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Shale Drilling Creates Natural Gas Supply Boom

Fri July 22, 2011 - National Edition
Giles Lambertson

The New York town of Marcellus was named for a Roman general, not for the town’s outcropping of natural gas-bearing shale. These days, excited general contractors or construction equipment dealers don’t give a hang about the general. He never sparked a construction boom.

The shale did. Running southwest from Marcellus, the thick layer of Devonian black shale takes the Marcellus name and dives deep under Pennsylvania and adjacent states. Oil companies using 21st-century technology have begun to plumb and tap the organic-rich rock. The reward for drilling success is computed in the tens of trillions of cubic feet of natural gas. Hence, the boom.

With nearly 1,400 wells drilled in Pennsylvania just in 2010, the extraordinary flurry of exploratory activity looks all the world like a bonanza for construction contractors and dealers in the region. Yet questions remain about the economic impact of the natural gas exploration, such as … is it for real? If so, how long will it last?

The answer to the first question is evident to anyone driving the roads of western Pennsylvania.

Lots of Equipment

on the Roads

“Truck traffic has increased exponentially,” said Tom Gregory, who lives outside Williamsport in the north-central part of the state. “I live way out in the country and, since the drilling began, our roads are being driven by a lot of trucks carrying dirt, water and stone.”

Gregory might notice an increase in truck traffic more than some residents of the area. As vice president of instruction at Pennsylvania College of Technology, he also has noticed a corollary surge of traffic in the college’s commercial driving license classes. “There’s a really high demand for the CDL’s right now.”

In all likelihood, the demand will continue. The Marcellus shale gas recovery process is truck intensive. Beginning with seismic and recording trucks that explore the geology thousands of feet beneath the surface, the recovery process requires fleets of lumbering three- and four-axle trucks carrying dirt, stone, asphalt, concrete, water, pipe and equipment.

Consider the stages of the gas recovery process: The entire length of a well — and the shale is a mile or more beneath Pennsylvania topsoil — is encased in hard metal tubing. What’s more, cement is forced down each well and back up along the outside of the casing to completely seal off the drilled space. This casing and cement are trucked to the site in great volumes.

Huge volumes of water also are involved. Vertical holes are drilled down to the rock before the drilling turns horizontal within the shale strata, sometimes running horizontally for several thousand feet. This sideways drilling intersects natural vertical joints between shale layers. The gas is captured by hydraulically fracturing the shale in and between these joints using carefully placed charges that puncture the casing and cement. Water — actually a high-pressure watery mix — is injected into the well and out into the rock, which induces more fracturing and the release of additional gas.

How much water is used at each well? Between three and five million gallons, according to the Marcellus Shale Coalition of oil and natural gas companies and auxiliary firms, including general contractors. An average of 400 truck trips are needed to move water to and from each well during the fracturing process.

Also, still being developed is a network of pipelines that will connect the wells to larger pipelines serving East Coast natural gas markets. The Marcellus wells’ proximity to the urban centers of the eastern United States is one of its development appeals. All this pipe is trucked in.

The heavy trucking generated by all of the above naturally takes a toll on rural roadways that are unused to such pounding by commercial traffic. Consequently, the coalition is spending lots of money on road repair. Coalition members have expended more than $400 million since 2008 rebuilding, repaving, and generally improving local and state roadways in Pennsylvania.

Those millions of dollars are proof that the rush to suck gas from beneath the earth is having an impact on the region’s general contractors. Because of all the roadwork, site preparation work, drilling, pipelaying, and trucking, heavy equipment is a common sight these days in western Pennsylvania.

A Boom for

Contractors, Dealers

“I only have one project this year that is not related to Marcellus shale drilling,” said Mike Pascuzzi, chief financial officer of New Dominion Construction, “and that’s a landfill. Really, all the work I have outside the drilling activity is driven by Marcellus shale.”

Pascuzzi attributes the survival of New Dominion to shale projects. He said the Hickory company landed some shale drilling projects at the beginning of the company’s 2010 fiscal year. The work swelled, and the company ultimately experienced a 78 percent growth in business volume in 2010 over the previous fiscal year.

“We went from damned near bankrupt to having a $14.2 million sales year,” he said, adding that continued growth assures the 13-year-old company will have another significant uptick in contract work in fiscal year 2011.

New Dominion’s specialty is building water pond impoundment structures, by which drillers manage the huge volume of water. The used water sometimes is recycled — 60 to 100 percent of it at some locations — and in other cases simply is contained until it can be trucked away for reprocessing. The impoundment structures usually consist of 5-acre ponds on 20-acre work sites.

The company’s expanded work schedule has translated into additional need for construction machinery. Pascuzzi said New Dominion is expanding its fleet of earthmoving equipment. “This year we bought four scrapers, five rock trucks and a compactor, and we’re in the market for another compactor and excavator, and one more articulated truck.”

That’s good news for people like Dave Yohe, branch manager of Highway Equipment Company in Dubois. His dealership in north-central Pennsylvania has felt the “huge” impact of the drilling rush that he said seems to be growing larger all the time. Yohe noted in early July that he had just sold to a contractor with a Kobelco excavator a stump shear harvester attachment for clearing right-of-way. But most of the equipment moving off his lot is for moving dirt — Dressta dozers, and Hyundai excavators and loaders. For example, Yohe delivered a dozer to a contractor preparing to lay a 36-in. (91 cm) natural gas pipeline.

“Today I’m setting up a Dressta D-25 dozer that will be used to make a pad for a Marcellus shale drilling unit in the Williamsport area,” he said.

The pick-up in sales and rental of equipment began in 2008, according to Yohe, and has continued “pretty steadily.” He said the increase in business was felt first by equipment dealers west of Dubois before moving eastward. “You have to have your head in the sand if you don’t see it,” he added.

Cleveland Brothers CAT, which serves 57 of Pennsylvania’s 64 counties, has seen it. The drilling boom has accounted for the largest share of the Caterpillar dealer’s market growth over the past three years, according to Carl Tinkham, director of marketing.

Earthmovers such as Cat D6 and D8 dozers have been clanking onto flatbed trailers in the equipment yard for delivery to drilling locations, where they are cranked up to prepare sites and construct drilling pads. Pipeline-laying activity has spurred sales and rental of excavators, including the Cat 336, along with other pieces of pipelaying and tracked equipment. Sale of stationary diesel engines, such as the Cat 3512 and 3516 models, have been strong, with both drilling and hydraulic fracturing processes needing such power plants. Cleveland Brothers’ engine parts and service employees obviously have been busy, too.

“It definitely has challenged our inventory planning a bit,” Tinkham acknowledged. The dealership has stocked more large excavators and dozers than management had anticipated needing. Sometimes the need for the equipment has almost overwhelmed the supplier. “We had a small increase in lead times for certain types of equipment, but because of our relationships with fellow Cat dealers, we’ve been able to work out inventory trades.”

Despite the stampede, Tinkham said, “We have been fortunate to take care of our customers and at the same time build relationships with oil and drill companies moving in from Texas and Oklahoma and more traditional petroleum markets.”

Mascaro Construction Company is one of 200 members of the Marcellus Shale Coalition. Unlike New Dominion, the Pittsburgh general contractor was not on the ropes before the shale drilling rush began. Neither has it experienced as much business from the shale boom as New Dominion, but Buzz Thropp believes that will change as the drilling activity matures.

“We have had a few small orders over the last year, small orders as we view them, mostly civil work, moving dirt and pouring foundations,” said Thropp, director of business development of Mascaro. He said ground is quickly being broken — ponds, roads, foundations — in a push by small drillers to establish drill sites before the Pennsylvania legislature enacts anticipated tax changes.

“This is not the kind of work that we entertain,” he said of the start-up projects. “Our hope is that as this activity continues to grow, which it obviously is doing, and the good oil companies buy in, such as Chevron, Exxon, Shell and Mobil, that they will want to drill with professional union contractors like us.”

A Long-Term Market?

Thropp believes the drilling activity will not flare up and die away before the company has greater opportunity to cash in. He cites a 1908 geological report that predicted tapping the Marcellus shale would produce a spurt of economic activity lasting 50 years.

New Dominion’s Pascuzzi sees the spurt as something that already has begun. “If you are a contractor and persistent, you will find work is available. If you will play by the drillers’ rules and standards, they will keep you pretty busy.”

Pascuzzi said he is “banking on a Penn State report that the drilling will continue to escalate at least until 2020.” After that, he added, maintenance of sites and roads will still be around.

Heavy construction equipment operator classes at the College of Technology at Williamsport have become slightly more popular than normal, according to Tom Gregory, the vice president for instruction, but only slightly. “They’ve always been very popular. But there is a lot of pressure from gas and service companies. They have come into the area and are hiring technicians, who are leaving companies, and those jobs in turn have to be filled. In the long-term, there is going to be steady demand for engine technicians, surveyors, inspectors of all kinds.”

To Gregory, “long-term” means 30 to 60 years. “There is nothing I have seen that would point to something shutting down the drilling activity. The companies are doing a pretty good job of public relations. Roads are busy, but they are being repaired and are better than in the beginning. So I doubt there is going to be anything that is going to stop it. I don’t envision anything like that happening.”

Nevertheless, Tinkham of Cleveland Brothers, said sudden stoppage of the economic activity is being factored into the dealership’s planning. “We are optimistic that, based on the projections for the natural gas preserve, there is potential for revenue streams to grow slightly over the next 20 years. But we are realistic enough to know that if there is any kind of intervention by the EPA or the state legislature, a moratorium on drilling could happen and it could disappear virtually overnight.”

It already happened in New York. Former Gov. David Patterson put a hold on the hydraulic fracturing and drilling last year after vetoing a legislative ban. In June, his successor, Gov. Andrew Cuomo, began the process of lifting the ban. If Cuomo succeeds, the drilling fever is expected to spread into New York.

West Virginia drilling preceded the Pennsylvania experience. Cleveland Brothers actually got its first burst of business from drilling activity in northern West Virginia. New Dominion Construction already is working in West Virginia and, according to Pascuzzi, is well positioned to continue the pad construction work in southern New York if that area is opened up. “I am ready to go.”

Looking way down the road, if natural gas production from Marcellus shale begins to wane, geologists say drillers have the option of punching on through the Marcellus layer into a thicker strata below, the Utica shale. Natural gas exists there, too, in commercial quantities. Though the wells would have to be much deeper, the drilling pads and other infrastructure already would be in place, reducing start-up costs.

But that’s a story for another day. CEG

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