Economic Value of Marcellus Shale Gas in the Delaware Basin

Written by Gerald J. Kauffman and Andrew R. Homsey on . Posted in Volume 1 - Issue 1

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Economic Value of Marcellus Shale GasThrough modernization of horizontal drilling and hydraulic fracturing technology, natural gas has become a plentiful, inexpensive, and relatively clean-burning domestic resource that provides a quarter of U.S. electric power needs and promises to reduce reliance on foreign oil. The 350-million-year-old Marcellus Shale Formation covers 54,000 mi. in West Virginia, Ohio, Maryland, Pennsylvania, and New York. It is thought to be the third largest natural gas reserve in the world. Approximately 9% of the Marcellus shale lies in the upper third of the Delaware Basin in a watershed that supplies drinking water to 16 million people (5% of the U.S. population) in Delaware, New Jersey, New York, and Pennsylvania, including New York City and Philadelphia, the first and seventh largest metropolitan economies in the nation. Almost ¾ of the Marcellus shale lies in New York and Pennsylvania where drilling has generated millions of jobs and billions of dollars of wages in Pennsylvania alone.

In the Delaware Basin, Marcellus shale gas drilling is at the center of a contentious energy-water policy debate that pits gas companies, land owners, and rural towns interested in jobs versus environmental groups, water utilities, and fishermen concerned about the impacts of hydraulic fracturing on the quality and quantity of water supplies. Federal, state, regional, and local agencies are reviewing policies and standards to oversee Marcellus shale gas drilling. The Environmental Protection Agency oversees natural gas drilling, however, federal laws such as the Clean Water Act and Safe Drinking Water Act exempt portions of the hydraulic fracturing process from regulation. A drilling moratorium remains in the Delaware Basin after a November 2011 vote of the DRBC Commissioners was postponed. The governor of New York continues a ban on horizontal natural gas drilling pending approval of an environmental impact statement (EIS). Pennsylvania Act 13 established a 5% drilling fee and set horizontal drilling buffers. Buffers set by proposed DRBC and NYSDEC rules, recently enacted Pennsylvania Act 13, and drilling bans in four New York towns would exclude 2,363 mi2 of the 4,940 mi2 Marcellus shale region in the Delaware Basin from natural gas drilling, leaving 2,577 mi2 (52% of the area) available for extraction. With buffers in place to shield sensitive water resources from hydraulic fracturing, the estimated economic value of 4.0 tcf of potentially recoverable Marcellus shale gas in the basin at the 2012 wellhead price is $425 million per year, or three times less than the value at the 2008 price. In the Delaware Basin, the annual economic value of natural resources ranges from $425 million for potentially recoverable Marcellus shale gas to $942 million for river recreation, $2.8 billion for drinking water, and $4.2 billion for forest ecosystems. The annual value of drinking water, forests, and recreation that depend on renewable resources in the Delaware Basin is higher than the value of potentially recoverable Marcellus shale gas, a nonrenewable resource. The Marcellus shale energy-water policy debate should be considered in the context that natural gas, water, forests, and river recreation are significantly valuable Delaware Basin resources. While Marcellus shale gas is a voluminous, inexpensive, and clean-burning domestic energy source, its extraction relies on the safe use of water for hydraulic fracturing. If natural gas is to be a key part of the nation’s energy economy, then the most stringent Marcellus shale gas drilling standards should be adopted to protect the invaluable water resources of the Delaware Basin (and other watersheds like it) that support multibillion dollar drinking water, forest, and river recreation economies.

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