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September 28, 2013

Some considerations on shale gas

By Tom Pritchard Local Commentary
The Daily Star

---- — We have been told that it is not economically profitable to extract natural gas from shale deposits, be they Marcellus, Utica, Bakken, or any others, unless the market price is at least $5 to $6 per thousand cubic feet (Mcf).

The U.S. Market wellhead prices for natural gas since February of 2002 had ranged from a low of $2.19 per thousand cubic feet (Mcf) to as high as $10.79 in July of 2008. However, since that peak a little over five years ago, about when high volume horizontal hydraulic fracturing started in earnest, it dropped even lower to $1.89 in April of 2012 and was last reported by the U.S. Department of Energy’s Energy Information Administration to still be stubbornly low at $3.35 as of December 2012.

We were told that this new technology, still in its beginning stages, now enabled us to access deposits that couldn’t otherwise have been reached before. We were also told that it would enable our country to be energy independent and energy secure.

Initially, drilling operators and the companies that supply them with the chemicals they use said their information was proprietary. However New York State has required that they be disclosed. The initial chemical count was somewhere between 600 and 700 different chemicals however that list has now grown to over 900.

The industry suggests that they are not substantially different than what almost any household has under their kitchen sink or in their garage. While this may be true, that doesn’t mean that I would choose to gargle with them or ingest them.

U.S. companies, recognizing that the prevailing market prices would afford them a less-expensive source of energy, started waxing enthusiastic at the prospect of being able to reinvigorate domestic production instead of off-shoring it to locations where other costs of production (i.e., labor) were lower.

What they did not take into account was the reality that the nations of Europe and the western Pacific (China, South Korea, Taiwan, Japan) had been and are continuing to pay 4 to 5 times as much for their natural gas imports than the price they could get from the U.S.’s newly found shale sources.

So what happened? As of May 17 of this year, 26 applications were filed with the U.S. Department of Energy to convert Liquefied Natural Gas Import facilities, at the major coastal ports of our country, to export capacity. Three of these 26 conversion applications have already been approved and the other 23 are reportedly being “fast tracked.” On aggregate, they would be capable of exporting 57.34 billion cubic feet of natural gas per day and that would be over 20 trillion cubic feet per year.

After all, what oil and gas company wouldn’t want to get the highest price for what they were selling? When the dust settles on all of this, the European markets will no longer be held hostage to Russia for their NG fuels. As the Asian manufacturing sectors continue to grow, they can and will do so less expensively and thus more rapidly.

What does that do for our domestic manufacturers, our energy independence, and our energy security? Not much by my calculations. The world market dynamics will make U.S. supplied natural gas less expensive for the countries paying multiples of our current market price but as our world becomes hotter, flatter, and more crowded, the price in the U.S. market will rise and provide scant economic relief to our domestic market.

If we can’t learn from the tragic consequences of hydraulic fracturing in other states, our plentiful supplies of clean water in New York State, for us and for future generations, will be jeopardized. Our agriculture, beverage, and tourist sectors will all be negatively impacted.

The industry and its proponents contend that there has never been contamination, but there are documented cases and untold numbers of cases which have been settled on the condition of non-disclosure “gag” orders on the plaintiffs,  to obtain any financial relief for the harm they’ve experienced.

Drilling companies have also put gag orders on physicians, trying to treat people who have been harmed by chemicals from drilling accidents, before they will provide those practitioners the information they need to adequately treat the afflicted. Does this smack of obfuscation and outright lying on the part of the industry and its defenders? Decide for yourself.

If, not when, high volume horizontal hydraulic fracturing is approved in New York State, by bought-and-sold politicians and their revolving-door appointees in Albany and Washington, ask yourself how the gas will be brought to market from the widely spaced drilling pads. It won’t get there magically. I am anticipating that eminent domain will be exercised to force property owners, receiving little or no economic compensation, to allow collecting pipelines to be put on their properties along with noisy compressor stations to help move the gas from one point to another.

This prospect will merely add insult to the injury of compulsory integration, which landowners unwilling to lease their properties for drilling purposes will be subjected to.

Boom-bust economics is inevitable, as these wells typically only produce for two to three years, leaving in their wake a bunch of capped but pressurized wells which will over time deteriorate and predictably contaminate the aquifers we rely on. The drillers will be long gone, having laughed all the way to their banks.

TOM PRITCHARD, a Hartwick resident, is the president of the Arnold Lake Association and vice chairman of the the Capital Region Energy Forum.