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New York Energy Plan Favors In-State Gas Production

In a draft energy plan released last Monday, New York Gov. David Paterson said his state would encourage production of conventional and shale natural gas to reduce its dependence on out-of-state resources.

More than 95% of the natural gas needed to meet the demands of New York's gas customers comes from the Gulf Coast region and Canada, according to the draft plan, which sets out the state's energy goals for the next 10 years. The natural gas is transported to the New York market by interstate pipelines, adding delivery costs on top of the commodity price, which makes the gas more expensive for end-users. The New York average delivered price to customers is approximately $3.00/MMBtu more than the national average.

"Production and use of in-state energy resources -- renewable resources and natural gas -- can increase the reliability and security of our energy systems, reduce energy costs and contribute to meeting climate change, public health and environmental objectives," said the draft plan, which was prepared by the State Energy Planning Board.

"Additionally, by focusing energy investments on in-state opportunities, New York can reduce the amount of dollars 'exported' out of the state to pay for energy resources," it noted.

New York currently consumes about 1,200 Bcf of natural gas annually, making it the fourth largest gas consuming state in the nation. The electric generation sector accounts for 404 Bcf (34%); residential sector for 393 Bcf (33%); and commercial and industrial for 375 Bcf (3%). The state has about 4.7 million natural gas customers.

The demand for natural gas far outpaces the state's gas production. In 2008, total reported state gas production was 50.3 Bcf, down 9% from the 2006 record of 55.2 Bcf, the draft plan said. "These figures represent an increase of over 200% since 1998 (16.7 Bcf). The increase in New York natural gas production is driven by prolific wells in the deep (7,000 to 11,800 feet) Trenton-Black River formation in the Finger Lakes region. The largest area of production from this formation is in Chemung and Steuben counties.

"Annual production from the formation has grown from about 1.6 Bcf in 1998 to over 40 Bcf between 2005 and 2007, dropping to 34.8 Bcf in 2008. Trenton Black River production accounts for about 69% of the state's overall natural gas production from just 100 producing wells, with one well alone producing about 2 Bcf," the draft plan reported. The state has a total of 6,700 active natural gas wells.

The Marcellus Shale formation, which extends from Ohio through West Virginia and into Pennsylvania and New York, is "attracting attention as a significant new source of natural gas production in New York," it noted. While economically recoverable natural gas reserves for the entire extent of the Marcellus Shale are estimated to be significant, "it is not yet clear what fraction of that amount will be commercially available in New York."

In late July Terry Engleder, a geosciences professor at the University of Pennsylvania, estimated that as much as 489 Tcf of technically recoverable natural gas resources may be held in the Marcellus Shale formation (see NGI, Aug. 3).

The New York Department of Environmental Conservation is reviewing the environmental impacts of horizontal well completions and hydraulic fracturing associated with drilling in the Marcellus Shale, and is expected to finalize its supplemental generic environmental impact statement this year.

The draft plan said the extraction of gas reserves from the Marcellus Shale presents a "unique challenge" with respect to constructing pipe facilities to tie in with interstate pipeline system and bring the produced gas to market. "In the course of developing a conventional source of natural gas, a company would drill a well and only if that well is successful, would it submit an...application to the PSC [Public Service Commission] to construct the associated pipeline. It has been suggested that this procedure may not be well suited for development of the Marcellus Shale.

"The technique used to tap into the Marcellus requires that the gas be produced immediately once the well has been fractured and completed or the well may seal and cease to be productive...As a result, some producers contend that the pipeline must be certified, built and ready to accept gas before knowing for certain that the well will be a success."

As for gas consumption trends in the state, "natural gas has become and will continue to be the fuel of choice for new and replacement generation in New York for the next several years due to its economic, operational and environmental advantages," the draft plan said. Between 2001 and 2007, an estimated 5,000 MW of new gas-fired combined cycle and combustion turbine capacity was built in New York, while about 3,000 MW of older dual-fuel (oil and natural gas) were retired. About 31% of electricity generated in New York was fueled by natural gas in 2007, it noted.

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