(RRC) Drilling for Natural Gas: The One Thing That New York Fears More Than Terrorists

October 27th, 2009

by David Fessler, Energy and Infrastructure Expert
Tuesday, October 27, 2009: Issue #1124

New York City has a problem.

In addition to other hazards, the threat of another terrorist attack is an obvious, ongoing danger to one of the most populated cities in the world. But that’s not what I’m talking about here.

I’m highlighting a problem that most people wouldn’t even think of – but one so crucial, it could have a crippling effect on every single New Yorker.

Drilling for natural gas.

You see, these rig owners are about to start punching holes in the Marcellus Shale, high up in the Catskill Mountains in upstate New York.

So why would New York be concerned about drilling for natural gas over a hundred miles away?

Simple…

New York’s Man-Made Water Problem

It’s where nearly half of New York City’s fresh water comes from.

The potential pollution problem stems from the toxins that come from tapping into the vast Marcellus Shale natural gas reserves and the possible contamination of water as a result. The process of drilling fluids means chemicals, dissolved heavy metals and salts are brought up from underground.

If these fluids found their way into New York City’s fresh water supply, it would only be a matter of hours before major portions of the city would shut down. And you can easily imagine the devastating economic and social consequences that would ensue.

That’s why drillers are forced to fight for permits. While they’re anxious to exploit New York’s acreage, the New York Department of Environmental Conservation (DEC) is mindful of the water pollution problems that Western Pennsylvania has experienced.

Western Pennsylvania has a long and well-documented history of groundwater pollution. Most of it stems from decades-old coalmines and oil wells and the acid mine drainage that emanates from them.

However, some Pennsylvania landowners blame the new natural gas drilling operations as the source of the problem. And while no definitive conclusions have yet to be drawn yet, New York is wary.

Drilling for Natural Gas – Is Groundwater Pollution Possible?

Up to now, the DEC notes that there have been no known occurrences of groundwater pollution from drilling for natural gas in New York. And it wants to keep it that way.

So to ease New Yorkers’ fears, it proposed a 1,000-foot no-drill buffer zone around the city’s Catskill watershed.

But that’s not good enough for the Big Apple…

New York wants the DEC to set a one-mile perimeter around the 2,000 square miles it covets. This buffer would put nearly 500,000 additional acres off limits to drilling for natural gas.

As usual, though, money is playing a big factor in the debate.

Proponents of tapping the Marcellus Shale are concerned that if the regulations get tied up in the legislature, or end up in the courts, natural gas drillers will move their rigs elsewhere.

And for a state whose budget crisis is right behind California’s, it would mean losing an estimated $1 billion in annual revenue.

Two Ways to Profit from the Uncertainty of Drilling for Natural Gas

Despite the uncertainty of drilling for natural gas in New York, we can still play this situation…

Range Resources Corporation (NYSE: RRC) and Chesapeake Energy (NYSE: CHK) are the two main natural gas drillers operating in Pennsylvania at the moment – and both have their sights set on New York State.

And to allay some of the perceived fears associated with their operations, they’re on a PR offensive…

They’ve held dozens of town meetings, emphasizing the strict environmental controls they’re subject to, both during and after the drilling process, plus their efforts to meet them.
They point out that chemicals are injected many thousands of feet below the water aquifers. When the drilling operation is complete, these chemicals are hauled away to sewage treatment facilities to be disposed of.

Ultimately, I believe New York will resolve these water issues and the potential pollution problems. And that regardless of the size of the Catskill watershed buffer, Marcellus Shale drilling will eventually proceed in the state.

Because they are in Pennsylvania, Range Resources and Chesapeake Energy will be two of the biggest players there. So if you want to play the development of the Marcellus Shale, you could consider a position in either or both.

Good investing,

David Fessler

Investment U… Extra: Did you know that New York City has a unique water supply system that is the envy of the world? Labeled the “champagne of drinking water,” it supplies the most plentiful and naturally pure water available anywhere in the United States, and New York City water has won numerous awards for its taste and clarity.

So how pure is it?

It’s one of only six municipal water systems in the United States that the Environmental Protection Agency exempts from a 1986 law requiring the filtration of municipal water.
The city gets 50% of the 1.1 billion gallons it uses every day from the 100-mile distant Delaware River, and 10% of it from the Croton River.
The remaining 40% is sourced from one of the largest protected wilderness areas in the country – over 2,000 square miles of pristine watershed, 120 miles away in upstate New York. The system consists of 19 reservoirs and over 300 of miles of gravity-fed aqueducts and tunnels.
One of the most complex engineering projects in the world, Tunnel No. 3 is under construction 800 feet below ground. When completed in 2020, it will add additional supply to the city’s water system.

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(RRC) Drilling for Natural Gas: The One Thing That New York Fears More Than Terrorists

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