Daniel B. Markind, Esq.
Weir and Partners, LLP
The lack of major bellwether fracking news this summer, combined with mostly good industry news, indicates shale gas is the new normal for energy in the US and worldwide.
The coming of Labor Day marks the end of an unusually quiet summer on the energy front. Prices continue to rebound somewhat, producers cautiously eye increasing production again, and pipeline companies continue to try to build out the infrastructure needed to fully use the resource. Overall, however, the last few months have been marked by an absence of bell-weather events which seemed to come fast and furious in the shale and energy fields for a period of about seven years.
The most interesting recent events were in Colorado, where anti-fracking initiatives failed to generate enough signatures to make the upcoming 2016 ballot, and in Pennsylvania, where yesterday the Commonwealth Court ruled that the Department of Environmental Protection has the authority to consider the impact of gas drilling wells on public and natural resources. By a 5-2 decision, the Court ruled against the Pennsylvania Independent Oil and Gas Association which claimed that under the State’s “Act 13”, the DEP did not have that authority in determining whether or not to issue well permits. Legally, the case involved whether the Pennsylvania Supreme Court 2013 decision in Robinson Township v. Commonwealth, which struck down certain sections of Act 13 (including the exemption given to the gas industry from certain setback requirements), meant that other sections of Act 13 (which granted the DEP rights to take into consideration these factors) must be stricken as well. The Court concluded otherwise, leaving the DEP free to consider those implications in its decisions to award well permits.
In New York, the hot summer exposed the vulnerability of the State’s power grid. In late July, Governor Andrew Cuomo ordered New York State agencies and offices to turn off lights and limit air conditioning as the State did not have sufficient electricity capacity to meet the need. The New York Independent System Operator entered the summer saying there was sufficient electricity generated in New York or imported to handle the demand. That turned out to be not true. As the system buckled, one wonders how New York’s energy picture might differ if sufficient pipeline capacity is brought on board to import natural gas, and whether the outdated and clearly insufficient State power grid will impact future business decisions in New York.
On the bright side, analysts at Raymond James predicted that by 2020, the United States could be “tantalizingly close” to energy independence. Already, oil imports have shrunk from 65% of daily demand in 2005 to 28% in 2015. Obviously, the shale revolution is the biggest reason for this While the United States Energy Information Agency is more cautious, it can foresee a scenario where, with shale increasing, the US will be a net “petroleum exporter” by 2024.
What makes this so remarkable is the fact that oil and gas prices are so low and that the regulatory environment has turned so negative in this country. Despite this, Pennsylvania reported that natural gas production in 2015 reached its highest level ever, and disciplinary action by the Department of Environmental Protection decreased. Surely, the Tom Wolf administration is no fan of the shale industry – indeed Mr. Wolf rode a wave of anti-shale gas sentiment – into the Statehouse in 2014. The industry must be doing something right.
The next frontier is export. In August, Scotland received its first shipment of shale gas exported from the Marcus Hook refinery outside of Philadelphia. Ineos, which built the world’s largest multi-gas carrier, the Intrepid, to transport the gas, now has constructed the largest storage tank for shale gas in Scotland to handle the shipment, which is in response to a 60% drop in production from Britain’s North Sea oil field.
As this is happening, Cyprus and Egypt are signing a deal to construct an undersea pipeline that they hope will create a regional energy hub in Northeast Africa. This will be complicated by the fact that Cyprus remains partitioned and the Turkish enclave objects to the deal, but the weight of momentum is on the side of the pipeline. Simultaneously, Israel’s energy minister is in London this week to persuade energy explorers to search off that country’s waters. Given the years of governmental machinations over its Leviathan and Tamar fields, there is reluctance in dealing with Israel, but a report by French consultants suggests that there is 2,200 billion cubic meters of undiscovered gas to be found there.
All of this comes as Europe goes into another cold-weather season still dependent on Russian natural gas as Russian troops continue to mass in Ukraine. With the American Presidential election coming in eight weeks, it is clear the autumn will be more eventful and dramatic than the summer has been.