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Kentucky lags in gas production

BY SEAN COCKERHAM Lexington Herald-Leader

WASHINGTON - The fracking revolution is not being kind to Kentucky's role as an American energy leader. It's helping to decimate coal while struggling to deliver a natural gas boom on par with neighboring states.

Kentucky's natural gas production more than doubled from 2008 to 2009. But the growth largely stalled in recent years, and analysts are saying the state isn't attracting the same interest from major drillers as West Virginia and Ohio.

Kentucky poses challenges that don't exist for drilling natural gas from the deep underground Marcellus shale rock in West Virginia or the Utica shale in Ohio, said Terry Engelder, an oil and gas industry consultant and geoscientist at Pennsylvania State University. The high pressure of the Marcellus and Utica shales helps in drilling for natural gas because it drives the gas into the wells.

"Only the shallowest of the gas shale layers are found under the surface in Kentucky. These layers don't have the pressure found in either the Marcellus or Utica," Engelder said.

There also are concerns that Kentucky shales aren't as rich in the profitable natural-gas liquids of ethane, butane and propane that drillers are finding elsewhere.

The desire for those liquids is what's driving the natural gas drilling in Pennsylvania, West Virginia and Ohio, said Brandon Nuttall, an energy and minerals geologist with the Kentucky Geological Survey.

"Kentucky natural gas has attracted continuous attention for the last 80-plus years, especially in eastern Kentucky," he said. "But it's not attracting the big-name players who are going after the volume of liquids in the other parts of the Appalachian basin."

The natural gas is drilled through hydraulic fracturing, or fracking, an often-controversial process in which water and chemicals are pumped underground to break up shale rock and release the natural gas that lies inside. In Kentucky, the wells tend to be fracked with a foamy mix of nitrogen and water, which requires the use of less water.

The national fracking boom is wreaking havoc on eastern Kentucky coal as it struggles to compete against the torrent of cheap natural gas that's pouring in from Pennsylvania and West Virginia.

Utilities took advantage of the low prices by switching from coal to natural gas in recent years. Central Appalachian coal production has dropped nearly 40 percent in the past decade, and thousands of people have lost jobs.

National Mining Association president Hal Quinn said this week that coal had suffered from a combination of environmental rules and cheap natural gas.

Natural gas prices have gone up of late, and Quinn said he saw coal resurgence in the Rocky Mountains, and in Indiana, Illinois and western Kentucky. But he's less optimistic about the Central Appalachian coalfield, which includes the century-old industry that has shaped the economy of eastern Kentucky.

Coal there is more expensive to mine, so it's especially vulnerable to the rise of natural gas, Quinn said.

"The Central Appalachian coalfield is going to be challenged," Quinn said at the Deloitte Energy Conference in Washington last week.

West Virginia's coal industry also has suffered. That state, though, is in the midst of a natural gas boom.

It's a different story in Kentucky. The commonwealth saw an enormous increase in natural gas production in 2009, rising in a single year from 114 billion cubic feet to more than 300 billion cubic feet, according to numbers from the Kentucky Geological Survey. But such growth didn't continue, and production stood at 298.9 billion cubic feet last year.

The price of natural gas has a huge influence on how many wells are drilled and what kinds of shales the oil and gas companies target. Kentucky is likely to see more interest if those prices rise further. The Kentucky Geological Survey is testing whether the New Albany shale in Western Kentucky might yield the profitable liquids that drillers are pursuing in nearby states.

"We know the shale is there and that it contains natural gas. We don't know that the New Albany shale contains economic volumes of liquids," Nuttall said.

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