Policy

As those in Ukraine have looked to the Marcellus, now Marcellus experts watch Ukraine



Tom Murphy, co-director of Penn State’s Marcellus Center for Outreach and Research, has been working with Ukraine for the past three years as it readies to explore its own shale gas reserves.

In recent weeks, he said, the conversations have gotten more urgent.

And it’s not just Ukraine. Delegations from other Eastern European countries in the crescent around Russia have come to Pennsylvania “many, many times” in recent years, Mr. Murphy said, to learn from the experience of the Marcellus Shale in hopes of developing their own shale plays.

Russia’s Gazprom is the dominant natural gas supplier for the region. The visitors are eager to free themselves from Russia’s gas supply whims, he said.

Following the reopening of political conflict in Ukraine, Poland recently passed regulations seen as knocking down a barrier to shale gas exploration and the European Union exempted shale gas exploration from tougher environmental regulations.

Many such efforts were in play before Ukrainians ousted their Kremlin-friendly president and Russia invaded Crimea.

“[But] what’s going on in the Ukraine is probably having an impact on how quickly they push through these regulations,” said Ryan Russell, senior international trade specialist with the U.S. Commercial Service.

Ukraine, Lithuania, Bulgaria, Romania, and Poland are all thought to have shale reserves and each country is in various stages of exploring its gas options. While commercial development — if it ever comes — is still years away, the experience of Marcellus companies might be a commodity much sooner.

The first beneficiaries will likely be law firms, public relations firms and environmental consultants, said Kathryn Klaber, who recently stepped down as the first president of the Marcellus Shale Coalition and now runs a consulting group for oil and gas companies.

“Before you’re producing revenue, you’re putting time and money into community outreach and you want to make sure you’re investing in the kind of programs that work,” she said.

The groups that have come through Mr. Murphy’s Marcellus Center have been interested in everything from how to set up environmental regulations to how to tax the gas.

Urban shale gas development presents another opportunity for professionals versed in the Marcellus.

“Their assumption is that their area is much more densely populated than ours,” Mr. Murphy said.

That’s not always the case, but they're nonetheless looking for lessons already learned, he said.

Such opportunities aren’t a one-time thing either, he said.

“As technology that’s being deployed changes, regulations also change,” he said.

Mike Krancer, an attorney with Blank Rome LLP in Philadelphia and former secretary of Pennsylvania's Department of Environmental Protection, was recently engaged by an oil and gas company client to travel to Australia and talk about Pennsylvania’s regulatory framework for shale gas.

“I’ve always said that Pennsylvania was a benchmark for the world,” he said.

While he hasn’t been asked to go to Eastern Europe yet, he said such information exchanges would present similar business opportunities there.

Already, there are a handful of companies operating in the Marcellus that are also exploring shales the Ukraine and elsewhere. Chevron Corp. and Royal Dutch Shell each signed multibillion deals with the former Ukranian government last year.

Ukraine estimates that by 2030, its shale reserves could produce between 99 billion cubic feet and 392 billion cubic feet of natural gas. Even the high number, which would require drilling 1,000 shale wells, is just more than half of what the country now produces from conventional gas wells.

Because the shale resources are largely unexplored, the promise is tentative and subject to companies’ capital budgets and risk tolerance. Talisman, Marathon, and ExxonMobil, all Marcellus operators, recently pulled out of Poland citing uneconomic quantities of gas.

Chevron, which has sprawling bids all over Eastern Europe, has had setbacks as well. After winning a concession to explore for shale gas in 2011 in Bulgaria, the country’s government rescinded the offer when its parliament banned fracking. Chevron pulled out of Lithuania last year citing unfriendly regulations, and local opposition stalled its exploration in Romania, where the company holds more than 2 million acres.

Still, Eastern Europe is an area of great interest to the company, said Jim Dawson, who handles policy, government and public affairs for the California-based energy company.

Chevron has 1.1 million acres in Poland and began drilling exploratory wells there last year. As it gets closer to drilling, Mr. Dawson said, the company will evaluate the expertise available locally and may look to its current network of contractors.

The company prefers to hire locally, and some of its agreements with foreign governments stipulate that, but “the reality is in some of the more technical work that needs to be done, if you can’t find that in country, you have to bring that outside.”

Mr. Dawson said it’s too early to tell if the conflict in the Ukraine will speed up exploration in Eastern Europe.

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