pennsylvania. State Sen. Jim Ferlo (D, District 38) has sent out a memorandum asking for co-sponsors for his proposed, “Statewide Natural Gas Drilling Moratorium.” the proposal would, “prohibit the Department of Environmental Protection from issuing any new unconventional well permits while a seven member commission studies the varied environmental impacts that the natural gas industry has on the Commonwealth.”[xi]

Sen. Ferlo introduced his moratorium on state-issued hydraulic fracturing permitting this past month. Sen. Ferlo wants a study commission appointed to “conduct an unbiased study” of fracking issues. They include water source protection, air quality regulations, disclosure of chemicals used in fracking, and the state’s permitting process. The moratorium would only be partial and temporary, giving the state enough time to pass stricter regulations before it opens the door for new drilling permits, Ferlo said. The bill would mandate several improvements to the new regulations that the Legislature set in last year’s oil and gas reforms, Act 13. A law that Ferlo called weak.

Another important issue related to natural gas development in Pennsylvania that found its way to the Governor’s office involves SB 259. The bill, introduced by Sen. Gene Yaw (R, District 23), regulates how oil and gas royalty information is to be provided to lessors. The legislation was originally promoted as an effort to bring more transparency to the deductions companies take out of royalty payments.  The new legislation gives drillers the ability to “pool” leases and only applies to people with existing oil and gas leases. It allows companies to combine land parcels for horizontal drilling, unless it’s explicitly prohibited in the lease. Gov. Corbett signed the legislation into law on July 9, 2013.

EQT Corp. has sued landowners in Allegheny County for access to their properties under this law that gives gas drilling companies the power to combine some neighboring parcels into drilling units without compensating owners. The 69 individuals and one golf course in Forward named in the lawsuit are accused of blocking the company from conducting surveys on their land to determine where to drill for shale gas. It appears to be the gas industry’s first attempt at using the law.[xii]

The State House also gave unanimous consent to HB 1414, which would amend Pennsylvania’s law regarding oil and gas royalties, commonly-known as the Guaranteed Minimum Royalty Act. The amendment won’t change the net-back method of royalty calculation or change the minimum royalty amount. But, it would require producers to provide a detailed check stub or other document detailing the following information:
(1) A name, number or combination of name and number that identifies the lease, property, unit or well or wells for which payment is being made and the county in which the lease, property or well is located.
(2) Month and year of gas production.
(3) Total barrels of crude oil or number of Mcf of gas or volume of natural gas liquids sold.
(4) Price received per barrel, Mcf or gallon.
(5) Total amount of severance and other production taxes and other deductions permitted under the division order, lease, servitude or other agreement with the exception of windfall profit tax.
(6) Net value of total sales from the property less taxes and deductions from paragraph (5).
(7) Interest owner’s interest, expressed as a decimal or fraction, in production from paragraph (1).
(8) Interest owner’s share of the total value of sales prior to deduction of taxes and deductions from paragraph (5).
(9) Interest owner’s share of the sales value less the interest owner’s share of taxes and deductions from paragraph (5).
(10) Contact information, including an address and telephone number.

The bill adds an Apportionment section which allows an operator to develop contiguous leases by horizontal drilling, unless expressly prohibited from doing so in the particular leases. In such a situation, royalties would be determined, unless agreed otherwise by all affected royalty owners, by allocation “in such proportion as the operator reasonably determines to be attributable to each lease.” Moreover, the bill allows for accumulation of royalties annually if the royalties total less than $100. There are certain exceptions to this allowance and the proposed law imposes certain escrow account requirements.

Rep. Michele Brooks (R, District 17) announced her intention on introducing legislation to prevent oil and gas companies from deducting post-production costs from royalties paid to landowners and also plans to introduce legislation that would repeal a recent law allowing oil and gas drillers to pool leased properties into one unit for horizontal wells, as long as the oil and gas contracts in effect do not prohibit these combinations. Until the Pennsylvania House added two sentences allowing the forced pooling of leases, this law was simply intended to require natural gas companies to standardize all deductions listed on royalty check stubs. Brooks wants to repeal the law’s pooling language in order to allow individual landowners to re-negotiate their leases.

An arm of the Pennsylvania Department of Environmental Protection (DEP) has recently proposed anew package of regulations that would govern the surface operations of oil and gas producers in the state. The proposed rules from the Environmental Quality Board were developed by the DEP as part of a two year push to refine Act 13. DEP spokesperson Lisa Kasianowitz said the package includes four main changes:
·         Force oil and gas operators to be in discussion with agencies of nearby state resources before drilling. For instance, if a proposed drill site is near a state park, The Department of Conservation and Natural Resources could make comments to the DEP and operator about the drilling.
·         Set guidelines for the storage of materials on well sites including the use of “secondary containment,” in which operators must set up liners or double walled tanks to prevent contaminants from reaching state waters.
·         Require operators take pre-hydraulic fracturing specimens of abandoned wells in the area. Ensuring the fracking process doesn’t affect nearby abandoned wells.
·         Set rules to protect water sources from operations under waterways.

Shale gas drillers in Pennsylvania are facing new rules that will, for the first time, limit noxious emissions, including nitrogen oxides, volatile organic compounds and hazardous air pollutants. The new state rules were published Saturday, August 8 in the Pennsylvania Bulletin and take effect immediately. According to the rules, shale gas drillers will be required to either get an air quality plan approved by the state DEP before drilling a well, or implement practices and emission controls more stringent than federal requirements that took effect in April 2012. The new rules end the 1996 blanket exemption granted unconventional shale gas wells from pollution control requirements.

The DEP has also announced that its long-term air monitoring study in southwestern Pennsylvania will continue through the end of the year. The agency also released a technical support document that provides additional information about the study’s scope and process. In July 2012, DEP announced it would be conducting a long-term study in southwestern Pennsylvania to measure ambient air concentrations of pollutants, in Chartiers Township, Washington County, where both “wet” and “dry” gas are being extracted and moved to sale via compressor stations and pipeline networks.

Another political debate is happening within the Delaware River Basin Commission (DRBC), a regional body that includes representatives of the four basin state Governors: Delaware, New Jersey, Pennsylvania and New York as well as the Commander of the U.S. Army Corps of Engineers North Atlantic Division. Governor Corbett, in addition to the Northern Wayne Property Owners Alliance (NWPOA), has complained regarding the Commission’s lack of movement on implementing new gas drilling regulations and its existing “moratorium” on hydraulic fracturing. In December 2010, the Commission released its proposed gas drilling regulations. Following an extensive public hearing and comment process, the Commission revised its draft regulations in November 2011 and scheduled a meeting later that month to vote on the proposal. Unfortunately, the meeting was quickly canceled after it became clear that the Commissioners did not agree.

There has been no movement from the Commission since. NWPOA, in a letter dated June 27, 2013threatened to sue if, “the Commission, at its July 9-10th meeting, fails to at least schedule a vote before year’s end on the proposed regulations or, alternatively, fails to step aside and abandon any plans to regulate natural-gas activity in the basin that the Commission simply has no intention of ending what has become a de facto ban and that we are being forced to begin litigation against the Commission, its member states and executive staff and others who may have worked in concert with them, to regain our right to access our mineral estates.”[xiii]

The existing “moratorium” imposed by the DRBC has had a negative economic impact. Two energy companies, Hess Corp. and Newfield Exploration Co., sent letters to landowners in northeastern Pennsylvania notifying them that their leases are no longer in effect. The $3,000 per acre leases, with more than 1,300 families, were structured so that some money was paid up front with the rest once drilling had started. According to NWPOA, who negotiated the leases, the moratorium has cost landowners more than $187 million.[xiv]

LOCAL ACTIONS

Not all activity is at the state level. Allegheny County Councilwoman Barbara Daly Danko proposed legislation that would create a three-year hold (ending on January 1, 2017) on the development of natural gas beneath county parks in order to investigate concerns and prepare “a comprehensive study” about who holds the rights to the subsurface minerals. At present, according to the motion submitted to the Council, “it is unclear whether or not the County owns the mineral rights to all County park land and if restrictive covenants exist which bear on the ability to lease those rights leaving the County at risk of a lengthy and costly legal entanglement that could render any royalty revenue moot.” This request comes after county officials discussed the possibility of allowing drilling in the 1,200-acre Deer Lakes Park. Matt Drozd, another councilmember, has proposed an ordinance that would allow the voters to decide whether or not to have drilling for natural gas under the county’s parks.

North Strabane Township supervisors recently tabled a decision regarding a possible non-surface Marcellus Shale gas lease deal. Two offers are on the table, one from Rice Energy and one from Range Resources, both located in Southpointe. The two companies want to conduct non-surface drilling on 81.8 acres located off state Route 519, that township Manager Frank Siffrinn said consists of the land the municipal building and park are situated. He stressed that it is non-surface drilling, which would mean no disruption of daily activities there. When I spoke with Mr. Siffrin, he went on to say that the supervisors, “are weighing the offers, but nothing has been finalized. This is a very fluid process, where it could come up at the August meeting or drag on for a couple of months.”

Ford City Borough council delayed going forward with plans to lease the mineral rights of a parcel of land in North Buffalo in an attempt to get a better deal. At Councilman Gene Banks’ suggestion, council members plan to discuss the matter in an executive session with experts in the gas and oil industry. During the Aug. 12 meeting, council voted in favor of leasing the mineral rights of the former Ford City Dump (off Bunker Hill) to Penn Natural Resources — pending borough Solicitor Frank Wolfe’s review and recommendation.

The Armstrong School District plans to lease its oil and gas rights at Lenape Elementary School in Manor Township to two drilling companies. The school board approved a two-year lease with Kittanning-based Snyder Brothers, Inc., and Kittanning-based MDS Energy to drill for Marcellus shale gas on a 49.36-acre parcel at Lenape Elementary School, and a 43.51-acre parcel at Lenape Technical School. The board approved the lease in an 8-0 vote. The two companies plan to join forces, in hopes of maximizing production on the district’s land. The companies will begin applying for permits through the state DEP within the next couple of weeks, but construction and drilling may not begin until next summer. In addition to the Lenape Elementary and Lenape Technical schools, he district holds a lease with Snyder Brothers at the West Hills Primary and Intermediate schools campus.

Two counties in northeastern Pennsylvania are backing a plan to seek $250,000 of state funding to examine drinking water quality in private wells and the possible effects of Marcellus Shale natural gas drilling. County commissioners in Bradford and Lycoming Counties say they will write a letter of support for a $250,000 grant from the Pennsylvania Department of Community and Economic Development. There’s been a recent boom in gas drilling in both counties. Officials say Guthrie Health, Geisinger Health System and Susquehanna Health are applying for the funding to conduct the study, which they would do in collaboration with the United States Geological Survey. Curtis L. Schreffler of the USGS says his group would provide technical leadership for the study and also contribute an additional $100,000.[xv]

Pennsylvania’s economic development team wants drivers to start filling up their cars with natural gas – and they’re willing to hand out taxpayer money to kickstart the trend. The Commonwealth Financing Authority awarded more than $2 million in grant money plus a $169,000 loan for five natural gas fueling stations. The goal is that incentivizing fueling stations will, in the long term, continue to grow the state’s Marcellus Shale-related job markets, said Steve Kratz, spokesman for the Department of Community and Economic Development. All the recent Commonwealth Financing Authority fuel station awards went towards publicly accessible CNG stations. Sunoco will receive more than $500,000 for installing a CNG refueling station at the Pennsylvania Turnpike King of Prussia Service Plaza, and another in nearby Upper Merion Township. Clean Energy Inc., will add another station to an existing CNG fuel stop in Upper Merion Township with around $196,000 in state grant money. Clean Energy is receiving another grant for around $436,000 to add a CNG fueling station to a gas station in Hamilton Township in Adams County. The other two projects are in Franklin County and Philadelphia.

Pennsylvania’s Johnson College of Technology is also gearing up to service the rapidly growing natural gas vehicles market. Starting this fall, the two-year college will incorporate components on compressed natural gas, the fuel that powers NGVs, into its diesel truck and automotive technology degrees.

A final political issue involves State Rep. Daryl D. Metcalfe (R, District 12), the chairman of the House Committee on State Government, who recently said he has asked the State Ethics Commission toinvestigate conflict of interest allegations against the wildlife agency official, William A. Capouillez, who is responsible for natural gas development on state game lands. The Inquirer reported last month that Capouillez, who oversees oil and gas leasing on 1.4 million acres of public game lands, operates a prosperous business in his off-hours negotiating gas leases for private landowners. Rival gas-leasing agents have complained for years that Capouillez’s state job as director of the Bureau of Wildlife Habitat Management gives him an unfair advantage.

FEDERAL ACTIONS

At the federal level, Pennsylvania Congressman, Representative Matt Cartwright (D, PA 17) introduced the, “Closing Loopholes and Ending Arbitrary and Needless Evasion of Regulations (CLEANER) Act” a bill that aims to end a hazardous waste exemption to the, “Resource Conservation and Recovery Act (RCRA.)” The bill was introduced with 43 co-sponsors and was endorsed by 137 organizations from across the country.

Sen. Bob Casey (D, PA) kicked off a statewide economic development tour during the August Congressional Recess by visiting the Alberts Co. headquarters just outside Williamsport. In front of the Spray Solutions warehouse, Casey held a press conference to unveil a bill that aims to pump federal job-training dollars into Pennsylvania’s natural gas industry. The federal Workforce Investment Act, enacted in 1998 and now up for reauthorization, enables the U.S. Department of Labor to dole out grants to local workforce investment boards to provide employers with subsidized job training. Casey’s proposed legislation, called the Marcellus Shale On-the-Job Training Act, would earmark some of those funds to companies involved in the exploration, production and transportation of natural gas extracted from the Marcellus Shale.

A landmark federal study done by the National Energy Technology Laboratory in Pittsburgh on hydraulic fracturing was released in July and showed no evidence that chemicals from the natural gas drilling process moved up to contaminate drinking water aquifers at a western Pennsylvania drilling site. Although the results are preliminary, the study is still ongoing, they are a boost to a natural gas industry that has fought complaints from radical environmental and anti-development groups as well as some property owners who call the process dangerous. Eight new Marcellus Shale horizontal wells were monitored seismically and one was injected with four different man-made tracers at different stages of the fracking process, which involves setting off small explosions to break the rock apart. The scientists also monitored a separate series of older gas wells that are about 3,000 feet above the Marcellus to see if the fracking fluid reached up to them.[xvi]

INVESTMENT & ECONOMIC DEVELOPMENT

Outside of the political issues facing the state, there has been sizable investment related to natural gas development within the state. The ethane being produced in the Marcellus and Utica shale region should be enough to support construction of several ethane crackers, officials with MarkWest Energy believe. MarkWest has invested $2.2 billion into pipelines, processing and fractionation plants in the region. The fractionation plant at Hopedale served as the destination of the six “superloads” that recently made their way through Steubenville. MarkWest has contracts to process Ohio gas for Gulfport Energy, Antero Resources, Petroleum Development Corp. and Rex Energy. The company also processes gas at the Mobley site in Wetzel County and the Majorsville complex in Marshall County, working for producers such as Magnum Hunter, Consol Energy, Noble Energy and Range Resources. The Cadiz processing complex will soon include two de-ethanizers, which will remove ethane from the gas stream. Currently, the company has three options for its ethane: send it to Canada for cracking via the Mariner West Sunoco pipeline; send it to the Gulf Coast for cracking via the ATEX Express pipeline; or send it to the Gulf Coast for cracking over the Bluegrass Pipeline. There are now about 2,500 construction employees working to build the Harrison County plants and the pipeline network to which they connect, a number it believes will increase in the near future.[xvii]

There are other community benefits from natural gas development in Pennsylvania. UGI Penn Natural Gas customers’ bills should still be one-third lower than they were five years ago – even with a rate increase on June 1. Since the Marcellus Shale drilling boom started in 2008, the resulting bounty of natural gas has translated into savings for Pennsylvania customers. Pat Creighton, a spokesman for the industry group Marcellus Shale Coalition (MSC), says it’s a trend nationwide. “We are flush with gas in the United States, and that is a direct benefit to the consumer,” he said. Based on the use of 89 mcf – 8,900 cubic feet – per month, the average monthly bill for a residential UGI Penn Natural Gas customer was $157.95 as of June 1, 2008, according to data provided by the company. After UGI’s 4.2 percent increase took effect on June 1, the average monthly residential bill is $96.67.[xviii]

The Municipal Authority of Westmoreland County could earn up to $6.5 million this year in royalties from Marcellus shale gas drilling on its 8,000 acres. And officials want to make sure they receive every penny they are owed. So the authority board hired a consultant to audit the books for the 32 deep wells, along with other gas-producing facilities, on its properties. Royalties from gas production have been a boon for the utility, which sells water to more than 125,000 customers in five counties. Through the first quarter of the 2013-14 fiscal year, the money received from gas royalties has outpaced expectations and has bailed the authority out of a projected revenue shortfall. Revenues from water sales fell $750,000 short of projections for the first four months of the current fiscal year. Meanwhile, gas royalties have been $500,000 over budget — keeping the authority’s finances near the break-even point.

Natural gas companies fixed or are repairing at least 413 miles of state roads in Susquehanna, Wyoming and Wayne counties, a Times-Tribune review of state Department of Transportation (DOT) records show. In one example, more than $1 million in natural gas impact fees will be used to pave and repair 25 of Williamsport’s streets this fall and next year, enabling the city to get twice as many projects done as in years before, city officials said. “We’re doubling the amount of investment because of Marcellus Shale impact fees,” said John Grado, city engineer and director of community and economic development. Gas impact fees, those derived from taxes on local gas wells, will enable more to be done and less dependence on the city’s general fund, community development block grants or liquid fuels allocations, he said.[xix]

Butler County also continues to benefit from Marcellus shale money, according to Controller Jack McMillin’s Comprehensive Annual Financial Report. For 2012, the county received $1.2 million in drilling impact fees, up from $900,000 in 2011. The county used a portion of that money to balance its 2013 budget that included a 1-mill tax increase, with commissioners saying that deficits at the emergency services center and the Sunnyview nursing home made the increase necessary. At the end of 2012, according to McMillin’s report, the county had 152 producing gas wells, up 81 percent from 84 wells at the end of 2011.[xx]

Proportionally, more bridges have been substantially repaired in areas where the natural gas industry is booming than in the region’s more urban areas since March 2011, state DOT data show. In Lackawanna, Luzerne and Pike counties in PennDOT’s District 4, 38 bridges deteriorated to the point at which they were classified structurally deficient during that period. Meanwhile, 32 bridges in these counties were replaced or repaired sufficiently to remove the structurally deficient designation. Rettew Associates provides bridge and highway services for several Marcellus Shale companies. “Three of the businesses we work with have spent more than $250 million on roadway reconstruction in the northern tier of Pennsylvania alone,” said Jeffrey Case, director of transportation at Rettew, in an emailed response sent by company spokeswoman Holly White. “There have also been two bridge replacements in Northeast PA where the cost to the natural gas company exceeded $300,000.” One of those companies is Southwestern Energy, which Mr. Case said offered to “make a temporary repair” to a Susquehanna County bridge that could not support the weight needed for its trucks. Mr. Case said the company offered to fully fund and manage a full replacement of the bridge in the fall.[xxi]

Holbein Inc. plans to excavate and sell shale rock from its new location in Buffalo Township. The township supervisors approved a permit allowing the extraction. Holbein also must be granted a permit from the state Department of Environmental Protection in order to sell the rock. Once the company begins selling the shale, the DEP will do regular inspections of the operation, Holbein said.[xxii]

Another important factor facing Pennsylvania’s natural gas development is the recent announcement that the MSC’s Chief Executive Officer Kathryn Klaber will be stepping down later this fall.[xxiii] Ms. Klaber has run the organization for the past four years which coincides with the dramatic increase in development of the Marcellus Shale. The MSC is the state’s leading natural gas industry group. The impact of this upcoming change has yet to be felt and a replacement has not yet been named.

SUMMARY
Obviously, the state has greatly benefited from natural gas development and will continue to do so as long as industry views the state as receptive to business and the potential to extract natural resources economically continues. With the upcoming elections already generating public interest, candidates are likely going to have to state their perspective towards the industry and whether or not Pennsylvania continues developing their natural resources for the benefit of the entire state.

As Hart stated, “Shale gas and casino’s and their corresponding influx of cash are the only two things allowing the state to balance the state budget. Without these revenue sources, there will have to be massive budget cuts, particularly to education and transportation. I don’t think the residents of Pennsylvania support that. Pennsylvania can’t afford to have the proposed ban on hydraulic fracturing come into effect and eliminate natural gas development within the state. All that would do would be to send money and jobs to Ohio.”

Continued and expanded domestic energy development is vital to economic growth and job creation. States such as Pennsylvania, that have existing regulations and experience in place will have a competitive advantage over states just entering the natural gas development market. As long as local, state and federal regulations minimize the intrusion into the operations and investment decisions of the energy sector, states such as Pennsylvania and its citizens will continue to benefit.



[i] “Overview data for the United States,” U.S. Energy Information Administration. http://www.eia.gov/countries/country-data.cfm?fips=US#ng
[ii] IHS, “The Economic and  Employment Contributions of Shale Gas in the United States,” December 6, 2011.
[iii] “Marcellus Royalty Payments Rising Rapidly” The Allegheny Institute for Public Policy, Policy Brief: Volume 13, Number 27, May 30, 2013.
[iv] Letter to PA Democratic State Committee Chairman Jim Burn from Rep. Marc Gergely et. Al., July 15, 2013.
[v] “Pittsburgh gas project could benefit cargo,” by John McCurry, Air Cargo World, July 8, 2013.
[vi] “Jared Hunt: More gas pipelines drive state exports” by Jared Hunt, The Daily Mail. August 1, 2013
[vii] “Rendell: Pa. Democrats’ call for fracking moratorium ‘ill-advised’” by Robert J. Vickers, The Patriot News. June 21, 2013.
[viii] “Rendell criticizes Pennsylvania Democrats, fracking moratorium” by Bob Downing, Associated Press. June 24, 2013.
[ix] Letter to PA Democratic State Committee Chairman Jim Burn from Rep. Marc Gergely et. Al., July 15, 2013.
[x] “New Poll Shows Gov. Corbett Approval Rating Continues to Slide” by Mark Abrams, CBS Philly, July 9, 2013.
[xi] Memorandum from Senator Jim Ferlo to All Senate Members regarding Statewide Natural Gas Drilling Moratorium. April 30, 2013.
[xii] “Driller EQT sues 70 Allegheny property owners under pooling law” by Timothy Puko, Trib Total Media, July 31, 2013.
[xiii] Letter to Carol Collier, Executive Director, Delaware River Basin Commission from the Northern Wayne Property Owners Alliance LLC, June 27, 2013.
[xiv] “Gas drillers cancel lease with NE Pa. landowners” Associated Press, July 15, 2013.
[xv] Pa. counties back drilling, drinking water study,” Associated Press, July 26, 2013.
[xvi] “DOE Study: Fracking chemicals didn’t taint water” by Kevin Begos, Associated Press, July 19, 2013.
[xvii] “MarkWest pumping billions into area” by Caey Junkins, The Times Leader, July 15, 2013.
[xviii] “Drilling boom helps keep gas prices lower” by Elizabeth Skrapits, The Times Tribune, July 8, 2013.
[xix] “City to use gas impact fee revenue to fix 25 streets” by Mark Maroney, Williamsport Sun-Gazette, July 21, 2013.
[xx] County of Butler, Pennsylvania Comprehensive Annual Financial Report for the Year Ended December 31, 2012. Prepared by the Office of the Controller, John R. McMillin, Jr., Controller.
[xxi] “Natural gas companies have fixed some bridges” by Kyle Wind, The Times-Tribune, July 14, 2013.
[xxii] “Shale excavation operated OK’d in Buffalo Township” by Jodi Weigand, Trib Live, July 11, 2013.
[xxiii] “Head of Marcellus Shale Coalition stepping down” by Kevin Begos, Associated Press, July 26, 2013.

Additional Information

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Bo Ollison
HBW Resources
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Contact Information

If you have any general questions, please contact us anytime. Previous versions of the HBW Ollison Hydraulic Fracturing Report, the HBW Greenfield Offshore Energy Report, the Forsgren Environmental Report, and the Washington updates and new Member profiles can be viewed at:https://hbwresources.com/intelligence/. We hope this information is useful to you.

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Michael Zehr
HBW Resources
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