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

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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.

A Conference, A City & A Tragedy

ADLBefore the end of each day at last week’s Shale Insight Conference in Pittsburgh, first MSC President Dave Spigelmyer and then WVONGA President Anne Blankenship warned the attendees to take off their conference badges once they left the Convention Center, for their personal safety.  I’m sure that struck some of the participants as odd, and even a little unnerving.  Owing to my religion, for me it was commonplace.  Ironically if not prophetically, two days after we left the Conference, eleven of my co-religionists were massacred less than ten miles from the Convention Center by a lunatic gunman while attending Sabbath Morning Services.

As I look back upon the events of last week, it strikes me how Jewish much of the week was.  I don’t know how many non-Jews who attended the Conference could truly comprehend it from a Jew’s perspective.  Please permit me then to try to use what happened last week in Pittsburgh, first when many of us conferees were together and then the awful events after we left, to explain what it’s like to walk in our religious shoes.

Very few people inside the Conference hall considered themselves, and the people they were with, inherently evil.  That was not the case outside.  When we attended the opening night reception, we were met by demonstrators, some dressed up like ghouls, claiming that the natural gas industry is the enemy of mankind.  They believe members of that industry – meaning, you and me – are heartless profiteers, willing to suck the blood out of the environment for our short term financial gain.  According to the protesters, we will endanger their lives, and indeed even our own, for our personal pecuniary interests.

In order to do so, we members of the industry will use our financial wealth and acumen to seize effective control of State, local and even national governments.  We then will subvert the will of the decent, common people in favor of our own interests.  While our actions may result in the ultimate destruction of the planet due to our blind pursuit of profit and power, we don’t care about that.  So driven are we by the prospect of financial wealth that we will risk celestial destruction for our parochial benefit.

Sound familiar?

Welcome to the world of Jews.

There is no accusation too incredible or outlandish that it can’t or hasn’t been leveled against the Jewish people.  Last week it was that we were responsible for the immigrant caravan heading toward this country from Central America.  Seriously?  During the Middle Ages, Jews were blamed for Bubonic Plague.  We “poisoned the wells!”  Actually, we washed our hands before eating.  Later Jews were accused of kidnapping Gentile children, murdering them, and using their blood to make the unleavened “matzoh” we eat during Passover.  And of course less than one hundred years ago we were told we “stabbed the German State in the back” during World War I.  Six million of my distant relatives died because of that claim.

As with us Jews, we members of the natural gas industry needn’t bother trying to argue against our critics using facts.  It won’t work.  To them, the case is settled.  Fracking destroys communities, pipelines foul Mother Earth, and natural gas is a fossil fuel that causes climate change which will end life as we know it on our planet.  So what if Yale, Penn State and the University of Cincinnati all this year published research saying they could not find a causal connection between fracking and water contamination or other environmental evils.  The critics don’t want to hear it.  They “know’ the truth.  Any arguments we make to the contrary are just smokescreens set up to confuse the people.  We’re good at that you know.  Besides, we will stop at nothing to achieve our evil ends.

When we confront the “enviros”, we might as well be on another planet.  They want to reduce carbon emissions.  We show how the increased use of natural gas has actually decreased those emissions 15% in the United States.  It doesn’t matter.  We’re still killing the planet in other ways.  This way just makes us rich.

They want economic justice.  We show how one of the leading causes of poverty in the less developed countries is the lack of a reliable energy supply, and natural gas can make that possible for hundreds of millions of people.  To them, that’s just another example of how we weasel our way into other societies for our ultimately nefarious ends.

For we Jews, Israel is the most tolerant society in the Middle East with regard to the LGBTQ community.  Does that impress the human rights community?  Hardly.  They even invented a new term, “Pinkwashing”, to describe how Israel’s treatment of the LGBTQ community is just a ruse to deflect attention from Israel’s “grievous” human rights abuses against Palestinians.  I’m not kidding.

Perhaps the enviros are right.  It may be that hydraulic fracturing is causing grave harm to the planet.  None of us really knows, any more than we know whether or not cell phone use over extended periods of time causes damage to the human brain.  We need to do the best we can, keep studying what’s happening, and make our decisions based on rational thought, study and analysis.  Fracking is an industrial process, not a religion.  If it turns out to be doing great harm, it should be stopped.  Modern environmentalism now borders too uncomfortably on becoming a religion.  As it moves closer to that state, industry members become more like Jews.  It is not enough that the industry should be stopped.  It (and us as its members) must also be destroyed.  Any action taken against the industry in that greater cause will be justified.

For members of the industry at least there is a chance at absolution.  We can always join those people of pure heart and mind, turn away from our evil fracking, and worship at the altar of “renewables”.  If we do so, we will gain the eternal gratitude of the mainstream press, get invited to the swankiest parties, be celebrated as far seeing visionaries, and be a part of the eternal salvation of the planet.  But please don’t ask uncomfortable questions like how will the energy created get where it needs to go, what types of non-renewable elements and other sources will be needed to get it there, and what environmental damage will be caused by the massive infrastructure needed to power our society by renewables, or if we even can.  Some things you just have to take on faith.  Some questions are best left unanswered, or never even asked.

But for we Jews, there is no true salvation.  Regardless of whether or not I convert, my children and even their children will be marked with the Scarlet Star of David.  They always will look over their shoulder, and will always feel a little uneasy to show freely and proudly who they are among others who aren’t. And they will always know that there is no accusation too ridiculous that somebody, somewhere, will still hate them for it and try to destroy them.

This week, we say “Kaddish,” our memorial prayer, for eleven souls whose only crime was to believe a different way than other people.  It’s a terribly uncomfortable feeling.  We Jews carry it around wherever we go and throughout our lives.  Yet when the conferees took off those badges after we left the David Lawrence Convention Center so that we would not advertise who we were, all conferees became de facto Jews as well.  Wear that Star of David well.  Regardless of what the haters think, our tradition is a glorious one, and something to be eternally proud of.

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.

The DRBC and the Limits of Administrative Agency Power

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There are two lessons from the petition by Pennsylvania State Senators Lisa Baker and Gene Yaw and Senate President Pro Tempore Joseph Scarnatti to intervene on behalf of a Wayne County landowner in his challenge to new rules by the Delaware River Basin Commission that would ban hydraulic fracturing in the entire Basin. The first is that there is a limit to how far administrative agencies can go and how far their power extends.  The second is that it is imperative for the industry to engage with the citizens of the State to enforce its rights and not just speak to some residents or concentrate on only one issue.

The move by the State Senators is the latest in a series of maneuvers related to proposed rules by the DRBC that stretch back years. In their current manifestation, the DRBC announced on September 13, 2017 it would publish new rules that would ban fracking throughout the Basin. The Commission claimed that fracking anywhere in the Basin constitutes a “water project” that is within the DRBC’s power to regulate. Earlier, in 2016, a landowner in Wayne County had sued the DRBC claiming that it did not have jurisdiction to prevent the drilling of a natural gas well on his property. The lawsuit was dismissed in US District Court but overturned by the Third Circuit, which in July 2018 sent it back to the District Court.

The current landowner argues that the DRBC interprets the term “Project” so broadly that it can regulate anything that happens within the Basin. I made that same argument at a public meeting in Philadelphia in January 2018. One person from the American Petroleum Institute came, but nobody from any of the natural gas producers showed up. Because there was no one there to advance the industry position, all we heard was a series of truths, half-truths and plain falsehoods. It was a propaganda session for those who oppose any natural gas development. Given a chance to engage with Southeastern Pennsylvanians who know little about the subject, the energy industry punted. It was yet another missed opportunity.

The industry could have made the point that the DRBC’s position is so overbroad it puts them in virtual control of, or at least gives them a veto over, any development, whether fracking related or not, that happens anywhere within the Basin – which extends the length of the 330 mile Delaware River. Supporters of the ban were thrilled, but cooler heads in the Third Circuit asked whether the 1961 interstate compact granting power to the DRBC was meant to be so broad. Using the DRBC standard, it could prevent the erection of a gas station 30 miles away from the river.

All three Pennsylvania State Senators seeking to intervene are Republican, but we need to ask ourselves whether this truly is a partisan issue. Are our citizens truly comfortable with an administrative agency comprised of five unelected but appointed individuals claiming so much power to regulate our lives, even for activities outside the natural gas industry? There are those who think fracking should not be permitted in the area within the jurisdiction of the DRBC – or anywhere else for that matter. Regardless, they should not be so sanguine about the enormous power grab being attempted by the DRBC.  Over subscribed power has a way of appearing fickle when the next project comes along that we do not oppose but actually support.

One other area where those opposed to natural gas development should not be so sanguine is in their ultimate reliance on Russian gas exports for their winter power.  Heading into the 2018-9 winter, New York and New England may be even more reliant on gas imports than they were last winter. As you recall, that meant Boston had to turn to Moscow for gas drilled in the environmentally sensitive Arctic. The Russian supply may not be as available this winter. While all eyes have been focused on the Supreme Court confirmation, the United States and Russia are edging closer to confrontation in the Middle East.

Last week, Israel attacked a Syrian rocket facility in Latakia, on the Mediterranean coast north of Lebanon.  The area is well outside of the normal Israeli area of operation, and indicates the importance the Israelis placed on the target. Syrian anti-aircraft guns erupted, missing all of the Israeli planes but shooting down a Russian military transport plane, killing 15 Russians. The Russian military blamed Israel, claiming it did not follow the normal rules for informing Russia when Israel conducts military operations in Syria.  Although Russian President Putin played down the issue, the Russian military continued to accuse Israel. Last week Russia announced that new, more sophisticated anti-aircraft weapons were being transferred to Syria. National Security Advisor John Bolton warned Russia that such a transfer would be a “significant escalation”.

Oil prices rose over $70/barrel. While not moving in step with natural gas prices, the coming of further Iran sanctions adds to the price pressure on fuel. If Russia and the United States grow further estranged in the Middle East, it could affect the ability of Massachusetts to call on Russian gas now that it has effectively banned Pennsylvania gas. Both short term and long term, I doubt that is a good move economically, ecologically or national security-wise for New Englanders.

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.

The Lawrence, MA Pipeline Explosions

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On January 11, 1912, women weavers shut down the Everett Mill in Lawrence, Massachusetts.  Earlier that day, they opened their pay envelopes to find their wages cut by 4%.

A recently enacted Massachusetts law had reduced the workweek for women and children from 56 hours to 54. Mill owners reacted by cutting the pay of their already lowly-paid workers.  The women revolted.

The strike soon engulfed the city.  Workers slashed machine belts, threads and cloth. Mill owners hired strike breakers and militiamen.  That only ratcheted up the tension.

Known in history as the “Bread and Roses Strike”, the bitter work stoppage lasted nine weeks.  When it was over, Congressional hearings had galvanized the public against the working conditions allowed by the owners, and the workers gained a 15% pay raise.  The political earthquake would be one of the seminal moments of the American labor movement.

A century later, a more literal earthquake in Lawrence, Massachusetts may portend a seminal movement for the natural gas industry.

Just three days after a gas pipeline exploded in Western Pennsylvania, at least 70 explosions tore through a Columbia Gas pipeline in Lawrence.  Fires broke out throughout the city.  One person is dead, at least twelve are injured, and 60-100 homes burned.  A large geographic area around Lawrence has been evacuated.

It is far too early to tell what caused the explosions, but certain things are clear.

First, our national infrastructure is deplorable.  Decades of disinvestment leave us with power lines, electrical grids, roads, airports and bridges that would embarrass a third world country.  The nation is falling apart.

Second, it is the responsibility of the owners of natural gas pipelines to ensure their safety.  That means adequately maintaining lines that already exist, properly building new pipelines, and informing the authorities when pipelines begin to decay or show damage.

Third, pipelines carrying pressurized gas are inherently dangerous.  To deny that is to deny reality.  It is up to the owners of the pipelines to show that they are safe, and not up to the public to show they are not.

Fourth, “renewable energy” will not solve this transmission problem.  Solar and wind power can create electricity, but it takes high-tension lines to transmit it.  To those who propose offshore solar and wind as a major source of the nation’s power, imagine the situation in the Carolinas right now if they obtained a significant amount of their power through offshore solar and wind farms transmitted by high-tension lines.  Even inland, think about the aftermath of Hurricane Florence in a “renewable energy’ world.  How many of those solar and wind installations would survive intact, and what would be the result of the storm on the transmission lines?  For how long would the area be unlivable?

Fifth, given modern political realities, the natural gas industry in the Northeast could be in serious trouble.  It must get a handle on its pipeline situation.  Andrew Cuomo defeated Cynthia Nixon in the New York Gubernatorial primary, but Nixon pushed Cuomo even further to the left than before.  With two pipelines blowing up in four days, what chance does the industry have of convincing the public or political leaders that natural gas pipelines are a good idea?

For the last decade, gas industry workers have produced an energy revolution in the Marcellus Region.  Whole parts of Pennsylvania, Ohio and West Virginia that faced economic depression have been revitalized; the grip on our economic lifeline of tyrannical regimes in the Middle East, Africa, South America and Russia has been broken.  American consumers throughout the country have saved tens of billions in energy costs.

All of that will be at risk if the gas industry doesn’t get serious about policing its own.  The boards of directors of our major gas producers should think about the tens of billions of dollars in investment they’ve made in our region.  Are they prepared to see it vanish because they refused to hold the pipeline companies to the highest standards of construction and maintenance?  If they abdicate their responsibility at this most delicate moment, they will have only themselves to blame.

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 – 7.3.2018

As we approach Independence Day, the disconnect between what is reported in the press and what the world situation actually is remains very curious.

Today, speaking on MSNBC’s Morning Joe, host Joe Scarborough and Council of Foreign Relations President Richard Haass bemoaned the fact that President Donald Trump is eviscerating the post-World War II order and not replacing it with anything.  Haass said we voluntarily are giving up our international position of primacy.  One wonders if Mr. Haass has spent much time looking at Nord Stream 2, the gas pipeline from Russia to Germany through the Baltic Sea, bypassing Ukraine, Russia and the Baltic States.

The effect of this pipeline will be to give Russia greater control over Europe’s energy supply.  It will enrich Putin, remove any control or payment that these other countries would have received, and make German Chancellor Angela Merkel even more subservient to Russia.  Ukraine for example, may lose 2% of its GDP as a result of the loss of trans-shipment payments.

Trump, who according to Morning Joe and much of the Western press is a Russian stooge, adamantly opposes the pipeline.  The Trump Administration is going so far as to have Secretary of State Mike Pompeo announce that the United States has made it clear that Russia should not be allowed to get more opportunities to exert political influence not only in Germany, but also in Europe in general, if Nord Stream 2 is implemented.  The current Administration has threatened to sanction any company involved in the project.

None of this has stopped Merkel, ostensibly the leader of the country blazing the trail toward a “green economy”.  She is determined to get this pipeline built, increase her dependency on Putin’s energy and rely more fully on Russian gas production from environmentally sensitive areas of the Arctic.

All of this sounds upside down, doesn’t it?  Indeed yesterday Estonia’s Minister of Foreign Affairs Sven Mikser said it is in the EU’s best interests to stop the project as it serves Russian geopolitical interest.  Earlier today, the German environmental group Nabu filed a lawsuit with Germany’s highest constitutional court asking to halt the pipeline.

Supporters of the project say that Nord Stream 2 will give Germany access to a cleaner form of energy than it currently uses.  That this might be so shows how dirty Germany’s current power supply is.  Despite refusing to greenlight any power project that is not “renewable” this decade (or perhaps because of this), Germany remains highly dependent on a very dirty form of coal called “lignite”.

Why then, is the Trump Administration, which according to many press reports (a) is in the pocket of Putin, (b) doesn’t care about the environment and (c) is willing to tear apart the old European alliance, so opposed to this pipeline?  Even if its only concerns are geopolitical and economic, the fact that the Administration is opposed to Nord Stream 2 shows that something is missing from the national debate.  A Putin puppet would just go along.  Instead the United States is taking a remarkably hard line.  Nowhere, however, is this nuance reflected in the press.

The topic of energy encompasses so many facets of our modern political debate, from geo-political power to environmentalism to future economic growth, that these stories have to be part of the discussion.  Trump may be secretly aligned with Putin.  None of us really knows.  The fact though that the Trump Administration is fighting so hard against Putin’s interests in this critical field is a story that needs to be told.  Each reader or listener then can draw his/her own conclusions.  It certainly may not show that Trump is an environmentalist, but it argues against the idea that he’s in Putin’s pocket.

Why Scarborough, Haass, the rest of MSNBC, CNN and even Fox News  fail to report on Nord Stream 2 remains mystifying.  It only increases the level of suspicion and derision with which the American press is held.

Questions? Let Dan know.

Marcellus Shale Update – 3.10.2018

There are two huge stories playing out in the Marcellus region right now.  Each, however, will take a little background to understand.

Story Number 1 involves the continued problems for the Mariner East pipelines.  On Wednesday the Pennsylvania Public Utility Commission shut down the Mariner East 1 pipeline after sinkholes developed in West Whiteland Township, Chester County.  That morning the PUC Board of Investigation and Enforcement petitioned the PUC Chair for an immediate halt of the shipping of highly volatile fuels through the Mariner East 1 pipeline.  In the afternoon, facing immense public pressure, the PUC Chair issued an emergency order stopping “the continued flow of hazardous liquids through the ME1 pipeline without the proper steps to ensure the integrity of the pipelines (which) could have catastrophic results impacting the public.”

In its report, the PUC Board of Investigation and Enforcement stated that without proper review, and in light of three sinkholes developing in the Mariner East 1 pipeline area right near the site of Mariner East 2 construction, the pipeline is “potentially hazardous to the life, property and/or the environment.”

On Thursday, Democratic Pennsylvania State Senator Andy Dinniman, a constant critic of the energy industry, asked that the Mariner East 2 pipeline, which has been suspended numerous times, be shut down.  Yesterday, Dinniman’s call was joined by Republican State Senator Duane Milne of Chester County (who represents my district).  Milne issued a public statement in which he said he “is outraged that further work on this route even can be contemplated, as significant sinkholes continue to erupt along the pipeline path.”

For background, Mariner East 1 was built in the 1930s to take oil products from Marcus Hook, on the Delaware River south of Philadelphia, west across the rest of the state.  It has a capacity of carrying the equivalent of approximately 70,000 barrels of gas (liquid propane and ethane) a day.  Following the shale revolution, Sunoco Logistics reversed the flow of the pipeline to allow for gas to flow from the Marcellus region of Southwestern Pennsylvania to Marcus Hook, where it can be sent to other domestic customers or exported overseas.

Mariner East 2 is a much bigger pipe with a capacity of approximately 250,000 barrels/day and is being built mostly in the same right of way parallel to Mariner East 1.  The fear is that the drilling of Mariner East 2 may have disturbed the ground, causing the sinkholes.  This is made more possible by the fact that the geology of the region includes large amounts of karst, which sits on old limestone formations and is susceptible to sinkholes.

In times like these, the affected pipeline company needs to rely on its reputation, good will and common sense to work out a proper plan with the PUC and the State as a whole.  Unfortunately, the way Sunoco Logistics has gone about this process from Day 1 indicates that all three are in short supply.  If the State believes a complete reboot of this project is not needed, let’s hope that at least a reboot of Sunoco Logistics’ modus operandi is and has taken place.

Story Number 2 comes from West Virginia, where last week the West Virginia Legislature voted overwhelmingly to prevent oil and gas producers from deducting post-production costs that have the effect of reducing the royalty amount received by a landowner below the statutory 12.5%.  To get an appreciation of public sentiment on this, the vote in the West Virginia Senate was 34-0 and in the House it was 96-2.  The bill now sits on Governor Jim Justice’s desk for signature.  Justice is a Republican but it’s hard to see how he can veto a bill that passed with such overwhelming majorities in both chambers.

This West Virginia bill comes following a decision in the West Virginia Supreme Court in the case of Leggett v. EQT Production, which was published in May 2017.  In Leggett, the Court stunningly reversed its own prior ruling by agreeing  in 2017 that EQT had acted properly in deducting post-production costs incurred by the company after the gas hit the wellhead and before it could be sold.  The action by the legislature both places West Virginia back in the “marketable product” realm of states but also is a huge repudiation of the State’s Supreme Court.

As background, nearly all energy states have laws requiring that a landowner be compensated for any oil or gas taken from his/her property in an amount not less than 12.5% of the value received for the oil or gas.  That is only the starting point, however, for the energy industry says it should have the right to deduct from that amount the storage, transportation, refining and other costs incurred by the company before the oil or gas can be sold.  Most states, like Pennsylvania, allow for this post-production deduction of any costs incurred after the gas hits the wellhead, and therefore are called “At the Wellhead” states.  A few, like West Virginia, would not allow any deductions until the oil or gas has been turned into a marketable product, and are called “Marketable Product” states.  This of course leads to a definitional problem of what constitutes a “Marketable Product” and how is it determined?

There is logic to the industry’s position on the deduction of costs post capture “at the wellhead”, but some energy companies (not all) have abused the doctrine to deduct massive amounts of questionable costs before turning any money over to the landowners in royalties.  In certain truly egregious cases in Pennsylvania, landowners actually found themselves not receiving royalty checks but bills from companies like Chesapeake Energy for their share of costs incurred by the company in transporting, storing etc. gas taken from their land!  Not surprisingly, this resulted in a class action lawsuit which has been settled pending an agreement with Pennsylvania Attorney General Josh Shapiro on an unfair trade practices suit.

In the end, Story 1 and Story 2 have one thing in common.  Here in the Northeast, the energy industry is not the 800 pound gorilla dominating each State’s economy.  States like Pennsylvania and West Virginia have held out the welcome sign for the industry.  It’s up to the industry to keep that sign standing.

Questions? Let Dan know.