February 4, 2008

By Genaro C. Armas
The Associated Press

STATE COLLEGE, Pa.

More than a mile beneath an area of Appalachia covering parts of four states lies a mostly untapped reservoir of natural gas that could swell U.S. reserves.

Geologists and energy companies have known for decades about the gas in the Marcellus Shale, but only recently have figured out a possible -- though expensive -- way to extract it from the thick black rock about 6,000 feet underground.

Like prospectors mining for gold, energy executives must decide whether the prize is worth the huge investment.

"This is a very real prospect, very real," said Stephen Rhoads, president of the Pennsylvania Oil and Gas Asssociation. "This could be a very significant year for this."

The shale holding the best prospects covers an area of 54,000 square miles, from upstate New York, across Pennsylvania into eastern Ohio and across most of West Virginia -- a total area bigger than the state of Pennsylvania.

It could contain as much as 50 trillion cubic feet of recoverable natural gas, according to a recent study by researchers at Penn State University and the State University of New York at Fredonia.

The United States produces about 19 trillion cubic feet of gas a year, so the Marcellus field would be a boon if new drilling technology works, Penn State geoscientist Terry Engelder said.

"The value of this science could increment the net worth of U.S. energy resources by a trillion dollars, plus or minus billions," he said.

The average consumer price for natural gas in the United States rose is forecast to rise 78 percent between the 2001-2 and 2007-8 winter heating seasons, which last from October to March. Prices will go from $7.45 to $13.32 per thousand cubic feet this season, according to the federal Energy Information Administration.

That translates into higher bills for gas customers to heat their homes, with the average season bill nearly doubling during the same period from $465 to $884.

One of the main players in Pennsylvania, Range Resources Corp. of Fort Worth, Texas, has roughly 4,700 wells statewide -- though it's the results from five new horizontal wells in southwestern Pennsylvania that have company executives especially hopeful.

The company, in a December financial report, estimated that two horizontal wells are producing roughly 4.6 million cubic feet of gas per day. Tests on an additional three recently completed horizontal wells showed potential for a total of 12.7 million cubic feet of gas per day. Industry experts call those results promising.

"We're extremely encouraged. We see many viable parts of the Marcellus that will be commercial," said Range Senior Vice President Rodney Waller.

Yet he cautioned it was still too early to determine how successful the venture could be because of limited data.

"We're just so in the early stages, you just don't know how broad this is," he said.

The upfront money may give some pause to prospectors. A typical well that drills straight down to a depth of about 2,000 to 3,000 feet costs roughly $800,000.

But in the Marcellus Shale, Range and other companies hope a different kind of drilling might yield better results -- one in which a well is dug straight down to depths of about 6,000 feet or more, before making a right angle to drill horizontally into the shale. That kind of well could cost a company $3 million to build, not counting the cost of leasing the land, Engelder said.

So the multimillion-dollar question is whether that technology can consistently release the gas from the layer of rock hundreds of millions of years old.

Companies began enjoying success with horizontal drilling technology a decade ago in the Barnett Shale, a 5,000-square-mile field in Texas which has produced about 1.2 billion cubic feet of natural gas a day. Forecasts have called for production there to reach 1.7 billion cubic feet, crucial growth considering the United States produces about 85 percent of its gas supply.

Success in the Barnett emboldened companies to foray into other parts of the country to uncork potentially new reserves, including the much larger Marcellus Shale.

Scientists had long thought the Marcellus served as a source perhaps for shallower wells dug by conventional drills. Previous attempts to extract gas conventionally from the Marcellus haven't led to much success.

According to Engelder, a series of seams, or fractures, in the rock could hold the key. If mapped, these fractures look like a matrix or grid of a city with nearly perfectly laid out square blocks.

Drilling horizontally into this matrix could help give the gas an outlet to escape, said Engelder, a principal owner in Appalachian Fracturing Systems Inc., a consulting firm to gas companies.

Companies like Range also use a technique in which water pressure is used to create new openings in the dense matrix to allow the gas to flow into the newly drilled horizontal well.

How much gas can be retrieved is still very unclear, and other questions remain.

David Masur, executive director of PennEnvironment, said the potential reservoir of the Marcellus may only boost reserves by 750 days, based on current U.S. consumption.

"It's just a short-term fix ... It's not really fixing the problem," Masur said. His group advocates more research into and use of cleaner, renewable energy resources.

Homeowners are intrigued, too. About 80 people packed into a lecture hall at Penn State University's campus in Dallas, outside of Wilkes-Barre, for a gas drilling information seminar sponsored by the university's cooperative extension.

People like Carl Penedos, who owns 150 acres of Wyoming County, relayed stories of gas company representatives knocking on the doors of neighbors seeking to lease land. A couple of neighbors recently signed leases for $50 per acre per year, while others have been offered $500 per acre, he said.

The homebuilder said he was also concerned about the potential environmental impact of drilling.

"I need to know what the downside is. The upside we all know what that is -- here's $100,000, see you later," Penedos said.

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