Does shale oil boom mean U.S. energy independence near?

Dec. 21, 2011
Does shale oil boom mean U.S. energy independence near?
Kevin G. Hall | McClatchy Newspapers

last updated: December 21, 2011 07:16:14 PM

TOWANDA, Pa. — Ever since Richard Nixon's 1973 promise to attain energy independence, successive U.S. presidents all have pledged the same goal, even as foreign supplies composed a larger and larger share of the U.S. energy mix.

Now, almost 40 years later, a measure of independence is within reach. But as this booming mountain town in northeastern Pennsylvania shows, the quest for independence involves both opportunities and trade-offs.

It may surprise Americans who've lived through many years of dependence on foreign fuels, but in less than a decade the United States could pass its 1970s peak as an oil and natural gas producer. If that happens — and many analysts think it's possible — the United States would edge past Saudi Arabia and Russia to become the world's top energy producer.

That alone wouldn't make us completely energy independent. Mexico and Canada are likely to remain stable providers of oil to supplement growing U.S. production. And other factors will help too, ranging from advances in battery technologies and alternative fuels such as ethanol to greater fuel economy in automobiles.

However, the biggest potential game changer for U.S. energy production is natural gas, which previously had been supplied largely from the Gulf of Mexico region. Just a few years ago, terminals were being built at U.S. ports in anticipation of importing natural gas; today, there's talk of exporting it.

Technological advances have allowed drillers to go down almost 7,000 feet, smashing through rock formations and drilling horizontally, freeing trapped oil and gas that long had been considered inaccessible.

"Shale gas, the biggest energy innovation since the start of the new century, has turned what was an imminent shortage in the United States into what may be a hundred-year supply and may do the same elsewhere in the world," Daniel Yergin, the world's most prominent oil historian, wrote in his new book about energy security, "The Quest."

The promise of shale gas is present in many places that are being developed across the country, but it's nowhere more visible than in northeastern Pennsylvania's Bradford County, which is in the aptly named Endless Mountains region. Communities here sit atop the Marcellus Shale formation, which runs along southern New York state through western Pennsylvania into eastern Ohio and parts of Maryland and West Virginia.

Geologists think the Marcellus Shale formation contains the second-largest natural gas deposits in the world, behind only Iran's South Pars-North Dome gas field in the Persian Gulf, off the coasts of Iran and Qatar. If America becomes energy independent, it'll be in large part thanks to this region. Energy consultancy PFC Energy projects that the United States will recapture the flag of top energy producer within the next eight years.

"We need to continue to have increased drilling and production. It looks like the resource base is there to support that. The evidence is there for that; I think it's a pretty high probability," said Bob MacKnight, a PFC senior manager, who added that large U.S.-based energy companies are "rediscovering" the United States. "A lot of these companies had left the U.S. for dead 10 years ago, and are now realizing the type of growth they can get here onshore is a scale they didn't think existed."

Onshore is the operative word. Offshore drilling has brought new oil resources, and before the April 2010 BP oil spill, new ultra-deepwater production was replacing lost conventional domestic supplies and beginning to reduce the amount of imported oil. On Dec. 14, the federal government unsealed the winning bids on the first deepwater leases since the devastating BP spill, fetching more than $337 million and showing there's still strong interest in deepwater drilling.

But oil and gas from shale is the biggest new phenomenon.

"To have energy independence, you need to have energy," said Brian Grove, the director of corporate relations in Towanda for Chesapeake Energy, the most active player right now in Pennsylvania's Endless Mountains region. "We've grown our production here from zero to hundreds of millions of cubic feet per day. ... It's going to take decades for development."

Grove was the fourth local employee for Chesapeake Energy back in early 2009. Today, the company employs more than 1,400 in wholly owned subsidiaries that operate in the Bradford County area, not to mention the hundreds of contractors it works with locally.

The natural gas coming out of the shale formations can be fed into a pipeline that already passes through the region, operated by El Paso Corp. The region's stepped-up natural gas production has led to a number of high-profile announcements of new power plants in the Northeast that won't need oil or coal to operate.

Utilities are expected to be the largest beneficiaries of the new production, and that's likely to translate into cheaper electricity for companies and consumers alike. Forecaster IHS Global Insight projects that the abundant supply will lower natural gas prices, reduce electricity costs by an average of 10 percent nationwide and boost industrial production by 2.9 percent by 2017, as manufacturers enjoy cost savings. Natural gas is also likely to displace a lot of heating oil in the Northeast.

Demand remains a limitation. Manufacturers are big users of natural gas, and some cities have switched public buses to natural gas. But the scale of demand has yet to approach the available supplies, and producers want a more active federal policy that encourages the wider use of natural gas.

"We've got a supply of natural gas. We need an energy policy that reflects that," said Kristi Gittins, the vice president of industry and public affairs for Chief Oil & Gas, a Dallas-based driller that's drilled more than 150 wells along the Marcellus Shale formation and has three that now are operational.

Chief has invested more than $1.5 billion in a relatively short time, she said.

"That's a pretty significant investment to a company like ours," Gittins said.

Shale gas production now accounts for anywhere from 23 to 34 percent of U.S. marketed production, according to differing estimates by energy consultants. That'll grow to at least 42 percent by 2020, PFC Energy said. IHS Global Insight projects that it will grow to 60 percent by 2035.

In fact, in a thick study released recently, IHS Global Insight forecast $1.9 trillion in capital investment from 2010 to 2035. The industry will have spent $48 billion by 2015 to reach oil and gas trapped beneath shale deposits, the group said.

"You're talking about something that's the next level," said Anthony Ventello, the executive director of the Central Bradford Progress Authority, an economic development agency. By the agency's count, more than 700 wells have been drilled in Bradford County, more than 300 are operational and more than 2,000 drilling permits have been issued.

Environmental concerns are one potential brake on the shale boom. There are worries about risks to water tables from hydraulic fracturing, the fancy name for shooting pressurized water, sand and chemicals deep into the ground to ease shale gas to the surface. Industry says the process is safe, but the Environmental Protection Agency early this month linked chemicals in the groundwater of a small Wyoming town to hydraulic fracturing, also known as fracking.

State and local governments are struggling to keep up with the rapid pace of development here. The Philadelphia Inquirer newspaper spotlighted in a four-part series this month how there's little regulation of the pipelines that feed from the new wells into a pre-existing transmission pipeline that serves the densely populated Northeast. Pipelines in interstate transmission are federally regulated, but in rural Bradford County and elsewhere, it's essentially self-regulation.

Locals in Bradford County share many of those concerns, but some consider it a chance they're willing to take.

"Forty years from now we might look back and say, 'What the hell did we do?' Or maybe not. Life's a gamble," said Adam Dietz, who was interviewed in the town of Wyalusing as he oversaw operations at TransZ, a company that offloads sand from railcars onto trucks for use in gas-well drilling.

Dietz, who's the town's volunteer fire chief, too, stresses that he and others here are grateful for a boom when most of the nation struggles with high unemployment.

"It's change. And people hate change. But if it wasn't for this industry ... we'd be in tragic times right now. There's no other way to look at it," Dietz said.

Nearby tiny Towanda looks and feels like the bustling U.S.-Mexico trade corridor in South Texas. The rumble of diesel engines is everywhere as trucks haul the pipes, equipment, water and sand needed for hydraulic fracturing.

A new Best Western has gone up in a town that previously was known for quaint bed and breakfasts. At $169 a night, the hotel's almost always sold out. Room and board often must be found far away.

"I've had people visit here and they have to stay 40 or 50 or 60 miles away. The local hotels are booked up," said Amit Daga, the vice president of Towanda Metadyne Inc., a local manufacturer of mining products that use tungsten carbide, the second hardest material in the world, after diamonds.

Metadyne's tungsten carbide tips on hammer-drill bits are used to break rock formations deep below the Earth's surface. The drill bits are as wide as a garbage-can lid.

The boom keeps Lehigh Railway busy. The 56-mile rail line moved about 2,000 railcars into the area last year. This year the number is about 12,000, and 80-car trains are now common.

"Since I've been here, I have never seen an 80-car train. Since the 1970s we haven't had an 80-car train," said Ventello, the progress authority chief.

Lehigh Railway expects to move 15,000 railcars next year. It added more than six miles of new track this year and expects to add more next year, said Jim Raffa, the company's vice president of marketing.

"This is going to continue to grow. It's just at what percentage of growth rate," Raffa said.

ON THE WEB

Energy Information Administration report