Sunday, November 01, 2009

Burgh Energy Report

The trend in the regional energy economy appears to be consolidating the base of operations in Pittsburgh. I doubt the news surprises anyone, but the headquarters migration is worth tracking. The latest is Fortuna Energy transferring from the Southern Tier of New York. Some background:

In March 2003, Fortuna became active in the Trenton-Black River natural gas scene when Talisman, based in Calgary, Alberta, spent $310 million for drilling rights to 420,000 acres in Schuyler, Chemung and Steuben counties.

The following year, Fortuna more than doubled its land leases by paying $65 million to acquire the rights to an additional 475,000 acres in the Southern Tier, Ohio, West Virginia and northern Pennsylvania.

Given the Marcellus play, the links between Pittsburgh and Calgary are intensifying. Thus, keeping an eye on the scene in Alberta can help with future casting:

With natural gas prices expected to slowly climb next year, there is a glimmer of hope in the latest oil and gas well drilling forecast.

"It's still pretty marginal, with the active drilling rig count increasing by four per cent next year and most of the increase coming in the second half of 2010," Nancy Malone, manager of economic analysis for the Canadian Association of Oilwell Drilling Contractors (CAODC), said Wednesday.

This year, the industry was hammered as low gas prices forced a curtailment of drilling. The 209 rigs drilling a projected 8,278 wells in 2009 represent a fleet utilization rate of just 24 per cent. That rate is expected to climb to 27 per cent in 2010.

Keep in mind that relatively low natural gas prices benefit the Pittsburgh energy economy. Production costs are lower in the Marcellus Shale area. Pennsylvania is aiming to maintain that advantage:

The natural-gas industry's leaders and lobbyists beat back Rendell's proposal to tax gas as it is pulled to the surface from the rich black-rock reservoir known as the Marcellus Shale.

So, as drilling rigs are sprouting in the state's northern tier and southwestern corner, the gas those rigs are extracting still isn't taxed. That makes Pennsylvania unique among the 15 states that produce the most natural gas.

What's more, the industry persuaded Harrisburg to lease more public land to gas drillers - even as the state's budget for environmental protection was being sharply cut.

What happened to Rendell's gas-tax proposal?

He says the industry made good arguments for staving it off. He did not want to slow the "gold rush," as he called it, of jobs and commerce the drillers would bring.

Policymakers would be wise to help residents see the connection between natural gas jobs and clean energy jobs. The more talent in this economic sector clustering in Pittsburgh, the better. Still, all signs are pointing to a huge labor shortage in the near term.

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