Pre-Election Update

Marcellus Shale UpdateSeptember 11, 2018 (8)

Just a day before one of the most consequential elections in a generation, there are fewer major races and ballot initiatives pertaining to shale and hydraulic fracturing than in recent years.

Here in Pennsylvania, Democratic Governor Tom Wolf is cruising to reelection.  The most recent polls have him up double digits.  In the 2014 gubernatorial election, then little-known State Treasurer Tom Wolf shot to prominence by running ads focusing on Pennsylvania’s lack of a mineral extraction tax (while ignoring the local impact fee structure) and positioning himself as a foe of the gas industry.  In return, the industry has matched that opposition, and so far has beaten back all attempts to enact an extraction tax, in addition to the local impact fee.

Effective Tuesday, it appears both sides will have four more years to work together and try to figure this out, or not to work together and continue to serve no one’s interest.  They came very close to a resolution in 2017 during the eternal budget negotiations of that year but were ultimately not successful.  Now with Wolf freed from reelection constraints, expect the extraction tax to come back with a vengeance.  Once again, we shall see if the industry considers its most important legislative priority in Pennsylvania to oppose the tax, or whether it decides there are other issues in which it can deal with the Governor that will work better for the industry, the Governor and all Pennsylvanians.

Just north, New York Governor Andrew Cuomo also is way ahead in his reelection bid.  Cuomo, who banned hydraulic fracturing by gubernatorial edict, can rely on the immense power of the downstate environmental lobby without worrying about its effect on the southern tier, where all the gas is and where struggling family farms also are.  However, if there is another severe winter, the failure of Governor Cuomo to address the pipeline issue may cause him trouble.  In order to grow, New York needs gas.  Cuomo has made that very difficult, if not impossible.

He has wanted it both ways.  He can play to his environmental base without having to worry about the economic effect to the State as a whole.  That will cease soon.  As the State, and especially New York City, try to keep growing, they’ll need power.  They’ve closed their nuclear reactors, the hydro from Quebec has not been sufficient, and they’re ideologically opposed to coal.  What’s left?  There is no real plan for renewables and how they’d power New York’s economy.  Could it be that statewide groups like “Chefs Against Fracking” may get their wish, and have to live with the consequences?

The most important ballot initiative is in Colorado.  Proposition 112 would mandate a state setback of 2,500 feet on any drilling operations from most inhabited buildings.  It is five times larger than previous and from the standard nearly everywhere else in the country.  Even in rural areas, plotting 2,500 feet setbacks from any inhabited building would make it very difficult to engage in any drilling activities.

As usual, the industry has spoken with many voices.  Just last week, an internal paper was leaked suggesting the increased setback actually would have little impact on the gas and oil that could be extracted in Colorado.  That was heatedly rebutted with another study – again “leaked” to the press – which stated the original paper was misrepresented.

Despite almost no support from the political establishment on both sides of the aisle, Proposition 112 is leading coming up to election day.  If it passes, expect similar pressure in other states, even in ones with entirely different geography.  Yet, some of the companies, including ones headquartered in Colorado, have been slow to make their case.  This is no surprise given the history of energy company public relations and the industry’s lack of understanding of where its long-term damage may be coming from.

Of course, the major event will be what happens to the US House and Senate.  If we have divided government once again, it will fall to both private industry and local governments to chart the path forward.  For the good of the economic, ecologic, and security health of the country, let’s hope they’re up to the job.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

Marcellus Shale Update – 3.02.2018

Yesterday may have been the most instructive day ever to understand the current international situation involving natural gas.

Russian President Vladimir Putin, in his State of the Nation address, bragged about “invincible” missiles that could carry nuclear warheads.  He showed videos of missiles raining down on Florida.  As he did so much of Europe was battered by two weather storms called “Storm Emma” and the “Beast from the East”.  Today is the coldest spring day in UK recorded history (I guess they consider March 1 spring over there).  Unfortunately they may have no heat.  Britain’s National Grid warned yesterday that it did not have enough natural gas to supply the country.

UK running out of gas, warns National Grid

UK weather: Armed Forces called in as death toll rises to 10 in coldest spring day on record

Britain has a lot of shale gas potential but it has not developed it, running into the same environmental objections that bedevil most of Europe.  We might have been able to help make up the shortfall, but our export capacity remains limited.  Now Britain freezes.   How many people will die in the UK because of their energy policies?

There are other reasons for Britain’s current situation, including the foolish shutting down last year of a natural gas storage facility at Rough, but the result is that Britain may turn in desperation to the same person that New England relies upon in times like these, Vladimir Putin.

Putin has been very busy.  Also yesterday, the Science, Space and Technology Committee of the US House of Representatives released a report detailing how Russia used Facebook, Instagram and Twitter to exacerbate tensions over American energy policy and climate change.  For example, Russians created a group called “Native Americans United” which put out an ad showing a young girl looking out over the prairie with the caption “Love Water Not Oil, Protect Our Mother, Stand with Standing Rock.”  This tension obviously benefitted Vladimir Putin.

In this country, gas prices remain so low that many of the suppliers are hurting badly.  As one of the producers told me yesterday, after fixed costs just about every place production is sold is negative.  In the very short term that’s good for the consumer.  In the long term that’s not.  Were more export terminals operating, the price could rise to a sustainable level, more gas could be sent overseas to break the energy vice grip of countries like Russia and the chances of gaining effective leverage over Russia and other rogue states would increase.

Since the Cold War we’ve had a debate over which is more important, soft power or hard power.  Here’s a tip for the “soft power’ proponents:  Soft Power works best when you have it.  Internationally, our current energy policy seems to be unilateral disarmament.  Again, that raises the possibility that the only way we can project force internationally and protect our allies and our vital interests is through hard power.  In English that means your sons and daughters and mine being sent overseas to fight.

When an “environmentalist” asks why you support hydraulic fracturing, you can answer very simply.  “I love my children.”