American Oil and Gas Reporter - March 2016 - 85

ConventionSection: Pennsylvania Independent Oil & Gas Association

Pipelines Prepared For Gas Recovery
CANONSBURG, PA.-When the natural gas market finally emerges from the
pricing basement, Pennsylvania's Marcellus and Utica shale operators will have
a greatly expanded system of pipelines
to send their product to domestic and
foreign markets, predicts Gary E. Slagel,
chairman of the Pennsylvania Independent
Oil & Gas Association.
"While most Marcellus operators have
laid down rigs, they continue to see massive
quantities of natural gas, particularly out of
the Utica wells they have drilled," says
Slagel, government affairs specialist at Steptoe & Johnson in Canonsburg. "The expectation is that as long as the infrastructure
is in place to move that gas, and we can do
something to increase the demand, there
will be a lot of interest in putting those rigs
back up and continuing to drill."
A year ago, Pennsylvania Governor Tom
Wolf created a pipeline infrastructure task
force to examine the state's permitting and
construction requirements, Slagel says. The
original group had 48 members, with another
112 assigned to subordinate work groups.
The group's report includes 184 recommendations for future pipeline activities and
development. Slagel points out many of
those already are required by state law, state
regulation, or are industry best practices.
"About 10 percent of the members had
industry background, and the rest came
from state agencies, nongovernment organizations or citizen groups," Slagel details.
"From industry's perspective, they came
up with a number of idealistic but not
realistic recommendations. The final report
was issued Feb. 18, and includes 12 top
recommendations, most of which appear
doable, if not already in place."
John Quigley, secretary of the Pennsylvania Department of Environmental Protection and chairman of the work group,
points out the report is the starting point
for a longer conversation about pipelines,
and states this final report will not be the
end of discussions on pipeline development
in Pennsylvania.
The midstream sector is not waiting for
the task force, Slagel says. Most of the
companies have secured the necessary permits and are moving ahead with construction
plans.
PIOGA President Louis D. D'Amico
says he has heard projections that by the
end of 2017, Pennsylvania will have almost
all the pipeline capacity it needs to move

its current gas volumes to market, reducing
the negative basis differential for Appalachian
gas. However, he predicts, that eventuality
will not help the state's production community because national gas prices are far
more likely to drop than Pennsylvania
prices are to improve.
"Pennsylvania producers already supply
all the market that is available in the United
States with currently available gas," D'Amico
says. "If we get all the additional Marcellus
and Utica gas flowing, I do not know how
that will help prices. Demand and supply
have to balance, and I do not see that happening for quite some time."
Petrochemicals
The petrochemical sector is a bright spot
for the state's natural gas industry, Slagel
offers, saying Royal Dutch Shell continues
to spend millions on initial development
work on a site in Beaver County, Pa., where
it proposes to build a multibillion-dollar
ethane cracker. "But, you read where experts
think oil prices are going and how prices
are impacting these big multinational companies, and I don't know if everything is
going to slow in anticipation of seeing oil
prices come back up before Shell spends
$3 billion on a cracker," he adds.
Beyond that project, several companies
have proposed building chemical manufacturing plants that will use Marcellus and
Utica gas. A strong petrochemical industry
in the Appalachian Basin would have a
huge positive impact for the industry as
well as for the commonwealth, D'Amico
says.
"I would go beyond cautiously optimistic,
and say I am very optimistic that at least
the Shell plant will be built," he says. "I
would not be too shocked if the company
suddenly pulled the plug, because it is a
huge financial commitment, but in long
run, a plant in this region makes a lot of
sense. Shell has a good location for the
plant-right on the border between Pennsylvania and Ohio-and it is not far to collect
gas from West Virginia. There is just too
much good about this project to not build a
plant."
Foreign markets also are on the horizon
for Appalachian producers, D'Amico says,
with Dominion's liquefied natural plant at
Cove Point, Md., set to come on line late in
2017. According to the company, the $3.8
billion project is fully subscribed, and has
20-year service agreements with two Japan-

ese corporations and an Indian distribution
company.
Despite the global plunge in natural gas
prices, U.S. producers retain a significant
cost advantage over their global competitors,
D'Amico says. Adding the $4 liquefaction
and transportation charges to production
costs of $2-$3 for domestic gas undercuts
double-digit LNG prices common in most
overseas markets, he calculates.
PIOGA also continues to develop U.S.
markets for Appalachian shale gas production, D'Amico says, pointing to the association's director of natural gas development,
Joyce Turkaly.
"I have not seen other state associations
have someone like Joyce on staff," he says.
"Frankly, I wonder why. The one example
that appears to be on a larger scale than
what PIOGA is doing is the American Petroleum Institute since it merged with the
America's Natural Gas Association. PIOGA
intends to work with API and what it is
doing. I am excited about that, and I think
the merger with ANGA will have longterm benefits."
Seismicity
Like other states, Pennsylvania has announced plans to increase monitoring of
seismic activity. The state Department of
Conservation and Natural Resources announced in September its financial support
for a real-time seismic monitoring network
to be run by its Bureau of Topographic and
Geological Survey. The network will consist
of 30 permanent and five mobile stations.
The department points out no noticeable
seismic events have been reported in the
state.
D'Amico says Pennsylvania does not
have many disposal wells, and it never has
had an issue with hydraulic fracturing activities creating seismicity problems. "But,
state regulators are watching Oklahoma
and Kansas, as is PIOGA. It is a concern,"
he says. "Most of what I hear concerning
regulators is nonsense, but seismicity problems are a serious issue that needs to be attended to. Frankly, I am happy they are
paying attention to that."
While other states have considered making the oil and gas industry pay for the network, Pennsylvania has not announced
any plans for similar action, D'Amico
says, but he adds, "There is no doubt
Pennsylvania can find out a way to make
the industry pay for anything."
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MARCH 2016 85

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