The images of burning water and the resulting environmental discussions in the past two years have faded and natural gas production from the Marcellus shale is growing strongly. It is already the largest gas-producing basin in the US.
Pennsylvania has a history as an energy pioneer, with Colonel Drake’s first oil well in Titusville in 1859 and the industrialization with Appalachian coal from the 1880’s. Marcellus gas would seem a natural extension of the industrial energy history. Most recently, on December 19, Cabot Oil & Gas and Sumitomo announced a 20-year contract for 3.5 BCM/year of natural gas from the Marcellus shale, for transport to Japan via the Cove Point LNG terminal in Maryland.
Yet, on the same day, December 19, the Supreme Court of Pennsylvania announced its 4:2 verdict in the case J-127A-D-2012, concluding that (page 6):
“…several core provisions of Act 13 violate the Commonwealth’s duties as trustee of Pennsylvania’s public natural resources under the Environmental Rights Amendment; other challenges lack merit; and still further issues require additional examination in the Commonwealth Court.”
Act 13 passed the Harrisburg legislature in February 2012. As seen by the Supreme Court (page 117), “[t]he purpose of the statute is to provide a maximally favorable environment for industry operators to exploit Pennsylvania’s oil and natural gas resources, including those in the Marcellus Shale Formation.”
The Court’s 162 page verdict takes a strong constitutional and environmental approach, stating that (page 117):
“… Pennsylvania has a notable history of what appears retrospectively to have been a shortsighted exploitation of its bounteous environment, affecting its minerals, its water, its air, its flora and fauna, and its people.”
The targeted industrial development purpose of Act 13 is then linked to (un)sustainable Development (pages 118/128):
“By any responsible account, the exploitation of the Marcellus Shale Formation will produce a detrimental effect on the environment, on the people, their children, and future generations, and potentially on the public purse, perhaps rivaling the environmental effects of coal extraction … Act 13’s unauthorized use of the public trust assets is unprecedented and constitutionally infirm, even assuming that the trustee believes it is acting solely and in good faith to advance the economic interests of the beneficiaries.”
With such a strong-worded verdict, the Harrisburg legislature and regulators will undoubtedly weigh any next steps carefully. In the near term, a return to a pre-Act 13 situation with state and many local regulations is likely, but with some differences. The upholding of local zoning and setback rules will remove some attractive acreage from shale gas development, and the reinstatement of regulatory processes will serve to add both costs and time.
The larger question is if the Court’s decision is really all that damaging to oil and gas development. Shale gas is past take-off and the industry is capable of managing the environmental and regulatory processes. A win-win outcome of Pennsylvania’s Supreme Court’s decision could be to put the development of shale resources on the path it needs, with the approval of the public. Internationally as well.