Dear RDA Members and Friends,

 The following is an op-ed piece by RDA President, Ralph Kisberg. If ever this newsletter was worth reading through to the end, these words are worth your time, and worth passing along to your network. Ralph writes....

This is certainly shaping up to be an interesting week in shale gas news!

Tuesday evening featured President Obama's State of the Union address. His energy 

pronouncements started off reasonably enough, "We have subsidized oil companies for

a century. That's long enough...It's time to end the taxpayer giveaways to an industry 

that's rarely been more profitable, and double-down on a clean energy industry that's 

never been more promising...."

But, according to the Huffington Post, "President Barack Obama is setting a new goal 

for America's energy future, saying 80 percent of electricity should come from clean 

energy sources by 2035...but his definition of clean energy is friendlier to industry thansome environmentalists might like. He includes nuclear, natural gas and clean coal in the mix, along with wind and solar."

Those who heard the President's speech may agree it was a bit confusing. At one point,he was gushing over shale gas, and our "100 year supply" of NG. While promising the gas will be extracted safely, he stated, "...by the way, it was public research dollars over the course of 30 years that helped develop the technologies to extract all this natural gas out of shale rock." Reminding us that government support is critical in helping businesses get new energy ideas off the ground, Obama said, "What's true for natural gas is true for clean energy."

At least that finally clears up the mystery as to how this plague on our region's 

environment (and for many, our quality of life) came into being; the Rube 

Goldbergesque technique of high pressure, slick water, hydraulic fracturing was a 

government boondoggle!

In case you think we are being partisan by picking on President Obama, cast those 

concerns aside. Republican front runner of the week, former disgraced Congressman 

Newt Gingrich, weighed in via his campaign's American Energy Plan. "Today's high gas and energy prices are entirely a function of bad government policies. Newt has an American Energy Plan that would maximize energy production from all sources--oil, natural gas, wind, biofuels, nuclear, clean coal, and more..." This is all aided by his scheme to, "Replace the Environmental Protection Agency, which has become a job-killing regulatory engine of higher energy prices, with an Environmental Solutions 

Agency that would use incentives and work cooperatively with local government and 

industry to achieve better environmental outcomes...".

Great. We have just the model for Gingrich's ES Agency right here in Pennsylvania -

Michael Krancer's vision and leadership of the PA DEP!

Krancer pitched a preemptive fit the week before last week in a letter to EPA Region 3 Administrator Shawn Garvin in which he stated that the EPA has only a "rudimentary"understanding of the tainted water situation in Dimock and urged Garvin to be, "guided by sound science and the law instead of emotion and publicity" in dealing with the challenges there.

Krancer's advice obviously carries a lot of weight with the EPA, as it was 

lab tests, not emotional homeowners, that revealed these hazardous 

substances in the drinking water of four Dimock homes:     

• arsenic, a cancer-causing element that may be present in elevated             concentrations due to drilling
• barium, a common component of drilling muds, capable of causing             kidney damage with extended exposure 
• DEHP, a probable human carcinogen also used in drilling fluids
• ethylene glycol, an antifreeze commonly found in drilling fluids
• manganese, which, like arsenic and barium, can occur naturally, but can     also be found in drilling fluids and can damage the central nervous system   if ingested 

EPA also announced last Thursday that delivery of fresh water to those four homes would begin immediately, and that testing will be completed for dozens more water wells in the immediate area.

If your family's well water was in that area, which approach would you prefer? Plan A- EPA's precautionary attitude: we'll find out where these toxins came from later, but for now, let's protect the health of those families and bring them water. Plan B - the Krancer/Corbett approach: the most important thing is not human health, that's not our job, we are the environment-for-business people and must first protect the outfit that drilled in the area, the infamous Cabot Oil and Gas, so as not to scare off the economic golden goose.

Speaking of that mythical fowl, someone ought to tell future President Gingrich about 

the price of NG which slipped to a recent low of $2.32 per 1,000 cubic feet yesterday,

down from a high of over $12.00 less than 4 years ago, to as low as it has been since 

2002.

Everyone's second favorite well operator, Chesapeake, responded to that trend by finally announcing what they had been doing for months; pulling rigs out of dry gas areas around the country and into the more profitable wet gas areas, like far western PA and eastern Ohio.

This comes as no surprise to those who follow New York Times columnist Ian Urbina and recall his story of June 25th, " Insiders Sound an Alarm Amid a Natural Gas Rush":  http://www.nytimes.com/2011/06/26/us/26gas.html?pagewanted=all

The NYT story began, " 'The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work,' an analyst from IHS Drilling Data, an energy research company,  wrote in an e-mail on Aug. 28, 2009." Urbina continued,

       The data show that while there are some very active wells, they are often surrounded by vast zones of less-productive wells that in some cases cost more to drill and operate than the gas they produce is worth. If the industry does not live up to expectations, the impact will be felt widely. Federal and state lawmakers are considering drastically increasing subsidies for the natural gas business in the hope that it will provide low-cost energy for decades to come. But if natural gas ultimately proves more expensive to extract from the ground than has been predicted, landowners, investors and lenders could see their investments falter, while 

consumers will pay a price in higher electricity and home heating bills.

Someone better tell the President, because while he was polishing up in front of the teleprompter on Tuesday, the Department of Energy announced a deep slash in its estimate for the Marcellus shale's unproven natural gas reserves. DOE announced a whopping 66 percent drop from its previous estimate of 410 trillion cubic feet of "unproven technically recoverable" reserves, down to 141 trillion, or enough for only 6 years of total current U. S. NG consumption, not the 17-year estimate of just a year ago.

This too would have come as no surprise to Obama, Gingrich, or anyone else if they had found the website, "The Oil Drum", back on August 5th, and read the article, "U.S. Shale Gas: Less Abundance, Higher Cost", by geologist Arthur Berman and petroleum engineering consultant Lynn Pittinger.

 From the introduction:

            Shale gas has become an important and permanent feature of U.S. energy supply. There are, however, two major concerns at the center of the shale gas revolution:

• Despite impressive production growth, it is not yet clear that these plays are commercial at current prices because of the high capital costs of land and drilling and completion.
• Reserves and economics depend on estimated ultimate recoveries based on hyperbolic, or increasingly flattening, decline profiles that predict decades of commercial production. With only a few years of production history in most of these plays, this model has not been shown to be correct, and may be overly optimistic.

          These are not purely technical topics for debate among petroleum professionals. The marketing of the shale gas phenomenon has been so effective that important policy and strategic decisions are being made based on as yet unproven assumptions about the abundance and low cost of these plays. The "Pickens Plan" seeks to get congressional approval for natural gas subsidies that might eventually lead to conversion of large parts of our vehicle fleet to run on natural gas. Similarly, companies have gotten permits from the government to transform liquefied natural gas import terminals into export facilities that would commit the U.S. to decades of large, fixed export volumes. This might commit the U.S. to decades of natural gas exports at fixed prices in the face of scarcity and increasing prices in the domestic market. If reserves are less and cost is more than many assume, these could be disastrous decisions.

Someone better tell the President, whoever it is next year. But first, run it by Krancer, the governor, and that patriotic bunch in the legislature.