ENERGY:

A shale gas boom brings change and stress to a quiet town

WILLIAMSPORT, Pa. -- On a farm north of this old timber town that stretches out along the banks of the Susquehanna River, Perry Landon's 82-year-old mother confronts the promises and trepidation of a new era of energy wealth.

The 150-acre homestead in Tioga County where she lives has been in the family for generations. The dairy farm, apple orchard and streams inhabit Landon's memories and bind the family to northern Pennsylvania's Allegheny Plateau. Trapped in the clay and minerals deposited under his mother's property is a slice of the region's multibillion-dollar bounty of natural gas.

Williamsport (population 30,706) and its neighboring counties are ground zero for gas companies drilling into the deep geological formation called the Marcellus Shale. It stretches across West Virginia, eastern Ohio, Pennsylvania and southern New York, and it contains enough natural gas to meet the heating, electricity and industrial needs of the densely populated Northeast.

Today, as Landon tells it, a new phalanx of the deep-pocketed land speculators many thought left with the lumber barons a century ago are busy poring through land records and knocking on doors. These people aren't after forestland. They're trying to lock up the underground riches in the nation's largest emerging energy basin.

"For Mom, it's just overwhelming," Landon says. "She grew up in the Depression. Her parents were very poor. It's hard for her to get her mind around this amount of money, and that you would get it for doing nothing."

Gas is testing oil's position as the most sought-after energy commodity, as the global hunt for black gold faces technological limits, environmental risk and relentless political instability in oil-rich regions. Gas-burning electricity generators release half the greenhouse gases of conventional coal-burning plants.

For that, the fossil fuel has moved into the foreground of the strident U.S. energy debate, where natural gas has some bragging rights because it can lower power plant emissions tied to global warming.

But the industrial nature of extracting natural gas challenges the faith of conservationists concerned about the impact of the drilling boom. BP PLC's sunken Deepwater Horizon oil rig places in sharp relief the potential for disaster. In Pennsylvania and New York, the deep-sea Gulf of Mexico catastrophe has pumped oxygen into public concern about unrestrained onshore gas drilling and whether water and air quality are adequately protected under federal and state regulations.

Coal mining and timber harvesting ruled northern Appalachia for more than a century. Here, natural gas remains a bit foreign, an energy frontier. In some corners of the energy industry, tapping the shale gas has become every bit as enticing and adventurous as exploring in the Arctic and the deep waters of the Gulf of Mexico.

The gas rush has generated a frenzy in the region over the past two years. The desire to buy land and buy it fast, before the drilling begins, is every bit as strong to some in rural Pennsylvania as the housing bubble was in cities and suburbs across America. That bubble burst. Whether this one will remains part of the adventure.

Weighing the virtues against the risks

Late last month, Massachusetts Institute of Technology researchers said there appears to be about 650 trillion cubic feet of recoverable shale gas under the United States. At today's consumption, that resource could supply the nation for almost 30 years. But the MIT team cautioned against irrational exuberance. The gas exists in hard-to-model subsurface pores, and the kind of historical data and reliable methodology that predict the performance of conventional gas fields don't exist yet for the shale.

At the unveiling of the two-year gas study, team co-chairman Anthony Meggs reminded a Washington audience that only about 1 percent of shale gas potential has been produced. Much of that has been in Texas, where drilling is well established. And there are a lot of open questions: "How much is there? Will it be productive? What are the characteristics that make it productive? What recovery factors will we achieve?"

"There's a lot of upside, but there's also a lot of downside," he said. "The resource estimates assume that wells will last for 30 or 40 years. Well, actually maybe, or maybe not."

But for gas companies operating in Pennsylvania and New York, tapping the potential of these organic-rich shale deposits has become a near-obsession. The industry has spent millions of dollars in 2009 and 2010 raising its profile. TV commercials extol the virtues of "cleaner-burning" gas for power generation and natural gas vehicles.

New industry groups, such as America's Natural Gas Alliance and the Marcellus Shale Coalition, lobby state and federal lawmakers for market incentives. From public relations shops in Washington, Dallas, and Harrisburg, Pa., the gas industry blasts out e-mails that respond to opposition groups protesting industrial air emissions, water use, methane leaks, waste pits, toxic chemicals and explosions that come with extracting gas from 8,000 feet underground.

Opposition to this industrial juggernaut has halted near-term prospects for drilling gas wells in the Catskill Mountains and Delaware River watershed that supplies New York City. In Pennsylvania, public anger about an accident in early June that spewed gas- and chemical-laced wastewater for 16 hours has pushed Democratic Gov. Ed Rendell's administration to toughen its stance against the gas industry.

Meanwhile, a debate rages on in Pennsylvania about the true economic impact of the latest boomtown industry. "This is a billion-dollar industry going after a trillion-dollar asset. Opposing it would be silly," says Jon Bogle, who leads a Williamsport-area citizens group called the Responsible Drilling Alliance. "But people aren't aware of the risks to the environment."

A quiet economic boom has emerged out of the hollows of Tioga, Bradford and Susquehanna counties. Williamsport sits just south of there, and its 31,000 people make up the biggest town in this corner of gas country.

There, real estate and industrial space going for a premium blunt the impact of the worst American recession since the Great Depression. Williamsport and the countryside that hugs the Susquehanna are the regional hub for a growing list of gas producers, contractors, engineers and oil-service companies.

"We want blue-collar jobs, gray-collar jobs and white-collar jobs," says Jason Fink, executive vice president of the Williamsport-Lycoming Chamber of Commerce.

'Mailbox millionaires,' roughnecks and speculators

The Marcellus has changed the fabric of daily life. Language has been created. "Mailbox millionaires" quietly spend their riches. "The influx," which used to describe the emigration of low-income residents escaping Philadelphia's urban decay, now describes the roughnecks and engineers purchasing higher-end downtown apartments.

Hotels in Williamsport fill up during the week with drillers, contractors and businessmen. In the evenings, the out-of-towners line bars at the Bullfrog and the Old Corner Hotel. There, on one Wednesday night in May, two young oil and gas-service workers from Calgary lamented the "act of God" that sent methane gas up the BP well, engulfing the rig in flames on April 20. The blowout preventer at the bottom of the sea failed, the same piece of equipment used to seal off an onshore natural gas well.

One of them, a lanky roughneck, finishes smoking a Marlboro Red out on the patio. He ribs another Williamsport entrant whose boss has recently transferred him here from New York, where opposition to drilling has effectively shut down the shale gas business.

The job of one of the men from Calgary is to carve out a niche and train a small office. "We're not here to take people's jobs," he says in a gravelly voice.

In Williamsport, Chesapeake Energy Corp. is behind many of the land men and the speculators. Rumors abound that Chesapeake has been willing to pay north of $7,000 an acre for prime acreage in northeastern Pennsylvania. For some companies, that climbs to $11,000 an acre for areas of central Pennsylvania experiencing their first blush of freewheeling resource capitalism.

Chesapeake and other prominent drillers such as Anadarko Petroleum Corp. have looked for ways to build goodwill in the community. Anadarko, for instance, hired a former Williamsport mayor to act as liaison to landowners and city officials.

Shining up the Rust Belt

Late last summer, Sandra Rife received an unexpected phone call from Chesapeake. Would the Lycoming County Historical Society accept a gift of $5,000 from her boss, a Chesapeake executive? He's quite a history buff, the caller explains. "We scrounge for every penny we get," says Rife, the museum director. "It was vital."

Outside the museum, along the town's Millionaires' Row, a quarter-mile stretch of mansions built by 19th-century lumber industry barons, Williamsport shows signs of aging and renewal. The town has battled the boom-and-bust cycles of the American Rust Belt since the barons stripped the land bare and abandoned their opulent homes a century ago. Manufacturing jobs dried up in the 1990s. Warehouses sat empty as commerce trickled in and out of the rail yard.

Today, sand and equipment travel across northeastern Pennsylvania on the short lines and Norfolk Southern's mainline. Warehouses on the edge of town are larger than big-box Walmarts. People here say gas is going to replace a gradual 30-year decline in manufacturing, but they're cautious.

"Let's do natural gas but make sure we don't ignore our existing industries and don't ignore the need for developing new ones," says City Councilman Jonathan Williamson. "If a problem hiccups, you don't want to be the next coal town or steel town or auto town that just dies."

In the midst of a recession, Williamsport's real estate developers are revitalizing downtown, filling empty shops and rebuilding deteriorating landscapes. Spaces that sat empty for years are becoming upscale restaurants the owners hope will attract older gas industry patrons.

"This is the kind of place you'd expect to find in Georgetown, not the kind of place you'd expect to find here," Williamson says, talking about a first-floor martini bar and second-floor loft development.

Gas companies are making audacious payments to landowners with prime property on top of the shale formation. Through 2011, according to industry figures, payments in the form of upfront bonuses and leases for gas exploration are expected to surpass $6 billion.

What people talk about over beer

There isn't a lot of flash in Williamsport. People buy new cars and tractors and put the rest in the bank. Still, envy is natural, says Bonita Kolb, a business professor at Lycoming College. If a neighbor leases her land ahead of another, it doesn't go unnoticed. "That's what people talk about over beer," she says.

The land speculator who toured the Landon farm last year offered almost $400,000 for the property. The offer dwarfed the $500 per acre paid out by an energy company six years ago for the mineral rights. On the advice of an attorney, the Landons kept the land man at bay, turning down offers to buy the farm.

When production begins, the attorney tells Landon, the gas royalties will be in the millions of dollars. The largesse would pay for college tuitions and for the kind of security still rare in this mineral-rich part of the state.

Landon's father was born on the land, and the large Landon contingent of children and grandchildren still admire the stillness and isolation of Tioga County. When the hunt for gas-rich acreage started, his mother did the natural thing. She walked the friendly land man through the apple orchard and sent him off without a contract. At the time, she thought little of it.

But what he represents is inescapable. Today, the gas boom is a daily story in the local paper. "It has caused people's focus to be on something that it never was before, and it takes people's eyes off of what's really important," Landon laments.

His mother, at times, is overcome with stress. Money isn't the first thing on her mind. Her world has changed too quickly. People who feel the weight of a slow, jobless economic recovery are hopping on the drilling bandwagon. "But the environment, and a runaway industry without regulation, I think that concerns people," Landon says.

The legal hurdles to ensure taxes get paid and the anxiety of financial decisions are daunting. In a fit of frustration, as Landon tells it, his mother has said she might sell the land to the land man just to put it behind her.

For financial reasons and for sanity's sake, Landon wants the family to take it slow.

"None of us are suffering or wanting of anything," he says. "We want Mom to live through this with as much contentment as possible."

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