SEPTEMBER 2015 • A FREE MONTHLY PUBLICATION
Report Highlights Natural Gas Usage New Natural Gas Fired Power Plants Fact vs. Fiction: Higher Energy Tax Safe and Secure? Industry responding
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Table of Contents
PUBLISHER Andrew S. Dix ASDix@dixcom.com
EXECUTIVE EDITOR Ray Booth RBooth@dixcom.com
ADVERTISING Kelly Gearhart KGearhart@the-daily-record.com 330-287-1653 Ed Archibald Account Executive EArchibald@dixcom.com 740-439-3531
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“Gas & Oil” is a monthly publication jointly produced by Dix Communication newspapers across Ohio & PA. Copyright 2015.
4
API SAYS ADDITIONAL REGULATIONS UNNECESSARY
5
REPORT HIGHLIGHTS NATURAL GAS USAGE
6
GARCIA APPOINTED LEADER OF PUBLIC AFFAIRS SUBCOMMITTEE OF PIOGA
7
SAFE AND SECURE? INDUSTRY RESPONDING
8
MIGHTY MARCELLUS AND UTICA LEADING PRODUCTION IN U.S.
9
NEW NATURAL GAS FIRED POWER PLANTS
10
KELLY PROVISION TO LOWER ENERGY COSTS SIGNED INTO LAW
10
API CALLS ON CANDIDATES TO OUTLINE ENERGY OUTLOOK
11
OPINION: FACT VS. FICTION: HIGHER ENERGY TAX
3
4
Gas & Oil
Pennsylvania Edition
September 2015
API says
additional
regulations unnecessary E
PA’s proposal for additional methane regulations on oil and gas wells and transmission are duplicative, costly, and undermine America’s competitiveness. The industry has already led the significant reduction in methane through innovation and existing regulations, according to API President and CEO Jack Gerard. “The oil and gas industry is leading the charge in reducing methane,” Gerard said. “The last thing we need is more duplicative and costly regulation that could increase the cost of energy for Americans. Even as oil and natural gas production has surged, methane emissions from hydraulically fractured natural gas wells have fallen nearly 79 percent since 2005, and CO2 emissions are down to 27-year lows. This is due to industry leadership and significant investments in new technologies.” EPA’s own analysis shows that methane emissions from hydraulically fractured natural gas wells have fallen dramatically. Total methane emissions from natural gas systems are down 11 percent since 2005 – a direct result of industry innovation at the same time production has increased significantly, according to API. “API supports a common sense regulatory approach that builds on cost-effective controls already required by EPA for new equipment,” Gerard said. “Combined with smart, voluntary efforts for existing sources, this approach will continue to lower methane emissions. To avoid undermining American competitiveness, we urge the EPA to coordinate its efforts and not add duplicative rules.”
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Gas & Oil
September 2015
5
REPORT HIGHLIGHTS NATURAL GAS USAGE Joe Massaro - Energy in Depth -PA
T
he New York Independent System Operator (NYISO) recently released its 2015 Power Trend report, which looked at the long term planning for the state’s electric power system. As EID has noted in previous posts, the Empire State plans not only to continue its use of natural gas for electricity generation, but actually to ramp it up significantly in the coming years. NYISO is a not-for-profit corporation responsible for operating the state’s bulk electricity grid, conducting long-term planning for the state’s electric power system, and advancing the technological infrastructure of the electric system serving New York state. The most notable section of the report is the “Growing Reliance on Natural Gas” section, which states: • Power projects using natural gas (gas-only and dual-fuel units capable of using either natural gas and/or oil) account for 56 percent of New York’s generating capacity. • More than 70 percent of all proposed generating capacity in New York are natural gas or dual fuel power projects. • Winter 2014 price spikes, driven by increased cost of natural gas delivered to New York, increased the average wholesale electric energy price to $69.30 per megawatt-hour in 2014, up from $59.13 per megawatt-hour in 2013. Winter 2015 saw less volatility as a result of improved fuel supplies and enhancements to gas-electric coordination. • The NYISO and its stakeholders are exploring the creation of additional market-based incentives for fuel supply assurance during periods of summer and winter peak demand that can stress both the electric and the natural gas delivery systems. With a growing reliance on natural gas for electricity generation it’s interesting to see where other fuel types rank next to natural gas and associated hydrocarbons. According to the report New York currently generates 67 percent of its electricity from fossil fuels – with New York City actually getting 100 percent of its generating capacity from fossil fuels. That being said, it’s evident from this report, and previous New York State Energy plans, that natural gas will continue to play a huge role in electricity generation for the Empire State for the foreseeable future. That’s a very a very good thing, given the decrease in energy costs. According to the NYISO report, Power plants fueled primarily by natural gas account for more than half of the electric generating capacity in New York State. Consequently, the price of natural gas and the cost of electricity are closely correlated. The cost of fuel for these units is reflected in their offers. Due to a supply glut of natural
gas – fueled by high production from Pennsylvania’s Marcellus Shale, New Yorkers are paying less for energy. Aside from a welcomed decrease in energy costs, the report also highlighted emissions reductions New York has seen since it started using more natural gas for electricity generation. According to the NYISO report, “from 2000 through 2014, New York power plant emission rates dropped by double digits. SO2 emissions rates declined 94 percent. NOX emission rates declined 78 percent. CO2 emission rates declined 39 percent.” Despite a recent ban – albeit an ill-advised one – on hydraulic fracturing in the state, New York continues to reap the rewards of domestic natural gas production. However, these emissions reductions may not be enough for the Empire State, as the Environmental Protection Agency’s new Clean Power Plan may cause reliability issues. From the NYISO report, “As proposed, the Clean Power Plan presents potentially serious reliability implications for New York. A majority of the electric capacity within New York City is dual-fuel oil/gas steam-fired electric generating units. These units are critically important, both due to their location within the transmission constrained New York City area and because they possess dual-fuel capability that provides a needed measure of protection against disruptions in the natural gas supply system.” To sum up: NYISO has voiced concerns about electric system reliability and the lack of recognition of the progress New York has already made in achieving significant Co2 reductions, which are, in large part, thanks to natural gas. Fortunately for New York, 34 other states across the country are developing and regulating oil and natural gas so New York has the opportunity to utilize these resources to lower emissions and energy costs for its residents.
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Gas & Oil
Pennsylvania Edition
September 2015
Garcia appointed leader of Public Affairs Subcommittee of PIOGA L
eech Tishman firm associate Daniel A. Garcia was recently appointed as Leader of the Public Affairs Subcommittee of the Pennsylvania Independent Oil and Gas Association (PIOGA). Dan, an associate in Leech Tishman’s Energy, Construction and Government Relations Practice Groups in the firm’s Pittsburgh office, will take on this new position effective immediately. Leech Tishman has been a member of PIOGA for the past few yearsDan has a vast amount of experience with oil and gas midstream development programs. During the course of his career, he has handled a wide variety of pipeline safety and regulatory issues to ensure compliance with PHMSA and Pennsylvania Utility Commission regulations. Garcia has advised clients in the development of comprehensive pipeline safety and compliance programs. He also has extensive experience in issues relating to rights-of-way, landowner disputes, easements, condemnation proceedings, and other midstream-related land issues. Dan possesses a solid understanding of midstream economics and pipeline con-
struction and development, with experience in program management, capital expansion and investment projects and the effective navigation of state and federal pipeline regulations. PIOGA’s Public Affairs Subcommittee provides consistent, strategic public relations to address industrial, community and governmental concerns with natural gas development and PIOGA’s positions regarding matters affecting the Pennsylvania oil and natural gas industry. Outreach efforts include media relations and grassroots campaigns to educate community stakeholders and locally elected officials, and, working in concert with the Legislative and Manufacturing subcommittees on legislation targeted to increase the use of natural gas and incentives for natural gas consumption and development. “Our firm’s membership with PIOGA has been mutually beneficial and I am excited to have the opportunity to help spread awareness on matters of concern to the Pennsylvania oil and gas industry,” stated Dan. “With the rapid continued growth of our firm’s energy practice, we look forward to a longstanding partnership with this valuable organization.”
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September 2015
Safe And Secure?
7
Industry Responding Judie Perkowski - Dix Communications
C
AMBRIDGE -- Multiple speakers at the recent Buckeye STEPS meeting talked a variety of subjects, all relating to safety in the workplace. The bi-monthly meeting at Zane State College in Cambridge attracted a large audience of primarily gas and oil producers, suppliers and service providers. Joe Greco, president of the STEPS organization, introduced each speaker. • Melissa Linton, compliance assistance specialist for the Occupational Safety and Health Administration, reported on OSHA’s new ruling on confined spaces in construction, which went into effect Aug. 3. The ruling is a comprehensive standard that includes a permit program designed to protect employees from exposure to many hazards associated with work in confined spaces, including atmospheric and physical hazards. The rule incorporates several provisions from the previously proposed rule to address construction-specific hazards, accounts for advancements in technology, and gives more clout to enforcing the rules. For more information about the rule, visit the OSHA website. • Joe Steele of Ascent Resources, spoke about Job Safety Analysis employed by his company. “It is vitally important to involve all company employees. Safety procedures contain a list of questions about what can go wrong and what can be done to identify potential danger. Procedures should be written so everyone can understand what is being said, not overly technical. “If you see something, say something. Get involved,” said Steele. Now a standalone operating company, Ascent Resources, LLC, previously known as American Energy Appalachia Holdings, LLC, was formed in January 2015 by combining the holding companies of American Energy – Utica, LLC, and American Energy – Marcellus, LLC to acquire, develop, operate and produce oil and natural gas properties in the Utica and Marcellus Shale plays.
• Rich Bereadelli, Derek Kaiser and Joe Ray a volunteer firefighter, all of Total Safety, talked about the effects of hydrogen sulfide (H2S). “H2S is more deadly than carbon monoxide,” said Beraedelli. “People who work around natural gas can encounter it on a daily basis in small concentrations. It is a colorless gas with the characteristic foul odor of rotten eggs, but its odor can be masked by other sub stances. It is heavier than air, very poisonous, corrosive, flammable, and explosive.” Hydrogen sulfide often results from the bacterial breakdown of organic matter in the absence of oxygen gas, such as in swamps and sewers, and is most commonly obtained by its separation from sour gas, which is natural gas with high content of H2S. Small amounts of hydrogen sulfide occur in crude petroleum, but natural gas can contain up to 90 percent. Other sources of hydrogen sulfide include coke ovens, paper mill, tanneries and sewerage. H2S arises from virtually anywhere where elemental sulfur comes in contact with organic material, especially at high temperatures. “You must always be aware of it. It comes from many places. Level of danger depends on concentration and frequency of exposure. It affects everyone differently. Have a plan, educate employees, be prepared, run drills frequently. Ask about H2S, especially when working around natural gas. Establish emergency procedures with continuous monitoring, respiratory protection, personal detectors. Make sure everyone knows where the equipment is and how to use it,” said Ray. OSHA’s permissible exposure to H2S is 20 parts per million. Next Buckeye STEPS meeting is 9:30 a.m. Friday, Sept. 11 at Ohio Means Jobs Building, 822 30th St., NW Canton. The objective of The Buckeye STEPS (Safety, Transmission, Exploration, Production) Network is to establish informative meeting forums for members of the Oil and Gas Industry and associated governmental agencies to actively share industry safe work and recommended work practices, safety alerts and issues, educate membership and reduce workplace injuries. Membership is open to those engaged in or supporting the Oil and Gas Exploration, Production or Transmission Industry. JPerkowski@dixcom.com
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Gas & Oil
September 2015
Pennsylvania Edition
Mighty Marcellus and Utica leading production in U.S. Nicole Jacobs - Energy in Depth - PA
T
he U.S. Energy Information Administration (EIA) recently released its Drilling Productivity Report (DPR), which showed that since January 2012 natural gas production in the Marcellus and Utica shale regions has accounted for 85% of the increase in natural gas production in the U.S. EIA attributes this steady production increase to technological advances including improvements in the precision and efficiency of horizontal drilling and hydraulic fracturing. As the EIA chart illustrates, the production gains have been substantial for these two plays. The July DPR notes that the Marcellus region produced an estimated 6.3 billion cubic feet of natural gas per day (Bcf/d) in January 2012, whereas the same region produced 16.5 Bcf/d in July 2015. The Utica region’s production in July 2015 was almost 18 times higher than that in January 2013 (2.6 Bcf/d and 0.15 Bcf/d, respectively). This level of development has created economic growth and a staggering level of jobs in Ohio and Pennsylvania. In fact, millions of work hours are being added to Ohio building trades because of shale development in the state, giving opportunity to local tradesmen and women who work all along the shale production supply chain. The creation of middle class jobs domestically is of great importance to the overall U.S. economy– according to a recent study by the Harvard Business School: “Unconventional gas and oil resources are perhaps the largest single opportunity to improve the trajectory of the U.S. economy, at a time when the prospects for the average American are weaker then we have experienced in generations. “ The same study notes that unconventional drilling has contributed more than $43 billion to annual U.S. GDP, and added nearly 2.7 million American jobs. In Ohio specifically, $28 billion of investment have been added into its economy and thousands of new jobs have been created– reducing unemployment by approximately 66%. In Pennsylvania, data was just released for the unemployment rates in Greene and Washington Counties, two of the most heavily
developed counties in the Marcellus. According to the Washington Observer-Reporter: “Washington’s figure was 5.2 percent and Greene’s 5.6, according to statistics released Tuesday by the Pennsylvania Department of Labor & Industry. June was a trend-changer for Washington County. Its latest figure also was below that of the nation (5.3) and state (5.4) again, after the county exceeded both sets of numbers in recent months. The county figure has been at or below the U.S. rate 27 of the past 29 months.” And just last month the Pennsylvania Public Utility Commission (PUC) released the latest impact fee revenue for 2014 which will provide $223.5 million across the state, with roughly $96 million going to counties with Marcellus development. This news comes at a time when natural gas demand in the Northeast markets is increasingly growing. A variety of pipelines have been proposed to get this surplus to end users in New York City, Boston and along the East Coast where traditionally winter heating costs have been the highest in the country due to colder weather and high demand. High regional production coming out of the Marcellus and Utica Shales could be a win-win for all across the Northeast once needed infrastructure is in place. The Marcellus and Utica Shales continue to be game-changers not only in Pennsylvania and Ohio, but across the country as this latest data demonstrates.
www.GasandOilMag.com
Gas & Oil
September 2015
9
New Natural Gas Fired Power Plants Joe Massaro - Energy in Depth - PA
T
hanks to the development of our shale resources, natural gas production across the U.S. has consistently increased over the last decade. According to the U.S. Energy Information Administration (EIA), Marcellus shale alone produced 16.5 billion cubic feet of natural gas per day (Bcf/d) in July 2015. This increase in natural gas production is now beginning to fuel new power plant projects that are looking to take advantage of this affordable and abundant energy beneath our feet. According to a recent article in the Scranton Times Tribune, “…Hydraulic fracturing in the Marcellus Shale in Pennsylvania has turned U.S. gas markets upside down. Now, that seismic shift is spreading to the electric power industry and Northeast Pennsylvania is the epicenter of that change.” Currently there are four natural gas power plants proposed for Northeast Pennsylvania: • Liberty Generating Station – 829 megawatts (Bradford County, Asylum Twp.) • Lackawanna Energy Center – 1,500 megawatts (Lackawanna County, Jessup) • Patriot Generating Station – 829 megawatts (Lycoming County, Clinton Twp.) • Freedom Power Generation Plant – 1,050 megawatts (Luzerne County, Salem Twp.) The increase in natural gas power plants is fueled by low commodity prices, which is a direct effect of increased efficiency from shale wells. According to the EIA, “Since 2008, the average price of natural gas sold to Pennsylvania electrical plants has been cut more than half, declining from a high of $10.46 per thousand cubic feet to $5.04 per thousand cubic feet in 2014.” This has resulted in energy savings for residents living in the Commonwealth. And, as these proposed power plants are completed residents should continue to see low energy prices. Besides lower energy prices, air emissions in the power generation sector have also been decreasing. When compared to traditional fuels natural gas fired power plants produce 50 percent of the carbon dioxide and less than 10 percent of the sulfur dioxide and nitrogen oxide that would have been produced by other plants. Improving air quality is a trend we’ve been seeing across the Commonwealth, as the Pennsylvania Department
of Environmental Protection recently stated, ““Significantly, since 2008, when unconventional drilling across the state began quickly increasing, cumulative air contaminant emissions across the state have continued to decline. In particular, sulfur dioxide emissions from electric generating units (EGU) have been reduced by approximately 73 percent. The emissions of nitrogen oxides and particulate matter have also been reduced by approximately 23 percent and 46 percent, respectively, from this sector.” Natural gas development in Pennsylvania has been created hundreds of thousands of jobs as well as unlock a resource which has helped us get a hand on air pollution and emissions associated with power generation. We look forward to these power plant projects being completed, which will allow affordable, clean energy to be delivered to homes and businesses across the Northeast.
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Gas & Oil
Pennsylvania Edition
September 2015
Kelly Provision to Lower
Energy Costs Signed into Law
U
.S. Representative Mike Kelly (R-PA) – a member of the House Ways and Means Committee – issued the following statement today regarding the inclusion of the language of the Energy Production Fairness Act (H.R. 898) in the final passage and enactment of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (H.R. 3236), which was signed into law by President Obama this afternoon. The provision – introduced as H.R. 898 by Rep. Kelly and Rep. Ron Kind (D-WI) in February – will amend propane’s excise tax provisions in the Internal Revenue Code in order to provide Federal excise tax equivalence to gasoline, which, according to Butane-Propane News, “will result in lower excise taxes being levied on propane used in auto fuel applications.”
WHAT THEY ARE SAYING: STATEMENT BY REP. KELLY:
“Today is a very good day for Western Pennsylvania, where propane is indispensable to our economy and our energy security. This tax-lowering provision will reduce heating bills for countless families and seniors in the Third District and help local energy providers create more jobs. It’s bipartisan, it’s commonsense, and now it’s law.”
STATEMENT BY REP. KIND:
“Propane is an important part of our economy in central and western Wisconsin and I am pleased to see President Obama sign this important bill into law. This common sense, bipartisan change will help Wisconsinites save on their energy costs and make smart investments in alternative fuels to help our country become more energy independent.” NATIONAL PROPANE GAS ASSOCIATION: “The excise tax equalization provision … will treat propane more fairly than the current structure. Since propane has a lower energy content than gasoline, it takes 1.37 gallons of propane to equal the energy in 1 gallon of gasoline. Consequently, on a proportional basis, more excise tax is paid for a gallon of propane than on a gallon of gasoline. But Sec. 2008 takes the appropriate approach to correct this inequity and tax propane on an energy content basis, thereby creating a level playing field across all auto fuels. Ultimately, this allows consumers to choose which fuels work best for them.” UPS: “LNG and propane are both clean, readily available fuels, produced in the United States,” said Laura Lane, President of UPS Global Public Affairs. “Removing this economic disincentive in the tax code will speed the penetration of LNG and propane vehicles into the marketplace, and expand the use of LNG and propane vehicles on America’s roadways.”
API calls on
candidates
to outline
energy outlook
W
ASHINGTON - The American Petroleum Insitute is urging candidates at upcoming presidential debates to outline their vision for harnessing the economic and national security opportunities created by America’s energy revolution. “We can pursue an American future of energy abundance, self-determination and global leadership or take a step back to an era of scarcity, dependence and uncertainty,” said API President and CEO Jack Gerard during a conference call with reporters. “We’re calling on candidates – Republican and Democrat alike – to share with voters their vision for harnessing this American energy moment. “Make no mistake – America’s role as an energy superpower is not ensured. We’ve seen the mission creep of federal agencies on full display under this administration. Thousands of pages of new roadblocks and mandates are making their way through the regulatory pipeline. We cannot afford for our next president to be blinded to the opportunities in front of us by a stale mindset of ‘70s-era scarcity. That is why those who seek to represent us must go beyond the talking points and outline a clear vision for energy that will advance our nation’s economy, security and standard of living.” API is the only national trade association representing all facets of the oil and natural gas industry, which supports 9.8 million U.S. jobs and 8 percent of the U.S. economy. API’s more than 625 members include large integrated companies, as well as exploration and production, refining, marketing, pipeline, and marine businesses, and service and supply firms. They provide most of the nation’s energy and are backed by a growing grassroots movement of more than 25 million Americans. See more at: http://www.americanpetroleuminstitute.com/ news-and-media/news/newsitems/2015/august-2015/api-callson-candidates-to-outline-their-vision-for-americas-energyfuture#sthash.eQUSBXLE.dpuf
Gas & Oil
www.GasandOilMag.com
September 2015
11
OPINION:
FACT VS. FICTION:
HIGHER ENERGY TAX
Marcellus Shale Coalition
Recently, even more fact-based opinion pieces straightforwardly separate higher energy tax from fiction. As we know, massively higher energy taxes on natural gas will hurt our economy and jeopardize local jobs all while generating far less revenue than claimed and causing families to shoulder more burden. Here’s what they’re saying:
WILLIAMSPORT SUN-GAZETTE EDITORIAL
• The governor’s proposal to tax natural gas harvested in Pa. would bring in far less revenue than he originally estimated. • While the governor relied on more than $1 billion from a severance tax to balance his budget proposal, therecent analysis shows his tax increase plan would bring in less than $200 million…less than one-fifth of his original estimate. • The governor’s severance tax would not deliver the revenue he has promised, which could lead to future tax increases on other Pennsylvanians. • The more pragmatic course is to not overtax the state’s number one economic generator, the natural gas industry. York Dispatch op-ed • Basic economics tells us there will be tradeoffs [with a higher energy tax]: less investment, fewer jobs, or higher prices. • The IFO finds the severance tax would result in higher utility costs — $180 million paid by Pa. families earning less than $100,000. • Gas drillers already pay an “impact fee” of more than $200 million per year. That’s on top of $300 million paid since 2009 in other state taxes and $7 billion in royalty payments. • Wolf’s severance tax isn’t earmarked for education. Money would flow first to corporate welfare subsidies for alternative energy.
• The language in the governor’s plan actually calls for a substantial portion to go toward payments for alternative energy subsidies with not one dollar guaranteed to go toward education. • These massive tax increases are not in the best interest of Pa.’s residents and will not move the state forward. • We need to work together to make Pa.’s business climate one in which job creators can afford to do business. Pittsburgh Post-Gazette letter • Why should we continue to overregulate an industry that pays the same 9.99 percent corporate net income tax, just like every other business, pays sales taxes on the equipment used in all aspects of drilling, and has paid more than $625 million in impact fees in the past three years? • Impact fees have been extremely important for communities, but they also need to be recognized for the what they really are — an extra tax. • A severance tax is yet another extra tax that could put the future of natural gas jobs in Pa. at risk. • This industry has been a shot in the arm for manufacturing, trucking, construction and other businessesthat desperately needed it. • It’s also provided a promise of good-paying jobs to our young people.
• At a time when the price of natural gas is at an all-time low, this [energy massive energy tax] would drive companies to other states or shale plays — taking good paying, familysustaining jobs and economic opportunity with them. • The bulk of the revenue from the Wolf administration’s proposed severance tax would not go to education.
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Gas & Oil
September 2015
Pennsylvania Edition
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