Go to Top

Drill, Baby, Drill – Carefully

Could a major domestic source of clean-burning natural gas get President Obama to join those Republican chants of “drill, baby, drill?”

I would not bet on it, but we will see. New technology is making significant gas reserves accessible in the northern Appalachians. This could bring new jobs to a chronically depressed region, important tax revenues to hard-pressed state and local governments, and more secure supplies to the Northeast Corridor. It also will bring a new controversy about whether the United States is serious about exploiting domestic fossil fuels until the renewable sources the president favors are ready for prime time.

The Marcellus Shale underlies much of Pennsylvania, New York, Ohio, West Virginia and adjacent states, and it is thought to contain about 50 trillion cubic feet of recoverable natural gas. According to some estimates, the shale might hold enough gas to supply the entire country for 13 years.

Until recently, few people paid much attention to this vast stretch of black rock. Geologists have long known that the formation contained natural gas, but they didn’t think that there was enough to make drilling worthwhile, and most of the gas lay beyond what was accessible with the drilling methods of the time.

In 2008, however, things changed. Terry Engelder, a geoscience professor at Pennsylvania State University, and Gary Lash, a geology professor at the State University of New York at Fredonia, discovered that the Marcellus Shale might contain more than 500 trillion cubic feet of natural gas, not the mere 1.9 trillion cubic feet that the United States Geological Survey had reported in 2002. And, with the advent of horizontal drilling and hydraulic fracturing methods, 10% of that gas lay within reach.

Signing bonuses to landowners willing to lease property on the Marcellus Shale went from a few dollars an acre in 2005 to as much as $2,000 an acre in 2008, when gas prices were soaring. Chesapeake Energy, which already produces about 50 million cubic feet of gas per day from the Marcellus Shale, recently announced that it would like to increase its output to 200 million cubic feet daily.

This burst of activity is good news for the high demand markets of New York, New Jersey and New England, which stand to benefit from having a major source of natural gas a short pipeline away. The question is: Is it also good news for the communities that sit on top of the deposits?

On the bright side, drilling ventures will bring jobs and money to Rust Belt towns that have been hit hard by the recession. Doug McLinko, the County Commissioner of Pennsylvania’s Bradford County, said at an event in Harrisburg, “If you believe in agriculture preservation and preserving the family farm, this gas play has done more than any government program could ever do.”

But drilling is not without its costs. Last February, in the Pennsylvania town of Jefferson Hills, citizens gathered for a town meeting to discuss the problems with drilling, focusing mainly on pollution and water management issues. Drilling at the depth necessary to extract gas from the Marcellus Shale uses an enormous amount of water. According to the New York Department of Environmental Conservation, each well might use more than 1 million gallons of water. The water is mixed with a variety of chemical compounds, which could pose a risk to the ground water supply.

Then, there is the problem that, eventually the gas will run out, and that will mean the loss of all the jobs created by the drilling activity.

Most of the decision-making on drilling the Marcellus Shale will happen on the state, rather than federal, level. There is very little federal land in the Northeast, in contrast with other existing or potential gas lease areas in the West, Alaska and the outer Continental Shelf. Obama and his policy team can offer (or withhold) moral support for drilling, along with assistance on infrastructure, environmental and transportation issues. But so far the administration has kept a low profile about drilling the Marcellus formation.

Is there a way to offset drilling’s costs while reaping its benefits? I believe there is. Twenty-eight states already levy a natural gas severance tax, the proceeds of which can be used to combat the damages caused by drilling. While neither New York nor Pennsylvania currently has such a tax, Pennsylvania Gov. Ed Rendell is pressing his state to enact one. Rendell, however, seems to be more interested in using the money to close the state’s existing budget gap than to protect natural resources and local communities.

To drill or not to drill? I say drill, but do so in a way that takes into account long-term consequences. This may make for a less catchy chant, but it is better policy, and, with a reasonable severance tax and effective environmental regulation, it is a real possibility.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

Related Posts

The views expressed in this post are solely those of the author. We welcome additional perspectives in our comments section as long as they are on topic, civil in tone and signed with the writer's full name. All comments will be reviewed by our moderator prior to publication.

, , , ,