Natural gas

Introduction

The Marcellus Shale formation is believed to be the largest unconventional natural gas reservoir in America, and its exploration has been coined a modern-day gold rush. More than a mile underground, this once unreachable gas is now recoverable thanks to advancements in horizontal drilling and hydraulic fracturing technology.

Development of the Marcellus Shale has the potential to create 111,000 jobs and contribute $987 million in revenue to Harrisburg by 2011. However, many feel the environmental risks posed by drilling outweigh the benefits in job growth and overall economic prosperity. In response to these concerns, many proposals exist to impose additional taxes and regulations on the industry.

Presently, drilling regulations in Pennsylvania are among the strictest in the nation.

Natural Gas Myths & Facts

MYTH #1: Hydraulic Fracturing is polluting our land and water.

The process of hydraulic fracturing or "fracking" has been utilized for over 60 years. Amazingly, there have been no confirmed cases of groundwater contamination in 1 million applications. This established technology joined with the newer practice of drilling horizontally has made Marcellus Shale extraction both economical and environmentally safe.

Fracking is a process that occurs after the drilling of the well is complete. The shale -- which is more than a mile below the water surface -- is cracked by tiny ruptures, allowing gallons of water, sand, and a small amount (less than 2%) of chemical additives (to keep pipes from rusting) to release natural gas. Most of the chemicals added can be found in common household cleaning supplies. Wells are layered with coatings of cement and steel to prevent natural gas from migrating into groundwater.

Reported contamination has been caused not by hydraulic fracturing, but by the disposal of wastewater or resurfacing of wastewater due to poor well design. As drilling progresses, companies are utilizing more safeguards, such as recycling 100% of wastewater to cut down on trucking, strengthening well casings, and storing wastewater in tanks instead of open pits.

A complete list of the chemicals used in fracking is available online at the Department of Environmental Protection (DEP) website. Drilling companies like Range Resources are posting information about their fracking fluids, including the names of chemicals used at each well site, along with their classifications, volumes, dilution factors, and specific purpose. These fact sheets are available for wells drilled since the end of July.

Finally, if hydraulic fracturing does result in land or water pollution, current laws and regulations would not only fine the responsible party, but also would hold it responsible for remediation and restoration.

MYTH #2: Gas drilling is polluting and drying up our water sources.

While several cases of water pollution (Dunkard Creek and Monongahela River, for example) have been falsely blamed on gas drilling, these cases were really caused by runoff from coal mines.

Methane migration (methane gas leaking into water wells) occurs when a gas well hits a pocket of naturally-occurring methane gas in the earth, allowing the methane to seep into the soil. While methane migration is a legitimate concern, it bears pointing out that many of Pennsylvania's drinking wells were already contaminated before drilling.  It is imperative that water be tested to ensure that residential water wells are protected from any potential contamination, and that residents be made aware of any existing impurities in their water.  Where there has been demonstrated contamination caused by natural gas drilling, gas companies have (and should be required to), installed safer, higher quality drinking wells.

There is concern that the large amount of water needed to frack wells will dry up waterways. Drilling companies must apply for permits to withdraw water from Pennsylvania waterways.  The amount of water used by drilling is less than what is needed to irrigate a golf course. And gas drillers are now required to return water to streams with less dissolved minerals and salts than you'd find a bottle of mineral water.

MYTH #3: The natural gas industry is exempt from regulation.

Natural gas drillers must comply with eight federal and eleven state acts and laws, and are subject to frequent inspections by the state Department of Environmental Protection (DEP).  Pennsylvania now employs 193 drill site inspectors; no state comes close to having a comparable number of oil and gas staff.

The so-called "Halliburton loophole," which exempts hydraulic fracturing from Safe Drinking Water Act regulations, is a misnomer.  Drilling is regulated at a number of levels, including state and local government. Hydraulic fracturing and natural gas drilling are overseen by two regional and four states agencies including the DEP, the Fish and Boat Commission, and the Department of Conservation and Natural Resources, and regional watershed commissions.

When drillers harm the environment or destroy infrastructure, they are and should be fined, not only to mitigate damage but also to cover the cost of environmental cleanup and make whole any person or entity harmed by the accident.

MYTH #4: Truck traffic is destroying local roads.

Road damage and restoration is a legitimate concern in rural areas where most of the drilling is taking place. However, drilling companies are not only held liable for repairing damaged roads, they also are restoring roads into better condition than when they found them.

Many drilling companies are going the extra mile to improve roads. Anadarko, for example, has decided to upgrade roadways rather than make continuous repairs. In Bradford County, Chesapeake Energy already invested $15 million in road repairs, with another $15 million in projects planned before the end of 2010. These investments are saving local governments from spending tax money, and are providing transportation funding far above what these communities receive from the state.

MYTH #5: Pennsylvania's natural beauty is being plundered.

Opponents often argue that drilling on state lands will endanger environmentally sensitive areas and harm the timber and tourism industries.

While the Marcellus boom is relatively recent, drilling on state land is nothing new. State forest lands have been open for drilling for decades; over 1,600 wells are already in place and there has been no unremediated contamination.

Additionally, only 700,000 acres of state land are available for leasing, leaving over two-thirds of our state land untouched. To further minimize the impact of drilling, new wells are being located in old clearings created for wells decades ago.

The effects on forest lands will be minimal because of the horizontal drilling technique, which allows multiple wells to be located on the same pad, reducing the amount of land disturbance. Further, drillers are required by law to restore land with vegetation within 9 months after a well is completed.

MYTH #6: A tax on drilling will save the environment.

Taxes collected on natural gas will not be directed toward environmental causes. Rather, these funds will be used to fill a gap in the state budget caused by overspending. In Governor Rendell's proposal, $70 million in tax revenue would go toward the General Fund. While the natural gas industry, with its deep pockets, is a natural target for this brand of budgetary three card monte, imposing taxes on a job and wealth-creating industry simply because it can afford to pay them is bad public policy.

In 2009, the DEP raised drilling permit fees from $100 to as high as $5,000 - generating $12 million in 2010, a 1,600% increase over the previous year. Further, Marcellus drillers have already contributed over $400 million through other taxes.

If a tax is enacted, it should be used exclusively for the cost of regulating drilling and for addressing mitigation in communities with drilling. But these measures are already funded through fees and fines. The natural gas industry should not be used as a bottomless piggybank to gin up dollars to close years of budgetary shortfalls.

MYTH #7: Pennsylvania needs a severance tax on natural gas because every other state has one.

It is often pointed out that other states with natural gas have severance taxes. Ignored, however, is that these states typically have exemptions or delay implementation of their tax, and use natural resource taxes to lower their overall tax burden.

States like Arkansas, Oklahoma, and Louisiana delay imposition of their severance taxes for gas wells to allow drilling companies to recoup their up-front costs. Other states that have been considered "models" for a natural gas tax -- Texas and Wyoming -- have neither income nor corporate taxes. Conversely, Gov. Rendell's proposal would be in addition to current state taxes, adding to Pennsylvania's tax burden, which is already the 11th highest in the nation.

Even Democratic gubernatorial nominee Dan Onorato has stated that Rendell's proposal is too high, and is on record as favoring a more moderate tax similar to Arkansas's 5% tax, reduced to 1.5% during the first 3 to 4 years of production.

Pennsylvania is already one of the most expensive states in which to drill; according to a survey of petroleum companies, the commonwealth is as desirable to drillers as Cambodia or Syria -- and that's without a severance tax.

It is incumbent upon lawmakers to consider Pennsylvania's already-onerous tax burden and regulatory costs before they rush to enact a tax on an industry that is bringing jobs and wealth to the state.

MYTH #8: "Forced" or "fair" pooling is necessary.

Most states with drilling have what is known as a forced or "fair" pooling law. Pennsylvania legislators are considering adopting such a law, which would require landowners to allow a drilling company to capture the natural gas under their property (and receive payment) if a majority of homeowners in the given area (pool) agree to lease their land.

The law wouldn't force homeowners to allow wells on their property, and it would ensure they receive royalty payments for the gas recovered. Both drilling companies and environmental groups support a pooling law, because it reduces the cost and environmental impact of drilling by preventing gas companies from having to drill around a holdout landowner.

While proponents on both sides of the drilling question agree that pooling laws offer some financial and environmental benefits, such laws are an infringement on property rights and a form of eminent domain. While the regulatory framework for the drilling industry does need revamping to address the high costs of drilling in the commonwealth, Pennsylvania lawmakers should not look to pooling laws to remedy these concerns.

MYTH #9: Natural gas drilling is not a significant economic benefit to Pennsylvania.

The natural gas industry created 44,000 thousand direct and indirect jobs in Pennsylvania as of 2009, and is expected to generate 111,000 jobs and contribute $987million in revenue to the Keystone state by 2011. Over 200,000 jobs are expected to be created in the next decade because of the Marcellus boom.

Marcellus drilling has boosted once-moribund local economies. One example: during the Little League World Series, hotels and restaurants were so full with gas industry-related customers that managers were worried they would have to turn away fans in town to see the games. In response, gas workers agreed to take vacations or move to other regional hotels to make room for the tourists

Many local businesses are expanding to meet the economic boom drilling has brought to certain parts of Pennsylvania. While short-line railroads across the country have been hit by the recession, central Pennsylvania railroads report dramatic growth.

MYTH #10: Natural gas companies are only hiring out-of-state workers.

While it's true that a large number of drilling jobs are filled by experienced out-of-state workers, many local residents are getting jobs with gas companies as receptionists, clerical workers, truck drivers, accountants and the like. Local contractors - from trucking, to stone, to pipe, to railroad companies -- also have benefited from the gas boom.

And the economic growth isn't just limited to the industry. Indirect industries like restaurants, hotels and grocery stores have seen an increase in business, with the end result being more jobs created for local residents.

Additionally, local leasing bonus and royalty payments have allowed many Pennsylvanians to keep their family farms operating, and even invest in improvements.

Research