David Conti is the energy sector reporter for The Pittsburgh Tribune Review and also is an assistant business editor at the newspaper where he has reported for 19 years.  As leaders from energy and government gather in Philadelphia this week for Shale Insight 2015, Conti spoke with The Stream recently about what he sees ahead for the industry, where things stand with a severance tax and the growing need for infrastructure.

Q: How would you describe your beat?

A:  Wow, it’s very expansive.  I’ve tried to cover the entire energy industry for Pennsylvania and for the region here, so that obviously entails a lot of different subjects.  Shale grabs a majority of the headlines, but it’s always in the back of my mind and it’s a recognition of us at the paper in general that energy means much more than just shale gas here.

We’re still the number 3 producer of coal in the United States – we’re a huge net exporter of electricity in general.  We have 5 large nuclear power plants … you drive an hour east of Pittsburgh and you’re going to see wind mills dotting so many of the ridges.  And of course the electric grid is a very important part of everyone’s lives, so we really try to cover all of the energy industry as best as we can.

So really, my beat is to cover the latest developments in all of those factors and to really also focus on telling the stories of the people that are part of those energy sectors.

Q: In the beat you certainly have been a true observer of this huge industry in Pennsylvania –- around the Marcellus and Utica shale development. What are the biggest trends you see in the industry right now?

A:  In shale specifically, it seems like one of the biggest issues that everybody often talks about is infrastructure.  We seem to have entered that period where it’s been 10 years since Range [Resources] hit that first Marcellus well in Washington County. So now we’re moving into that phase where a lot of the focus is on infrastructure – pipelines and all the related equipment that’s needed.

To move, we know that we have all of this gas here now, so the question is how is the industry going to move that gas to where it can be used.  It seems that the infrastructure question then comes into play with so many of the other issues and developing trends in the industry – price, policy, and regulation. You look at the state, which recently formed a Pipeline Infrastructure Task Force for that very reason. The infrastructure issue is at the heart of so many of the other issues going on in the industry right now.

Q:  In terms of that, where do you see the capital investment headed in 2016 and beyond?

A:  From what we’re seeing, it certainly is going to be in infrastructure and pipelines and processing facilities.  Obviously many of the exploration and production companies have dialed back on capital expenditures in actual drilling and fracking of wells. Most companies that have cut their capital expenses this year have also talked about potentially doing the same next year – or many of them have at least. We are going to see a little less money spent on that drilling than exploration and production. And probably more industry wide we’re going to see more on finding ways of moving that gas. Because again, if you can move the gas then that will take care of the prices issues that are holding them back on the drilling.

With that said, certainly hearing a lot more from some companies here in southwestern Pennsylvania – companies with operations here in southwestern Pennsylvania – who are talking about putting more emphasis on exploring the Utica Shale. Just yesterday, Consol Energy CFO David Khani spoke at the Barclay’s Conference and talked about real excitement about Utica and exploring that, and we heard the same in recent conference calls and recent earnings calls with Range Resources and EQT [Corporation] as well. That they’re really looking at that dry Utica as a way to get huge amounts of gas from the ground with just fewer wells, possibly stacked on top of where they already have Marcellus wells and where they already have the infrastructure in place.

Q: And in terms of the infrastructure, there are a lot of pipelines that are in the works.  How do you think these projects will impact the future of the industry in Pennsylvania once they’re completed?

A:  It will certainly open up new markets.  I think the only thing from what I can see and what I’ve heard that’s holding the industry back right now – the thing that’s keeping them from exploring further and producing more – is not being able to get that gas to the most lucrative markets out there.

The pipelines that are on the drawing board, or even being built right now, really are directed towards some potentially lucrative markets.  I think we already saw it with the Spectra [Energy] pipeline that opened up recently some bi-directional flow that’s moving more of the gas from this area to the West, and hitting that Chicago market in time for winter. That Midwest market where they will really be able to use that gas for heating.

That’s why there’s so much focus on the Constitution Pipeline, getting that through New York and into New England, because there’s such a huge demand for that gas right now in New England.  In the coldest days of winter in New England, they’re burning oil, because they just cannot get the gas that they need up there. They shut down a nuclear plant and moved away from coal, so they really need the gas so badly that they’re burning oil.  I think that will have immediate impacts here when those pipelines come online, because it will give a place for that gas to go.  Basic supply and demand should dictate that – as demand goes up, and that pent up supply here in Pennsylvania drops, the prices will increase for those companies.

Q:  So you believe that there’s additional pipeline capacity — more pipeline is needed?

A:  That’s what I hear from a lot of people, absolutely.  A lot of analysts and companies continue to say that more is needed. I guess the question is, once what is forecast to be built comes online – and really that time period is said by many to be in the 2018-2019 period – once that happens will that be enough?  Will there be enough demand on the other ends of those pipelines at that point to build more?  Or will that be enough.  Who knows? It’s impossible to predict what will happen next year, let alone in four years when you consider what has happened in the last year or four years.

Q:  How has the industry changed and evolved in the way that it produces natural gas along with transporting it in Pennsylvania?

A: We hear all the time about the efficiencies and the new technological advances in the industry.  It’s changed greatly, just on how much they can get from a well for how much cost.  Both are heading in opposite directions – the amount a company will spend on drilling a well and completing fracking, completing connecting that well.

That price keeps going down, while the amount of gas that they can get from that well keeps going up. The companies perfect their technique of longer, lateral wells and being able to do it more quickly and more efficiently, and being able to hit that shale at just the right spot, and learning where to do it. All of those things keep adding up so every new well that’s drilled, aside from these super Utica wells that they’re still testing and toying around with, but every Marcellus well that they’re continuing to drill, they’re able to do it for less cost and get more bang for their buck.

Q:  What do you think the industry has been doing a better job at as it evolves?

A:  That’s hard to say.  Certainly, I don’t know if it’s better, but I’ve seen a lot more community engagement by companies where when they go into an area, there’s a lot of attention and focus on working with folks and landowners and local elected officials before they even start the process of signing leases and starting to put down their pads for drilling.  Much more focus than in the early days on that kind of front end community relations by a lot of the companies.

Q: That means more communities have a better understanding of what’s going on with the industry in their backyards?

A:  Sure. Sure and that’s really coming with experience.  Even if a community has not yet had much natural gas development, there’s at least an opportunity that they can look to a neighboring community to see what their experience was like.

I think there are some examples of that – making the process go a little bit more smoothly.  Certainly not all of the time – there are plenty of areas where there’s going to be some conflict.  There’s going to – be some people that do not want all of the things that come with natural gas development in their community.  We still do see that for sure.  There are still some hot battles going on in those communities, but we’re more often going to see – because it’s been a decade of this now  there’s more experience under the belt for a community to say, “Well this happened two miles away and it seems to have gone okay, so maybe it will be okay here as well.”

Q:  Switching gears, where do you see the Severance Tax debate going in Harrisburg?

It certainly remains a very hot topic of debate and of contention.  The only thing we’ve really seen was when the governor’s office first proposed the tax package and the plan it had three levels.  The 5 percent on what a gas company makes for every 1,000 cubic feet of gas, the additional fee on top of that  – I think it’s 4.7 cents if I’m recalling that number correctly – per 1,000 cubic feet, and then there was a price floor built in so that no matter what the price the company was actually getting for the gas, the minimum level they would be taxed at would be as if they were getting, I think it was $2.97 per 1,000 cubic feet.  There were three layers to the proposal.

What we have seen is that that price floor, according to Governor Wolf, is off the table.  At least in one of the communications that the office made with the industry, it said we have removed that from the proposal.  There’s still the 5 percent and the flat fee per 1,000 cubic feet.  A lot of folks that I and my colleagues have spoken with here, while this impasse has dragged on, have identified that per 1,000 cubic foot fee as another possible way of negotiating a deal on this.  I don’t know if that has actually been floated at this point. The public language that we’ve heard from both sides is that both sides appear to have dug their heels in on this issue.

Q: What is your take on the market growth for natural gas in 2016?

A:  In 2016, I don’t completely know.  I know I’ve seen some estimates and heard from some folks talking about some more demand growth.  Clearly there are still a lot of natural gas-fired power plants being built or there are power plants that are switching to having the ability to burn both coal and natural gas at their power plant. From what I’ve heard from analysts that continues to be the big target for where demand growth is going to happen. Whether that happens in 2016, or if it’s more in the 2017-2018 realm, it might still be a couple years out.  When PJM, the operator of the regional grid, did its recent auction for baseload in 2018-2019, there was a lot of talk in those discussions about more companies building those, putting the gas turbines at their power plants.  So that seems to be a market for growth, for demand for natural gas over the next couple of years.

Q: What are you hoping to get out of the Shale Insight Conference?

A:  Shale Insight is always a great opportunity to get some face time with really, the deciders.  The movers and shakers of the industry.  It’s also a great time to open the window a little bit and see what’s going on in the industry.  To hear what they’re talking about, you get little nuggets of trends of what’s going on technologically.  Those efficiencies that we were talking about and technological developments that allow them to get more gas out of the ground with less money up front, it’s very often at those conferences that you can hear about that. Shale Insight is a really great opportunity to hear and see what’s going on in the industry and also to see and speak with the people that are behind it all.