By Alex Benedetto

David Spigelmyer, the newly appointed president of the Marcellus Shale Coalition, believes that one of the most important roles of the coalition is educating the public on the safety practices employed by the natural gas industry. But with the moratorium on drilling in New York approaching six years and new studies coming out critiquing the safety of hydraulic fracturing, Spigelmyer will certainly have his work cut out for him.

In a recent interview with SNL Energy, Spigelmyer discussed the coalition’s role in natural gas policy and the outlook for shale development in New York and Pennsylvania. The following is an edited transcript of that conversation.

SNL Energy: What role should the Marcellus Shale Coalition have in state policy with regard to shale development?

David Spigelmyer: Clearly, the development of the Marcellus has been such a huge deal for Pennsylvania in terms of jobs and economic growth for affordable energy that we need to be front and center in the development of policy and the development of discussions in Harrisburg. Our role is one of both education and knowledge base for those that are not only active and represent areas that have active drilling, but there are a lot of areas of the commonwealth that don’t have active drilling. So, playing a broad-based education role on what’s actually taking place in the field, what’s happening in the area of energy development and natural gas development has been critical for folks to gain a better understanding of this industry.

What are your thoughts on natural gas demand in the Northeast?

We are in an ideal position for meeting the demands of consumers throughout the Northeast. In Pennsylvania, we’ve gone from producing 25% of Pennsylvania demand for energy for natural gas in 2008 to producing probably 10% to 15% of America’s natural gas demand coming out of Pennsylvania with shale development. The Marcellus alone is now attributed for about 12 Bcf/d, equivalent to 2 million barrels per day of oil and six times our production rate than back in 2009. Put that in perspective with the world and it would put the Marcellus as the eighth-largest natural gas production area in the world. So it’s incredible to see where we’ve gone in a short period of time with shale gas development. I think we are ideally positioned to meet not only our region’s natural gas demand but help meet our country’s natural gas demand.

Will pipeline constraints in the Marcellus region hinder producers?

Our rig counts have dropped a bit with natural gas pricing down from where it was in 2008. I think we are around $3.75 per Mcf today, as compared to $13 at the wellhead back in 2008. We’ve had a reduction in rig count, but what we haven’t seen is reduction in the need and development of our pipeline infrastructure.

We are in a five- to eight-year window of building now what I call the backbone for our gathering systems and midstream pipeline operation to get gas downstream in to the interstate transmission system and on to utilities and consumers throughout the region. That’s happening as we speak.

The greatest part about our delivery system today is that it’s diverse; we have lots of different outlets. If there are some bottlenecks, it’s in the area of liquids management, and I think everyone knows that there are a number of proposals for developing cracking technology in the wet gas arena and wet gas region. There are also pipeline projects proposed and being developed for moving ethane out of the wet gas region and into markets. Management of ethane is one impediment but also one major opportunity for us. If we are able to develop cracking technology, and I think we will, that’s a huge opportunity for us to regenerate manufacturing in a region that has lost manufacturing for decades.

What role does Marcellus production play in U.S. LNG exports?

The only thing I would say is that LNG is one market for the U.S. and it’s an important one. There are a number of markets that our industry is working hard to attract, but having that outlet to use natural gas for export will be a new market opportunity for our industry and one that will spur growth and capital investment and in turn grow jobs and the economic benefits that come from shale gas development. So am I supportive of LNG export? You bet I am. And I think it makes perfect sense for our industry to explore those options.

What are your thoughts on the upcoming governor’s election in Pennsylvania and the tax that was discussed?

First of all, we work cooperatively with representatives of both parties. Tax policy and energy policy don’t carry a D or an R. The benefits of shale gas development span broadly across the commonwealth and broadly across this country. You think from an energy security standpoint that we are much more ideally located today after shale gas development kicked off here four or five years ago than we were without it. I mean, in 2008 we were 57% dependent on foreign sources of oil. Today, we are 42% dependent on foreign sources of oil. I never thought we would drop below 50% in our lifetime, and frankly that’s because of shale gas development.

So from a policy perspective, we are going to work closely with Republicans and Democrats to make sure we educate properly, have rigor in our rules and consistency and predictability in our policies, at the state and federal levels, so investors can invest in our industry, we can spend capital here and grow jobs and economic benefits that come from gas development.

As for the tax, I have to see what the proposals are. Pennsylvania has a number of very expensive costs that some states don’t have. We have one of the highest corporate income tax rates in the U.S. We have a capital stock and franchise tax that many states don’t have. Most of our operators, if not all, are invested heavily in road infrastructure to prepare roads for our use and to repair roads once we are done. Most states that have a severance tax apply severance tax revenues toward road investments, and my operators and companies that operate in Marcellus are already invested in roads before a tax ever takes place.

In 18 months, this industry has already invested $406 million in impact fees, and those benefits are being shared broadly across a multitude of municipalities and counties across Pennsylvania. So they are already benefiting from the collections raised from our industry. You have to look at the motor fuel tax that has been collected, as well. Pennsylvania is an extraordinary benefactor from shale gas development and from a jobs perspective. There has been no brighter light in Pennsylvania’s economic development than shale gas development, which has generated close to 240,000 jobs since 2008.

Have the issues with fracking in Pennsylvania been buried, and is everyone moving on?

I would like to say that is the case. We are going to need to continue to educate the public on the safe practices that are being employed by the industry, and that includes all of our development activity, including the fracturing process, well development program and roads investment. Safe, reliable operations are job one for our industry, and we’ve safely used fracking technology, and we are going to continue to do that. So is the public education battle fought and won? All I would say is we need to continue to work to educate the public.

With the moratorium going on nearly six years in New York and several companies in the state appearing to close shop, what are your thoughts on the environment for natural gas development in New York?

It’s actually pretty sad for mineral owners that exist in the southern tier of New York that they’ve lost, at least in the short term, economic opportunities they would have enjoyed from shale gas development. But more broadly than that, I would suggest that when shale gas does open in New York, many of the companies that would have ramped up in New York to produce shale gas, they’ll likely support much of that opportunity in Pennsylvania, West Virginia and Ohio, where companies have staffed up to produce shale gas in those regions. Certainly, New York would get some of those jobs but not the jobs they would have gotten if they had opened with West Virginia, Ohio and Pennsylvania.

New York has an extraordinary appetite for energy. According to the [U.S. Energy Information Administration], New York consumes roughly 1.3 Tcf of natural gas. We’ve seen measurable decreases in emissions nationwide — a 10% decrease in carbon emissions, according to recently released EPA data — and it’s been because of expanded natural gas use, and New York is no exception to that. They have a series of combined cycle gas turbines in New York City, and they’re generating power with a clean, domestic, affordable source of energy, natural gas.

So New York has a plentiful appetite for it; every molecule of it is fracked somewhere. It’s high time that the state opens its eyes to their consumption and contributes to producing natural gas. And I think the time needs to be soon.

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