Notes for Natural Gas

Katherine Meek, Dean Gamache, David Vaglia, Bryan Regis, Neyvin De Leon
Gamache (environmental conservation laws and royalty estimates)
De Leon (transportation issues)
Meek (water and cost-benefit analysis of the Marcellus Shale)
Regis (pipeline issues)
Vagilia (Utica Shale and retrofitting AES Cayuga)

(re-arranged, edited slightly by L. Cathles)

Outline
The Resource
The Issues
Laws and Regulations
Replacing AES Cayuga
References

The Resource
The Marcellus and the Utica
#4-5 Natural gas is domestically abundant . The Marcellus is one of several large gas resources.
It is deep enough to be tapped in the southernmost part of New York State, but in the Ithaca area
gas in deeper shale units such as the Utica will be the resources of most likely interest because
the Marcellus is probably too shallow to be tapped.
Soedel, D.J. and Kappel, W.M (2009). “Water Resources and Natural Gas Production from the Marcellus
Shale.” USGS Fact Sheet, pp. 1-6. http://pubs.usgs.gov/fs/2009/3032/pdf/FS2009-3032.pdf

#5-9 There is still a general lack of information on the Utica Shale due to the duration it has been
under study. In areas where the Marcellus is not present, the Utica Shale is being targeted, but due
to its depth, it is frequently cheaper to drill the Marcellus shale rather than the Utica. Even though
the Utica Shale could be profitable, drillers would rather focus on the known source of hydrocarbons
in the Marcellus Shale.
(2011) “Utica Shale - The Natural Gas Giant below the Marcellus?” http://geology.com/articles/utica-shale/

#10-12. Tue Utica contains oil as well as gas and it is attracting company interest. In the future, the
infrastructure from the Marcellus development could be applied to the Utica Shale (i.e. wells roads,
compressor stations).
(2011) “Natural Gas and the Environment.” http://www.naturalgas.org/environment/naturalgas.asp
Production and Royalites
#13-14 Range Resources estimates that horizontal wells can produce gas at a rate of about 4
MMCF/day. Over its lifetime, each horizontal well on an 80-acre surface spacing produces 2.5 BCF
of gas at an estimated production cost of $1.00/ MCF
Natural Gas Royalty Estimate. <http://geology.com/royalty/>

#15 Wellhead prices for gas have risen from values of less than $2.00/MCF (1980s) to $10.82/MCF
(2008)

#18-19 The low and high estimates of royalty payments/year were based on a computerized program
from <http://geology.com/royalty/> where I entered the parameters shown in the PowerPoint (12.5
for royalty rate and 0.2 and 2 for average well production rate in millions of cf/day).

Revenues to the State – [Could add a few slides here but these figures don’t look right]
#20 Revenues in New York State will directly increase from lease payments under state-owned land
and indirectly increase from increased tax revenues from natural gas development. Currently, New
York State receives $746,000 in lease payments per year for all oil and natural gas developments on
state-owned lands. Development of high-volume hydraulic fracturing operations for 30 years would
increase employment and income in New York State between $621.9 million (low scenario) and $3.7
billion (high scenario.)

The effective personal income tax rate for all taxpayers in New York State was 5.0% in 2008. New
York State could receive between $31 million and $185 million/ year in personal income tax receipts,
depending on the level of development.
http://www.dec.ny.gov/docs/materials_minerals_pdf/04anrpt3.pdf

Value Gas in Place and Well Economics

#21 Natural gas markets are highly regionalized (costly to transport gas over long distances) and
divergence is high across and within regions.

REX Energy Corporation (2009). “REX Energy Corporate Presentation, October 2009.” Slides 2-20.
#22 The graph and NPV values are derived from a report by the REX Energy Corporation.
Assumptions are listed below:

drilling well and $2000/acre x 80 acres

leasing
cost per well $2.7 10^6 $/well
operating 1 $/mcf
cost
sales price 6 4/mcf
tax 5.00%
discount rate 10.00%
The Issues
CO2
#25 Natural gas is the cleanest of all fossil fuels (according to EPA). Due to coal and oil’s complex
structure, these forms release more carbon dioxide, nitrogen oxides, and sulfur dioxide. (see also
slide #80)
Kaplanm, S. (2008) “Power Plants: Characteristics and Costs” CRS Report for Congress.
http://www.fas.org/sgp/crs/misc/RL34746.pdf

#26 Another useful aspect to look into, is the amount of carbon dioxide emitted per year, by all the
trucks working on the 2100 hundred wells that might be drilled in Tompkins County (see Trucking
section, slide XX). I assumed that each truck trip to a well site would last at most 1 hour. This can
depend greatly on where companies chose to source their resources from. I also assumed that the
truck would be traveling at 20mph as it goes through local roads. All in all, this comes out to 18,000
tons of CO2 per year. Sound like a lot, but the Millikan station produced 6 million tons of CO2 back
in 2006.

How does it compare to the CO2 generated if we were to burn all the natural gas these trucks help
extract? To answer that, I looked at the production rate of a typical well (Slide #14). Assuming each
well produces 1000 million metric cubic feet, 50,000 tons of CO2 would be emitted when this gas is
burned. The trucks produce 18,000 tons to complete all 2100 wells.

Water
Kraemer, T.F. (2010). “Environmental Levels of Radium in Water of Central New York.” USGS Finger
Lakes Research Conference. Slides 3-21.

#29 Ra levels were low in most surface waters and near-surface waters of Central NY state. One
exception was the Syracuse/Onondaga area which had high Ra in bedrock wells (1464 dpm/L)
penetrating shale. However, the water there is highly saline and non-potable so drilling for natural
gas there will not significantly affect water demands.

#30-31 The K, U, Th are adsorped on clays but U can also be authigenic. U is shown to increase
with total organic carbon in the Marcellus Shale.
New York State Department of Environmental Conservation Division of Mineral Resources (2011).
“Supplemental Generic Environmental Impact Statement On The Oil, Gas and Solution Mining Regulatory
Program: Well Permit Issuance for Horizontal Drilling And High-Volume Hydraulic Fracturing to Develop
the Marcellus Shale and Other Low-Permeability Gas Reservoirs.”

#32 Other chemical contaminants of concern in hydrofracking fluids are nonylphenol and
octylphenol ethoxylate surfactants. Degradation of these compounds by microbes removes the
ethoxylate portion from these compounds to convert them into nonylphenol and octylphenol which
are known endocrine disruptors that mimic estrogen.

#33 Figure 5.4 is based on data from the Marcellus Shale development in Pennsylvania.
Approximately 84 to 90 percent of the fracturing fluid is water, 8 to 15 % is proppant, and less than
1% consists of chemical additives (biocides, gels, corrosion inhibitors, slickwater, surfactant,
breaker, acid, scale inhibitor, iron control).

Arthur, J.D. (2009). “Considerations for Development of Marcellus Shale Gas.” World Oil. pp. 65-68.
#35-36 The American Petroleum Institute (API) calculated the probability of fluid migration from a
Class II injection well into an underground source of drinking water (USDW). The Appalachian
Basin was found to have minor potential for corrosion with few instances of casing corrosion
reported by the natural gas industry.

#36 For a modern horizontal well completion with properly installed surface casings, the
probability of fluid migration from a well into an underground source of drinking water ranges from
2 x 10-5 (one well in 200,000) to 2 x10-8 (one well in 200,000,000) under the presumption that these wells
are operated as injection wells.

#37 Propane fracking has been used 1000 times since 2008, particularly in the Canadian provinces
of Alberta, British Columbia, and New Brunswick. It has also been tested in TX, PA, CO, OK, and
NM and is awaiting a patent in the United States. The propane gel is pumped into deep shale
formations a mile or more underground to create the pressure necessary to crack the rocks and free
the trapped gas. Like water, the gel contains proppant which holds the cracks open so that the gas
can flow out. Unlike water, the gel reverts to vapor due to intensive pressure and heat and returns to
the surface along with the gas where it can be captured, reused, and resold.

Brino, A. (2011). “New Waterless Fracking Method Avoids Pollution Problems, But Drillers Slow to Embrace
It.” Albany Times-Union, pp. 1-4.

#38 Estimates of consumptive use are based on available data for the Susquehanna River Basin and
include both approved peak daily consumptive use and actual daily consumptive use. The five major
categories of consumptive use are: utilities (comprised of public water supply out-of-basin diversions
and power generation), recreation, manufacturing, mining, and education.

Swartz, P. et al (2008).“Consumptive Use Mitigation Plan.” Susquehanna River Basin Commission, pp. 41-44.

#39-40 Return water can be treated or injected.

Trucking
#43 Here is a breakdown of the number of truck trips necessary to carry a well to completion. The
biggest contributor is the transportation of water, followed by the hydrofracking tanks. In total, this
amounts to about a 1000 one-way trips. This data was obtained from the Bakken formation in
Nevada, but it matches very closely with the number of trucks Tompkins County estimates it will
need.
http://www.slideshare.net/ptpblog/hydraulic-fracturing-infrastructure-and-transportation

Item Number of Trucks Inbound/Outbound

Water (fresh) 80 Inbound
Water (waste) 400 Inbound
Frac Tanks 200 Outbound
Rig Equipment 100 Both
Drilling Mud 50 Both
Chemical 4 Inbound
Cement 15 Inbound
Pipe 10 Inbound
Scoria/Gravel 80 Inbound
Fuel Trucks 7 Inbound
Frac/cement pumper trucks 15 Inbound
Workover Rigs 1 Inbound
Total-One Direction 1,012

#44 In the present time, Tompkins county estimates that the development of wells in its property will
require 1200 truck trips on average. Additionally, there are a total of 600,000 heavy truck trips
county wide.

#45 There are 2100 signed Hydrofracking leases in the county. Therefore, traffic due to heavy trucks
is expected increase by 500,000. Thus, the county wide traffic of heavy trucks will almost double.
This is assuming that it takes 10 years to extract all the economically feasible gas.

http://www.tompkins-co.org/tccog/Gas_Drilling/Focus_Groups/Mapping%20Minutes/Section%203%20-
%20TC%20Mapping%20Analysis.pdf

Town Number of Pads Number of Wells

Caroline 36 360
Danby 12 120
Dryden 44 440
Enfield 17 170
Groton 44 440
Ithaca 3 30
Lansing 30 300
Newfield 10 100
Ulysses 14 140
Total 210 2100

#46 We must keep in mind that in terms of the total traffic in the county, a doubling in the heavy
truck traffic is not really significant. For example, some sectors in route 79, which I am sure you
know since it is the one used to LEAVE ithaca, experiences almost two million trips per year.
This number seemed a bit large to me, but if you divide it out, it is equal to about three trips per
minute, which seems reasonable. A good listing of average annual daily traffic (AADTS) for
Tompkins Country is at https://www.dot.ny.gov/divisions/engineering/technical-
services/hds-respository/AADTs%20for%20Tompkins%20County.pdf
#47-48 Even though the total rise in traffic is not that great, we must keep in mind that a single truck
trip is thousands of times worse for a road than the average car trip. And this is corroborated by a
study carried out by the Maryland Department of Environment as it tried to quantify the impacts of
hydrofracking on its roads.

#49 A good analogy to help explain the relation between deflection angle and fatigue failure is
bending a paperclip back and forth. The further you bend the paperclip (i.e. the greater the
deflection angle), the quicker it breaks. It will take longer for the paperclip to break with smaller
bends (i.e. smaller deflection angles). This can be applied to pavements as weak soils/thin pavements
allow greater deflections and will fail quicker as a result.

Orr, D.P. (2010) “Preserving Municipal Roads: What are your Options?” Cornell Local Roads Program.
Slides 1-64.
#50 The road user costs are defined as gas, oil, and tires. Time and insurance are not included and
taxes are disregarded to avoid double counting.

#51 Summary. So, to put it all together, the use of trucks for hydrofracking in Tompkins County will
not significantly increase overall traffic. Nor will it emit enough CO2 to make natural gas less
attractive than burning coal. However, there will be significant road damage, and this is something
the gas companies should pay the County for.

Pipelines
#53. Pipeline system in the US.

#55. http://stateimpact.npr.org/pennsylvania/tag/millenium-pipeline/

#56. Map from Millennium Pipeline Co. Website:

http://www.millenniumpipeline.com/maps/meterstation_map.pdf
Millennium Pipeline construction schedule data from
http://www.poweronline.com/article.mvc/Commission-Approves-Revised-1-Billion-Millenn-0001
Recent PA pipeline development information from http://marcellusdrilling.com/2011/07/shale-gas-
pipeline-costs-have-tripled-in-past-seven-years-marcellus-pipelines-cost-the-most/

#57. Data from “Natural Gas Pipeline Technology Overview” p.11

#58. Data from http://www.marcellus-shale.us/Marcellus-gas-facilities.htm

#59. Pipeline ROW picture and information from Larson & Associates, Inc. Environmental
Consultants “Pipeline Right-of-Way Awareness Program”:
http://www.laenvironmental.com/index.php?p=pipeline_row

#60. Data from U.S. Energy Information Administration “Underground Natural Gas Storage”:
http://205.254.135.7/pub/oil_gas/natural_gas/analysis_publications/ngpipeline/undrgrnd_storage.ht
ml

#61. New construction standards include improvements to welds, coatings and pipeline
inspections. http://www.marcellus-shale.us/gas-pipelines.htm

#62. The requirements addressed by the permits generally include local (building and road-crossing
permits), state (land, water, stream crossing, endangered species preservation, air emissions, and
highway permits), and federal (handled generally by USACE and the EPA) requirements. These data
are from “Natural Gas Pipeline Technology Overview” p.18. Data and pictures from “Natural Gas
Pipeline Technology Overview” p.17-25

#63. Data and table from “Natural Gas Pipeline Technology Overview” p.11
Compressor Station data from “Natural Gas Pipeline Technology Overview” p.41

#64. Natural Gas Pipeline Technology Overview p.27-2. Data & table in “Environmental Aspects of
Pipeline Construction” from “Natural Gas Pipeline Technology Overview.” p.27-28.
#65. Data from http://marcellusdrilling.com/2011/07/shale-gas-pipeline-costs-have-tripled-in-past-
seven-years-marcellus-pipelines-cost-the-most/

#66 Data for future/projected development from

http://www.palmertongroup.com/services/marcellus-shale-gas/facts-and-statistics.asp

#67 “Economic Impacts” data from “2011 PA Marcellus Economic Impacts.” report, p.28.

Wildlife
#68 Improper installation of water withdrawal structures entrains aquatic organisms such as fish
and macroinvertebrates.. Loss of biota can also occur through impingement where organisms
become trapped on intake screens.
New York State Department of Environmental Conservation Division of Mineral Resources (2011).
“Supplemental Generic Environmental Impact Statement On The Oil, Gas and Solution Mining Regulatory
Program: Well Permit Issuance for Horizontal Drilling And High-Volume Hydraulic Fracturing to Develop
the Marcellus Shale and Other Low-Permeability Gas Reservoirs.”

#69 The impact of hydraulic fracturing on wetland resources depends on: the amount of water
contained within the wetland, the amount of water withdrawn from the catchment area of the
wetland, and the hydrology of the wetland.

Aquifer depletion reduces groundwater discharge into streams and lakes. This will reduce water
availability in wetland areas which aquatic organisms rely on for survival. Groundwater wells
prevent groundwater from entering a stream. Headwater streams rely entirely on groundwater flow
in the summer so aquifer depletion will severely impact aquatic biota in headwaters during the
summer.

Knowing the hydrologic relationship between surface water, groundwater, and wetlands within a
watershed is important for sustainable water withdrawals. When water withdrawals are transported
out of a water basin from which they originate, groundwater and surface water are depleted. This
disrupts the natural hydrologic cycle as transported water no longer flows downstream or returns to
the original watershed to recharge the aquifer. The natural flow regime shapes the stream channel
and maintains the aquatic biota of the stream so any alteration will have adverse effects on the
aquatic community.

Complete lists of terrestrial and aquatic invasive plant species in New York State are included in
Tables 6.4 and 6.5 in SGEIS 2008

#70 Summary: Environmental concerns are relatively minor and trumped by potentially large
economic benefits accrued from hydraulic fracturing in the Marcellus Shale

Laws and Regulations

New York State Department of Environmental Conservation Division of Mineral Resources (2011).
“Supplemental Generic Environmental Impact Statement On The Oil, Gas and Solution Mining Regulatory
Program: Well Permit Issuance for Horizontal Drilling And High-Volume Hydraulic Fracturing to Develop
the Marcellus Shale and Other Low-Permeability Gas Reservoirs.”
#72 A full environmental assessment of proposed oil or gas wells within 2000 ft of a municipal well
and a supplemental environmental impact statement of proposed oil or gas wells within 1000 ft of a
municipal water well is required according to the Environmental Conservation Law in New York
State. As a result, problems reported in other states such as instances of groundwater contamination
from previous horizontal drilling or hydraulic fracturing projects have been prevented in New York
State.
Kay, D. (2011). “ Cornell University Faculty and Staff Comments on the revised draft version of the New
York Department of Environmental Conservation’s Supplemental Generic Environmental Impact Statement
on horizontal drilling and high-volume hydraulic fracturing.” Cornell University Statement on the revised
draft SGEIS. pp. 33.

#73 History of legislation. Rachel Treichler ~ Attorney at Law ~ 7988 Van Amburg Road ~
Hammondsport, NY 14840 ~ 607-569-2114

#76 http://www.dec.ny.gov/energy/46288.html

Replacing AES Cayuga

#79 Natural gas is the cleanest of all fossil fuels (according to EPA). Due to coal and oil’s complex
structure, these forms release more carbon dioxide, nitrogen oxides, and sulfur dioxide. (see also
slide

#80 Contamination from the other hydrocarbon fuels impact life expectancy measurably.
http://www.catf.us/coal/problems/power_plants/existing/

#81-83 Power plants run depending on what is cheapest at the time. As a result, the base load plants
are usually nuclear, coal, and geothermal. Renewables can also be thrown into this mix if they are
capable of generating any power. Then, the high efficiency natural gas combined cycle turbines are
activated to handle intermediate loads placed on the system. These are typically powered up and
down several dozen times a year but that does not make NGCC a fast solution to immediate power
needs. For peak power consumption, single pass gas turbines are used to handle the largest loads of
the day. These turbines are used as infrequently as possible due to their high fuel demand.

Balash, P. (2008) “Natural Gas and Electricity Costs and Impacts on Industry.”
http://www.netl.doe.gov/energy-analyses/pubs/NatGasPowerIndWhitepaper.pdf

#84 Opposition to new coal plants (largely generated by the general fear of increased carbon
emissions and particulate matter) puts certain areas in danger of experiencing blackouts and it puts
an increase on the demand of natural gas. Coal being traditionally cheaper than gas is preferentially
consumed to provide power. However, during times when gas is less expensive, it is used more.
Again, the idea of saving money is ever present. An example of this is seen between the years 2002
and 2007. During 2002, gas prices were generally lower so NGCC units ran well over 70% capacity
factor for the year. In 2007, gas prices were much higher leading to the NGCC units being used less
and a capacity factor of only 40%.

#85 Retrofitting would cost ~$350 million

#86 A new gas plant sould cost between $140 and 280 million (not counting demolition). Gas price
is competitive with coal and nuclear. Natural gas technologies are sensitive to fuel prices and price
volatility rather than uncertainties in future demand in the short term (low short-term elasticity of
demand). The volatility of natural gas prices increases short-term risks associated with natural gas
production where an increase in natural gas price coupled with a decrease in electricity price will
produce severe financial consequences for investors. In the long term, however, demand and supply
economics apply. This phenomenon is known as “mean reversion” where power prices and fuel costs are
less uncertain in the long term than would be predicted based on their short-term volatility.

Organization for Economic Co-operation and Development (2005). “Projected Costs of Generating
Electricity.” pp. 39-46.

Summary: Concerning Cayuga, it would not be necessarily wise to convert the plant to an NGCC
unit unless prices for natural gas have stabilized.