Marcellus Shale Update – When the Snow Turns Green

When the snow turns green in russia

Residents of the Siberian town of Pervouralsk have been horrified by a sight they never expected – green colored snow.  Vladimir Putin’s Russia, in the same way as the Communist Soviet Union, industrializes with little regard to the environment.  Now, pollution from a chrome factory in Pervouralsk turns snow a poisonous green.  Elsewhere in Siberia, pollution from open air coal pits in Kemerovo falls as toxic black snow and makes streets black and grimy.  Meanwhile, residents of Sibai in the Urals must wear masks due to choking smog from a copper factory.  Protests have broken out throughout Siberia and elsewhere.  Meanwhile, the Russian citizens’ trust in Putin has plummeted more than 33 percent since 2006.  The environmental mess, together with a stagnant economy and related issues, means that Putin now has popularity ratings south of Donald Trump’s.

The Russian environmental disaster shows the folly of American states like Massachusetts and New York that rely in any way on Russian oil or natural gas, then claim that this is environmentally superior to building pipelines from the Marcellus Basin.  Simultaneously, it’s a cautionary tale for the pipeline builders and the natural gas industry themselves about the importance of environmental responsibility in their operations.

New York and New England continue to pursue policies destined to produce both energy deficiency and environmental destruction.  The Boston Globe reported that two Massachusetts towns, Holyoke and Middleborough, have issued moratoria on new natural gas hookups due to lack of supply.  This follows Con Edison’s moratorium in Westchester County, New York.

Massachusetts’s supply constraint is the result of the Bay State’s failure to allow the build out of natural gas pipelines from the Marcellus Shale region of Northeastern Pennsylvania.  The Globe warned that many energy experts believe that while the State’s two largest gas suppliers, National Grid and Eversource, claim their natural gas supplies are adequate for now, that won’t last long.

Environmentalists in Massachusetts call for increasing supplies from Canadian hydropower and offshore wind, but fail to state what the grid to store and transmit that power would look like.  Skeptics also note that whenever a large offshore wind farm project is proposed there is mass opposition from many of the same environmentalists who oppose shale drilling.  Martha’s Vineyard, Nantucket, the New Jersey Shore, Chesapeake Bay, Vermont and others are places where offshore wind farms have been proposed but dropped due to local opposition.  Where exactly do we build the wind farms that the environmentalists want?

It is this type of idealistic, irrational thinking that results in environmental destruction.  Alexandria Ocasio-Cortez’s “Green New Deal” calls for eliminating fossil fuels in ten years.  Were this concept to pass, how would that occur?  Presumably, a politically appointed group would be authorized to decide unilaterally how and where energy is created, where transmission lines go, and how it gets stored.  To make this work at all, there could be little opportunity for public input.  There wouldn’t be enough time.  But how happy could the public possibly be ceding this kind of decision making to a politically appointed body?  And what about things like eminent domain and the need to seize private property for wind turbines, solar panels and the like; where and how will power storage occur when battery storage technology simply does not exist at present to meet the demands of the system; etc.  The result would be a disaster for our environment, if it could even work at all which is most dubious.

Of course, the opposite also is true.  The energy industry must show continually that it can preserve the environment as it performs its tasks.  Those who wish to see the end of the fossil fuel industry will not hesitate to point to every mistake that the industry makes as rationalization for its elimination.  This week the CEO of Energy Transfer Partners, the company building the Mariner East 2 pipeline, admitted that “we’ve made mistakes and we are correcting those mistakes and will not make those mistakes again.”  Let’s hope he means it.  Mariner East has been plagued with problems, and ETP has done little before to show it cares or that it even is aware of the depth of suspicion that exists toward its performance.

From a political standpoint, environmental degradation can have enormous consequences.  Putin, already facing dissention over his economic performance, must deal with the people who can’t understand why their snow now is poisonous.  The air in Beijing is so bad that Chinese Communist leaders no longer can just add more factories to China’s enormous metropolises.  Ironically, the pollution itself is the only thing capable of putting a stop to its creation.

It remains true that the greatest environmental destruction occurs in places wholly run by government.  The Massachusetts and Mariner situations remind us we need to seek the proper balance.  That will be a continuous but evolving process in which both public and private interests must participate.  Without both, our planet will not be safe.

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.

2019 – The Marcellus In Winter

marcellus shale winter.jpg

To nobody’s surprise, Pennsylvania Governor Tom Wolf began his second term by calling for a mineral extraction tax to be layered upon the State’s local impact fee.  Of course, the Governor never mentioned the impact fee in his budget address, continuing his administration long policy of seeking to portray Pennsylvania as the only state that doesn’t tax the natural gas industry.

When the Governor first took office in 2015, he advocated the extraction tax as a way to pay for Pennsylvania schools. Now, he seeks the extra revenue to pay for Pennsylvania infrastructure.  Should the tax be approved, the connection to the schools would have been more beneficial to the industry (think of the public relations possibilities it would have brought the industry in every part of the State).  The infrastructure tie-in will not be as helpful, but given current economics the industry will fight the tax under any circumstances.

One thing that’s been made clear by a week-long trip to Texas and conversations with top gas company executives is the disconnect between the public’s perception of the financial health of the natural gas industry and its actual financial condition.  A decade of overproduction combined with insufficient pipeline capacity and low gas prices has caused gas company stock prices to plummet.  Now, the future viability of these companies is at risk.  As one executive put it, “we have no choice but to fight the extraction tax.  We don’t generate enough revenue to pay it.”

In a sense they’ve been trapped by their own success.  The Marcellus has yielded far more gas than most thought possible ten years ago.  Improved production techniques have decreased the cost of extraction, leading to overproduction.  Add that to the lack of pipeline capacity, the antiquated Jones Act prohibition against transporting liquid natural gas on the high seas from one American port to another except on American-flagged ships (of which there are none), and the proximity of gas to the oil being produced in the Permian Basin of South Texas (which has actually dropped the marginal cost of natural gas in that region to negative numbers), and you have the dire economic times facing Marcellus gas producers.

Another source of the gas producers’ frustration is the lack of coordination and communication among themselves and with the pipeline companies.  “We’re not the pipes,” said one.  “We don’t like a lot of things they do, and we think they can portray the entire industry in a bad light, but they don’t care about what we say.”

That’s partially true, although some producers do have ownership stakes in some of the pipelines.  As a general rule, residents of the Northeast lump upstream, midstream and downstream together as one industry.  Together they have risen, and together they now are at risk of falling.

Producers have little left in their budgets to expand outreach to places in Pennsylvania that currently don’t “feel” the industry, like Philadelphia and the Southeast.  That’s bad for us all, as the Southeast stands to gain the most from effective, conscientious and environmentally sensitive development of this resource.  We have the train lines, the interstate highways, the Marcus Hook refinery and the Port of Philadelphia pretty much all in the same place.  That we’ve failed to capitalize on this could be the greatest missed opportunity for the Philadelphia region in the last century.

As for pipeline companies, they face years of delay while well-funded and organized environmental groups, and unsympathetic politicians, place roadblock after roadblock in their way.  Some of this, of course, is nobody’s fault but the pipeline companies for their both perceived and not infrequently actual disregard of local law and sensitivities. Overall for the industry in all of its myriad forms, Winter 2019 is not a pretty picture.

Nobody wins under the current scenario.  Environmentalists temporarily will celebrate the problems in the gas industry, but that glee will be short lived.  Despite breathless claims in the press and among certain politicians, those opposing natural gas can provide no alternative.

Ironically, environmentalists may be the salvation of the industry, as they push politicians into unsustainable, ridiculous policies. New York Governor Andrew Cuomo rapidly is running out of options to counter his “No Nukes, No Fracking, No Pipeline” stance. Already Westchester County feels the pinch as its main utility, Consolidated Energy, now prohibits any further growth due to a lack of power supply. New York City soon may face the same fate.  Jeff Bezos had better be sure that Long Island City will have enough power to handle his new Amazon sub-headquarters.  Where will that energy come from?

Under current conditions, many in the industry expect a further wave of consolidation. The fracking industry was created not by the large oil companies but by the smaller independents.  Those smaller companies now may have to sell out.  That will not be good news for the Northeast.

It’s getting more likely that in the future Governor Wolf and his successors will not deal with six or seven producers based in Houston, Dallas or Oklahoma City, each with major Pennsylvania operations.  Instead, he will find himself trying to get the better of two or three companies based in London, the Netherlands or other foreign countries, for whom Pennsylvania is but a blip on their radar screen.

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.