Sunday, October 16, 2011

Gas drilling boom in Pennsylvania benefits economy but presents concerns

The Marcellus Shale, a vast rock formation stretching across several Middle Atlantic states and concentrated in Pennsylvania, contains extensive natural gas reserves. In recent years, drilling companies have developed techniques to unlock these gas reserves. One relatively new drilling method is called "horizontal hydraulic fracturing" or "hydrofracking," in which large volumes of water, sand, and chemicals are injected at high pressures to break through the rock formations and release the gas.

While some view this "gas boom" as both an economic windfall and vital energy source, others have mixed reactions. A
related blog post from fall 2009 details concerns of incoming drilling companies and the environmental effects of fracking on the author's hometown. Additional blog posts describe the hydrofracking in central Arkansas as well as attempted efforts to stop it here and here. The concerns regarding fracking have been primarily environmental reasons.

In a recent
article in the New York Times, Ian Urbina examines the economic effects of the gas boom in the small rural town of Montrose, population 1,843, in northeastern Pennsylvania. The gas boom has economically revitalized small towns such as Montrose. Hotels have expanded to accommodate workers, restaurants enjoy more customers, housing rentals have more than doubled, and businesses have emerged to supply various needs to gas companies.

Adam Diaz is one of the locals taking advantage of the new economic opportunities. He saw his business at the lumber mill and bluestone quarry dwindle during the economic downturn. Now, he hauls waste for gas companies. His workforce expanded from 30 to 180, and his business earns $45 million a year.

Other local business also saw opportunities with the gas rush. Local food wagons opened near drill sites, and some even sell "alpaca socks" for drillers who were unprepared for the cold climate. Bill Kelley Sr. and his son their expanded equipment-rental business to equipment sales. They report a forty percent increase in sales over the past three years due to the gas boom. As Kelley Sr. reminds us, "it was not the gold miners in California who got rich, it was the people who sold the shovels."

Statistics reflect the increased job opportunities. While the national average for unemployment was 9.1 percent in August and the state average was 8.5 percent, unemployment in the poor rural Susquehanna County in Montrose was 7.5 percent. George Stark reports on behalf of Cabot Oil and Gas Corporation, a major natural gas producer headquartered in Texas, that local entrepreneurs "created more than 400 industry-related jobs."

The economic benefits seem to ripple beyond Montrose. A recent
article on NPR reports on the gas drilling boom bringing "new life" to the steel industry in Youngstown, Ohio. The drillers in Montrose need thousands of feet of steel pipe to drill, and steel manufacturers in Youngstown will provide it. According to the Pennsylvania's Department of Labor and industry, "hiring for core-related industries" has increased from 5,501 in 2008 to 11,913 in 2011, a growth of almost 117 percent.

But while the benefits of gas drilling are attractive, the drilling is not without problems. Environmental concerns aside, there are issues regarding fracking effects in the long-run. While the gas companies have indeed created more jobs for local residents, many lack the skill set required for employment. According to Timothy W. Kelsey, professor of agricultural economics at Penn State, "more than half of the work force in Susquehanna County is employed from outside its borders." Local hostility towards outside workers is common. Strained tensions between local residents and out-of-state workers result because "everyone feels threatened."

Additionally, the fracking boom strains local services and infrastructure. As the article notes, "Pennsylvania is the only major gas-producing state that does not tax gas extraction directly." While gas companies pay certain taxes only to the state, they do not pay taxes to the counties, nor do they pay any local property tax. Furthermore, "very little of that tax revenue goes to local governments to help them share in the benefits of economic development."

There is also the question of whether the estimates of gas reserves are accurate. Ian Urbina's earlier series in the New York Times reports geologists significantly lowered estimates of shale gas reserves in
June and August 2011. The inaccuracy is problematic for lawmakers, landowners, and investors, who rely on long-term decisions based on these gas estimates. While the gas boom is touted as an economic gift to poor rural places such as Susquehenna County, the question remains unanswered: What happens to Susquehenna County in the long run when shale gas reserves run out?

Cabot Oil spokesperson George Stark does not seem to think this is "a bust-type situation." He predicts the company will continue drilling in Montrose for at least two decades and that wells will keep producing gas for three decades afterwards. But an owner of the Inn at Montrose does not seem to buy this assurance from the gas companies, saying "At some point they will finish and go away."

The shale gas drilling boom has undeniably brought short-term economic benefits to Montrose, Pennsylvania. It is difficult to say with the same certainty that these economic benefits outweigh the environmental harm and economic risks. In the meantime, researching the effects of hydrofracking from an economic angle in addition to an environmental one is imperative.


Namora said...

Hydrofracking is certainly on the rise. The last time I watched T.V., in the course of one hour, I saw two fracking commercials. One was by Conoco and the other by Chevron. Both commercials boasted the environmental benefits to hydrofracking. But this mining should raise concern among rural residents. Hydrofracking is related to serious public health, as well as environmental concerns. For example, the documentary "Gasland" demonstrates that fracking can cause horrible water pollution. In some of the rural communities featured in the documentary, the tap water can be lit on fire, due to fracking related pollution.

KevinN said...

Stories like these always make me wonder about the sustainability of resource-rich rural areas. They will certainly benefit in the short term but what happens when it is no longer profitable to continue the extraction or the resource dries up?

The information about the taxes being paid by the gas extractors in Pennsylvania was particularly interesting to me. In Nevada, there is a debate about the amount of taxes that mining companies should have to pay to the state. The pro-business politicians always seem to argue that the state should not try to impose higher taxes on the extraction industries, or they might pack up and take their jobs with them. However, in areas that are obviously as resource rich as Pennsylvania or Nevada, is that a viable threat? If there were really other places where the extraction industry could go to get at the resources, wouldn't they already be there? I think the fear of overburdening these industries is often overstated. I don't think that states should tax them out of existence, but they should certainly make sure that they are paying their fair share and that they are investing in the rural communities where they exist so that they can continue to flourish once there is no longer anything to pump out of the ground.

Hand Held Core Drill said...

The information about the taxes being paid by the gas extractors in Pennsylvania was particularly interesting..