Broadening the Marcellus Discussion – Issues and Economics of the Resource

Thomas MurphyPenn State Cooperative ExtensionOctober 2009

How big is the Marcellus Shale?• …now estimated that

potential recoverable gas could be 489 trillion cu. ft. w/current technology.

• U.S. consumption annually is 20 trillion cu. ft.

Shortcut to shale_gas.JPG.lnk

Natural Gas Facts• Geologists estimate a

100+ year supply of natural gas (current use rates)

• Marcellus is largest shale play in U.S.– 2nd largest in the world– 50 to 93,000 sq. miles– Lifespan to drill and

extract is likely decades

• Companies reporting increasingly strong yields on Marcellus wells -2 to 10 Mmcfd IP

• Transportation costs add up to 50% onto cost of gas at delivery (current price)

• Proximity to market is key for Marcellus

• 500-900 Marcellus wells planned for ’09

• Over 1200 permits issued• Rig count rising in PA

Why here? Why now?Updated technology --drilling/fracing/water

Additional shale targetsFavorable economics

Current Permits & Drilling

Leasing/Seismic Frenzy

• 18 companies leasing

• One “new” company conducting seismic

• New agreements• New process in area

Issues Associated with Marcellus• Leasing to landowners

unfamiliar with process– tens of thousands

• Legal uncertainties w/lease documents– Few O&G attorneys

• Financial decisions lasting generation(s)

• Limited understanding of economics of the process

Impacts on Communities--New “haves” and “have

nots”--Local officials

– new decisions– new skill sets

--Change in ag?-green space

--Broad change coming…

Environmental Issues• Groundwater• Surface waters• Headwater streams• NORM• Gas migration• Sound• Wildlife• Forest fragmentation• Aesthetics –viewsheds

Research needed???

Build Out of Infrastructure

Key components:– Pipeline– Compressors– Gas Processing Plants– Water Treatment/Injection (availability)– Oil Field Service Companies– Regulatory Agencies –monitoring the process– Work force needs

Pipelines• Critical to development

of well– $1 Billion+ in projects

planned

• Change in how we use ag lands?

• Placement of lines• No eminent domain

Marcellus Economics• 35+ energy companies looking at Marcellus

and increasing– $5 Billion+ collectively -$55B by 2014

• $200 million recently by Hess Oil in NE PA• $165 million deal by Fortuna in NE PA

– Some selling other assets to reposition here– Investments by Wall St. as JV partners

• KKR• Avista Capital• StatoilHydro• Enerplus Resources

Gas Field Services• Most needed drilling services scaled for

Marcellus were not in Appalachian basin– New regional centers in WV/PA/Southern Tier NY

• Critical link in development• New workforce needs• New short line rail demand, commercial real

estate interest, airport traffic, engineering offices, road re-construction, housing development

Workforce Development

Industry Workforce Needs Assessment

• 75% of workforce will need OTJ training – Some technical training required

• Certificate• 2 year programs• Community colleges• Vocational/Technical

• 25% need a professional university degree• New program offerings to train PA-bred

workforce– Industry sanctioned/sponsored

What does this mean in terms of jobs?

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3500

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Num

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of W

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2009 2010 2011 2012 2013

Year

"Likely" Scenario Northern Tier WIB Region Marcellus Shale Workforce Requirements By Phase

Pre-Drilling (Short-term)

Drilling (Short-term)

Production (Long-term)

What specific jobs are required?

General Of-fice20%

CDL10%

General Labor20%

Heavy Equipment

17%

Geologists3%

Lawyers4%

Paralegal1%

Cartog/GIS1%

Timber Logging

1%

Welders1%

Welders-Helpers

1%

X-Ray0%

X-Ray Tech0%

Engineers3%

Inspectors1%

Supervisors 5%

LandmenRealty

5%

Semi-Skilled Tech.6%

Natural Gas Workforce Requirements By Category

www.naturalgas.psu.edu

www.pct.edu/msetc