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BRADFORD COUNTY, Pennsylvania (Reuters) - In what may be the most drilled county in the U.S. Northeast, the only land that, as of May, had not been leased to energy companies to explore for shale gas in Bradford County, Pennsylvania, is beneath graves.
The rush to produce natural gas in the Marcellus Shale, as exemplified in this tiny county's mounting car wrecks and 'shaleonaires'--farmers collecting millions in mineral rights' royalties--has produced a well-documented battle with producers over the environmental impact of the chemicals used to help extract the hydrocarbons.
An equally vexing, if less controversial, battle now looms, however: ensuring enough pipelines are built, quickly enough, to funnel the gas into the deep Northeast market.
Thus far, gas producers like Range Resources and Chesapeake Energy have been fortunate, with ample pipeline capacity for the amount of gas flowing out of the area.
As broader public opinion turns increasingly hostile toward the fracking industry, getting land rights and regulatory approvals necessary to build the estimated 100 plus miles of new lines and procuring land for associated infrastructure that will be needed becomes harder and harder.
That challenge has not yet slowed investment; but it could soon, and could prove as great a risk to expansion as the state and federal crack-down on fracking.
"Pipeline right of way has always been an issue for pipes and nothing has changed," said Sam Andrus, director of North American gas market modeling with consultancy IHS-CERA. "It's particularly difficult in highly populated areas so trying to get through New Jersey and into Manhattan is more difficult than in West Texas."
The region's inadequate infrastructure is readily apparent in prices, which often spike during peak winter demand, because producers are not always able to get their gas to market.
In the last two-and-a-half years, prices have fetched as much as $20 to $38 per million British thermal units on Williams Cos' Transcontinental Zone 6 line, in New York. The average price is around $6.50 per mmBtu.
The flood of gas released from the technique known as hydraulic fracturing, or "fracking," shale rock has flattened gas prices for consumers. It has also surprised Wall Street with the ease at which producers have been able to send the gas to market, especially after a couple of accidents in Bradford County that polluted some water supplies and threatened harsh reaction from local governments.
"The market shows it's fairly confident that the pipeline capacity is being built in line with the way production is coming on-stream," said Biliana Pehlivanova, a natural gas analyst with Barclays Capital in New York.
"The market was expecting to see a lot more constraints in the Marcellus than we actually have seen," he said.
Three major gas pipelines outline Bradford's perimeter -- Williams Transcontinental, El Paso Corp's Tennessee Gas Pipeline, and to the north the Millennium Pipeline owned by units of NiSource Inc., National Grid and DTE Energy -- each with their own expansion project in the works to meet the expected production increase.
Pipeline and storage company Inergy expects a decision from the federal government in July or September as to whether it can build a pipeline, partially through Bradford, that would connect it to the three major lines.
GRAPHIC: Major U.S. Northeast Gas Pipelines in and around Bradford County, PA. - r.reuters.com/bet42s
Still, pipeline right-of-ways are likely to be swept into the looming regulatory battle over permitting wells, drilling and water treatment.
The Federal Energy Regulatory Commission, if it comes down to it, can always employ eminent domain to lay pipelines, if getting gas to market is deemed in the greater public interest, analysts say.
In a letter to the Pennsylvania state governor, the state Department of Environmental Protection Secretary Michael Krancer has suggested not to renew or amend any permits of gas companies who do not comply with changes to the state's Oil and Gas Act, also suggested by Krancer in the same letter. The governor will present his recommendations for regulating the natural gas industry on July 22.
"We are moving, in general, toward a more strictly regulated natural gas industry, because of the increased focus and publicity we've had on natural gas production and operations. And certainly, the incidents we've had with pipelines and production facilities have contributed to that," Pehlivanova said.
When it goes smoothly, natural gas is extracted in shale by drilling two wells. The first is drilled vertically; the drill is then snaked sideways, thousands of feet underground to prepare the horizontal layers of rock underneath to be cracked.
A kind of perforating gun is inserted into the horizontal portion of the well to emit a nonexplosive charge to crack the rock.
A mix of millions of gallons of water, sand and chemicals is flushed at high pressure through the well. The water keeps the sand mobile and the sand keeps the fissures in the rock open, allowing the rock to release the gas captured between the dense shale layers and the deposits to float to the surface.
Bradford County's recorder of deeds says more than 90 percent of the land has been leased for mineral deposits below. Some of the remaining 10 percent covers cemetery plots and other private lands.
Gas companies have descended on Bradford. The shale there is "mature," meaning the hydrocarbons had more time to cook and dissolve from oil into what amounts to a dry, near pipeline-ready gas, requiring little or no processing, making it cheap to produce.
Between July and December 2010, wells in Bradford produced some 66 billion cubic feet of natural gas, about a day's worth of U.S. consumption.
The Marcellus prize is huge: It promises, by one estimate, up to 262 trillion cubic feet of gas -- enough to heat all of the 60 million U.S. homes that use natural gas for 65 years.
Yet, the industry struggles daily to reverse the first impression much of the public has about this type of gas drilling: that of flames shooting out of a residential water faucet, made widely known by the documentary film "GasLand".
Nevermind that the Colorado Oil & Gas Conservation Commission later found that the cause was not gas drilling, or that the technique has also been used for decades across the country without serious incident, say proponents.
Fracking is largely shrouded in mystique, as far as the general public is concerned, a veil that is only now being lifted, as companies like Chesapeake and Range--under pressure from shareholders and the public--reveal contents of the fluid used in extracting gas.
"We as an industry have done a horrible job of communicating," said Matt Pitzarella, a spokesman for Fort Worth-based Range, who himself is based in Pennsylvania. "But, we now recognize the need to be transparent, accessible and accountable."
"You don't get to change the global energy picture and fly under the radar," he said.
Miscommunication can easily turn into misperception.
Range, which is not currently drilling Bradford but holds land there, stays in contact, one resident at a time, in the spots where it drills, Pitzarella said.
If a company drills on someone's land for a longer period than they let on, it's easy for them to mistrust whatever else the company tells them.
"It's not long before they start saying, 'Well, if you're lying to me about the amount of time you're going to be here, what if you're lying to me about (the contents of) fracturing fluid?' It doesn't take too long for that to go south," the spokesman said.
As for pipelines, Range has not had a problem laying feeder lines to get to the main pipelines, Pitzarella said. But, that depends on the relationship with the landowner. Range is getting pipes in the ground, but "sometimes they are not always in a straight line."
If Bradford, a county of 62,000, or roughly 52 people per square mile, is any guide, even those who have benefited most from the shale boom see it as a very mixed blessing, forming a public perception that threatens to stymie growth.
In the years since the gas companies showed up, the county's asphalt roads are cracked and under near-incessant repair. Truck traffic carrying drilling equipment and millions of gallons of water needed to extract gas--sometimes 30 tons worth on roads built to withstand ten--daily pummels the inadequate thoroughfares.
Service calls to the county's emergency services center were up 45 percent last year, largely due to the number of traffic accidents, the department of public safety said. It's not uncommon to see a sign posted on the road every now and then: "Slowdown Gasholes."
Royalties being paid to some landowners here have made millionaires out of a handful of dairy farmers. Some collect upward of $3,000 per day. The Mercedes in their driveways veering off the dirt roads stand as proof of their new wealth and as a reason to add the word "shaleonaire" to gas industry lexicon.
And, the Pennsylvania labor department reported in late May that there were 48,000 new hires, the majority state residents, linked to activity in the Marcellus shale during the first quarter.
Still, getting the gas to market is a part of the economics that cannot be discounted and include environmental costs that will have to be part of the equation.
"You can't have growth in demand in energy without growth in infrastructure to supply it," Andrus said. "If we're adding electricity demand then you need incremental fuel to fire that generation and gas is the fuel of choice now."
Reporting by Jeanine Prezioso; Editing by Carole Vaporean