Traditional Energy's Modern Boom
High Prices Are Driving Increased Extraction of Oil and Other Fossil Fuels

By Joel Achenbach
Washington Post Staff Writer
Friday, August 15, 2008

AMWELL, Pa. -- The guys on the derrick, filthy with mud and grease, have the best view in the county. Their drilling rig rises from a bulldozed, flattened patch of meadow near the top of a hill. To the south is an old farmhouse and a white barn. Hay bales dry in the sun.

It's classically pastoral as far as the eye can see, which makes all the more dramatic the presence of this derrick, 160 feet high, and the construction trailers, and the mud gushing into a holding pond, and all the roaring machinery.

Heavy industry has invaded the countryside because of something called the Marcellus Shale. It's a layer of hard, black rock, more than a mile down. Trapped in tiny pores of that rock is a huge quantity of natural gas. The Marcellus Shale could become what people in the natural gas business call a big play.

"It's a gold rush, really. It's a boom," said Steve Rupert, an executive with Range Resources, which is drilling aggressively in the rolling farmland southwest of Pittsburgh.

This is the world of 21st-century energy, which around here looks surprisingly like 19th-century energy. There is little evidence that the old, conventional sources of energy are about to disappear, or that the free market by itself is going to drive a transition to clean, renewable power.

With oil, gas and coal near record prices, there is an obvious market incentive to invest in renewable energy sources, such as wind and solar power. But those same high prices have also incited fossil-fuel companies to ramp up their drilling and mining.

Former vice president Al Gore has called for the United States to switch to 100 percent renewable energy for electricity generation in the next decade. But if the scene in Pennsylvania is any indication, policymakers wanting to see a greener America will have to do more than tweak the energy sector around the edges.

The state of Pennsylvania is on pace to issue more than 7,000 permits for oil and gas drilling this year, more than twice as many as five years ago. Coal mining is expanding, driven by rising coal exports. With the Marcellus looking so promising, Pennsylvania farmers are suddenly flush with cash from leasing mineral rights.

"It's a land-rush type of deal," said Gary Lash, a geologist at the State University of New York at Fredonia who studies the Marcellus. "Some people are becoming millionaires overnight."

The Pennsylvania fossil-fuel boom points to a broader national reality: The old energy sources come from mature industries that have the infrastructure, know-how and capital to put a big drilling rig in a hayfield at the snap of a finger. Oil and gas companies also benefit from a federal tax incentive, dating to 1918, that allows companies early deductions for "intangible drilling costs."

"We believe [fossil fuels] are going to predominate for at least 50 years," said Thomas Sarkus, a coal expert at the Energy Department's sprawling facility near Pittsburgh.

Bill Huber, 67, who lives near Oil City, Pa., recently tapped into the Marcellus play by leasing his mineral rights below 3,000 feet. But there's shallower stuff that's bringing in more money for him than ever before: Pennsylvania crude oil. He runs a mom-and-pop oil company just down the road from Titusville, where "Colonel" Edwin Drake drilled the world's first commercial oil well in 1859.

Business is good these days. In the woods a short walk from his house, he has several rusty pumping jacks. He compares his old wells to dairy cows, saying they can produce only so much a day -- but in a typical month, he says, he can pump 75 barrels of oil. The ground around his jacks has had an obvious impact on his boots: "These suckers are so soaked in oil that I can walk in water and they don't leak."

The big plays here and around the country, though, will be in natural gas.

Used primarily for heating homes and generating electricity, natural gas is also a potential transportation fuel. It is already used to power fleets of buses in large cities. Texas oilman T. Boone Pickens, who has launched a multimillion-dollar lobbying campaign to promote wind energy, has also pushed for natural gas to become a transitional fuel to power cars, trucks and buses.

Gas burns cleaner than oil or coal but still emits significant amounts of carbon. Even as Congress debates whether to open offshore areas in the United States to oil drilling, natural gas companies are racing around the country, snapping up leases to drill into shale formations.

Natural gas executives can boast that, thanks to new technology and high prices, their companies can drill horizontally through deep formations such as the Marcellus Shale and yield hugely profitable amounts of gas. The drilling and extraction require millions of gallons of chemically treated water, injected under tremendous pressure into the rock to shatter it and free the gas to migrate to the wellhead.

The process has triggered environmental concerns about the disposal of the treated water and the potential for contamination of groundwater. Rupert said the process is safe, in part because groundwater is much shallower than the gas fields.

The Marcellus Shale underlies much of Pennsylvania and parts of New York, Ohio, West Virginia, Maryland, Virginia and Kentucky -- an area that already has a lot of infrastructure for distributing natural gas. Geologists say the shale might contain more than 50 trillion cubic tons of gas, about twice what the United States uses in a typical year.

Rodney Waller, a senior vice president of Range Resources, said he recognizes that this is not a renewable resource: "Every time you use it, you have to wait another billion years for something to create some methane."

Meanwhile, the coal industry, savoring the high price of its product, is opening new seams in Appalachia that would have been unprofitable in past years.

"Say we had a mine that had a 30-inch seam of coal that we were following and mining," said Rick Nida, spokesman for Foundation Coal, which plans to open a new mine near Waynesburg, in southwestern Pennsylvania. "That seam was getting thinner and thinner and thinner. At some point you quit mining that coal. But if the price is up, maybe you'd mine the 24-inch seam longer than you would."

Nathaniel Keohane, an economist with the Environmental Defense Fund, said higher fuel prices are creating "perverse incentives" that undermine market-driven reductions in greenhouse gas emissions. For example, if it appears that the price of oil will remain higher than, say, $80 a barrel, the coal industry may plunge headlong into coal-to-liquid technologies. The resulting product could be burned in your car -- but with higher carbon emissions than burning gasoline.

The way to fix that would be a carbon tax or some other mechanism that would reflect the environmental cost of greenhouse gas emissions, Keohane said. But such proposals remain politically contentious and are opposed by free-market advocates, who argue that energy costs would jump and the economy would suffer.

"Ultimately, Al Gore is right," said Terry Engelder, a Penn State geologist who is a leading expert on the Marcellus. "And it must happen, because even natural gas will not be sustainable forever. We do need to switch to renewable resources. The gas buys time. I don't believe that the market forces in this day and age will favor just an overnight conversion."

The idea that the country should switch to renewable energy is actually an old one, dating back at least a century, to when a famous inventor told the writer Elbert Hubbard his views about solar energy:

"Someday some fellow will invent a way of concentrating and storing up sunshine to use instead of this old, absurd Prometheus scheme of fire."

The inventor was Thomas Edison.

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