NYS History of Natural Gas

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1 NYS History of Natural Gas First Wells in 19 th Century. Currently more than 13,000 producing wells. This is not a new industry in NYS NYS production Most activity in western NY and finger lake region Total reported gas production was billion cubic feet (bcf); Fortuna Energy, Inc. accounted for approximately 70% of that production. Most prolific producing fields in NYS in 2007 were Trenton Black River (TBR) targets; this is a conventional sandstone formation. NYS DEC photo Chemung County 1

2 Marcellus Shale The Marcellus Shale is an unconventional natural gas play that may contain between 160 to 500 trillion cubic feet of gas. These reserves have sparked statewide discussion of natural gas development issues Energy Market has changed: Millennium Pipeline Major natural gas field near NE population, commercial and industrial centers. Some industry estimates suggest that in the core sections of the Marcellus, there is about 100 BCF of natural gas in place per section (640 acres). Technology has changed: Marcellus Shale is unconventional play; gas is buried in the pores of low permeable shale. The gas does not migrate to geologic traps. Industry can now extract enough gas to make drilling commercially reasonable in unconventional play. Essentially drillers fracture the rock to release the gas. There may be more gas in place in NYS in Utica Shale than Marcellus Shale. Fortuna photo PA 2

3 Production and use of in-state energy resources renewable resources and natural gas can increase the reliability and security of our energy systems, reduce energy costs and contribute to meeting climate change, public health and environmental objectives. NYS natural gas production is expected to increase significantly, due largely from the Marcellus Shale formation. New Marcellus wells will be near existing infrastructure such as the Millennium Pipeline. Marcellus Shale NYS Energy Plan 3

4 2009 Pennsylvania Economic Impact Study Marcellus Shale is the largest unconventional natural gas reserve in the world. This study finds that the Marcellus industry could be generating $13.5 billion in value added and almost 175,000 jobs in In 2008, the Marcellus gas industry in PA generated $2.3 billion in total value added. More than 29,000 jobs were created to support the Marcellus Shale play and $240 million in tax revenue was generated. Economic output will top $3.8 billion in total value added and total job creation will exceed 48,000 in The present value of additional state and local taxes earned from Marcellus Imposing a severance tax will cut drilling activity by more than 30%. 4

5 2009 Broome Municipality Economic Impact Study Gas Well Drilling Activities Total Spending: $7,000,000,000. Total Economic Activity: $7,648,652,000. Total Labor Income: $396,436,000. Total Employment (person years): 8,136. Total Property Income (royalties, rent, etc): $605,676,000. State Taxes (sales, property, fees): $22,240,000. Local Taxes (sales, property, fees): $20,528,000. Economic Impacts based upon 2,000 wells. Bernard L. Weinstein, Ph.D. and Terry L. Clower, January Ph.D. 26, 2010 University of North Texas, Denton TX 5

6 2009 Broome Municipality Economic Impact Study Average Annual Impact (10 years) of Gas Production Activities Total Spending: $1,853,785,000. Total Economic Activity: $2,060, Total Labor Income: $156,758,000. Total Employment (person years): 2,190. Total Property Income (royalties, rent, etc): $119,622,000. State Taxes (sales, property, fees): $13,622,000. Local Taxes (sales, property, fees): $12,574,000. Economic Impacts based upon 2,000 wells. Bernard L. Weinstein, Ph.D. and Terry L. Clower, January Ph.D. 26, 2010 University of North Texas, Denton TX 6

7 Marcellus Shale Economic Opportunity Great opportunity represented by confluence of Marcellus Shale, NY Energy Plan and Millennium Pipeline, but The natural gas industry is making capital investment decisions now. The industry needs regulatory predictability. NYS has not offered this to the industry to date. 7

8 Regulation of Natural Gas Industry Local municipalities are pre-empted by state law from regulating natural gas companies (except roads and ad valorem taxes) Drilling is regulated by NYS DEC (6 NYCRR part 550) NYS Environmental Conservation Law, Article 23. dsgeis was released Sept 30, 2009 Final release date of SGEIS unknown??? Final applicable regulations and permit conditions for horizontal drilling are unknown??? 8

9 Marcellus Shale Despite state pre-emption, local municipalities still have issues Water well issues Emergency response Seismic testing Roads Noise Pipelines Lease of municipal property Ethics for elected officials Misinformation State budget Etc. PA Marcellus well sites, Fortuna and Chesapeake 9

10 Water Well Issues Dimock, PA has experienced some Devonian gas in water wells. County Health Department will address various potential issues Base line water well testing Nuisance complaints about water wells Cabot vertical well, Dimock,PA. 10

11 Emergency Response County Emergency Coordinator and local fire departments Responsible for disaster preparedness. First responder to chemical spills Chemical manufacturers are required to create MSDS (material safety data sheets) for their hazardous chemicals. 29 CFR MSDS must be maintained at work places, such as drill sites. Every person that has hazardous materials at a construction site must report those materials to the local fire department. The fire department in turn must forward the reports to the County Fire Coordinator. NYS Gen Mun Law sect 209-u. See 19 NYCRR sect First responder to industrial accidents and fires Coordinated training 11

12 Protection of Local Roads Transporting water and waste water, stored in hundreds of frac tanks, will cause heavy truck traffic to and from drill sites. Anecdotal evidence demonstrating need for local laws on road maintenance. Anger over road damage caused by Barnett Shale development. Headline--Dallas Morning News, August 23, 2008 Discussions with municipal officials in other areas of the state and the nation experiencing gas development suggests that truck traffic associated with natural gas extraction has a detrimental impact on the pavement life of municipal roads. Task Force Report for Sullivan Municipality, February 13, 2009, page 12. But municipality must consider impact caused by other industries. E.g. Broome County Airport road has strong base construction designed to handle heavy truck traffic 12

13 Protection of Local Roads Municipalities may regulate overweight vehicles. NYS Environmental Conservation Law, ; NYS V & T Law section 385 (15); NYS Vehicle & Traffic Law section 1604, Purpose of Local Law is to create a permit process to protect municipal roads and bridges from overweight trucks. Typical requirements of permit/agreement Description of proposed route Schedule of truck use to avoid conflicts with school buses,etc Vehicle insurance to protect roads from accidental damage Liability insurance to protect roads from overuse damage Performance bond to insure compliance. 13

14 Geologic, Seismic Testing Contents of Municipal Permit Agreement/Regulations Description of road impacted Work will be completed according to Highway Super standards Promise to repair any damage. Indemnity agreement backed by insurance Clear indication of the permit parameters. Broome permits only apply to roads owned by the Municipality in fee, and do not grant authority to test on adjacent parcels. 14

15 Noise Issues Number one complaint in Ft Worth (Barnett Shale) is noise from compressor stations. There is still an open question in NYS: Who will regulate noise state or localities? 15

16 Pipelines Gathering Lines in Marcellus Shale fields in Dimock, PA. and Bradford County, PA Transmission Lines (Millennium) Distribution Lines Natural gas companies typically own gathering lines. They do not have the power of eminent domain in NYS. Pipeline Companies do have the power of eminent domain. NYS Transportation Corp. Law, Article 7. Interstate Lines (Millennium) regulated by Federal Energy Regulatory Commission (FERC) Intrastate lines are regulated by length, diameter and pressure by NYS Public Service Commission (PSC). 16

17 Lease of Mineral Rights Primary issues for municipality: Protect full faith and credit of taxpayer; some counties are self insured. Insurance requirements in leases must be carefully reviewed. Before imposing insurance requirements, check the market. Prevent surface contamination; protect groundwater. Disposal of frac flow back & production water Protect the highway infrastructure. Control noise. Location of pipelines Lease management Municipality may impose lease terms more restrictive than NYS DEC regulations. 17

18 Conflicts of Interest The mixture of politics, possible conflicts of interest, and large sums of money are the classic ingredients found in a growing number of federal prosecutions against public officials. Bond, Schoeneck & King PLLC, Informal Memo, March 31, Similar situations: Attorney General investigation into practices of Wind Power Companies in upstate NY Headline-FT Worth Star Telegram Most on Ft Worth council collect money from gas leases NYS Legislator convicted of defrauding citizens of their right to his honest services. Local municipalities must assess conflict issues for elected leaders 18

19 Conflicts of Interest If Municipal Legislature considers natural gas issues such as leases, road ordinances, noise ordinances, etc. then legislators should: Disclose real property holdings, interest in natural gas leases, negotiations or intent to negotiate, other interests connected to the industry, etc. Disclose meetings to discuss private business Conduct Municipal business on Municipal property Recuse themselves from deliberations and votes on natural gas issues. Accept no gifts from natural gas industry companies. 19

20 Misinformation Debate by pro and anti drilling advocates is characterized by misleading information from both sides. Anti drilling pictorial in NYC Gotham Gazette implies that Marcellus Shale is adjacent to and above NYC water supply not true. 20

21 NYS Proposed 2010 Budget The Executive budget includes $2.5 million in new funding for additional staff to support the potential increase in natural gas drilling, oversight and regulation from Marcellus Shale activity. Is this sufficient to provide office staff necessary to process permit applications and field staff necessary to oversee drilling and production activities? 21