Current featured articles for the home page

Report: Economic Consequences of Marcellus Shale Gas Extraction

By Susan Christopherson, PhD – Cornell University

Gas Pipeline Construction

Gas Pipeline Construction

The Economic Consequences of Marcellus Shale Gas Extraction report outlines some of the key issues explored by a team of researchers centered at Cornell University during the period of New York’s moratorium on high volume hydraulic fracturing (HVHF) for natural gas.  Our research focused on Pennsylvania, where Marcellus HVHF drilling has already begun, and on New York, which is still considering how to regulate HVHF, but we also made use of the experience of other states that have shale gas plays where HVHF has been in use far longer than in Pennsylvania.

At 17 pages, this report is a series of snapshots about what we found.  For a more fulsome account of our analysis and findings on most of these issues, we encourage you to read the complete working papers and policy briefs we have made available for download.

We launched this research project because it had become evident that the public and policy discussion over the consequences of Marcellus shale gas extraction had devolved to a polarized debate contrasting potential effects on water supplies with potential economic benefits – such as job creation.  The consequences for water resources were (and are) receiving a great deal of attention; the economic consequences were not.  We did not begin with a disposition for or against shale gas extraction, but we wanted to develop a realistic picture about what to expect, and about the economic consequences both in the short term and in the longer term.

As you will see in the report, the consequences that should concern us all go well beyond environmental concerns, and their economic implications include costs as well as benefits.  On balance, is shale gas extraction likely to be an economic winner? Not necessarily.  We conclude that while there are real economic benefits for some parties, if shale gas extraction is to be at all a positive force for economic development broadly and long term, it will require intensive planning and a new structure of regulation, monitoring and enforcement – along with the means to pay for it – that are not currently in place.

Susan Christopherson, PhD
Professor, Department of City and Regional Planning, Cornell University
Principal Investigator

If It’s Unsuitable For Mining, Is Drilling Advisable?

There are a handful of watersheds, predominantly in central Pennsylvania, that the Department of Environmental Protection has deemed to be unsuitable for mining activities.

According to pages 100-101 of the Oil and Gas Operator’s Manual, a region may be determined to be unsuitable for mining if the mining operation will:

  1. be incompatible with existing State or local land use plans or programs;
  2. affect fragile or historic lands in which such operations could result in significant
    damage to important historic, cultural, scientific and esthetic values and natural
    systems;
  3. affect renewable resource lands in which such operations could result in a
    substantial loss or reduction of long-range productivity of water supply or of
    food or fiber products, and such lands to include aquifers and aquifer recharge
    areas; or
  4. affect natural hazard lands in which such operations could substantially
    endanger life and property, such lands to include areas subject to frequent
    flooding and areas of unstable geology.

Marcellus Shale Permits in Areas Unsuitable for Mining (large)
Marcellus Shale permits that were issued in areas which were deemed to be “unsuitable for mining” according to the PA DEP in 2002.

These seem like worthy goals. So if these areas are unsuitable for coal mining, why is it OK to put gas wells there?


Surface coal mine. Source: http://en.wikipedia.org/wiki/File:Coal_mine_Wyoming.jpg

Granted, drilling a well is not quite the same impact as a surface mining operation, but to protect an area from one mode of mineral extraction and not the other seems inconsistent. After all, many of the problems with coal are still relevant for gas drilling, since the drilling operator must go through the coal seam to get to the gas. The pyrite associated with the coal is still exposed to air, meaning that the drilling mud and drill cuttings probably contain sulfuric acid, the key component of acid mine drainage (AMD).

And it’s not just the drill cuttings that could be a source of problems…it could be the well bore itself. Consider the Hughes Bore Hole, which, according to Wikipedia was drilled in the 1920’s to drain underground mines in the area, then capped in the 1950’s. So what’s the big deal? In the 1970’s, pressure built up and the hole burst open, and has been spewing about 800 gallons per minute of acid mine drainage ever since.


Hughes Bore Hole releasing acid mine drainage. Source: http://en.wikipedia.org/wiki/File:Hughe%27s_Bore_Hole_071.jpg

Could drilling a gas well in the wrong place have the same effect?

Maybe to be safe we ought not drill in areas where geologists have determined that AMD could exist. That wouldn’t affect that many wells, would it?

MS Permits in Areas With AMD Potential (large)
Marcellus Shale permits in areas with acid mine drainage potential. Please click the map for a dynamic view and more information.

Oh. Well then let’s hope the well casing experts don’t have any bad days.

[Note: if you want to watch a video of Hughes Bore Hole and don’t mind salty language, click the Youtube link on the “Hughes Well Bore” link above.]

Marcellus Shale Production Decline Over Time in Pennsylvania

There are now three different Marcellus Shale production reports available on FracTracker’s DataTool:

The production data, which is self-reported by the drilling operators, is also available from the Pennsylvania Department of Environmental Protection.

In this post, we will explore the change in production from the 756 Marcellus Shale wells that reported positive (nonzero) production on each of the three reports. Of these, exactly 300 were flagged as horizontal wells on the most recent report, leaving 456 to be classified as vertical wells.

PA Marcellus Shale Production:  1-11 to 6-11 (large)
Marcellus Shale production in Pennsylvania from January to June, 2011. Please click the image to see a zoomable and dynamic map.
Caveats
It is important to note that the first of the three production cycles is for a one year period, while the other two are for six months each.  Luckily, each report includes not only production in thousands of cubic feet (Mcf), but also the number of days for which each well was in production.  Therefore, we can look at the data in terms of thousands of cubic feet per day (McfPD), which solves not only the 12 month vs. 6 month problem, but also makes sure that we aren’t comparing six months of production to just a handful of days.

One important factor that this analysis does not account for, however, is when the well first entered production. This is significant, because gas wells typically have a very high initial production, which falls steeply in the months and years ahead. This produces a hyperbolic decline curve, such as this Department of the Interior graph found on Wikipedia.

In this case, we only know that the initial production was some time since 2006 and before June 30, 2010. Add to that fact that there are only three date ranges, and the result is definitely not a proper decline curve.

Results
However, there are results, and they do show decline over time. Interestingly, there are some differences to note between horizontal and vertical Marcellus Shale wells.


Average Marcellus Shale production in thousands of cubic feet (Mcf) for wells on all three production reports.


Average Marcellus Shale production showing rates of decline.

The overall production of the sample decreased 40.7 percent from the period ending June 2010 to the one ending one year later.  Interestingly, the vertical wells are declining at a sharper rate than horizontal wells, although not dramatically so.

The chart also highlights the amazing difference in production that horizontal drilling provides to Marcellus Shale wells, with average production values 5.6 to 6.9 times higher than their vertical counterparts.

What’s Missing?
Not all of the Marcellus Shale wells from the July ’09 to June ’10 list were still reporting production for the period that ended one year later. These wells were not included in the above analysis, but are interesting in their own right:


Number of Marcellus Shale wells on the production report for the period ending June 2010 that are also reporting production one year later.

Surprisingly, the rate for horizontal wells no longer producing gas is more than twice as high as their vertical counterparts.  Does this mean that a side effect of horizontal drilling is a shorter well production life, as all of the gas is extracted faster?  We’ll have to wait and see what future data shows to find out.

Does Thickness of Shale Predict Production?

I was recently contacted by a resident of New York State who was concerned about Marcellus Shale gas drilling moving into his area. He found a report by geologists Dr. Gary Lash from SUNY – Fredoinia and Dr. Terry Engelder from Penn State that showed the shale layer thinning substantially as it heads north across the Pennsylvania-New York border.

What’s more, this report breaks up the Marcellus Shale into several substrata, including the Union Springs shale and the Oatka Creek shale, which are separated by a thin and intermittent layer of limestone.

On a cursory level, the thickest parts of the Union Springs substratum of the Marcellus Shale seemed to correspond with the highest production areas in Bradford and Susquehanna Counties. Even though there was another high production area in Southwestern Pennsylvania in a relatively thin portion of the Union Springs (and Marcellus Shale in general), it seemed like a reasonable hypothesis to explore. Does the thickness of the shale layer effectively predict the production values from wells in those areas?

Thicness of the Union Springs Substratum and MS Production in PA (large)
Thickness of the Union Springs substratum of the Marcellus Shale and daily production values. As the shale layer gets thicker, it is represented by darker brown bands, while production values range from blue (lowest production) to red (highest production). For more information and a dynamic view, click the image to visit our DataTool.

Karen Edelstein, FracTracker’s New York Liason, digitized the Union Springs thickness map from the Lash-Engelder report, and then I was able to correlate the production values of all Marcellus Shale wells to the average thickness of each category. For the purpose of this exercise, only wells reporting positive (non-zero) production values between July and December 2011 were included. To account for wells in production for only part of that period, I calculated the average daily production in thousands of cubic feet (Mcf) per day.


Thickness of the Union Springs substratum of the Marcellus Shale in feet versus average daily production in thousands of cubic feet (Mcf) per day.

Overall, the correlation isn’t very strong. While the trend line does show moderate increases in production as the Union Springs shale layer thickens, the low R-squared shows that there is a good bit of randomness involved. Part of this was expected, due to the large number of productive wells in Southwestern Pennsylvania, where the formation is quite thin. This would be the notable bump in the plot chart above between 20 and 60 feet of thickness.

Thickness of the Union Springs and MS Production in SW PA (large)
Thickness of the Union Springs substratum of the Marcellus Shale and average daily production values. Click the image for more information and a dynamic view.

However, there is another factor that contributes to the poor correlation. As I mentioned above, the trendline does indicate that on average, wells in the thicker formations produce more gas than those in thinner formations, but there are also a large number of duds from the most robust parts of the Union Springs. That is to say, there are a lot of blue dots in the dark brown regions of the map below.

Thickness of Union Springs Substratum and MS Production in NE PA (large)

It is likely that if the whole thickness of the Marcellus Shale were considered, the results would have been even worse. In fact, some of the thickest parts of the whole Marcellus, at least according to Lash and Engelder, are in Pike County, which drillers have left alone so far.

So we have not cracked the nut of predicting which areas will yield the highest production returns, but at least we have good company in that regard. Despite the huge amount of data that the oil and gas companies possess, the results that they report to the Pennsylvania Department of Environmental Protection show that they still don’t really know what they’ll find at the bottom of a hole until they drill it.

Although there is clearly more to gas yields than thickness of the shale, it was an interesting exercise, and if the industry ever does figure it out, it will be a multi-billion dollar discovery–keep in mind that each of the thousands of wells planned cost at least $5 million to drill. Here’s hoping that they do figure it out someday, and not just because of the economics. If drilling wildcat wells can be minimized, then many of the significant adverse effects of the industry would also be mitigated as well, at least in areas where production values were estimated to be low.

Comparing & Contrasting Extractive Industry Sectors in Ghana & the US

By Deanna Bitetti (Common Cause) and Samantha Malone, MPH, CPH (CHEC)

In the quiet of the morning the group we have travelled to Ghana with using a grant from the US Department of State to study extractive industries find ourselves swapping stories – wistfully thinking of American life back home. We find ourselves constantly comparing and contrasting the political environment in which public policy around extractive industries are crafted in both nations. Scratch beneath the surface and you will find that Ghana and the US are not that different after all.

The pernicious influence of special interest money permeates throughout American political culture just as it does in Ghana; compulsory Integration models in the states have allowed for mineral rights to be taken from American citizens, and confusion over the leasing of mineral rights for natural gas extraction has led to uprooted communities. Environmental degradation and costs to local communities have been paramount in both the US and Ghana. These two nations separated by the Atlantic are struggling to balance new extractive industries as an engine for economic growth and protecting communities from the pitfalls associated with the “resource curse.” As both nations forge ahead in developing their oil and gas sectors, how they manage the risk associated with natural gas development will ultimately define how the citizenry thinks about the role of government and government institutions.

Below is a short comparison of some key aspects affecting constituencies in the US and Ghana.

Special Interest Influence

During a recent discussion with a local royal chief in a small village I am reminded that corporate influence is not localized to any specific nation. Here, a gold mining company publicly presents the tribal leaders of a village with keys to two Land Rovers. In America, special interest money floods campaign coffers, exceedingly so in the wake of Citizen United. According to Open Secrets individuals and political action committees affiliated with oil and gas companies have donated $238.7 million to candidates since 1990. From 2010-2011 Exxon Mobil and The Koch Brothers, one of the largest oil and gas conglomerates in the US, spent $384,030 and $318,800 respectively on campaign donations on both sides of the partisan divide to influence environmental legislation aimed at regulating the oil and gas sector. In Pennsylvania, Common Cause’s www.marcellusmoney.org has tracked the significant campaign cash contributions that have flooded campaign coffers, and in New York our recent report “Deep Drilling, Deep Pockets,” highlighted the large amounts industry has spent to lobby our elected officials.

Public Benefits for Public Good

In Ghana only 5% of royalties paid by the extractive industry sector is paid to the State. Out of that 80% of the money goes into the government’s general fund, with only 9% trickling down to effected communities. In the US, Congress has historically rewarded energy companies and those involved in the extractive industry sector with tax breaks, without tangible realization of positive benefits to communities. Nearly two-thirds of US corporations don’t pay any income taxes. According to a study from the non-partisan Government Accountability Office, 83 of the top 100 publicly traded corporations that operate in the US exploit corporate tax havens. Since 2009, America’s most profitable companies, such as ExxonMobil, General Electric, Bank of America and Citigroup, all paid a grand total of $0 in federal income taxes. Even as we write this, Congress is considering offering major subsidies to promote natural gas extraction methods and providing major tax incentives to the industry, speeding up the timeline for extraction and feeding the natural gas boom (and possibly bust) cycle.

Mineral Rights and Extraction

At the heart of the debate over natural gas extraction in the US is the right of landowners to either retain their land or sign leases with companies with the hope of negotiating lucrative contracts for their mineral rights. In Ghana, Article 257 of the Constitution states that public lands and public property are “vested in the President on the behalf of, and in trust for, the people of Ghana.” In essence, the state has claims to mineral rights, not the individual. On the surface the situation in Ghana appears anathema to American values. Forced resettlement programs of thousands of fisherman, farmers and landowners offends our notion of private property and ownership as inviolate. Yet areas in New York and Pennsylvania have allowed for Compulsory Integration where companies were granted the right to drill on lands for which they did not hold leases. Some residents that may own the surface rights but not the mineral rights experience the effects of a “split estate.” Additionally, population displacement often occurs near areas of heavy drilling either because of fear of health effects, noise or pollution, or due to harassment by companies. The important benefits and drawbacks that result from personal ownership of mineral rights must be considered seriously. Further, neither the United States or Ghana require companies to disclose the exact composition of the chemical mixtures used in the process, shrouding it in a cloud of secrecy from the public.

Externalities of Natural Gas Development

In Ghana, as farmland is turned over to industry to pave the way for rapid development, food productivity has begun decreasing – causing food and commodity prices to rise. Housing prices have been steadily increasing as foreigners flock to the areas surrounding the Jubilee oil field, causing a surge in demand for those residences. Prostitution and crime has been on the rise, as well. Even smoking has increased as foreigners bring with them new social norms. In the US we have seen similar externalities imposed on host communities by the extractive industry sector. In Pennsylvania we have already seen the rise in housing shortages due to workers being brought in from out of state, traffic incidences, and roadway degradation. Air quality concerns, drinking water contamination, and stress-related health effects are being documented. Both nations lack clear and updated standards for hazardous waste removal of drilling fluid or drill cuttings. Each country will have to address new pressures placed on transportation infrastructure, including increasing maintenance costs as new roads are created and old roads need constant repair to handle the increase in heavy truck traffic.

Public Health Issues

Residential and operational waste – regardless of its country of origin – is a common postcard to receive from the presence of extractive industries. Improperly handled waste contributes to a multitude of public health issues, such as tainted drinking water, disease transmission, air pollution, and threats to the food supply. One of the differences between Ghana and the U.S. lies in the awareness of where our waste goes. Americans are physically separated from the sources and end products of our distracted commercial lives. Trash is collected by a contractor and taken to dump sites, incinerators, or overseas. Ghanaians face their (and others’) waste on the country’s busy sidewalks, in open sewers, and floating in their magnificent waterways. They witness the neocolonial exploitation of their local resources for the imbalanced consumption and financial gain of other countries. While our processes for extraction and waste disposal differ somewhat, we share a common problem – how to reduce our demand on the entire cycle. Many of the earth’s resources are finite and severely threatened, and so sustainability must be the prescription for healthy development.

Conclusion

This list is not exhaustive, nor it is it meant to be. To move toward a best-practices model for developing extractive industry sectors and managing the high risks associated with doing so means paying close attention to the pace and scope of development, as well as attempting to ameliorate negative externalities imposed on communities. This must include mechanisms for proper oversight and regulation, sustainable planning and development, enhanced civic societal input at the decision- making table, and realistic expectations about the financial promises of oil and gas. In nations such as Ghana, managing these revenues will require more transparency and better management to ensure that revenues do not create large wealth distribution imbalances. In the US, ensuring that industry and government do not form cozy relationships that undermine independent oversight regimes is a major concern.


Deanna Bitetti is the Associate Director of Common Cause/NY. Samantha Malone is the Communications Specialist at the Center for Environmental Healthy Environments and Communities and a doctorate student in the University of Pittsburgh Graduate School of Public Health. They are currently in Ghana as part of a State Department funded research trip on resource extraction hosted by Duquesne University (Pittsburgh, Pennsylvania) and the University of Ghana (Legon, Ghana).

Well Permit Workload Reports

I am often asked how many Marcellus Shale wells or permits there are in Pennsylvania at the moment. The answers to these queries are growing all the time, and while I try to keep these datasets current on our DataTool to allow for mapping, the quickest way to find these answers is to look on the Well Permit Workload Report at the DEP website.  The workload report is updated weekly, and has a variety of information about drilling and inspection activities over a variety of time frames.  Many of the basic figures that people want to know about the industry in Pennsylvania are readily available:


Data Available on Weekly Workload Report for week ending 6-17-2011

Marcellus Shale Permit Applications

Another feature of the workload report is that it breaks down the status of Marcellus Shale permit applications from 2005 through the present.


Status of Marcellus Shale Applications in Pennsylvania, as of June 17, 2011

How selective is the process? Of the permit applications received so far, 94 percent have been approved, and four percent are still in the process of being evaluated. Only 31 applications (0.4 percent) were actually denied.

Between the Marcellus Shale and other formations, the DEP has issued over 16 permits for new wells every calendar day so far in 2011.

Violations per Inspection


2011 year to date inspection and violation data for Pennsylvania

So far this year, non Marcellus Shale wells are slightly more likely to be issued a violation upon inspection than their Marcellus Shale counterparts. This is actually a fairly dramatic change from 2010 data, which is summarized below:


2010 inspection and violation data for Pennsylvania

Last year, there were more than twice as many violations per inspection from the Marcellus Shale than from other formations, while this year the non Marcellus wells are being flagged more often. This is both because the rate of violations per inspection for non Marcellus Shale wells has risen by 35 percent over last year’s figure, and because Marcellus Shale wells are being flagged 41 percent less often this year than last year.