Point of View

Potential bounty for North Carolina

March 21, 2012 

Nearly 40 years ago, when the first oil price shock from the Middle East and OPEC disrupted the American economy, North Carolina and Appalachia briefly became an oil and gas frontier. Following geological investigations, Chevron drilled an exploratory well in the Deep River Basin beneath Lee County, N.C. Oil was discovered at 5,000 feet, but it contained excessive paraffin and Chevron plugged the well.

It remains there today as a new natural gas and oil technology has emerged: the capability of opening tight rock formations or shale through hydraulic fracturing and horizontal drilling.

Chevron was limited to a vertically drilled well and hydraulic fracturing was still in theoretical discussion among petroleum engineers and petroleum geologists. With this new technology, the gas and oil industry can drill deeper into the Deep River Basin and laterally access impermeable shale rock under Lee Country. The Chevron cores (rock cuttings that show oil and gas pores) are stored at the N.C. Geological Service.

Why is North Carolina not yet a site for drilling rigs, mud and service companies? Why is there shale gas exploration and production in the Marcellus Shale in Pennsylvania and West Virginia, and on different rock formations in Arkansas, Texas and in the Rocky Mountains?

The answer is political. North Carolina has been in self-imposed isolation from the industry that invests and operates oil and gas exploration. Until now, it has not been worth the airfare for a company to send an exploration geologist from Denver to Raleigh. North Carolina law prohibited hydraulic fracturing.

New state political leadership is prepared to change this and create the necessary government authority and institutions to issue permits, regulate and manage the economic benefits for people of North Carolina.

With the first permits to drill for gas and oil in North Carolina, the industry will begin to spend money and create jobs. If shale gas as an economic resource is confirmed, small business opportunities in service and equipment companies follow in Lee County, where materials manufacturing reports high unemployment.

The new regulatory authority in North Carolina , following the models of other natural gas- and oil-producing states from Pennsylvania to Colorado, will not require the federal Environmental Protection Agency or the Department of the Interior to intervene. Water safety and management regulations can be local with industry consensus as in other states.

North Carolina’s oil and gas potential is located on private or fee land, in contrast to federal or public land. Almost all of the oil and gas domestic production increases of the last several years have occurred on private or state land, not federal land.

Shale gas exploration and its media shorthand, fracking, have introduced what’s being called a “Golden Age of Natural Gas.” This has expanded natural gas reserves in the U.S. from 22 years remaining, in the late 1990s, to 118 years today – from scarcity to plenty. This winter natural gas prices dropped to 1970 levels. Forecasts of a natural gas import dependency have vanished. There is planning for a “natural gas economy” in which electricity and even transportation adapt to low-cost gas alternatives.

The fall in the price of natural gas has pre-empted renewable energy investment. Much of the anti-hydraulic fracturing and shale gas opposition is associated with the promotion of renewable energy through tax credits and subsidies. Wind and solar energy cannot compete with natural gas prices per kilowatt hour cost, unless shale gas production is constrained or stopped through political banning or onerous regulatory actions.

North Carolina’s natural gas and oil resource potential must now be tested. Proprietary seismic 3-D tests and test well drilling will follow permitting and agreements with leaseholders. How many trillions of cubic feet there are will be determined by the industry. How much is economic or commercial? Is there a long-term shale gas reserve that will lead to closure of a coal-burning electric plant, with local gas as an alternative? Is there wet gas (gas with liquids or oil) that offsets low natural gas prices with high-price products or West Texas crude oil prices? Chevron’s 1974 well is promising.

Action by the North Carolina will end self-imposed isolation from new technology and energy natural resource development. North Carolina could become the next American shale gas-producing state.

Daniel Fine of the New Mexico Center for Energy Policy spoke on “North Carolina’s Approach to Shale Gas” at the Shaftesbury Lecture Series sponsored by the John Locke Foundation and Jesse Helms Foundation.

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