Consumption Goes Up, Production Goes…Down?
New York is one of the nation’s largest consumers of natural gas, yet, in recent years, production of natural gas in the Empire State has dropped considerably. Why would one of the nation’s top consumers of natural gas be experiencing a drop in production at a time when, thanks to the Marcellus and other shale plays across the country, production is booming? It doesn’t make much sense, so we decided to look into it a little further.
How Does NY Use Natural Gas?
New York uses gas in a variety of ways. Since natural gas burns cleaner than coal or oil, putting out virtually no mercury, little sulfur dioxide (SOx), and lower emissions of nitrogen oxide (NOx), carbon monoxide (CO), and carbon dioxide (CO2), and (thanks to the shale plays across the country) is one of the most reliable and affordable energy sources, power generation from natural gas is on the rise. New York is no stranger to this information, where in the state 33% of electricity is generated from natural gas. In terms of electricity generation, NY is ahead of the rest of the country with the national average of natural gas powered electricity plants only being 25%. New York even uses more natural gas than its shale rich (and producing) neighbor, Pennsylvania, to generate electricity!
Aside from electricity, New York is also the second largest consumer of natural gas in the country for ng powered vehicles! California is the only state that has more, but plans are in place, thanks to funding from Chesapeake and other companies, to build the infrastructure to allow the East Coast to have more ng vehicles.
This is great news for a state that boasts the traffic that NY does, because natural gas vehicles have a 70% reduction in carbon monoxide emissions relative to gas-powered cars, an 87% reduction in the emission of nitrogen oxides (NOx) compared to gas-powered cars, a 22% reduction in carbon dioxide emitted from tailpipes, relative to diesel, and a 29% reduction in carbon dioxide emitted from tailpipes, relative to gasoline! Check out this fact sheet from the Marcellus Shale Coalition for more information.
And all of this on top of the thousands who use natural gas in their homes for heat and cooking!
What’s Happening with NY’s Natural Gas Production?
New York has a long history of natural gas production dating back since before the Drake Well in Titusville, Pennsylvania. But since 2004, despite its natural gas rich history and high levels of consumption, production has been declining. According to the NY Department of Environmental Conservation,
For the 2010 calendar year, total reported gas production was 35.802 billion cubic feet (bcf), an 20% decrease from 2009’s posted production of 44.849 (bcf). As in recent years, the 2010 production was primarily driven by wells in the Trenton-Black River formation. However, steady production from the Medina, Herkimer, and Queenston formations, continues the return to more traditional gas sources in New York State.
Now logically, the closer the product is to the market of consumers, the cheaper the product will be because you lessen high transport costs, but NY is actually importing more gas from other states, including Pennsylvania, because it does not come close to meeting its own demand, despite its gas rich shale formations. See this article from Forbes that analyzes this.
Talisman, the state’s largest producer of natural gas, has not drilled a new well in over a year according to this article that also gives a great breakdown of where conventional drilling is happening and by whom.
“We’re not actively putting up new wells, but what we had existing is still producing,” said Talisman Energy spokeswoman Natalie Cox. “Most of our focus is on the Marcellus in Pennsylvania and Eagle Ford in Texas.”
If you would like an even closer look at the production from 2010, take a look at this spreadsheet that shows all of the wells in NY state. While there are still thousands–13,534 according to the DEC–of producing wells, these vertical and in some cases horizontal, wells cannot keep up with the demand of the state. Many investors are looking to shale formations that produce more gas with less of a footprint to meet the needs of the country, including the natural gas supplied to New York State.
But Doesn’t the Marcellus Shale Go Into New York?
Yes, it does, but the New York regulatory authority, the DEC, has been reviewing its policy for the last 3 years to decide how, where and when it will allow permitting in New York to take place. A moratorium was placed on horizontal drilling and hydraulic fracturing until June 1 of this year. The moratorium has been lifted in anticipation of the DEC determination. On July 1 the draft of the new SGEIS was released and the public will now go through a comment period before a date will be set for permitting. At this time, though, New Yorkers aren’t able to access the benefits of having the Marcellus Shale below their feet to aid in eliminating their dependence on other states to meet their energy consumption needs.
Please see some of our previous posts for more information on this:
What About Natural Gas Production in Other States?
This is not true across the country with other states that have natural gas rich shale formations, including right across the border in Pennsylvania. Shale gas is booming across the country, especially in the Marcellus.
This week Penn State University released a study that expressed just how beneficial tapping into this resource has been for New York’s neighbor, Pennsylvania. You can read Tom’s analysis of that study, here. I will leave you with a little bit of the information from EID’s fact sheet of the study that references consumption. Keep in mind that Pennsylvania does not use nearly the amount of natural gas that New York does and what these figures could mean for NY when permitting finally begins.
Lower Prices for Consumers, Revenue for Landowners and Communities:
• Due to a 12.6 percent reduction in natural gas prices from higher Marcellus output, total energy expenditures for Pennsylvania consumers declined by $633 million during 2010. (ibid, pg. 21)
• Residential customer and household electricity and natural gas bills in Pennsylvania are $245 million lower as a result of production from the Marcellus with $217.4 million from lower natural gas bills and another $27.7 million from lower electricity bills. (ibid, pg. 22)
• In 2010 alone, natural gas companies paid over $1.6 billion lease and bonus payments to Pennsylvania landowners. (ibid, pg. 2)