New York's Natural Gas Fight

In 1764, King George ended a longstanding dispute between the colonies of Massachusetts, New Hampshire, and New York.

He proclaimed that the area now known as Vermont belonged to the New York colony, ever increasing his role in colonial affairs (a problem that would soon come to a head, as you well know).

When officials from New York tried to divvy up Vermont into counties and townships, locals formed together and fought back against New Yorkers, declaring they would form their own state or even their own country.

Settlers assembled militias to protect themselves from the government in New York and stay free of its laws.

In January of 1777, the Vermont Declaration of Independence was signed, giving the region independence as a state, which wouldn’t be recognized by New York until 1790.

Although many have tried, this is the only time a state has successfully seceded from its parent.

And it took the distraction of the Revolutionary War to make it possible. Every try since then has failed.

In my home state of Maryland, many citizens and government officials feel neglected in the Western region and have threatened secession, but they have found hardly any support.

Meanwhile, in New York, there have been several attempts to split the state so as to better serve voters who don’t live in New York City. All have been rejected.

But after a recent decision by New York’s Governor, parts of the state are threatening to secede once again…

Southern Towns are Desperate

Back in December, the newly re-elected governor Andrew Cuomo said New York would enact a statewide ban on hydraulic fracturing.

He made this decision after listening to a presentation on the effects fracking might have in New York. Cuomo said, “I will be bound by what the experts say.”

And the experts derided hydraulic fracturing as an environmentally irresponsible danger to public health.

One expert wrote that he wouldn’t allow his daughter to play in a playground in areas near fracking sites.

This all despite the fact that several other states have seen huge economic benefits from the stimulation fracturing provides.

Of course, jobs aren’t the end-all, be-all of deciding whether it’s right to do something — health and environment should be considered. But New York’s Southern communities are desperate…

These communities sit in what’s called the Southern Tier, a once-vibrant area that lies on the border of Pennsylvania. It was once home to companies like IBM, Corning, and Lockheed Martin.

Although some of these companies are still there, it’s mostly a formality, with many of the manufacturing jobs shipped abroad as corporations hunt for a smaller payroll.

Some towns can’t even afford police departments, while others go without crucial businesses like funeral homes.

With jobs and opportunity dried up, many communities in the Southern Tier were banking on Gov. Cuomo to allow fracking permits and help these towns rebuild.

But he decided to ban it. As a second blow, a state panel rejected a bid for a casino in the Southern Tier on the same day. Now the area is fighting for a final way out of the burdensome regulation of the Governor.

Much like the militias of Revolutionary Vermont — albeit much less violent — the people of the Southern Tier are fighting to join Pennsylvania.

And there’s no question as to why…

The Marcellus Effect

The Southern Tier sits on the crown of the Marcellus Shale formation, and the people who live there were hoping fracking would rescue them as it has for people in North Dakota, Southwest Texas, and Pennsylvania.

But with it officially banned in New York, lawmakers in the Southern Tier are surveying residents to explore secession into Pennsylvania, the neighbor who has seen the full benefits of hydraulic fracturing.

For example, Bradford County in Northern Pennsylvania has seen the taxable income of its residents rise by 25% from 2007 to 2011. 

So it’s very much visible to the people of New York that fracking is rescuing towns just across the border.

Pennsylvania sits on the Marcellus, and over the last few years, it has become the new frontier for natural gas production in the U.S.

As you can see in the chart above, the Marcellus was producing roughly 17 billion cubic feet of gas each day as of February. And that number is steadily rising, with the bulk of production coming from Pennsylvania.

The EIA estimates that the Marcellus has as much as 177.9 trillion cubic feet of natural gas resources, with 84 trillion cubic feet being recoverable now.

As technology improves, so too will the amount of gas harvested and the money brought in to stimulate Pennsylvania’s economy… all while New York sits on the sidelines.

It goes without saying that new technology will also help limit risks to the environment and public health. But Governor Cuomo doesn’t see it that way.

So residents of the Southern Tier will have to leave the area, hope the governor will change his mind, or secede into Pennsylvania — an unlikely prospect, as it hasn’t happened since 1777.

Plus, it would take approval from New York, Pennsylvania, and Congress for it to happen.

In the meantime, if you’d like to better understand how economically powerful hydraulic fracturing is, I suggest you take a look at the portfolio Keith Kohl and Christian DeHaemer have assembled.

In it, you’ll find a unique way to play natural gas in the Marcellus, pipelines in the Bakken, and even combat the effect of low oil prices on your investments.

Good Investing, 

Alex Martinelli

With an eye squarely focused on the long-term, Alex Martinelli takes the art of income investing to a higher level within the energy sector. His research has helped hundreds of thousands of individual investors identify well established companies that have a long history of paying out dividends to their shareholders. For more info on Alex, check out his editor’s page.