Marcellus Shale Update: The Marcellus Shale Region: 2019 Year in Review

Flaster Greenberg PC
2019 was the year in which reality smacked the Marcellus Shale Basin in the face. Long held assumptions about asset valuation and infrastructure development fell apart. By year’s end, some of the most famous names in the Basin, and in the industry, had exited, and desperately needed infrastructure projects remained stuck in the morass of legal and administrative challenges. Still, the region remained awash in natural gas, but thanks to shortsighted thinking on the part of many political leaders the gas that was all around them could not be accessed, leaving their populations at risk for energy shocks come 2020. To paraphrase an old ditty, the refrain from New York State and New England could be: “Gas, gas everywhere, but not a drop to heat our homes.”
In early December, Chevron announced that it was taking a massive write down of its Marcellus assets and would be exiting the largely natural gas-rich Marcellus region to concentrate on more lucrative oil fields in Texas and New Mexico. There are two basic reasons for this. The first is that the price for natural gas continues to be remarkably low, and the second is that the “sweet spot” for gas wells in the Marcellus is rather limited, located in select areas of Appalachia and Northeastern Pennsylvania. Companies that own wells in the “sweet spots” have an opportunity to make money even with the price of gas remaining so low. Companies that do not are in trouble. Chevron’s assets were outside the key areas, and with the price remaining so low their profit-making ability was not good.
This concentration on profitability marked another shift in thinking in the Marcellus region. For the better part of a decade, analysts had valued companies more on the amount of gas producing acreage that they owned than on their historical profitability. The thinking was that the price of natural gas was bound to rebound over time, and when it did companies with large acreage portfolios were likely to do very well. Few saw the price slump as deep and as pronounced as it has been. With that historically low price, financial analysts have had to adjust their thinking and have begun punishing those companies who simply haven’t been making money. 
Natural gas companies received a double whammy when many northeast governors, led by New York’s Andrew Cuomo, began using the Section 401 Clean Streams Certification process in the federal Clean Water Act to block the construction of interstate natural gas pipelines. The height of absurdity was reached this year when both Cuomo and New Jersey Governor Phil Murphy refused to issue the Section 401 Certifications for the Northeast Supply Enhancement Project that would have transported natural gas from New Jersey across New York Bay to the Borough of Queens in New York State. In doing so, Cuomo and Murphy made their regions more susceptible to energy price spikes and shortages, while going against all advice concerning the need for increased energy supply in order for the New York City metropolitan area to keep growing. 
Cuomo’s gambit – which also includes shutting his last nuclear power plants – also put New England at risk for energy shortage. Despite being only five hours away from the largest natural gas field in the country, New England has had to rely on natural gas imports, mostly from Trinidad and Tobago. Following the expansion of the Panama Canal, those same gas exports from Trinidad now have new markets on the Pacific Coast. Now, both New England and New York face the real prospect of having to import large amounts of natural gas from Russia, which drills without substantial environmental safeguards in the Arctic. How that benefits the world environment is anyone’s guess. What it does show is that when discussing energy, idealism can be both dangerous and self-destructive.
2019 also was the year that reality exposed the internal contradictions of broad environmental concepts. Earlier this month the nations of the world failed to move forward with practical steps to enforce the goals of the Paris Climate Accords. To do so would mean convincing countries like China that they must give up their plans for increasing carbon emissions until 2030 and agree to real reductions now. The Chinese balked, the Americans bolted, and the less developed countries of the world refused to make real substantive moves unless they were subsidized by the wealthier countries. Since they were signed in 2015, the Paris Climate Accords have been held up as a model for world cooperation. However, when that cooperation was forced to be concrete instead of abstract, the realities of different perceptions overwhelmed the 2019 Madrid Conference. The nations now face a choice. They can confront reality and start conceptualizing what de-carbonizing our environment really means, or they can continue to talk in abstract platitudes and get nowhere.
Finally, 2019 showed that reality eventually works even in our political environment. The year began with Alexandria Ocasio-Cortez’s rollout of her “Green New Deal” which included concepts such as ending all air travel and killing all of the world’s cows. Quickly those concepts were dropped, but the United States House of Representatives passed a Resolution containing a slimmed down version of this proposal that remained long on concepts and short on specifics. To his credit, during his short-lived presidential campaign, Washington Governor Jay Inslee began creating a plan for national de-carbonization, but it still remains filled with generalities from 30,000 feet. Hopefully though, Governor Inslee will continue to move this topic forward, and others will pick up the mantle and fill in the specifics.

It is those specifics that in the end will determine the success or failure of our efforts, as Vice President Joe Biden learned during the most recent Democratic Presidential debate. When asked whether he really would potentially displace “maybe hundreds of thousands of blue-collar workers in the interest of transitioning to that greener economy,” Biden answered: “The answer is yes.”

Biden quickly had to walk back that answer post-debate, even as he tried to qualify it during the exchange by saying that “the opportunity for those workers to transition to high paying jobs…is real.” However, Biden doesn’t know that. Nobody does. Until the advocates for strong action against climate change deal with reality and explain how that transition will work, they will limit their effectiveness, possibly to the detriment of all of us. If there’s one thing to feel encouraged by as we head into 2020 with a world in turmoil, it is that broad, sweeping generalizations seem to have reached their limit. Let the hard work begin.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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