Thursday, January 27, 2011

Senate Committee Hears Challenges, Opportunities Of Marcellus Shale

The Senate Republican Policy Committee Wednesday held a hearing on the opportunities and challenges of developing Pennsylvania's Marcellus Shale natural gas reserves hearing from 16 witnesses about the local impacts of drilling operations.
Sen. Ted Erickson (R-Delaware), Committee Chair, was joined by 12 other Senators for the hearing, including Senators Scarnati (R-Jefferson), Pileggi (R-Delaware), Baker (R-Luzerne), Browne (R-Lehigh), Eichelberger (R-Blair), Folmer (R-Lebanon), Gordner (R-Columbia), Solobay (D-Washington), Vance (R-Cumberland), Vogel (R-Beaver), Yaw (R-Bradford) and Waugh (R-York).
Bradford & Tioga Counties
Doug McLinko, County Commissioner, Bradford County, and Erick J. Coolidge, County Commissioner, Tioga County, started the hearing describing the positive economic impacts Marcellus Shale development has brought to their counties.
Bradford County hosts 25 percent of the Marcellus Shale wells drilled in Pennsylvania with about 1,442 active well permits now being developed. There are 30 water withdrawals, 76 water impoundments, 243 miles of temporary water lines, 97 miles of interstate gas lines and 377 miles of gathering lines serving the county.
Commissioner McLinko said the drilling activity has brought tremendous economic opportunity to the county making it the leader in generating new jobs in the entire state. Gas companies have also paid over $1 billion in natural gas royalties to county landowners so far. Companies have invested more than $125 million in rebuilding roads in the county over the last year to handle the increased truck traffic.
He also said drilling has caused a housing shortage and an increase in crime in the county. The Commissioner said he opposed a natural gas severance tax saying the industry and its workers are generating local tax and county fee revenues.
In response to a question from Sen. Yaw noting 40 percent of the private drinking wells in Bradford County do not meet drinking water standards, Commissioner McLinko said he would support common sense private drinking water well standards.
Tioga County saw 261 wells drilled so far with 564 new permits issued last year which amounts to about 10 to 15 percent of the Marcellus Shale development in the state.
Commissioner Coolidge reported his county has relied on tourism in the past to support local businesses, but housing Marcellus Shale workers has caused a significant shortage of hotel rooms to support the tourism industry. Many out-of-state workers are still being brought in to fill more skilled positions in the drilling industry, although he said there are local efforts to develop the skills needed by the companies.
Tioga County has seen an increase in costs for its human services, including child welfare and other services as housing conditions and other circumstances create an increase in demand.
Both commissioners said there was an increased need to update local emergency response services-- fire and emergency medical-- to deal with the problems presented by the drilling industry. The industry, they said, had been helpful in providing financial support and training to help increase local capabilities.
Commission Coolidge noted the ability of county conservation districts to help mitigate the environmental impacts of drilling and pipeline development associated with the industry was taken away without warning by the Department of Environmental Protection in 2009. He believes the industry and the county benefited from having local, knowledgeable district staff work on erosion and sedimentation and stream crossing issues.
Local Government Associations
The Committee next heard from three local government associations, including: Douglas E. Hill, Executive Director, County Commissioners Association of PA, David M. Sanko, Executive Director, PA State Association of Township Supervisors and Ed Troxell, Director of Government Affairs, PA State Association of Boroughs.
The Associations also provided the Committee with a joint statement in support of a natural gas impact fee and a local share.
Douglas Hill provided the Committee with background from a statewide perspective on infrastructure, worker education, housing and tourism, human service and criminal justice, environmental and landowner concerns related to drilling.
"A threshold issue is whether there are sufficient and appropriate regulatory controls built into our statutes and related regulations to deal with water, wastewater, runoff and transportation issues (raised by drilling)," said Hill. He too pointed to the elimination of conservation district oversight of local drilling impacts as an issue.
Hill said the Association supports making natural gas holdings taxable under local property taxes like coal and other mineral holdings. He also said counties have supported the adoption of a natural gas production severance tax and have followed the discussion of a possible local impact fee to deal with the costs imposed by drilling on county and local governments.
David Sanko said Marcellus Shale development was not an activity that communities planned for and as a result they are playing catch-up and trying to figure out what needs to be done to deal with the land use, environmental and other local impacts of the industry.
He noted PSATS is helping townships deal with these issues in a number of ways, including distributing a model zoning ordinance that allows communities to control the location of drilling activities. It addresses key issues such as buffers, emergency preparedness, noise and lighting to decrease the adverse impacts of drilling.
To help deal with the impacts on roads and bridges, Sanko recommended an increase in the maximum bonding amount communities can impose, noting the limit is now $12,500 when the cost to reconstruct a mile of road can approach $100,000.
Sanko commended drilling companies for moving to a policy of recycling water to help reduce water withdrawals, but said contamination of local water supplies is a concern of many townships.
Like Hill, Sanko supported a severance tax or fee structure on natural gas, provided at least 30 percent of the revenue is returned to communities experiencing drilling impacts. He also said townships should be able to levy property taxes on natural gas holdings saying both lease and royalty income are exempt from local income tax in Pennsylvania, except in Allegheny County.
Ed Troxell said boroughs see many of the same impacts from drilling activities as counties and township, but the dramatic increase in truck traffic causes significant congestion and more accidents. He also described similar infrastructure, environmental and social impacts as Hill and Sanko.
Environmental Issues
Four witnesses provided the Committee with comments on environmental issues: Sandy Thompson, District Manager, McKean County Conservation District, Jim Garner, District Manager, Susquehanna County Conservation District, Bruce Miller, Brockway Area Clean Water Alliance (Jefferson County) and Ellen M. Ferretti, Vice President, PA Environmental Council and Coordinator of the Pocono Forest & Waters Conservation Landscape Initiative.
Ellen Ferretti explained to the Committee drilling activity can have a number of significant impacts including: fragmentation of forested blocks and disruption of plant and animal habitats; highway, road and bridge degradation due to increased truck traffic; water withdrawal points that are not practical or safe for increased truck traffic; increased demand for housing to serve a temporary work force, increased demands on local and county services and polarization of community members on the details of Marcellus activities.
"However, when you attempt to truly account for these individual impacts, you will discover a void created by the lack of a comprehensive or coordinated system to gather and employ factual data and information relative to all aspects of the industry; from planning and land development to cumulative impacts," said Ferretti.
"Into that void goes all manner of speculation, misinformation, and mistrust – when combined with what limited factual data and information we have, the result is nothing less than rampant confusion," said Ferretti. "Elimination of this void would create a solid core upon which to build the foundation for a cooperative growth of community and industry while also serving to better protect the environment and human health."
She noted PEC held a Marcellus Shale Conference last May with Duquesne University which pulled together a series of findings and recommendations on Marcellus Shale development from a variety of perspectives.
Ferretti said PEC is now developing legislative and regulatory proposals as a follow-up to the report from the Conference and hopes to make that available to the General Assembly in the next few months.
Both the McKean and Susquehanna County Conservation District managers said DEP's decision to take away erosion and sedimentation (Chapter 102) and stream crossing (Chapter 105) permit authority from districts related to Marcellus Shale activities has left them unable to respond to problems and complaints locally and made it difficult to help the industry do a better job of controlling their environmental impacts.
Sandy Thompson from McKean said they are trying to better understand the impacts of drilling on streams in the county by establishing a real-time water quality monitoring system in the Potato Creek Watershed and they hope to expand the system to other parts of the county.
Jim Garner from Susquehanna said, "Most residents agree that the roads rebuilt by the local gas companies are an improvement, but the sedimentation that is the result of the heavy truck traffic prior to the rebuilding process is totally unacceptable.
"One of the very basic premises of (the Dirt and Gravel Road) Program is to treat stormwater by removing it from the roadside in sheet flow and using grass buffers to filter sediments prior to reaching the stream," said Garner. "Most of the subconractors working on roads for the gas companies insist on gathering (containing) the stormwater in deep roadside ditches which deposits directly into the stream channels."
Garner also noted there has been a dramatic increase in the number on non-coal mines opening in the county totally unanticipated by the districts or DEP causing a significant increase in workload. These quarries provide stone for building roads and drilling pads.
Both district managers also noted the state has cut its funding to conservation districts by 25 percent over the last few years, just at the time activity related to Marcellus Shale and related industries is increasing.
Bruce Miller from the Brockway Area Clean Water Alliance expressed concern about the impact of drilling in the Brockway Area Municipal Authority water supply watershed, a 4,000 acre undeveloped forested area in Elk and Jefferson counties.
He told the Committee the Authority watched helplessly over the past two years as the Authority's property and neighboring tracts were developed for drilling and the forest was cleared and fragmented by drill pads, gas pipelines and access roads.
Emergency Services
Challenges for local fire and medical emergency services were discussed by: Eugene Dziak, Director, Wyoming County Emergency Management Agency, Charlene Moser, Coordinator, Susquehanna County Office of Emergency Management and Art Donato, 911 Coordinator, Susquehanna County.
Dziak said transportation-related emergencies have increased 300 percent in Wyoming County as a result of drilling activities and hazardous materials spills have increased by 30 percent. He recommended each drilling company should be mandated to establish an Emergency Operations Plan and provide that plan to local emergency responders.
Moser said most gas and oil companies are reluctant to share their emergency response plans with his agency even when asked. He explained that of the seven gas companies operating in Susquehanna County only one has provided their emergency plan. He said DEP was also reluctant to notify the county of even major spills, but that has improved recently. He noted there is a need for specialized training and equipment to deal with drilling-related emergencies.
Donato said it has been difficult to coordinate responses to emergencies at well sites because Susquehanna County lacks cell phone service. Many gas companies have satellite phones but calling 9-1-1 on those phones requires going through several intermediaries to get to the county. In addition, just providing a location of a drill rig can be difficult if they are in isolated areas. He noted from 2008 to 2010, the number of 9-1-1 calls to the county center has increased by 16 percent.
Marcellus Shale Industry
Representatives of companies involved in the development of Marcellus Shale natural gas provided the Committee with background on the industry, including: David Spigelmyer, Vice President of Government Relations, Chesapeake Energy – Eastern Division, Rolf Hanson, Director, Associated Petroleum Industries of Pennsylvania, Louis D. D'Amico, President and Executive Director, Pennsylvania Independent Oil and Gas Association and David E. Callahan, Vice President, Marcellus Shale Coalition.
David Spigelmyer noted Chesapeake Energy was Pennsylvania's largest producer of Shale gas holding 1.65 million acres of leases currently being developed by 23 drilling rigs. He said the natural gas production community has drilled as many as 4,000 wells annually typically delivering 25 percent of the natural gas we consume in the state.
Spigelmyer explained the multiple well pad drilling technique is a "conservation winner" nearly doubling Pennsylvania production with less than one-third of the surface disturbance compared to shallow gas wells. In less than five years, Marcellus production is expected to exceed the demand for natural gas in the Commonwealth.
He also explained job growth related to Marcellus development is estimated by a Penn State study to reach 111,413 direct and indirect jobs in 2011. He also said related businesses like the U.S. Steel's Mon Valley Works are benefiting from development by increasing demand for pipe products for gathering and other pipelines.
Rolf Hanson of API said the industry has just unveiled a new initiative-- the Keystone Energy Forum-- to help educate the public about Marcellus Shale natural gas development. He said he hopes the Forum will be a place to go to discuss issues as they arise between the industry, local governments and interest groups.
Louis D'Amico of PIOGA said the Marcellus industry has "not sought a free ride in Pennsylvania." He said where legitimate costs associated with the industry have arisen, the industry has stepped up to the plate. As an example he said the industry supported an increase in permit fees by DEP in order to fund more inspectors and staff needed to regulate drilling.
"I personally believe that this is the most positive thing to happen to Pennsylvania," said D'Amico. "I believe this will impact our state positively for as long as a century of economic growth."
David Callahan of the Marcellus Shale Coalition said 2,300 Marcellus Shale wells have been drilled in Pennsylvania as of the end of 2010 and according to research by Penn State the Commonwealth can expect to see 3,500 wells per year drilled in the state by 2020.
He said for every $1 invested in Marcellus Shale development, $1.90 is returned in economic activity.
Callahan said Marcellus operators invested more than $200 million in 2010 to repair and improve roads across the Commonwealth. In addition, leasing State Forest lands for Marcellus development has resulted in approximately $238 million in up front bonus payments to the state in 2010 and future royalties from production on these lands could reach several hundred million dollars per year for the state.
A video of the hearing and copies of testimony presented are available on the Committee webpage.

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