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Economic impact of Marcellus is growing
Erica Peterson The Associated Press
Marcellus Shale drilling is still in its infancy in West Virginia, but the industry is already contributing millions of dollars to the state’s economy. It may be awhile before the gas industry’s economic impact rivals that of coal in West Virginia.
Mike Shaver, clad in a hard hat and muddy boots, surveys a gas drilling rig on a site in Upshur County. As a crew drills towards the Marcellus Shale, a pipe pumps water and dirt out of the hole in the earth and into a huge pit of muddy, rock-filled water. Shaver looks at the water, trying to determine how much farther the drill has to go before reaching shale gas.
Shaver is the owner of Mountain V Oil and Gas, based in Bridgeport. His company started drilling in the Marcellus Shale two years ago. He says the Marcellus hasn’t changed his business — he’s still drilling for gas, after all — but now things are done on a bigger scale. He drills fewer wells to get the same amount of gas, but they’re deeper and more expensive to drill.
“Instead of drilling 60-100 conventional wells, we’re looking at only drilling 15 Marcellus wells due to the cost,” he said. “The production on the Marcellus has proven to be worth changing our business model. Basically, the way we’re looking at it, it takes 10 conventional wells to equal the production of one Marcellus well, based on our results in Upshur County.”
Drilling began in 2002 When gas drillers began tapping the West Virginia Marcellus Shale in 2002, only two wells were drilled. In 2008, that number had skyrocketed to 299, according to a report sponsored by the federal government. Though gas has been drilled in the state for years, with the Marcellus Shale the industry is booming.
But in West Virginia, the economic benefit of natural gas is still dwarfed by coal. The number of people directly employed by the coal industry has been declining for years, but production is at an all-time high, according to the West Virginia Coal Association. And high production means higher severance taxes for the state.
During the last fiscal year, the coal industry paid more than $379 million in severance taxes to the state, part of which is then distributed to counties. This is almost five times more than the amount paid in natural gas severance taxes during the same period.
But the gap is closing. The amount of money the state and counties get from natural gas severance taxes is increasing at more than twice the rate of coal severance taxes.
Coal’s future uncertain The rise of gas drilling in West Virginia also comes at a time when the future is more uncertain for the coal industry. Coal production is still increasing each year, but it’s not expected to do as well if a national cap-and-trade policy is introduced. Bruce Biewald is president of Synapse Energy Economics, a Boston-area energy consulting firm.
“I think cap-and-trade heavily favors renewables and efficiency, with zero or low CO2 emissions and will tend to hurt coal,” Biewald said. “For gas, it’s kind of in the middle and in some cases it’s hard to say which way things get pushed for gas.”
In the face of possible future carbon regulations, some power companies are even shutting down their coal-fired power plants to make room for gas-fired ones.
In December, North Carolina-based Progress Energy announced that it would close 11 coal-fired units in the state and replacing them with natural gas. Progress spokesman Drew Elliot says it was a decision that made economic sense for the company.
“Well, we look at a lot of things when we talk about retiring old plants or building new ones. This was a big decision for us,” he said. “We look at what are the regulations around coal, coal ash, right now, what are they going to be in the future. We look at the availability of natural gas in the area, what’s the availability in the future, among other issues and we came to the decision that what’s best for our company and our customers is this move to natural gas.”
This isn’t to say that Progress is abandoning coal; Elliot estimates that coal still generates the bulk of the company’s energy. And even in an energy economy that relies more heavily on renewable energy, Biewald says gas will mostly likely play a supporting role.
“Natural gas as we move out in that direction has an important role in the near-term as kind of bulk electric generating fuel,” he said. “But moving forward it becomes much more of a premium electricity supply source that’s kind of used for backing up the wind.”
Coal cheaper Steven Levine specializes in energy economics at the Brattle Group, a consulting firm. He says even a tax on carbon may not create an even playing field, because coal is so much cheaper than natural gas. And he thinks incentives for renewables could hurt natural gas production.
“And in the meantime, if you’re in a very renewables-focused strategy in the next 5-10 years, your outcome might be such that what you’re actually doing is backing out natural gas, but not necessarily backing out coal,” Levine said. “So it’s sort of a high-cost abatement strategy at that point for CO2 because you’re not knocking out the primary contributor to CO2 emissions which is coal.”
Charlie Burd, president of the Independent Oil and Gas Association of West Virginia, thinks coal and gas industries have a harmonious relationship in West Virginia. In a perfect world, he says, both will flourish.
“With the passage of any cap-and-trade legislation, these coal power plants are going to have to make a determination how they want to reduce their emissions, and they can do it in one of two ways,” Burd said.
“One would be to add more control technologies to reduce their emissions. Or, to do it more cheaply, they could install natural gas, co-fire, like they have around the country in other applications and thus reduce their emissions. Coal, again, is very important to the state of West Virginia, as is natural gas. For us, that could be a real win-win situation.”
According to a federal government report, there are expected to be about 900 Marcellus wells in West Virginia by the year 2020.
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