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Shale: The next energy game changer Add to ...

After eking out a living for decades with a beef cattle operation on the rugged border of Pennsylvania and New York state, Fran Westcott has hit the jackpot.

In the oil industry equivalent to a claims rush, energy companies have been flooding into this long-depressed patch of rural Appalachia to tie up land in the gas-rich Marcellus shale. Last year, Mrs. Westcott signed a lease with Calgary-based Talisman Energy Inc. that will allow the company to drill for gas on the 210-hectare parcel in northern Pennsylvania where she grew up and her daughter now raises horses.

She reaped a $489,000 (U.S.) initial payment, plus the promise of future royalties.

But the 65-year-old farmer has yet to cash in on her 371-hectare property in neighbouring New York state, where she has lived for the past 12 years with her husband. Regulations in that state prevent energy companies from employing the technology they need to unlock the natural gas trapped in the shale rock thousands of metres below the surface.

Companies rely upon a drilling technique known as hydraulic fracturing that shoots chemical-laced water deep underground to crack open the shale rock so the gas can escape. They must then dispose of waste water that flows back up the wells.

Echoing concerns from residents across the region, Ms. Westcott fears that hydraulic fracturing will taint the aquifers that feed local water wells. "I am really concerned about the water - I think it's got to have an effect on the water when you start drilling like they're doing in Pennsylvania," she said. "I don't know how something is not going to happen because they have to go down through the aquifer."

The recent shale gas boom has been called a "game changer" in the North American energy picture. It promises to deliver abundant, cheap natural gas for decades to come. Utility companies are counting on it to generate electricity with half the greenhouse emissions of coal, while gas producers are touting it as the truck fuel of the future.

But energy companies will have to assuage the worries of voters like Ms. Westcott if they want to capitalize on shale gas's enormous potential. In New York and Pennsylvania, rural residents are struggling to figure out if the appeal of immediate cash and new jobs from the drilling boom is adequate compensation for the potential environmental effects of hydraulic fracturing.

The residents - and their elected representatives - are also grappling with the sudden industrialization of their communities. Many are demanding tougher environmental regulations and higher taxes that could slam the brakes on the development of a major new source of energy.

In Pennsylvania, where drilling activity is proceeding at a frenetic pace, some landowners and environmental groups are asking regulators to impose tougher rules to protect local ecosystems, while state politicians are considering levying a tax on shale gas transported out of the state.

New York is watching the boom from the sidelines while state officials review regulations that prevent high-impact drilling. Last month, the regulators declared off limits the Catskills area, which also serves as a watershed for New York City. The city - which draws its unfiltered drinking water from reservoirs in the region - had aggressively opposed drilling there.

The industry's biggest concern is that Democrats in the U.S. Congress will force the Environmental Protection Agency (EPA) to step in where state regulations currently prevail. The EPA has already launched a study on the impact of horizontal drilling and hydraulic fracturing on local aquifers, saying there is a "lack of scientific information" to verify anecdotal complaints about groundwater contamination.

"If the federal regulator decided it is going to step in to regulate the development of shale resources, it would put a huge brake on the pace of shale resources development within North America," Paul Smith, Talisman's executive vice-president for North America, said in an interview.

Talisman is spending $1-billion this year to drill the Marcellus shale in Pennsylvania and insists it can extract the gas without causing environmental damage, while providing much-needed jobs and tax revenues to the recession-battered state.

Prolific Pennsylvania

Pennsylvania is expected to produce four billion cubic feet a day of gas by 2015, according to Ziff Energy of Calgary. The total output could rise as high as eight billion cubic feet by 2020, according to a new study from Pennsylvania State University. That's more gas than would be delivered through the Alaska and Mackenzie Valley pipelines combined.

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