Capital Goods: April
Wil shale gas lift the economy?
State legislators are painting a pretty picture of gobs of jobs and tax revenue, but it’s not a retro scene of tobacco or furniture in the 1950s. Hydraulic fracturing for natural gas and its promise of economic boom has caught their eyes. Seeking to drill into its potential, lawmakers have brought the idea to the General Assembly, where questions of environmental preservation have dominated discussion about the controversial means of extraction. But something more fundamental to the industry’s success or failure will determine whether North Carolina’s supply of shale gas generates even a flicker of game-changing economic activity.
Three years ago, state legislators began plotting a course to allow hydraulic fracturing. Better known as fracking, it involves injecting pressurized fluid through a well to push apart rock deep within the earth and release trapped natural gas. It has met resistance everywhere it has been suggested, and the battle over the potential for water contamination was no different here. Lawmakers ran into then-Gov. Beverly Perdue, a Democrat, who was reluctant to lead a headlong rush to exploit gas reserves. She killed legislation last year that would have paved the way for fracking in the state. Overriding her veto just days later, lawmakers next assembled a commission to devise rules for fracking. With new Republican Gov. Pat McCrory supporting efforts to take advantage of the state’s natural-gas reserves, legislators are pursuing a measure that would lift the ban on fracking and allow permitting for natural-gas wells by March 2015.
It is not clear yet whether the latest legislation will pass both chambers of the General Assembly or if the 2012 law will continue to govern development of oversight. Regardless, state Senate leaders are keen on keeping the ball rolling. Both Sen. Buck Newton, a Wilson Republican who is the chief sponsor of the current proposal, and Sen. Bob Rucho, a Charlotte Republican who sponsored last year’s bill, forecast a flurry of natural-gas drilling and transporting and spillover jobs producing barrels of tax revenue for state coffers. “It is unfortunate we weren’t able to do this four or five years ago,” Newton said recently.
But is replicating fracking efforts in the Marcellus Shale formation, which covers parts of Pennsylvania and two other states, realistic for North Carolina? Solving the first side of the supply-and-demand equation will go a long way toward answering that question. Estimates of how much gas exists underfoot here vary. A few years ago, industry information put the supply at roughly 40 times the state’s annual usage, a total of almost 11.9 trillion cubic feet (cover story, January 2011). Last year, those numbers were scaled back dramatically by the U.S. Geological Survey, which put the Deep River basin reserves at about 1.7 trillion cubic feet. Even a conservative estimate for the Marcellus Shale reserves is 141 trillion cubic feet. One research firm, after examining well data, recently suggested that the Marcellus formation may actually contain double that. Newton says no one will really know how much gas is in this state until drilling begins.
But even if North Carolina’s reserves far exceed current estimates, the larger issue of supply could affect the state’s energy future in the short term. The rush to exploit other natural-gas discoveries has dropped prices so low that at times last year the cost of extracting gas exceeded what it could be sold for. The New York Times reported last fall that complicated financing deals forced some companies to keep drilling, even as they lost money and contributed to a bigger glut of natural gas.
That surplus might slow drillers’ approaches to the latest shale-gas finds. But the oversupply won’t last forever, especially as electric utilities continue to convert coal-powered plants to cleaner-burning natural gas and trucking companies begin to use it as an alternative to pricey diesel fuel. That’s the boom-and-bust nature of the energy market. Newton says that is why a regulatory scheme and an industry-friendly taxing structure need to be in place now. “We need to set the stage so they are confident in investing their dollars here in North Carolina,” he says. The market will ultimately play the bigger part of setting that stage, and legislation, in any amount, will not change that.
Scott Mooneyham is editor of The Insider, www.ncinsider.com. Email him at email@example.com.