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February 8, 2016
by David Conti


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A little government cheer

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Reports from the U.S. Energy Information Administration hardly qualify as motivational messages.
The Department of Energy agency’s daily updates, weekly reports and period outlooks usually lean heavier on data and statistics than cheerleading. Its mission is to gather and distribute “impartial energy information.”
A few of its recent announcements, though, have provided the closest thing to good news that Marcellus and Utica shale gas drillers have heard in months.
Producers are in desperate need of a pep talk as layoffs mount and spending plans for 2016 shrink. Low prices are making for dark days in the shale fields.
Southwestern Energy recently cut 200 employees in Appalachia, and Range Resources followed suit with 55 workers. The reductions in capital spending at top producers are eclipsing multibillion-dollar levels.
A ray of light came from the EIA at the tail end of January indicating that prices are starting to improve.
The national benchmark price for natural gas is based on how much it fetches at a pipeline connection in Louisiana known as Henry Hub. Because of limited pipelines and oversupply in the Marcellus, producers here can’t get that same price at Pennsylvania connections.
The EIA noted in a daily report that the spread between those prices was shrinking, averaging less than a dollar difference over the past few months and headed toward 50 cents.
In all honesty, that’s partly because Henry Hub’s price has dropped closer to Marcellus levels. Traders there haven’t seen $2.50 per million British thermal units since Oct. 12, and in December the price hit 16-year lows as a warm start to winter stomped all over demand.
But Marcellus prices that fell below $1 over the summer have crept up as more pipelines come online. Which led to more good news for drillers from the EIA.
“New pipeline projects increase Northeast natural gas takeaway capacity,” the report was titled. Slowly but surely, all that gas coming from our shale is finding new paths to more lucrative markets, the EIA said.
A decent batch of new large pipelines and connections to the established interstate systems went into operation late last year and early in 2016. More are on the way: The Federal Energy Regulatory Commission last week OK’d several hundred miles of new lines that will connect high-paying markets in the Sun Belt.
The net effect of more pipelines — especially those that lead to export terminals, new gas-fired power plants or Mexico — should make drillers happy. EIA predicts prices will get back to $3 by December and will average $3.22 next year.

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January 25, 2016
by David Conti


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Agreeing on gas

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Deep down, both sides seem to agree on methane.

It’s just hard to see through some of the past week’s rhetoric.

The latest dustup between Pennsylvania Gov. Tom Wolf’s Department of Environmental Protection and the shale gas industry shows the usual animosity at the surface.

The department is rolling out rules aimed at reducing methane emissions from well sites, processing facilities and pipelines.

An hour after Wolf announced the move, the American Petroleum Institute called such rules unnecessary and duplicative because government figures show emissions of the greenhouse gas have fallen.

The next day, DEP Secretary John Quigley questioned the validity of those figures and challenged the industry to prove it’s cutting leaks.

“It’s very easy for a trade group to claim we’re doing all the right things. It’s very hard to prove it,” he told reporters.

Within hours, the Marcellus Shale Coalition was using the DEP’s own numbers to do so. The United Shale Advocates tagged Quigley, the DEP and reporters in a tweet quoting Environmental Protection Agency Administrator Gina McCarthy singing the praises of natural gas as a game-changer in reducing emissions.

Now we have a regulatory agency looking like it doesn’t know what it’s talking about and an industry appearing to want to shirk responsibility for emissions.

Neither is true.

Resetting the debate to Wolf’s initial announcement shows that the combatants actually started closer to agreement on methane.

Although he’s never been viewed as a friend to the gas industry, Wolf pointed out that many companies have been doing the right thing, using state-of-the-art equipment to detect and repair leaky wellhead equipment and pipes.

The industry has dropped some serious money on this issue. Because, as Wolf himself noted, gas that escapes can’t be sold. Even at today’s basement prices, those are dollars and cents that leak from a bad connection.

Both sides obviously agree that allowing methane to escape into the air from gas operations is a bad idea. If they can direct their energy away from quibbling over how it’s counted, it will be interesting to see whether they find some common ground on methods.

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December 29, 2015
by David Conti


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Price party

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Back in July, the folks at price tracker GasBuddy.com predicted the national average for gasoline would dip below $2 per gallon by Dec. 31.

They were only two weeks off.

Pump prices, which flirted with the symbolic national average of $1.99 this year, hit it on Dec. 18. The first sub-$2 gas since 2009 is just in time for the final holiday push to the malls.

“For the vast majority of consumers, the gasoline price decline is a blessing that provides a little extra cash when it’s most needed,” GasBuddy senior petroleum analyst Patrick DeHaan said in announcing the price point.

It’s an attractive number that likely will keep falling, for reasons that are not new to anyone who’s been paying attention to how much they’ve paid to fuel up.

Oil supplies are up all over the world as domestic shale companies get more than they ever expected from every well they drill even after reducing their rigs count and as OPEC maintains its production to spite U.S. crude — as doing so cuts off a few members’ noses.

As for demand? Not so much. Despite expectations of a record number drivers heading over the rivers and through the woods this season, descriptions like “tepid” and “unremarkable” remain common.

“It’s likely that gasoline prices will eventually decline even further into early January as demand bottoms out, but eventually the party comes to an end,” DeHaan said.

What’s unlikely is that we in Western Pennsylvania will receive an invite to that party.

“It’s going to be close,” fellow GasBuddy analyst Jeff Pelton told the Tribune-Review, saying “$2.05 is probably more realistic.”

It’s a source of frequent calls and emails to the Trib: Why do we pay 25 or 30 cents more than folks a few miles over the border in Ohio?

Pennsylvania’s fuel tax of 50.5 cents per gallon makes the tax bill here higher than any other state’s. Add to that some increased transportation costs of shipping gas from the closest refineries to these parts of the state and we’ll likely be left out in the cold.

Your best shot of knocking those last few cents off the tab will come from retailers such as Costco that might drop the price if competitors are close to the $2 mark.

“They might try to start 2016 off on a bang,” Pelton said, noting the $1.99 sign might draw in some extra shoppers.

A bigger dip in the national average could work, too. The average in the Pittsburgh region was about 20 cents higher than the national number this week. If refineries wait a few more weeks into February to start the spring maintenance that usually boosts prices, some analysts predict the national average might bottom out at $1.79, giving Pennsylvania a shot.

As long as the folks in Harrisburg don’t raise those taxes, too.

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December 14, 2015
by David Conti


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Sinking feeling

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Rejuvenating U.S. shipbuilding and boosting employment of American mariners sounds like a great idea.

But one proposed approach to stimulating that sector could torpedo the natural gas industry, which has its eye on exports to help ease a painful glut. Such a move could harm the larger U.S. economy.

That’s what the General Accountability Office found when it examined the potential implications of requiring the flying of a Made in America flag on all ships carrying our shale gas bounty to foreign ports of call.

For several years now, producers have looked to exports of liquefied natural gas, or LNG, as an outlet for some of the record amounts they have been pumping from shale.

Getting it off U.S. soil will boost domestic prices enough to keep business flowing without hurting consumers, industry advocates say. Plus, foreign markets, especially in Asia, are willing to pay more — a lot more — for that gas.

Companies responded by proposing more than 30 facilities to liquefy the gas — which allows crews to pack more into tankers — and ship it out, mostly along the Gulf Coast.

Five terminals are expected to come online over the next few years with the capacity to export more than 12 percent of U.S. gas production in 2020.

Unless some well-intentioned lawmakers impose a blockade.

As the GAO report points out, the terminal owners have signed 20-year contracts with overseas customers to buy the gas, and those customers are responsible for transporting it. So they’re building some of the largest ships in the world to carry it home.

Certainly we could build and operate those ships ourselves, right?

Technically, yes, said the GAO, which dove into the matter when Congress started considering a law that would allow LNG exports only on U.S.-built-and-flagged ships. Operating 100 such ships would employ up to 5,200 mariners.

But building enough LNG carriers — something that domestic companies haven’t done since 1980 — would take about 30 years and cost three times what Korea can do it for, the GAO found.

“These costs would increase the cost of transporting LNG from the United States, decrease the competitiveness of U.S. LNG in the world market, and may, in turn, reduce demand for U.S. LNG,” the GAO found, warning further that “a reduction in the level of expected U.S. LNG exports could impact the broader U.S. economy, including potential job and profit losses in the oil and gas sector.”

That sector has experienced a lot of the above already. It sees the promise of LNG exports as a potential light at the end of the low-price tunnel.

So far, the Made in America proposal hasn’t gained much steam since Rep. John Garamendi, a Democrat from California, started pushing it last year.

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December 4, 2015
by David Conti


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A real challenge

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Matthew Mehalik used a famous piece of art Wednesday night to sum up the collaborative effect of the Green Workplace Challenge he helped coordinate.

It was appropriate, not just because the competition’s awards ceremony was underway at the Andy Warhol Museum. It symbolized the sometimes small steps participants took to cut energy use, reduce waste and expand environmental awareness.

Like the small dots in Georges Seurat‘s “A Sunday on La Grande Jatte,” those steps, “when people repeat them, it leads to a coherent, bigger picture,” said Mehalik, a program director for challenge organizer Sustainable Pittsburgh.

Much of the evening served as a celebration of steps people and companies and government agencies can take to make the world around them a little nicer. In one year, 50 participants combined to save 18 million kilowatt hours of energy and diverted 436 tons of waste from landfills

The night ended with the naming of the winners of the challenge, including some of the biggest businesses in the area, which earned points over the past year taking those small steps.

Before then, the crowd heard encouraging stories of progress.

Entrepreneur Tom Szaky talked about how he turned a desire among him and some college buddies to find uses for hard-to-recycle waste into the international firm TerraCycle.

Sustainability efforts such as the challenge — which wrapped up its third installment — have “put this area on the map for young people,” said Allegheny County Executive Rich Fitzgerald, whose office again took home an award.

There were some discouraging thoughts shared, too, though. Most of them came from Philip Johnson, program director for science and environment at The Heinz Endowments.

The Endowments, a patron of the Green Workplace Challenge, also funds the Breathe Project, a nonprofit devoted to efforts to monitor and reduce air pollution in the region.

Pittsburgh’s air is no doubt cleaner than it once was. But that doesn’t mean it’s actually clean, Johnson said. In fact, it remains among the dirtiest in the nation, he said, in large part because of tiny dots of pollution known as fine particulates coming from industry and vehicles.

It’s striking to consider how much business goes on every day between the sources of that pollution and some of the top finishers in the competition (BNY Mellon, University of Pittsburgh, Allegheny County, etc.).

As for those young people lured to this sustainable region? Johnson said they have been taking to the Breathe Project’s Facebook page to complain about the air and say it’s driving them away.

“Nobody told us the most livable city would smell like metallic sulfur,” Johnson said these young idealists have written.

The disconnect between the picture Johnson presented of the region’s progress in cleaning up its collective act and the larger, celebratory tone of the evening was stark.

Perhaps it shows how trying to paint a true picture of the region’s environmental health, and how both businesses and the nonprofit advocates need to work together, involves a lot of connecting the dots.

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November 30, 2015
by David Conti


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Messy work

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“Democracy is messy, folks.”

It was hard to argue with those words from state Department of Environmental Protection Secretary John Quigley, uttered as a police officer removed the second of two protesters from the most recent meeting of his department’s Pipeline Infrastructure Task Force.

The whole process of writing a set of recommendations to make the shale gas pipeline build-out a little less painful has gotten uncomfortable, as the expression on Quigley’s face for much of the meeting showed.

Leaders from several groups that take steadfast positions against shale gas development have added to the mess. This was the second meeting at which they showed up en masse to complain that they have been excluded from the process, only to proclaim when given the chance to speak that they want no part of it.

“We’re saying, ‘No pipelines, no fracking,’ ” Karen Feridun of the anti-gas group Berks County Truth said during a public comment portion of the meeting, which those who were removed could not wait for. “It doesn’t matter if you put it here or there. You shouldn’t put it anywhere.”

Quigley assured the protesters that they could have their thoughts heard before the 48-member task force sends its final recommendations to Gov. Tom Wolf in January. A 30-day comment period on the draft will last into next month.

“We’re asking everyone to be civil and to let this process work,” he said.

As chair of the committee that Wolf assembled in June, Quigley faces a potentially messier situation in allaying concerns of task force members who feel like they too are being excluded.

When the department issued 184 draft recommendations, based on the work of subcommittees, it sent task force members a survey asking for each recommendation whether they agreed, disagreed or wanted to discuss it more.

When the meeting began, members learned they would be discussing the parts that prompted “disagree” responses, but not those for which members wanted more discussion.

Let’s just say the discussion became a bit disagreeable. Several members complained aloud that they would have answered differently on those surveys had they known they would not get the discussion they sought.

Sen. Andy Dinniman, D-Chester County, making his first appearance at a task force meeting, appeared to lecture fellow members on how they should proceed.

Several said privately they felt the meeting had been hijacked and that a rush to get a report done quickly would result in one they could not support.

Quigley said he would consider sending around another survey and scheduled another meeting for Dec. 16.

Squeezing that in before the holidays could prove messy. But it might be worth more discussion.

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November 18, 2015
by David Conti


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Oil-gas hookup

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This probably isn’t the type of merger or acquisition that analysts have been predicting would become commonplace in the oil and gas sector as companies struggle with low prices.

But there still could be some shared basis for this marriage.

The industry’s biggest national lobby, the American Petroleum Institute, is swallowing America’s National Gas Alliance, the Washington-based groups announced Tuesday.

“There is a natural synergy between our organizations,” API CEO Jack Gerard said in a statement. “As a single organization, the combined skills and capabilities bring an enhanced advocacy strength to natural gas market development – ANGA’s primary mission – and the combined association’s expanded membership will provide additional lift to API’s ongoing efforts on important public policy issues.”

ANGA, which formed in 2009 just as shale gas production was starting to increase, has partnered with API. Now it will be part of it.

Combining in January will help the groups focus on “how best to organize for maximum effect,” said ANGA President Marty Durbin, who will become executive director of market development at API.

Looking for maximum effect has become more important for those worried about dwindling resources in the industry. Money is expected to remain very tight in the shale fields for at least the next year as prices remain low, and there has been speculation that prices and industry cutbacks were fueling the trade groups’ courtship.

In September, Politico reported some companies were complaining (privately) about having to pay dues to two organizations with the same shared mission.

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November 16, 2015
by David Conti


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The gift of gas

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Don’t expect a visit from the Ghost of Polar Vortex Past this winter.

Federal officials predict milder temperatures across most of the United States will leave utilities and power plants with plenty of very cheap natural gas to burn.

“High natural gas inventories and expected warmer weather will lead to lower natural gas prices this winter, which could reduce the heating expenditures for households that heat primarily with natural gas by an average 13 percent compared to last year,” the Energy Information Administration said in its November short-term energy forecast.

Meanwhile, PJM Interconnection, the Valley Forge company that runs the electrical grid for Pennsylvania and 12 nearby states, promised to keep homes well-lit and warm through the next few months’ coldest days.

Despite the warmer forecast that some people are blaming on El Nino, PJM said it will have enough power plants online to put more than 177,000 megawatts of electricity on the grid, nearly 24 percent more than was needed at last winter’s peak.

“PJM has taken many steps to reinforce generator readiness and to continue to improve coordination with natural gas pipelines, a key source for a large portion of the generation fleet,” said Michael Kormos, its executive vice president and chief operations officer.

The need for those steps made themselves painfully clear two winters ago when a deep freeze that became known as the polar vortex settled in over the Northeast at a particularly bad time for power plants. Natural gas storage levels were low, coal piles froze, space on pipelines heading into big population areas was scarce, and many plants couldn’t fire up.

The prices for both natural gas and electricity went through the roof, leaving a trail of utility customers on variable-rate plans holding monthly bills that were three times their normal level.

This year, however, gas storage has hit a multi-year high, pushing prices to multi-year lows. Although companies complain that a lack of pipelines is contributing to a glut in this region, there’s a lot more room on expanded pipelines today than there was two years ago.

More gas-fired plants will have access to more gas. That will translate to lower energy bills, the EIA said.

Those who use heating oil or propane to warm their homes also will catch a break, as prices for both are forecast to come in lower than last year.

The crash in gas and oil prices over the past year has certainly hurt energy companies, prompting some Scrooge-like cuts to payroll and laying off workers.

The down market could be the gift that keeps on giving for consumers, though, with prices not expected to rebound for at least another year or two.

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October 19, 2015
by David Conti


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Short cycle?

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In a room full of dialects ranging from West Virginia hill ’n holler to Texas twang, Nigel Hearne’s voice stands out.

It’s not just his smooth Welsh accent, though that certainly adds to the level of engagement as he talks of the days when oil, steel and ore trades dominated the upper Ohio Valley. Those industries made Appalachia a center of commerce, he said, a feat shale gas could repeat.

“We can do this again and do it better this time around,” Hearne, head of Chevron Corp.’s Appalachian unit, said last week in Morgantown, W.Va., at the first Tri-State Shale Summit on regional collaboration.

Some of the two dozen panelists and speakers at the daylong event sounded a note of concern over the region’s fragmented approach to business and workforce development around the shale formation that runs beneath Pennsylvania, West Virginia and Ohio.

The states haven’t worked together to attract the petrochemical complex and infrastructure found on the Gulf Coast, so related investments go south instead. Ethane is selling for pennies a gallon without plants here to convert it to plastics. Supply has greatly outrun pipeline capacity.

West Virginia Gov. Earl Ray Tomblin, while speaking of the opportunities that gas-related development brings for adding jobs, had to acknowledge that low gas prices have put his state in a bind. He announced spending cuts this month because low gas prices, coupled with a slumping coal market, cut into severance tax revenue.

“Obviously it’s causing a strain on our budget,” Tomblin said.

Hearne wouldn’t be blamed for singing a sad song of shale. Chevron announced hundreds of layoffs this year, including many at his unit’s Moon offices, because of persistently low oil and gas prices. His company put $20 million into an education initiative aimed at training a generation of gas industry workers, just before the industry stopped hiring amid a drilling slowdown.

Instead, though, he offered a confident reply when asked if this was the right time to push further investment in the industry.

“This is a relatively short cycle,” Hearne said with a wry smile, predicting that a “natural balance” is forthcoming to the high supply and disconnected demand regime that has driven prices down.

The jobs targeted by training programs such as Chevron’s Appalachian Partnership Initiative are needed by all of the region’s energy sectors, so new grads won’t go unemployed, he said.

As for competing with the Gulf Coast, this region has an advantage to sell to companies that could use shale gas and its liquids to make their products here, instead of paying to ship components back and forth hundreds of miles. Planners just need to seize that “generational opportunity,” he said.

“If we can’t put together a value proposition based on that, we should be ashamed of ourselves,” Hearne said.

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October 7, 2015
by David Conti


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More on (less) methane

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The Obama administration has clearly targeted greenhouse gas from energy sectors in its environmental push.

Look no further than the Clean Power Plan to cut carbon emissions from power plants and the revamped methane rules for oil and gas operations, both of which have driven a loud debate between industry leaders and environmental advocates over their need and potential impacts.

Just a week after that debate came to Pittsburgh during EPA hearings on the methane rule, one would think a release of data that could inform the discussion would warrant a little coverage.

But it hasn’t. And it probably won’t. And that might be a good thing, given this report’s scope.

The EPA on Tuesday put online new 2014 data from its Greenhouse Gas Reporting Program with little fanfare. As of the following afternoon, there was no sign of even a news release.

Advocates on each side seized on data that they say prove the points they’ve made for months. Methane emissions from oil and natural gas systems dropped again and are down 13 percent since 2011, the numbers show.

“With study after study, including EPA’s own data, finding low and dramatically declining emissions, it only becomes clearer that regulations are a solution in search of a problem,” Katie Brown of the pro-industry Energy in Depth wrote in a blog post.

Add in carbon dioxide, though, and overall greenhouse gas emissions from those systems appear to have gone up 6 percent in that time.

“Industry continues to claim that leaving them alone to pursue voluntary methane standards is the answer, but as this report confirms, there is no Oz behind the curtain,” Rob Altenburg of PennFuture wrote on his group’s blog.

Precisely the arguments from both sides that we heard during the hearings on rules that would seek to cut methane leaks from wells and increase the amount of equipment that included in emissions reports.

One might say this report’s conflicting results give credence to both sides’ points. But that’s a hard argument to swallow.

This report has some interesting features, including a map that allows computer users to zoom in and see details on individual sources. But in looking at, say, Washington County, you might notice something is missing.

Like the nearly 1,000 producing shale wells there.

This report only reflects data covering the 2,400 largest sources of greenhouse gas from this sector. As the EPA says: “There is a reporting threshold and the reporting requirements do not cover certain emission sources, and therefore the data does not represent the entire universe of emissions from Petroleum and Natural Gas Systems.”

A truer picture of all emissions might be found in the EPA’s U.S. Greenhouse Gas Inventory, though even that is based on estimates and not real measurements. That report has shown a big drop in methane emissions from oil and gas systems since 2010. New 2014 data for that report is set to be published in the spring.

Just watch for the news release.

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