Landowners get windfalls from natural gas drilling

The rigs are gone now, but when the Hogans look past their backyard to a once-bucolic pasture, they see two round green tanks that separate the gas from water. Noting they earned just a $550 signing leasing bonus and expect about $50 a month in royalties, Gary adds, "It's not worth it."

Elsewhere, companies are borrowing Texas drilling techniques to tap an even bigger potential bounty in an Appalachian Mountain rock called the Marcellus Shale. Since 2004, about 35 companies have spent $4 billion drilling in a region encompassing Pennsylvania, western New York, Ohio and West Virginia, at first with little success.

In the past six months, Range Resources, the No. 1 player in the area, has hit 10 good wells in Pennsylvania, revitalizing the effort, says Range CEO John Pinkerton. Bonuses to lease land from farmers and others in the largely rural area have risen to $2,500 an acre from $300 in February, says Tom Murphy of the Penn State cooperative extension. Penn State geologists estimate the Marcellus contains at least 100 trillion cubic feet of gas in a 53,000-square-mile area, about four times the Barnett basin's and enough to supply the USA for about five years.

The Marcellus is especially valuable because it's in the Northeast, where a pipeline bottleneck has constrained supplies and nudged up natural gas prices.

To distribute all the new reserves, the industry is ramping up construction of pipelines to ferry gas to population centers. Last year, a record 14.5 billion cubic feet of pipeline capacity was added in the USA, the EIA says. Much of it transports gas from Texas to a Louisiana hub where it's dispersed to the Southeast, Northeast and Midwest.

Kinder Morgan, Sempra Energy and ConocoPhillips are building a $5 billion, 1,679-mile line from the Rocky Mountains basin in Colorado to Clarington, Ohio.

It's the largest pipeline project in the continental USA in the past 25 years. The Rockies Express, slated to be fully operating early next year, will largely carry gas to New York and other Northeast markets.

The increased flow will likely come at the expense of Western residents. As production ramped up in the Rockies last year without a similar increase in pipeline capacity, natural gas prices in Colorado fell as low as a nickel per 1,000 cubic feet, enough gas to heat an average house for two days. That led to a 20% drop in heating bills for customers of Xcel Energy, says spokesman Mark Stutz. But the opening of new pipelines has pushed local prices higher, and the Rockies Express could mean another 35% surge next winter.

Gaps in demand that can't be met by domestic reserves are supposed to be filled by LNG imports. In countries with plentiful supplies, such as Qatar and Angola, natural gas is chilled to minus 260 degrees, turning it into a liquid that's shipped overseas in tankers in 1/600th of the space. Shipments go to terminals in Asia, Europe and the USA that store the liquid in huge stainless-steel tanks, then convert it back to gas that's pumped into pipelines. The USA has long had four terminals, and LNG makes up 3% of U.S. gas supplies.

Foreseeing depleted domestic reserves, companies a few years ago planned a flurry of new LNG ports. Four opened recently and three more are slated by the end of 2009. Another 40 or so have been proposed; only a handful are expected to be built.

Changed outlook

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