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Mighty Marcellus starts to bear fruit

The economic pressure to develop Pennsylvania’s massive Marcellus Shale resources is too hard to ignore

It’s a sunny Sunday in the Appalachian Mountains of northeast Pennsylvania. The rolling hills are ablaze with autumn colours and church bells are ringing in the towns and villages along US Route 6, which is a slice of classic Americana decked out in red, white and blue.

It’s the kind of day Pennsylvanians like to play football or watch it on television. The fall harvest is coming in and the markets are filled with fresh corn and gigantic pumpkins. But it’s not a quiet time of rest and relaxation. It’s not that quiet at all.

Massive trucks and 18-wheelers are rumbling down the narrow roads and lanes hauling oilfield equipment through Civil War-era towns that still proclaim home-town heroes, the casualties of America’s wars, on monuments and star-studded banners adorning lamp posts. The reason for so many fallen soldiers from such a small region is relatively easy to explain – a lack of jobs and economic opportunities in a traditionally rural area.

Not today. A steady stream of trucks are heading in every direction to a proliferation of well sites in corn fields, behind shopping centres and even in back yards. Everywhere, it seems, towering rigs are popping up around every corner. All along the highway, a whole services economy is emerging: everything from heavy haulers, pipe and valve fitters, to drive-throughs and fast-food joints.

Pennsylvania booming

In short, Pennsylvania is booming. The once-depressed region is undergoing an economic transformation thanks to the mighty Marcellus Shale, which has emerged as one of North America’s largest unconventional gasfields.

Less than half a decade ago, the place was a sleepy corner of the US that hadn’t changed much since the Second World War, dependent on coal for its economic survival. But in four short years, the landscape has been transformed.

Now locals complain they can’t find affordable places to rent. The narrow roads are becoming pitted and filled with ruts from the constant road traffic. Motels are filled every night with out-of-state workers from Ohio, Louisiana and Texas. There are lines of cars a mile long going in both directions. The morning traffic rivals anything in the bigger cities, such as Syracuse and Rochester across the border in New York State.

The US might be slipping into double-dip recession, but not here. “It’s 24-7, non-stop,” says an oilfield worker from Arkansas, who came to Pennsylvania to find work. And it’s just beginning.

Earlier this month the US Geological Survey (USGS) increased its estimates for the Marcellus Shale to 84 trillion cubic feet (cf) of recoverable resources along with 3.4 billion barrels of natural gas liquids (NGLs), a 4,000% increase since 2002. The estimate of undiscovered natural gas ranges from 43.0 to 144.1 trillion cf, and the estimate for NGLs ranges from 1.6 billion to 6.2 billion barrels – all of it unconventional. There are no conventional petroleum resources assessed in the Marcellus, the USGS said.

Conservative estimates

Nonetheless, these are conservative estimates. Other groups, such as the American Petroleum Institute (API), say the Appalachians could hold as much as 500 trillion cf, which would be second only to Iran’s conventional South Pars gasfield. In a report on the economic effects of the Marcellus, the API said the reserves are worth more than $2 trillion – even at today’s depressed natural gas prices.

But what makes the region especially appealing is its proximity to producing markets: New York City is less than two hours drive away; while Pennsylvania is home to big steel producing centres such as Allentown and Pittsburgh, which use large amounts of energy.

Well permits climbed from just four in 2004 to an all-time record of 3,314 in 2010 and 1,526 in the first half of 2011. More than 3,000 Marcellus wells have been drilled since 2008, including 1,446 last year alone. A half-dozen new pipelines are being proposed to move gas from the state into the broader North American grid.

Production, while still relatively modest, is expected to dramatically increase by the end of the decade. According to the state of Pennsylvania, Marcellus output is expected to hit 13 billion cf/d by 2020, up from virtually zero in 2008. “After just three years of production, gas from the Marcellus Shale will allow Pennsylvania to supply its entire demand for the first time in more than a century”, it said.

Logistical challenges

But there have been logistical challenges for state authorities in coming to grips with the sudden onslaught of activity. The state dramatically hiked permit fees to an average of $2,850, up from the $100 established in 1984, to double staffing levels and increase enforcement, especially in the area of hydraulic fracturing (fracking).

Despite a series of spills in 2010, a review found that fracking was being done in a professional way. The state introduced new well-construction regulations in February, following on form the recommendations of an independent advisory council.

Although fracking uses significantly more water than conventional gas wells, water usage pales in comparison with other industrial uses. The state government says Marcellus wells use just 0.2% of state-wide water supplies, or 1.9 million gallons (USG) a day. By contrast, the state’s power plants, especially nuclear generation, use 6.43 billion USG/d. Public drinking water is the next largest source of demand at 1.42 billion USG/d.

Nonetheless, the economic effects of natural gas have been dramatic for Pennsylvania. Since 2010, some 72,000 jobs have been created, at an average annual salary of $73,000. A study by Penn State University found that every dollar spent by Marcellus producers generates $1.90 of economic output. By 2020, the natural gas industry is expected to employ more than 200,000 people, generating more than $18 billion in economic activity and providing $1.8 billion in tax revenue for state and local governments.

Recession busting

Indeed, the contrast between Pennsylvania and neighbouring New York, which has essentially banned shale gas development, is striking. Unemployment rates have been dropping since 2010, but still remain well above pre-recession numbers, according to US government statistics.

Whereas its neighbours have chosen to hold up activity over concerns of fracking, Pennsylvania is pushing ahead. The result is that the state seems determined to shake off its economic malaise, even if concerns linger over fracking. Cities such as Philadelphia have banned the technique and earlier this month a grassroots group called Marcellus protest marched through the city to have fracking banned outright.

"What I'm witnessing in Pennsylvania is a systematic destruction of the state," said Josh Fox, the director of the controversial anti-shale-gas-drilling movie Gasland. That was countered by Aubrey MacLendon, chief executive of Chesapeake Energy, who accused Fox of “fear-mongering” at an industry conference.

Pennsylvania ushered in the modern petroleum age with Edwin Drake’s first well in 1859. Since then, it has experienced the ups and downs that go along with petroleum production, including a legacy of environmental pollution. Although its conventional oil production peaked in 1891, it once again finds itself poised at the cusp of the shale-gas revolution.

But with a prize so large, and in the midst of an economic downturn, the pressure to develop its massive resources is too hard to ignore. With so much at stake, both in economic and environmental terms, the state is keen to make sure history doesn’t repeat itself.

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