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December 15, 2014
by David Conti


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The answer, my friends…

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Like other businesses, so much of success in producing energy from wind comes down to location, location, location.

Developers looking to tap the renewable energy source need to find locations for their massive turbines in the remote spots atop mountains or across prairies that get the most wind. Yet the wind farms need to be close enough to population centers wired for transmission to have any chance of connection to the grid. And they can’t interfere with migratory bird patterns.

It’s why they’ve built so many in Iowa, where wind produces more than a quarter of that state’s electricity.

In Pennsylvania, their prominent and longtime location along the Allegheny ridges, within eyesight of the turnpike, might lead some people to believe we have a lot of wind power in this state.

The numbers say “no.”

The state gets less than 2 percent of its electricity from the 720 turbines spread over 25 wind farms.

That’s only enough to power about 300,000 homes. And only when the big turbine blades are moving.

Which doesn’t seem to be very often at one of the oldest and most visible wind farms in the state.

On many days, there’s little action from the six turbines that tower 213 feet above a farm just south of the Pennsylvania Turnpike in Somerset County. The windmills seem to have hit a standstill.

The Somerset Wind Energy Center went online 13 years ago in the earliest days of the state’s wind industry. Its 1.5-megawatt turbines are weaker than new turbines with nearly double that power.

The facility’s owner, NextEra Energy Resources, did not respond to questions about its operation or future.

Such low productivity from turbines in a high-profile location can’t help the advocates making their case for more government subsidies for wind.

The debate cropped up again this month when the U.S. House approved a bill that would retroactively extend a tax credit for wind producers through this year. The Senate was considering it.

Those who say wind energy could provide a reliable and more environmentally conscious alternative to the fossil fuels that keep our lights on want a multiyear extension.

“Why end a successful policy like this?” asked David Ward, deputy director of strategic communications at the American Wind Energy Association, who says the subsidy has helped drive private investment and jobs by making its price competitive.

Opponents hear only hot air in that argument.

“I could not support this wind subsidy tax package and the billions of taxpayer dollars it would continue to waste in an effort to prop up the failing wind industry,” Rep. Bill Shuster, a Republican from Blair County, said in explaining his “no” vote on the House extension.

His district is dotted by wind farms stretching from north of Altoona to south of Somerset. It’s a great location, as long as the turbines continue to spin.

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December 1, 2014
by David Conti


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Power plan needs producers

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Organizers of a gathering in Pittsburgh next week aimed at writing an energy plan for the region admit they face a daunting task. In fact, they’re not quite sure exactly how they will accomplish their goal.

“The event is a kickoff of a process yet to be determined,” explained Court Gould, executive director of the nonprofit Sustainable Pittsburgh.

His group is one of 20 nonprofits and academic centers behind an event called Energy for the Power of 32, a seven-hour summit planned for Dec. 11 at the David L. Lawrence Convention Center. The Power of 32 is a regional collaborative focusing on economic, environmental and educational planning in 32 local counties across four states.

The plan for the event is to gather experts to set a “baseline” of the region’s energy picture — “where it comes from, where it goes, what do we get from it,” as Gould explained — and then figure out how to plan its future.

The presenting groups, sponsors and speakers include lots of universities, environmental organizations, UPMC and Highmark, and a few utilities.

Only one speaker works for an energy producer: Robyn Beavers, a senior vice president at NRG Energy who heads up that company’s San Francisco-based unit focused on sustainable microgrids.

The industries that actually create energy in those 32 counties are noticeably absent from the agenda. No coal companies that provide 40 percent of the electricity we use; no companies making the Marcellus shale beneath those counties the most productive natural gas region in the country; nothing from the nuclear power industry that was born in Beaver County.

Gould said organizers did not want any presenting organizations that are “wedded to one industry or to one fuel source” as they consider all options for powering the future.

The planning work will be done by the audience, he said, which he thinks will include energy producers.

“All stakeholders are invited to the event,” he said. “For sure, whatever the design of the process to craft this, that has to be fully inclusive of all.”

Organizers enlisted the help of the Bravo Group to promote the event, which might help attract some of those producers. The PR and lobbying firm’s clients include energy companies and it took an active role in last spring’s Marcellus jobs rally that brought 3,000 people to the state Capitol.

“It would be regrettable if there was a perception that this was leaning toward any bias,” Gould said.

Some might find it more regrettable if a gathering of so many experts turned into a waste of energy.

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November 19, 2014
by David Conti


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Snowy peaks

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Call it another polar vortex or an Alberta clipper or just a cold snap. Either way, it’s cold, and it’s only November.

Just ask the people outside Buffalo using walls of snow as beer coolers. Or the fine folks who keep the lights on in our neck of the woods.

PJM Interconnection, the company that operates the regional electrical grid in Pennsylvania and 12 surrounding states, said Tuesday’s peak usage set a record for November. At 7 p.m. that day, we asked the grid for 121,987 megawatts, shaming last November’s peak of 114,699.

Twelve hours before hitting that peak, PJM predicted demand would top out at 120,838 MW. Close enough. And it said it would have 149,328 MW on hand.

That 38,000 megawatts of backup is comforting until you recall that when PJM set several winter demand records last January, hitting nearly 142,000 MW, the grid didn’t have 40,000 megawatts it thought it would. Officials say the power “didn’t show up.”

Maybe it had to commute from Buffalo.

It was supposed to be generated by gas- and coal-fired plants that couldn’t get their fuel or load it. PJM has said it’s working to make sure such no-shows don’t happen again.

That means coal-fired plants that competed all summer with oil for space on rail cars need to bring up their inventories. And gas-fired plants need to prepare for another volatile winter.

Just in the past three days, prices for gas delivery next month shot up 8 percent, dropped 2 percent, and bounced up another 3.6 percent to a five-month peak. Demand and winter-weather predictions are playing havoc with prices already strained by pipeline uncertainty.

And it’s only November.

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November 17, 2014
by David Conti


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Shale’s culture club

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Those drilling rigs towering over Washington County hillsides are no St. Louis Arches. Yet the Marcellus shale oil and gas industry has been good for the local tourist trade and hotel business lately.

A group of about three dozen business leaders from the Niagara region of Ontario who spent a few nights in Pittsburgh last week was the latest international delegation to touch down here for a look at shale country. They want to know how to get into the business supplying huge increases in shale gas and oil production.

“More companies are coming here to see how Pennsylvania does it and take that knowledge back to their countries,” Walt Hufford, director of government and regulatory affairs for Talisman Energy, said at a luncheon at the Sheraton Station Square during the Niagara Business Pittsburgh Trade Mission.

The Southpointe Marcellus Shale Chamber of Commerce helped host the trade trip and took the group on a tour of the expanding Cecil development in Washington County.

“We have a lot of metal manufacturing and specialty steel operations that would fit very well in the supply chain for Marcellus,” said Gary Burrough, chairman of the Regional Municipality of Niagara.

The Southpointe chamber in June hosted a group of Chinese energy officials who were on state-sponsored tour of D.C. and Texas. Last month, a dozen Brazilian energy executives spent time here talking to regulators, drilling companies and lawyers at Downtown firm Reed Smith.

The countries want to either join the U.S. supply chain or learn how to tap their own shale reserves to meet growing demand.

“Demand for energy cannot go down,” Alan O’Brien, global director of commercial management for Ontario-based energy and metals firm Hatch, told the Canadian delegation.

To get a piece of the action, international suppliers need to learn about the culture of the companies they’re courting, said Hufford, a Pennsylvania-based employee of Calgary-based Talisman.

“Canadians, they see the world a little bit differently than people from Texas,” said Hufford, whose company is the seventh biggest gas producer in Pennsylvania.

The potential supplier must prove how seriously it takes safety and environmental compliance if it wants any chance of winning a contract, he said.

With increased attention likely from a new administration in Harrisburg starting in January, that safety-first message is coming from a lot of gas explorers. A day after the Canadian mission ended, Cecil-based Consol Energy met with more than 200 vendors in the Doubletree by Hilton in North Strabane.

“The message was about our core values of safety and compliance,” said Darryl Husenits, senior vice president for supply chain at Consol. “We have no desire to partner with somebody who doesn’t embrace that.”

A contractor trying to enter that supply chain might feel like a kid switching schools, though it can’t erase any bad grades.

“This area is like being in high school,” Eric Vaccarello, president of McDonald-based Land Clearing Specialists, a Consol vendor, said about the industry in Appalachia. “Once you have a reputation, everybody knows. Everybody talks. And it follows you.”

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November 3, 2014
by David Conti


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‘They didn’t go shyly about it.’

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Nissa Darbonne describes a bold experiment that unlocked the Marcellus shale to natural gas drilling in October 2004.

Bill Zagorski, a geologist at Range Resources Corp., suggested using the aggressive hydraulic fracturing technique employed in the Barnett shale in Texas to get gas from the then-unexplored shale beneath Washington County. It required lots of pressure and water, and some said clay in the shale would cause the Marcellus to lock up.

“Range kind of just went for it,” said Darbonne, editor-at-large for Oil and Gas Investor and author of “The American Shales,” a history of the gas revolution. “The distinction in what Range did at Renz was they didn’t shyly go about it.”

Ten years after the completion of the Renz well in Mt. Pleasant, the layer of rock it tapped, which runs from New York to West Virginia, accounts for more than 20 percent of the country’s gas production.

“The Marcellus play in particular has changed the world,” Darbonne said, admitting it’s a bold statement.

Living in the heart of the play can make it difficult to comprehend that global impact. The discussion here gets dominated by zoning battles, regulatory processes, price concerns and the fight over how to tax the industry.

“These day-to-day things tend to have a way of working themselves out,” said Darbonne, who will be in Cecil on Wednesday to help celebrate the 10th birthday of the Renz completion and the Marcellus era. She and Canadian author Ezra Levant will speak at the Washington County Chamber of Commerce’s Energy Capital Celebration.

The party takes place at the Hilton Garden Inn at Southpointe, home to offices of Range Resources, Consol Energy, Noble Energy, Rice Energy and others.

Darbonne wants the industry to remember the moments and people that were key to each big shale development. The stories of innovation and technology moving from Texas to Pennsylvania to South Dakota show what’s possible on a global scale, she said.

When Renz was fracked, the Northeast imported all its natural gas from the Gulf Coast and overseas. In just six years — horizontal wells in the Marcellus didn’t start to take off until 2008 — this region became an exporter. In a few more years, liquefied natural gas from Marcellus wells will likely leave on ships bound for Europe from Cove Point, Md.

The federal government expects the region to produce 16 billion cubic feet of gas per day this month, more than twice the amount of the next biggest shale play. By the next decade, domestic gas demand is expected to increase by more than 20 bcf per day.

Darbonne says the Marcellus has a big role to play in that.

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October 24, 2014
by David Conti


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A trail of money

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Two weeks before Election Day, it’s no surprise to see a flurry of campaign appearances and news releases from Gov. Tom Corbett.

His best showing in any recent polls puts him 7 points behind Democrat Tom Wolf of York County; most polls put the gap at twice that figure.

But some people might find a few surprises in one of the news releases issued this week. The Commonwealth Financing Authority approved $16.4 million in grants for conservation efforts across the state. The money all came from impact fees paid by natural gas companies under Act 13.

Much of the attention on these per-well fees has focused on the millions that go back to counties, townships and boroughs. The state also takes a chunk of change for environmentally focused programs, many of which appeal to the loudest critics of drilling.

According to the financing authority, Act 13 money has paid for $3.9 million in flood mitigation projects over the past three years, including a few in Washington and Westmoreland counties. Another $14 million has gone to the state’s H2O PA flood control and water treatment programs.

Trails have been the biggest beneficiary. Almost 200 park and trail projects have shared more than $26 million. Another $7 million went to watershed programs.

Just this week, some big projects in Pittsburgh — where drilling is banned — got big drilling money: Riverlife Pittsburgh got $250,000 to help make the last bike trail connection near the Mon Wharf; The Pittsburgh Parks Conservancy picked up another $250,000 for its rehab of the Frick Environmental Center; The Nine Mile Run Watershed Association got $150,000; The URA received $150,000 for parks in Larimer and East Liberty.

None of these groups appears to make a big deal of the fact that gas money is funding their projects. Maybe that’s not a big surprise, given how politicized the industry and way it’s taxed has become during this election.

Don’t be surprised to see this funding stream dry up, though, should Wolf win election Nov. 4. He has promised to enact a severance tax on gas production to raise up to $1 billion to prop up state finances and education. The law that established Act 13 says the impact fee disappears off the books the day a severance tax takes effect.

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October 20, 2014
by David Conti


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A basis for concern

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We will start hearing this week from gas companies how they performed during the fiscal quarter that ended Sept. 30. Expect to hear a lot about dismal prices in the Marcellus shale.

The energy industry looks to daily trading at the Henry Hub in Louisiana to set the national price of natural gas, but producers often get a different price where they sell into pipeline hubs, which they call a basis differential. In the Marcellus, that basis has stayed in the negative column way too long for some companies.

“There’s a big basis problem in the Northeast,” Range Resources CEO Jeff Ventura told the Tribune-Review this month.

In April, producers delivering gas to five Marcellus hubs generally found those daily “spot” prices at about $4 per million British thermal unit, within $1 or less of Henry Hub. Prices at four of those hubs spent much of the summer $2 below the benchmark and have recently dropped further.

Only the TCO Appalachia Pool Hub, which reflects the price of gas heading into the Columbia Gas Transmission pipeline southwest of Pittsburgh, has kept pace with Henry, the Energy Information Administration said last week.

Gas companies with connections to several pipelines can bounce around to find the best prices. Three months ago, executives predicted an average negative basis this summer close to $1. We’ll find out how far off they were in the next week or two.

They can blame, in part, their own success.

Companies keep putting up record production numbers, both for Pennsylvania — nearly 2 trillion cubic feet of gas in the first half of this year, a 38 percent increase over the year before — and across the shale play, the most productive in the country.

Pipelines don’t have enough room to move that bountiful supply to where it’s needed. Ventura predicted it will take another two years for the pipes to catch up.

“The supply can’t get to where the demand is,” said Tom Murphy, co-director of Penn State University’s Marcellus Center of Outreach and Research.

Power companies in New England, still frost-bitten by last year’s polar vortex and worried about firing up the grid without the coal plants that are increasingly shutting down, are looking for electricity from hydropower plants in Quebec to get through the winter, Murphy noted.

A six-hour’s drive away in northeast Pennsylvania, a 27 percent increase in production this year created such a glut of gas that prices dipped below $1 there recently. The pipelines needed to get that gas past New York City might never be built.

The difference cuts into the bottom line and further unsettles executives planning for next year under the cloud of a potential severance tax promoted by Democrat Tom Wolf, who leads Gov. Tom Corbett in polls ahead of the Nov. 4 election.

Wolf acknowledged the price difference during a recent meeting with Trib reporters and editors, but still thinks an added tax is necessary to raise between $600 million and $1 billion a year.

“Price convergence will happen. It has in most other industries,” he said.

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October 5, 2014
by David Conti


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Methane crackdown ahead?

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The oil and gas industry celebrated last week when the Environmental Protection Agency said companies drastically cut total methane emissions from wells even as they increase drilling.

The EPA might not let the party last long, though.

The agency’s annual report on greenhouse gas emissions provided shale drillers with an effective retort against opponents, many of whom let their anti-fracking fervor fly during the recent Climate March in New York.

Scientists consider methane a more nefarious climate-changer than carbon dioxide. Critics say its release during fracking or from leaky pipes can negate the fact it burns more cleanly than coal when generating electricity.

The industry responded by putting a lid on a lot of those leaks. It cut overall methane emissions by 12 percent since 2011, led by a 73 percent reduction from fracked wells, the EPA said in its annual greenhouse gas inventory.

All this while the shale boom drastically increased the number of potential sources.

The Marcellus Shale Coalition said the data show “it’s simply a false choice” that we have to pick either the benefits of gas or protecting the environment.

“Creating good-paying jobs and growing the economy go hand in hand with our efforts to reduce emissions,” said Howard Feldman from the American Petroleum Institute.

Tighter regulations should get some credit, though, and likely will get some strong attention from the industry, said one environmentalist.

EPA Administrator Gina McCarthy, who has led President Obama’s charge against carbon dioxide from coal-fired power plants, told investors last month the agency is considering more methane rules for the oil and gas industry.

Mark Brownstein, associate vice president and chief counsel for the Environmental Defense Fund, said he expects some word from EPA in a few weeks.

EDF has worked with the industry on reducing methane emissions. On Thursday, it released a survey highlighting 76 firms nationwide that are making equipment or developing technology such as infrared leak detectors for scanning pipelines.

Brownstein and others noted that the drop in methane emissions coincided with a rule EPA announced two years ago requiring that companies use only “green completions” at wells. That involves capturing fugitive gas that gets trapped in flowback water or might otherwise be vented into the air while workers finish wells and connect them to pipes.

Although methane leaks are down, the industry is putting more carbon dioxide into the air from compressor equipment and other related sources.

“Those sources are not regulated by EPA. In the absence of regulations, they’re going up,” Brownstein said. He wants tighter rules on emissions from compressors, pipelines and storage tanks.

When the EPA took testimony in Pittsburgh this summer on carbon rules for coal plants, some people predicted gas would be the agency’s next target.

Gentlemen, prepare your testimony.

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September 29, 2014
by David Conti


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Everybody’s doing it

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Soon enough, it will be easier to list the local energy companies that haven’t launched an MLP.

NiSource, the parent of Columbia Gas, Western Pennsylvania’s biggest gas utility, announced over the weekend it would spin off its pipeline operations into a separate public company and form an MLP to help it raise money.

The MLP — a master limited partnership — is a creature of tax law and financing that’s relatively native to the energy kingdom. As long as the venture gets nearly all of its cash from natural resources, real estate and commodities — particularly midstream pipelines and processing facilities in this gas patch — it doesn’t pay corporate taxes on distributions.

So those dividends run a bit higher, in the 5 percent to 6 percent range, making MLPs attractive to investors.

Which makes them attractive to companies such as EQT Corp., Consol Energy and Rice Energy that could use a little extra cash to fund their ever-expanding exploration in the Marcellus and Utica shale.

About a month ago, some analysts wondered aloud if MLPs might have run their course when pipeline giant Kinder Morgan abandoned the model with a consolidation.

Analyst Kent Moors, executive chair of the World Affairs Council of Pittsburgh’s global energy symposium, said that move wouldn’t signal a trend. The partnerships require constant expansion of assets, which might be a problem for very large companies, Moors said. But that’s no problem in the Marcellus.

Downtown-based EQT expects each year to feed its EQT Midstream partnership what it calls a “drop-down,” such as the 35-mile Jupiter gathering pipeline it sold to its MLP this year. Two years after forming, EQM reported $52.1 million in net income during the latest quarter.

The latest MLP in our shale play looks to have its own expansion plan, which one analyst said bodes well for its future. Cone Midstream, a venture formed by Cecil-based Consol and its partner Houston-based Noble Energy, had a good first day of public trading last week. CFO David Khani told the Trib investors liked its structure that allows for constant expansion of a gathering field “backbone” built by Cone’s parents.

Cecil-based Rice Energy announced its MLP plans last month.

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