Gas Drilling: Why Are Horses Still In Starting Gate?

Where is this predicted “gas rush” and why has it been delayed for so long? Those questions and many others are addressed in the latest edition of Shale Gas Roundup, which is now available at the county website, pottercountypa.net (click on Natural Gas tab/Monthly Newsletter). A publication of the Natural Gas Resource Center, Roundup summarizes multiple issues related to the gas industry as it affects Potter County. The September/October edition features an analysis of factors that have stalled the level of intense gas-drilling and production that was forecasted by many authorities as far back as 2008.

Industry analysts are unanimous in their belief that gas exploration and production will be picking up, but they’re hedging their bets on when that will be. Market forces will drive the pace. The lack of pipeline distribution networks and economic recession are factors cited by analysts to explain the local slowdown, which started in the first quarter of 2011 and has shown no sign of ebbing. The logjam will likely continue well into 2013.

Steady decline in wells. In 2010, there were 33 shale gas wells drilled in Potter County. Last year, 16 were drilled. In 2012, DEP reports that through Aug. 1 there were 18 permits issued, but no wells drilled. Yet, companies drilled 101 deep wells in Tioga County, 112 in Bradford, 117 in Susquehanna, and 131 in Lycoming. Gas prices are currently less than $3.00 per MCF. Experts say they have to be at least twice that to produce a good profit. Prices swing widely – they averaged more than $8.00 as recently as 2008.

Clearer Picture Emerging. Data from seismic testing and experimental drilling continue to come in for analysis as companies plot their strategies. Shale thickness, distance from the surface and the proportion of moisture in the gas vary. Some companies have run short of cash as prices lag. Gas output has climbed, contributing to a glut, as drilling has unlocked fuel-rich shale formations. The mild winter of 2011-12 kept market-ready gas in storage. Experts say a cold winter of 2012-13 could break the cycle.

Production/consumption trends. With prices so low, a number of producers have shifted to drilling for gas liquids (“wet gas”) and oil until there is greater demand. In the long term, that is expected to come with expanded exportation, as well as conversion of electricity generation and motor vehicles to natural gas. Meanwhile, the gas that was tapped in 2008-11 is flowing. The January through June production from the Marcellus shale play in Pennsylvania was up more than 80 percent in 2012 from the 2011 totals.

‘Tap and cap.’ Experts say there will likely be scattered “tap and cap” drilling operations in the region over the next couple of years. Some leases with private landowners are automatically extended – typically, the terms are for five years – only if some gas is produced. Companies do not want to lose the favorable terms they’ve negotiated, so they will meet the minimum drilling requirements to trigger a lease extension.

Copies of Shale Gas Roundup are also available by calling the Potter County Board of Commissioners at 814-274-8290, Ext. 207, or sending an email to Sharon Costa at scosta@pottercountypa.net.