Sunday, December 27, 2009

Interest in Shale Refuses to Pale

Had a Cool Yule? Have a Frantic First
and Marcellus Shale Revisited

Are we in recovery yet: Let’s see, Christmas day plus a couple. My best guess is that you had at least one of the following awkward moments grace your Christmas day festivities: Grandpa made the kids squeal when he took out his teeth, somebody burned the turkey and dinner plans had to be altered, family members who’d said they couldn’t make it showed up – at least one was crude, obnoxious, and drunk. Two brothers-in-law got into a fight. Grandma comments that your brother’s “trophy” wife dresses like a tramp. Somebody forgot to take the stuffing out of the turkey before baking and it caught fire. Halfway through dessert somebody realized the giblet gravy had not been put on the table. Somebody asked the newly married couple when they are going to start their family and got the finger in response, and finally, somebody said, “This is the last time we’re doing this. Next year we eat out.”

Hidden gold or fool’s gold: We would like to share a few more bits of information regarding Marcellus Shale and the impact it might have on Clairton and the entire Southwestern Pennsylvania region. Some see it as the savior of the region’s economy and others see it as one more snake oil pitch. But the facts are that things have happened quickly and there are some heavy hitters interested in the pursuit of a potential bonanza.

Discuss it and they will come: Several months ago event coordinators planned to host a Pittsburgh conference for natural gas producers. They expected somewhere between 200 and 300 attendees. Once registrations for the conference began to arrive it became clear that the numbers would exceed the projection – so much so that the conference venue was changed from a downtown hotel to the Convention Center in order to accommodate the nearly 1,500 attendees.

The giant sleeps tonight: The Marcellus Shale range, which extends from Tennessee to New York, is not a recently-discovered phenomenon. Neither is the technology required to extract natural gas from the shale a recently-discovered technique. What happened to spark interest in the gas was the publication of two reports; one by a Texas natural gas company, whose annual report documented production of the first natural gas wells, drilled in Washington County, PA. The following month a geology professor from Penn State co-authored a report with a colleague from a university in New York that further discussed the potential for the extraction of natural gas from the rock bed far underneath the rich Pennsylvania (and neighboring states) soil. In the report, the estimated amount of underground gas was increased from about 2 trillion (reported earlier by a U.S. Geological Survey) cubic feet to 516 trillion cubic feet of gas – up to 250 times the earlier estimate.

If gas production were to even closely approach its estimated potential, another Penn State study reports, the result could initially be the creation of some 30,000 new jobs in Pennsylvania. The following year that number could jump to 48,000 and the year after to 98,000 new jobs directly and indirectly related to Marcellus Shale development. By 2020 the development could add $13.5 billion to the state’s economy and create more than 176,000 new jobs. Collectively, these reports have begun a rush to be the first to exploit the new industry.

Where the wealth lies: In order to reach the Marcellus Shale layer of rock and extract the gas bonanza, it is first necessary to drill a well 6,000 to 8,000 feet straight down. Once Shale layer has been penetrated the drilling apparatus must turn 90 degrees and drill horizontally, as the caverns that contain the gas lie horizontally. A portion of the well is then sealed and water is pumped in. The pressure fractures the surrounding rock and allows for more gas recovery over a wider area. This process is called “hydrofracking.”

Timing is everything: The hydrofracking technique has been around for decades, as has the knowledge that rich gas deposits lie beneath the soil but it had not been economically practical to pursue the gas until a natural disaster hit. Beginning late August 2005 three storms; Katrina, Rita, and Wilma struck the Gulf of Mexico causing massive disruptions in the nation’s natural gas supply. As a result the price of natural gas doubled and doubled again, then skyrocketed from $2.00 per BTU to nearly $16.00 per BTU by the end of the year. Still, it was thought that Marcellus Shale gas deposits were buried too deep to be removed economically. However, after a few test drillings and importing the use of hydrofracking from West Texas (it had been used in other regions for nearly 30 years but not along the Marcellus range) made the gas more easily accessible. Once the horizontal-then-vertical drilling was coupled with hydrofracking, production increased dramatically. Hence, by 2007 the Marcellus Shale Range, more specifically, Southwestern Pennsylvania, became THE place to consider drilling for natural gas.

It’s never that easy: Although the natural gas producers are excited and the residents of Southwestern Pennsylvania are hopeful, environmentalists are worried and have erected a “Proceed with Caution” approach. Their biggest concern has to do with the wastewater produced with hydrofracking. One of the drilling companies has developed a system for recycling all its wastewater, another recycles part of its flowback and disposes the remainder through state or federal facilities. A third possibility for the recycling of the wastewater has been suggested – extracting the salt for use as snow removal deposits on roadways. Environmentalists, Industry representatives, and government agencies have formed the Marcellus Shale Coalition, a 62-member group that is examining possible risks and solutions.

In order for the Marcellus Shale natural gas exploration and mining to continue successfully, gas prices must stay above $ 3.50 per BTU. Recent prices have stabilized in the $5.00 per BTU range which bodes well for the industry and business in the region for years to come. Already several of our readers have written to report they’ve been approached by companies wishing to drill on or under their land in exchange for royalties.

Much of the information in this post was provided by former Clairtonian Thomas Nixon of Nixon and Associates, and an article by Elwin Green.

A little blogging music Maestro… “Classical Gas” by Chicago.

Dr. Forgot

Saturday, December 19, 2009

What the Shale? Clairton wins!

Of Marcellus Shale and Football Champs

Date Opponent Time/Result
Fri., Sep 4 at Laurel L15 - 8
Fri., Sep 11 Monessen W46 - 0
Fri., Sep 18 Frazier W62 - 7
Fri., Sep 25 at Bentworth W53 - 0
Fri., Oct 2 at Fort Cherry W45 - 6
Fri., Oct 9 Chartiers-Houston W63 - 3
Fri., Oct 16 at Burgettstown W53 - 0
Fri., Oct 23 at Avella W59 - 0
Fri., Oct 30 Serra Catholic W39 - 7
Fri., Nov 6 South Side Beaver W61 - 0
Fri., Nov 13 at Avonworth W24 - 0
Fri., Nov 20 at Laurel W33 - 0
Fri., Nov 27 Rochester W14 - 13
Fri., Dec 4 Conemaugh Township W46 - 0
Fri., Dec 11 Farrell W13 - 7
Fri., Dec 18 Bishop McCort W15 - 3

More Marcellus Mania: Our previous post regarding the possibility of Marcellus Shale discoveries as a possible boon to the Clairton economy brought a host of responses – some positive, some negative, but many hopeful. Several readers reported that they or their neighbors or family have already signed leases and others have reported being contacted by companies seeking permission to drill on or under their land. Environmental organizations and local watershed groups have expressed concerns over the potential impact of Marcellus Shale natural gas development on public water supplies and water quality. As a pre-emptive strike one company has announced that it will donate $750,000 to the Susquehanna River Basin Commission (SRBC) to underwrite the deployment of a remote water quality monitoring network in the upper reaches of the Susquehanna River watershed.

It is obvious that economic benefits and job creation from Marcellus Shale development will be tempered by the environmental precautions and safety measures taken by the industry. On the other hand, if Marcellus Shale gas production is to proceed, perhaps the monitoring by environmental groups will create even more jobs. Town hall meetings are being held throughout the region to educate the locals regarding the potential and potential risk of mining natural gas from Marcellus Shale. We invite comments from readers who have attended those meetings and will share the comments and reactions of attendees. More to come.

Bears just do it: Clairton is the Rodney Dangerfield of communities and by extension so are its schools and athletic teams. And the worst offenders in the dissing of Clairton are its own citizens current and past. On a Clairton bulletin board the Bears football team was predicted to choke this season, especially after the first game that resulted in a loss. As the Bears rebounded from that non-conference loss, even after drubbing the same team that had beaten them earlier in the season, locals and former locals still insisted the team would choke. They are bums and thugs. They will play an uppity private school in the playoffs. Bishop McCort prepares their young men for Penn State; Clairton prepares its young men for the state pen. No way do the Bears have the self discipline to complete a season as state champs. Coach Nola doesn’t know how to coach and the players will eventually fold. So went the online bulletin board. However when the dust cleared, NOT!

No touchdown for Johnstown: Bishop McCort High School is a private Catholic school in the hard luck town of Johnstown, PA. Johnstown is most famous for the Great Flood that happened 120 years ago. Ok, the school also had a player in the 1960s by the name of Jack Ham who went on to Penn State then had a stellar career with the Steelers. The McCort Crimson Crushers football team has a proud tradition. The private parochial school opened in 1929 and it costs thousands of dollars in tuition to attend. Its football team was undefeated (14-0) going into the State playoffs. Clairton High School is a public high school, also rich in tradition with an excellent football team. Last year Clairton lost a heartbreaker in the State championship game and this year lost its season opener, which could have broken the Bear’s spirit. But it didn’t.

McCort came into the game as District 7 champs, Clairton as District 6 champs. McCort did not go into Hershey for the playoffs the night before as Clairton did. Instead they kept to their normal routine for an away game. But the Bears, whose season included 8 shutouts, who outscored their opponents by a total score of 619-58, or an average of about 41-4, and whose defense had not allowed a touchdown throughout the entire playoffs, were loaded for… well, Crushers.

Going into the fourth quarter Clairton’s vaunted defense was again too stingy to give up a touchdown but the offense had managed only a field goal – their first of the season - and the score was tied at 3. The Bears drove to the Crusher one yard line and Desimon Green forced his way into the end zone for a touchdown. Five minutes later running back Deonte Howard broke free for an 80 yard scamper to score the final touchdown in the game. Final score: Clairton Bears 15, previously unbeaten Bishop McCort Crimson Crusaders 3. Congratulations to the State Champion Clairton Bears.

Don’t let your heart be snowbound: The East Coast, including Clairton is blanketed with a snowstorm this weekend. The temperature in Las Vegas yesterday was nearly 70 degrees with plenty of sunshine. But that was not the case this time last year. From my blog one year ago today, “Yes, Las Vegas is in the Mohave Desert. Yes, the desert is hot and dry. Yes, the average precipitation in Las Vegas is about 2.75” annually, but when it rains, “gully washers” start high in the foothills on the west side of town and cascade down onto the Strip a little more than 300 feet below, then down to Henderson, another 300 feet or so, and finally into Lake Mead. The County has spent millions of dollars to tame the flooding with catch basins strategically placed throughout the Las Vegas Valley and for the most part it works pretty well. No longer do cars float in the Strip Hotel Casino parking lots, and those lucky enough to be visiting during a desert rainstorm are no longer treated to Mother Nature’s fury. But the snow… well, that’s another story.

Oh the weather outside was frightful: Earlier this week a storm blew down from Alaska and Canada and through the desert. This happens every 5-8 years or so and the Las Vegas valley sees a sprinkling of show but not very often and not for very long. But records are made to be broken, right? The 3.6 inches that fell on Vegas last Wednesday was the heaviest snowfall in recorded history. That is not a misprint 3.6 inches was a record. McCarran International airport was shut down tighter than the lid on a pickle jar, and I-15 northbound to Utah and southbound to California was shut down. U.S. 95 north toward Reno and south toward Boulder City and Arizona was shut down. The city came to a grinding halt. Thousands of airline passengers were stranded. Of course, there are worse places to be stranded than Las Vegas, unless of course, you gambled all your money and had your airline ticket pinned to the inside of your underwear. Nobody was Leaving Las Vegas.”

A little blogging music Maestro… The Clairton High School fight song played by the Clairton Band.

Dr. Forgot

Sunday, December 13, 2009

Rock Around the Clairton Clock

Marcellus Shale

Could Marcellus Shale be Clairton’s savior? Clairton, PA is located on the Monongahela River several miles south of Pittsburgh. The city was incorporated in 1903 and in the early 20th century boasted an amusement park, dance pavilion, and popular beach, all frequented by the upper crust of the Pittsburgh social scene. As the steel industry began to populate the area Clairton carved out its niche by housing the major coke producing plant in the world. Coke is the product that links coal to steel and thus is a crucial component in steel production. Clairton boomed. The local high school was one of the few in the area that sported a swimming pool. Residents’ taxes were low because the steel mill paid the bulk of the taxes. Services were first class – fire and police had state-of-the-art equipment and the city’s own street department kept the roads clear on snowy days and nghts so workers could get into and out of the steel mills. Times were good from the end of World War II into the late 1970s and early 80s.

A one-horse town: For all its good living – affordable housing, one of the most beautiful parks in the area, steady work; it was a one-industry town. The ancillary businesses were directly or indirectly supported by the steel industry, so when the steel industry began to rust, families moved away. The exodus was not like the influx. As entire families had moved into Clairton during boom years, families moved out in pieces. Many products of the highly rated Clairton high school went off to college or to the military service and found jobs elsewhere, leaving middle aged parents and elderly grandparents behind. Property values tumbled and people looking for work moved in but were too often unsuccessful in their quest. As time passed two main segments remained in the poverty-stricken town; the elderly who owned their homes, could not sell them, and lived on meager pensions and Social Security, and young people who moved into low rent housing but had little if any income. Like so many other one-industry towns, Clairton sank into the depression of poverty as evidenced by empty storefronts, limited public services, and a rising crime rate.

Enter Marcellus Shale: This writer knew little of Marcellus Shale prior to several informative correspondences form an ex-patriot Clairtonian who now resides in what used to be referred to as “dahntahn.” (That’s Pittsburgh for those of you uneducated in colloquial Clairton English). Devonian black shale is a rock called the Marcellus. It is black in color and easy for geologists to spot in the field and its slightly radioactive signature makes it easily recognizable. Marcellus Shale found beneath the earth’s surface, is organically rich and contains a large amount of natural gas, mostly propane and butane.

As recently as 2002 the United States Geological Survey in its Assessment of Undiscovered Oil and Gas Resources of the Appalachian Basin Province, calculated that the Marcellus Shale contained an estimated undiscovered resource of about 1.9 trillion cubic feet of gas. That's a lot of gas but it is spread over an enormous geographic area that extends from Tennessee to New York, with the majority of the range in Western PA, Eastern Ohio, Southwestern New York, and most of West Virginia.

How does the gas hide in that rock? Natural gas occurs within the Marcellus Shale in three ways: 1) within the pore spaces of the shale; 2) within vertical fractures (joints) that break through the shale; and, 3) adsorbed on mineral grains and organic material. Most of the recoverable gas is contained in the pore spaces. However, the gas has difficulty escaping through the pore spaces because they are very tiny and poorly connected.

Drilling began in Washington County, an hour south of Clairton in 2003 in an effort to determine the quality and quantity of natural gas in the Marcellus Shale Range. Until recently it was not considered cost effective to remove the gas from the rock. However new methods of drilling techniques have been developed that show much promise.

What does this mean for Clairton? A Fredonia State College professor calculated that there might be as much as 500 trillion cubic feet of gas within the Marcellus Shale Range. The huge amount of recoverable natural gas will likely start another boom. Just as the steel mills created cities in the Monongahela Valley, so might this new industry revive struggling municipalities. Lower transportation costs to heavily populated Eastern Seaboard states as well as to the Midwest will make the price even more attractive. It is also possible that land in Clairton as well as surrounding communities will be leased for drilling with long term royalties going to landowners. Since 2007 many local landowners have been approached by companies to lease their land for drilling.

What about the downside? As in any other venture that takes something from the earth there are environmental potential downsides. Marcellus Shale is, quite literally, a tough nut to crack. It has to be fractured successfully in order to get economic quantities of gas to flow. These "frac" techniques have advanced to the point at which many fractures can be made along the length of the well in a single pass. Marcellus Shale also tends to extend laterally, so that's the shape a wellbore needs to take in order to hit the most pay. High pressure water is used in the horizontal drilling required to tap the resource. There are some concerns that the residue could get into the water table and cause an environmental hazard. This is still speculation, but it is one issue that needs to be addressed. With the air over Clairton and Glassport already ranking as in the top four of most polluted cities in America, there might be some reluctance to move forward with another procedure that could potentially cause harm.

Thanks to Tom and others who have forwarded information for this blog.

A little blogging music Maestro… Any good Rock nad Roll song. How about “19th Nervous Breakdown,” by the Rolling Stones..

Dr. Forgot

Sunday, December 6, 2009

Karen Dynan's Shopping Myths

Media Myths - Ho, Ho, Ho

Tis the season for the obligatory newspaper columns that total up the price of items found in the song "Twelve Days of Christmas." Instead of researching the price of French hens and calling birds - not to mention the fluctuating price of gold, we decided to share a column by Karen Dynan. She is vice president and co-director for economic studies at the Brookings Institute. This year Ms. Dynan discusses media myths and partial truths about Christmas shopping. She can be reached at Read and enjoy...

By Karen Dynan

Every year, TV coverage of the holiday shopping kickoff takes on the sort of breathless urgency typically reserved for hurricanes or car chases. We’re told that fate of the nation hinges on the contents of our shopping bags. Historically, we’ve obliged by overstuffing them: Bankruptcy filings tend to surge early each year as consumers struggle to pay their post-Christmas credit card bills.

But if one of this season’s hottest gifts — an $8, battery-operated toy hamster — is any indication, we seem to be scaling back a bit this year. And that might be all right, since much of the conventional wisdom linking holiday spending and the health of our economy turns out to have been, in many cases, myth.

Myth one — Most retail spending occurs around the holidays. With so much attention focused on shopping and sales during the holidays, people often assume that the vast majority of our spending takes place around this time of year. But over the past decade, only about 19 per cent of each year’s retail sales were in November and December — just a bit higher than the 17 per cent of total days in a year that fall in those two months. Of course, the holiday season’s importance varies by type of store, with those that sell nonessential goods more dependent on holiday cheer (and the spending it inspires). Toy stores and jewelry shops rack up about a third of their sales in November and December, whereas supermarkets and hardware stores see a much smaller blip in demand.

The winter holidays do beat out other much-hyped shopping seasons. For example, while sales at apparel and department stores tend to be stronger during the back-to-school season than they are early in the year, they’re a good deal more substantial in the weeks leading up to Christmas.

Myth two — This year’s holiday sales will tell us whether the economic recovery is real. Retail sales during last year’s holiday season were pretty much abysmal, with what economists call the “core’’ category (which excludes spending on cars) falling eight per cent compared with the 2007 holidays. While most analysts don’t think we will see that kind of decline this year, they aren’t expecting a blockbuster season. The consensus view is that consumer spending will rise only slowly in coming quarters, held back by weak labour markets, high consumer uncertainty and the big hit that households have taken to the value of their stocks and mutual funds, including those in their retirement portfolios.

Although consumer spending accounts for about 70 per cent of U.S. economic output, it has rarely led the way out of past economic downturns. Such spending doesn’t usually increase until income and overall economic activity do.

Myth three —The hoopla over electronic shopping notwithstanding, online sales made up less than four per cent of fourth-quarter U.S. retail sales last year. Although this represents a big increase since earlier this decade, online shopping remains a modest part of overall spending.

5. From an economist’s perspective, cash is the best gift.

Economists are known for arguing that giving your loved ones cold cash is better than giving them presents because people can spend the money on items of their own choosing. In “The Deadweight Loss of Christmas’’ — a famous article published in the American Economic Review in 1993 — Joel Waldfogel, a professor at the University of Pennsylvania’s Wharton School, presented evidence supporting this point. He’s now updated and expanded the argument in a book called “Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays.’’ (Waldfogel may be arguing against gifts, but with this book, he’s also ready to profit from them: “Scroogenomics’’ is packaged as the sort of small, stocking-stuffer-ready book sold next to bookstore cash registers.)

Waldfogel surveyed college students and found that they valued the Christmas gifts they received at between 75 and 90 percent of their original price. Consider fruitcake: Is it worth as much to you when you receive it as it cost the giver to make or buy it? A strict interpretation of Waldfogel’s results implies that the difference between the price of a gift and the value its recipient attaches to it — which can add up to tens of billions of dollars a year nationally — is essentially wasted money.

But this logic misses the point of exchanging presents. Gifts have more than monetary worth; the effort and care involved in their selection gives them sentimental meaning. If what mattered most were their cash value, we wouldn’t exchange presents at all — we’d simply let whoever was going to give the more expensive gift pay the net difference to the other person. But even most economists will be found at the mall sometime in the coming weeks.

A little blogging music Maestro: "Its Beginning to Look a Lot Like Christmas," by Perry Como.

Dr. Forgot