by Hal Smith
It may very well be the richest and most powerful corporate interest group in the U.S. but, so far, the multinational oil and gas industry is not having its way with New York.
About five years ago, industry surrogates began creeping into the Empire State and paid a pittance to lease Marcellus Shale mineral rights. But there is still no Marcellus “fracking.” After spending hundreds of millions of dollars with no return, the industry is watching some of its oldest leases expire. Bogus legal claims that the industry may unilaterally extend these leases are not being accepted by Southern Tier landowners, who are now savvy enough to enlist lawyers.
Meanwhile, a supply glut has depressed the natural gas market, contradicting the industry line that it would stabilize what has historically been a volatile market. Instead, gas prices have dropped from about $13 per MMBTU (million metric, or one million, BTU) at the beginning of the boom to $4, barely a break-even point.
The industry is feeling the pressure. For example, Norse Energy, a Norwegian gas company active in Chenango County, recently reported a $57 million loss for 2010. Other companies have been flipping leases to foreign players, shifting their attention to drilling for oil, or grabbing “low-hanging fruit” in Pennsylvania.
These and other developments suggest that, at least in the short term, the industry’s future in New York is cloudy:
• The conventional wisdom was that anti-fracking forces would never win a head-to-head vote against the gas industry. But the Chapter and its allies persuaded both the state Senate and Assembly to approve a moratorium on fracking—by wide bipartisan margins. As a result, Governor Paterson issued an executive order which, in effect, extended the moratorium he declared in 2008 to June of this year. That’s when the Department of Environmental Conservation is scheduled to release its permitting guidelines. By the time the public comment period ends, the industry will have been delayed for about three years.
• Buffalo has followed the example of Pittsburgh and banned fracking. They are the first cities in the U.S. to do so. At press time, it appeared that New Jersey, in a largely symbolic gesture, may become the first state to ban fracking. Across the U.S. border, Quebec is initiating a moratorium for up to two years. Meanwhile, many towns are passing ordinances on road use and noise.
• Public interest law firms are developing legal strategies to challenge shale gas drilling based on zoning principles (see page 1), and the Atlantic Chapter and other groups are girding to sue if the DEC’s final position on fracking falls short.
• Public opinion is trending against the industry. Last December, a poll by the Civil Society Institute found that 57 percent of Americans are aware of controversy over natural gas and, among that group, 69 percent are concerned about water quality. In February at an expo in Houston, the industry heard a speech by a gas lobbyist who said the industry’s public relations strategy isn’t working. It should stop claiming that fracking has never contaminated drinking water and that the industry should be exempt from regulation, the lobbyist said. A better line would be that industry workers live in the communities where they drill and they are good neighbors who care about clean air and water.
• One of the industry’s most powerful arguments—that natural gas is cleaner than coal—is under assault by the Fracture Group researchers at Cornell University. Prof. Robert Howarth’s work on this front is likely to have a much higher profile with the imminent publication of his latest research in a referred journal. To date, federal policymakers and major environmental organizations have regarded natural gas as a lesser evil that is acceptable as a “transitional fuel.” If that lesser evil justification falters, more green groups will pile on, possibly with fresh allies in Albany and Washington.
• In February, The New York Times ran a three-part indictment of industry practices and regulatory failure, giving further support to congressional calls for more oversight. According to the Times, the EPA yielded to political pressure and suppressed reports that New York and Pennsylvania’s sewage treatment facilities are incapable of treating drilling wastes—including levels of radioactivity 100 to 1,000 times higher than drinking water standards. Drinking water intake plants downstream were shielded from having to test for radioactivity—raising grave concerns about safety. Also, under pressure from state regulators and the gas industry, the EPA dropped plans to investigate radioactivity.
The cloudy prospects for shale gas were evident at the last semi-annual meeting of independent oil and gas producers in Houston. The industry regards New York as persona non grata and appears to be losing interest in the state, according to a Buffalo attorney who attended the event. He predicts that drilling will begin here but that the level of activity will be relatively muted.
Others disagree, including anti-fracker James Northrup, a former oil and gas producer from Cooperstown. He warns that as soon as the DEC issues permits, drilling will begin aggressively as gas companies seek to prove the value of their leases. Some financial analysts believe the industry is over extended, wants to pump up its stock prices and enhance its appeal as a takeover target. Another reason drillers may be aggressive: leases may be voided if drilling fails to begin in a timely manner.
This much appears certain: if the price of natural gas spikes, or New York shale turns out to be substantially richer than expected, all the obstacles now in the industry’s path may not be strong enough. The relatively small gas companies could be swallowed whole by giants like Exxon Mobil, which has only a small stake here. It’s easy to imagine an army of the best lawyers money can buy squashing all assertions of home rule; politicians waving bogus economic studies; the media awash with “clean gas” disinformation; and the return of soaring lease offers.
This is no time for complacency.
Hal Smith of Windsor is a freelance writer whose travel articles appear in major metro dailies, most recently the Atlanta Journal Constitution. He is a member of the Susquehanna Group, and co-editor of the Sierra Atlantic.