Marcellus Shale gas may head overseas: Alaska Business Wire | Alaska news at adn.com

Marcellus Shale gas may head overseas: Alaska Business Wire | Alaska news at adn.com.

Marcellus Shale gas may head overseas

ANDREW CONTE
The Associated Press

Published: April 10th, 2011 06:28 AM
Last Modified: April 10th, 2011 06:30 AM

PITTSBURGH (AP) – Drilling companies rapidly expanding their U.S. operations in places such as Pennsylvania’s vast Marcellus Shale formation repeatedly tout they are providing American jobs and securing the nation’s energy future.

Yet, a Tribune-Review examination found foreign companies are buying significant shares of these drilling projects and making plans for facilities to liquify and ship more of that natural gas overseas.

A leading player in the natural gas grab is China, whose thirst for energy to fuel its industrial explosion is growing rapidly. Others include the governments of South Korea and India, and companies in Great Britain, the Netherlands, Norway, Japan and Australia.

“They’re going to come in, extract all this stuff for next-to-nothing, and make global profits off it,” said Pittsburgh Councilman Doug Shields. “This is beads for Manhattan, in a global sense.”

Much of the salesmanship to promote gas exploration nationwide, and especially in Pennsylvania, pressed the point that the country must become less dependent upon foreign energy sources.

It avoided discussion about exporting that gas overseas.

“The implications are great,” said Paul Cicio, president of Industrial Energy Consumers of America, which represents large U.S. manufacturers. He believes exporting newfound natural gas is a strategic blunder that will cost American manufacturing jobs by hiking the price of gas here.

“This is not good for our country,” he said.

Bill Newman, a New York lawyer who often represents foreign clients, sees things differently. “We have a shortage of capital in this country,” he said. “In the 19th century, the railroads almost broke us.” He said he believes foreign investment in the United States can work like it did in supporting the railroads.

Patrick Henderson, senior adviser on energy matters to Gov. Tom Corbett, said the possible export of Marcellus gas overseas “doesn’t hurt the argument that we need to develop the resource.” He said it underscores that the United States needs to develop technology that uses natural gas.

“Exporting is generally a good thing, though our first choice would be to use it here,” he said. Corbett doesn’t believe Pennsylvania should tax Marcellus Shale gas aimed for overseas because it would be difficult “to craft a tax” based on where the gas is used, he said.

The relatively new technology called hydraulic fracturing, or “fracking,” to free gas from deep shale formations is helping America move from importing natural gas to potentially supplying it to the world.

Foreign companies generally are investing in Marcellus Shale because they want a good return, rather than assets, said Kathryn Klaber, president of Marcellus Shale Coalition.

“We should be celebrating the foreign investment that is helping to finance domestic energy production and that is benefiting Pennsylvanians in the prices they’re paying for energy,” Klaber said.

Pennsylvania sits above the sweet spot for one of the world’s largest natural gas deposits, trapped in a rock layer a mile below the surface known as Marcellus Shale. The Marcellus Shale Coalition, an industry trade group, issued a report last week saying the United States could take advantage of that gas by converting more vehicles to use it. Many vehicles in South Korea, for example, are powered by natural gas instead of gasoline.

The United States could become an exporter of liquified natural gas because supply and demand determines gas sales here, whereas sales in Asian markets and Europe are formulated on the price of oil. Sometimes, Cicio said, that works in the United States’ favor when oil is cheap, but it can hurt when oil rises in price.

Foreign countries will do what it takes to get natural resources they need, said Mel Packer, an organizer with Marcellus Protest, a citizens group based in Washington, Pa., that opposes drilling because of environmental concerns.

“They’re going to buy them where they can get them,” Packer said. “If that means buying whole Corp.s to get the assets, that’s what they’re going to do.”

Two companies – Cheniere Energy Partners and Freeport LNG Development – are seeking government permits to export liquified gas, according to the Federal Energy Regulatory Commission.

A Chinese firm, ENN Energy Trading Co., signed a memorandum of understanding to send 1.5 million tons of natural gas from Cheniere, a Houston-based company operating the Sabine Pass port in Louisiana.

“We are excited to participate in supplying natural gas to China,” Cheniere CEO Charif Souki said in a news release.

Two other port companies are expected to seek permission soon, said Biliana Pehlivanova, a natural gas analyst with Barclay’s Capital investment bank in New York.

One is Virginia-based Dominion Resources, which has Pittsburgh offices and owns a liquified natural gas terminal and port in Cove Point, Md. The facility could be converted into an export facility for Marcellus Shale gas by 2015, but spokesman Dan Donovan said the company has not decided whether to do so and has not sought export permits.

“We are talking to our producers,” he said.

Dominion’s Cove Point facility takes in imported liquified natural gas from BP in Great Britain, Shell in the Netherlands and Statoil in Norway. Statoil and Shell are investing heavily in the Marcellus formation.

Last year, Warrendale-based East Resources sold its Marcellus interests to Royal Dutch Shell for $4.7 billion. Last month, Statoil, which has a $3.375 billion partnership agreement with the largest Marcellus leaseholder, Oklahoma City-based Chesapeake Energy, said it might drill as many as 17,000 Marcellus wells over two decades.

Other foreign companies with Marcellus Shale interests are Mitsui and Sumitomo from Japan, the BP group from Great Britain, Atinum from South Korea and Reliance Industries from India.

The Chinese National Offshore Oil Corp. tried to break into the American energy market in 2005, when it bid $18.5 billion to take over Unocal. It withdrew the offer after a political firestorm on Capitol Hill.

In 2009, CNOOC succeeded in entering the American market, if not exactly on land. It partnered with Statoil on four oil leases in the Gulf of Mexico. This time, no one protested.

In November, Chesapeake announced it would sell a third of its holdings in a Texas shale oil field called Eagle Ford to CNOOC for $2.2 billion. Statoil and Korea National Oil Corp. recently invested in Eagle Ford.

This year, CNOOC took a one-third share of Chesapeake’s leases in two oil and gas fields in Colorado and Wyoming for $1.27 billion in direct costs and drilling expenses.

The Chinese have more connections to Chesapeake, but the extent isn’t known. Chesapeake spokesman Jim Gipson said the company generally limits disclosures to those required by regulators.

Last year, Chesapeake said it sold $600 million in convertible preferred shares to “investors in Asia,” without specifying countries. The company disclosed a separate sale of preferred stock to investors including affiliates of the China Investment Corp., the sovereign fund of the People’s Republic of China.

Even though China has interest in American gas, it has untapped shale gas reserves that are 12 times higher than its traditional gas reserves, the U.S. Energy Department said last week.

Pittsburgh geologist Greg Wrightstone said China falls behind when it comes to technology to recover the gas and could learn by partnering with an experienced firm such as Chesapeake.

President Barack Obama and Chinese President Hu Jintao addressed that problem in a formal statement announcing the “U.S.-China Shale Gas Resource Initiative” in 2009.

“The United States is a leader in shale gas technology and developing shale gas resources in a way that mitigates environmental risks,” they said. “Bringing this expertise to China will provide economic opportunities for both the U.S. and China.”

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Earth Day Open House

Gas Drilling Awareness for Cortland County (GDACC),

CGIS Environmental Justice Committee

NYPIRG.

Earth Day Open House

Friday, April 22, 4:30-7 PM

Main Street SUNY Cortland, 9 Main Street, Cortland.

Refreshments

• My Name is Allegany” film on citizen resistance to New York State’s siting of a radioactive waste dump and a fight for environmental justice–Jim Weiss and Paul Yaman

• Information on industrialized  shale gas drilling,  leasing issues and steps localities can take to protect their citizens and their infrastructure.

• GDACC T-shirts and sweatshirts featuring a map of Cortland Co. leases.

• Clean, safe, alternative energy options- Sustainable Tompkins on the “Finger Lakes Energy Challenge”, http://sustainabletompkins.org/programs/marcellus-challenge/).

GDACC– residents concerned about gas drilling and its potential impacts on our community, health and environment.  Our goal is to educate ourselves and the community about gas drilling, and to promote a safe and clean environment.  We are looking for others to join us.

DONATIONS CAN BE SENT TO GDACC, P.O. BOX 5151, CORTLAND, NY 13045. www. gdacc.wordpress.com

The event is part of SUNY Cortland’s Sustainability Week, (http://www2.cortland.edu/news/detail.dot?id=17e6be8d-1973-4127-8dbf-144e1f1e160e), a week long series of events on a wide range of environmental topics: For more information 753-2464 or 753-5784

A legal plan to control drilling

A legal plan to control drilling.

A legal plan to control drilling
by David Slottje and Helen Holden Slottje

What comes to mind when you think about upstate New York? Rolling farmlands, fresh air, and the chirping of birds? Or heavy truck traffic at all hours of the day and night, the smell of chemicals in the air, distant views pockmarked with drilling rigs, and the stars blocked from sight by light pollution?

Many community groups and municipal leaders are becoming increasingly alarmed by the threats attendant to unconventional gas drilling. These communities are growing frustrated with what they perceive to be the unwillingness of state and federal politicians and agencies to act decisively.

Can anything be done at the local level to protect the health and welfare of our communities? The answer is yes, at least in New York.

We are lawyers with the Community Environmental Defense Council, Inc., a pro bono, public interest environmental law firm based in Ithaca. It is our opinion that a New York municipality has the legal authority and right to use land-use laws of general applicability (such as zoning laws) to prohibit what we have termed “high-impact industrial uses,” either in certain zoning districts or throughout an entire town.

Furthermore, we believe this authority and power legally may be exercised in a manner that, depending upon the municipality’s particular definition of “high-impact industrial uses,” will have the incidental effect of prohibiting (within the town) land uses such as unconventional gas drilling.

Some people have heard that municipalities are legally restricted from enacting laws to prohibit certain uses, such as “adult entertainment,” and so they wonder whether those same restrictions might also apply to banning industrial uses. They do not.

Those restrictions on “adult entertainment” are very limited and very specific in nature, and have to do with protection of constitutional rights, specifically First Amendment rights, including free speech.

There is no question that exclusion of industrial uses is a proper and legitimate use of land-use laws.

The United States Supreme Court addressed this question in a 1974 case known as Village of Belle Terre. In Belle Terre, the court stated that the town had wide latitude to use its zoning laws to protect the public welfare, and that the public welfare is spiritual as well as physical, aesthetic as well as monetary. The court specifically held that a town may use its police power “to lay out zones where the blessings of quiet seclusion and clean air make the area a sanctuary for people.”

And the New York Court of Appeals­—the highest court of New York State—came to the same conclusion in a 1996 case called Gernatt Asphalt Products. This was a situation in which a town had used its zoning power to ban mining as a permitted use, and the people who wanted to mine challenged the ban, saying that the ban involved unconstitutional exclusionary zoning.

Rejecting the challenge, the court said:

We have never held that the exclusionary zoning test, which is intended to prevent a municipality from improperly using the zoning power to keep people out, also applies to prevent the exclusion of industrial uses. […]

A municipality is not obligated to permit the exploitation of any and all natural resources within the town as a permitted use, if limiting that use is a reasonable exercise of its police power to prevent damage to the rights of others and to promote the interests of the community as a whole. (Emphasis added.)

So, there should be no doubt that a New York State municipality has the legal right to use land-use laws to ban industrial uses.

You may have heard the opinion that New York has preempted the right of municipalities to ban certain specifically articulated industrial uses —oil and gas drilling and solution mining—within their boundaries.

We believe that the state has not preempted such activities, so long as they happen to fall within the definition of “high-impact industrial uses” contained in a town’s properly enacted zoning law.

There is a state statute (the “drilling statute”) that precludes municipalities from regulating the oil, gas, and solution mining industries, but we believe “regulating” means regulating the operational processes of the industry—that is, things such as how deep they can drill or mine, and imposition of bonding requirements. Municipalities may, in fact, prohibit such industries outright, either in certain zoning districts or throughout an entire town.

The drilling statute language regarding regulation is almost identical to the language regarding regulation that was previously used in the context of the mineral mining statute, and in that context the Court of Appeals made it crystal clear that the scope of preempted regulation meant regulation related to operational processes, and that municipalities absolutely could prohibit mining outright, whether in certain zoning districts or throughout an entire town.

Simply put, our recommendation to New York State municipalities seeking to preserve their character and avoid industrialization is to adopt a zoning law or amendment that specifically prohibits high-impact industrial uses within the municipality, and to utilize a definition of “high-impact industrial use” which encompasses unconventional gas drilling and any other uses determined to be inimical to the municipality’s desired character and goals.

We do not believe that our interpretation is particularly bold, or visionary, or out-of-the box. Embracing our approach does not involve attempting to create new law, or attempting to overturn any law, or even trying to distinguish a holding in an unfavorable judicial decision.

There are people out there who do not agree with our approach. Our view is that the vast majority of them are people who have a financial stake in seeing drilling go forward: drilling companies and their lawyers, landowners who favor drilling, and their lawyers—many of whom will receive substantial fees if drilling is allowed to proceed.

We would be happy to speak with the representatives of any municipality, or any community group, who wish to discuss the concepts we are recommending, the specifics of creating the type of law we are suggesting, or how to minimize political and legal “push-back” risks. We are pro bono attorneys, which means we do not charge for our time.

David Slottje is executive director and senior attorney, and Helen Holden Slottje is managing attorney, at the Community Environmental Defense Council, Inc. (CEDC). Both are members of the Club’s Atlantic Chapter. CEDC is a 501(c)(3) non-profit, pro bono, public interest environmental law firm. For more information about CEDC or to contact the authors, visit CEDC’s web site at http://www.cedclaw.org.

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