Posted on January 12, 2012

Natural Gas Development – Striking A Balance Between Exuberance and Caution

Welcome to my blog.  I plan to deliver frequent updates on current issues in the areas to which the practice of Saunders Law is devoted – oil and gas, environmental and energy law.  If you want to follow developments in any of these legal fields as they unfold, and in addition to the facts are interested in the occasional opinion from the trenches, we hope you will find these musings enlightening and informative and return often. 

For my inaugural  topic I would like to address the anxiety among many citizens of this Commonwealth, as well as the increasing tensions between state and federal environmental regulatory agencies, over the pace and effects of natural gas development in Pennsylvania.  The extraction, processing and transportation of oil and natural gas in the United States, primarily from what are known as “unconventional” shale gas plays – not just in Pennsylvania or the northeast, but in several regions throughout the country – has the potential for great economic benefit.  Whether you see these sources of energy as the magic bullet to solving America’s dependence on foreign sources of petroleum products, or a bridge to a future era when ‘renewables’ fuel the growth and expansion of our economy, the development of oil and natural gas is a topic on which just about everyone has an opinion.

Where do I stand you ask?  Well as a ‘Citizen of Pennsylvania’ (the viewpoint taken by a well-known and well-respected oil and gas lawyer during a presentation I recently gave at a Marcellus Shale conference in State College, Pennsylvania) as well as a lawyer representing the interests of land and mineral rights owners in Pennsylvania (nearly half of whom do not reside here) I can see the tremendous potential benefits to individual landowners in the region and the entire country.  Many of my clients have already reaped significant financial rewards resulting from an ownership interest in the Marcellus Shale and that background noise you hear is an ever-increasing buzz over the prospects of other unconventional shale gas plays underlying what has been dubbed by energy experts as the second largest petroleum reserve in the world.

But from those same overlapping and sometimes conflicting perspectives, one has to acknowledge that important issues exist and must be proactively addressed by state and possibly federal regulatory agencies and the respective legislative bodies from which their appropriations derive to insure that these resources are developed in a manner that protects the rights and interests of both the newly-minted beneficiaries of bonuses and royalties (a/k/a “Shalionaires”) as well as their neighbors (proximate and distant) who are on the outside looking in.

One need not have a direct and personal interest in oil and gas to reap benefits from the natural gas boom the epicenter of which is almost universally acknowledged to be in Pennsylvania (notwithstanding the recent seismic activity in eastern Ohio).  Customers of one public utility, UGI Penn National Gas, have recently received the good news that their gas bills for the winter of 2011-2012 will be on the order of 10 – 20% lower (assuming similar levels of usage as in the previous heating season) due almost entirely to the increased availability of natural gas.  This cost savings is available to all residents within the provider’s service territory without regard to whether they are parties to a natural gas lease. As a matter of fact I don’t have a gas lease, but will soon become a customer of UGI when I convert my 160 year old home’s oil-fired furnace to a natural gas-powered unit.  I have been told that my annual energy costs may decrease by as much as 50% as a result.

On the other hand my experience as an environmental lawyer – having practiced in this field for nearly 25 years – as well as my status as a ‘Citizen of Pennsylvania’ also reminds me that the development of natural gas is not without risks.  To be sure, no free market capitalist would suggest that a venture with strong economic potential should be scrapped unless all potential for risk can be eliminated.  A free-market economy cannot exist or be expected to thrive without societal tolerance for varying degrees of risk.  However, when an industry moves into a region where physical conditions including geology may not fit the model or experience on which previous assumptions were based, it is incumbent upon the entrepreneur and the government to work together to assure that the level of risk will result in the least harm while permitting the prospect of doing the most good for the greatest number.

Has this principle been followed in Pennsylvania?  The opinions are as far apart as Scranton and Pittsburgh.  One thing is certain.  The citizens of Pennsylvania owe it to themselves and their progeny to learn as much as they can, regardless of whether or not they are personally invested in the “Gas Rush,” about the key components making up the natural gas industry, “upstream,” exploration and production, “midstream,” gathering. treating and processing, and “downstream,” transportation, in order to keep industry honest and insure the diligence and effectiveness of the legislature and the regulators in establishing and then enforcing reasonable guidelines to protect the environment.  It would be folly to fail to learn from the lessons of “King Coal” as there are more parallels than might appear at first glance.

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