Shale Energy – A Unique Economic Development Challenge

Remember the old saying – “Be careful what you wish for”? Natural gas extraction and distribution from the Marcellus and Utica shale plays are creating unique challenges for economic development professionals in a five state region (Ohio, Pennsylvania, West Virginia, New York and Maryland). This is a very interesting economic development case study in the making. There will undoubtedly be learning that can be reapplied to help communities trying to manage major economic transformation of any kind.

I think every economic development professional should stay current on this emerging case study. Therefore, this will be the first in a series of blog posts on the subject.

What is a Shale Gas Play?

Shale is becoming increasingly popular as a source of natural gas. The key driver has been the invention of horizontal drilling methods that have made extraction of natural gas from shale deposits commercially viable.

Here is a quote I found that surprised me – “The development of shale gas is expected to significantly increase U.S. energy security and help reduce greenhouse gas pollution.” — White House, Office of the Press Secretary, 17 November 2009

I had not thought about commercialization of shale gas as a national security matter. But, upon reflection, it makes perfect sense. Energy independence will strengthen the global competitiveness of Brand America and the environmentally appropriate commercialization of shale gas can help reduce the nation’s carbon footprint.

The U.S. Department of Energy predicts growth in shale gas output can virtually eliminate imports for at least two decades. It breaks a long-term potential monopoly power of a gas-OPEC or a single producer like Russia to exercise dominance over large natural gas consumers. It reduces the U.S. dependence on Middle East natural gas supplies and limits Iran’s ability to leverage energy as a diplomatic strategy for increased regional power.

The U.S. Energy Information Administration estimates that the U.S. possesses 2,552 trillion cubic feet of potential natural gas resources. Natural gas from shale accounts for 827 trillion cubic feet (32%) of that amount. In 2009, national consumption of natural gas was roughly 23 trillion cubic feet. At that rate of consumption, there would be enough supply for 110 years of use (36 of those years would be from shale gas).

For perspective, there are a number of shale reserves in the United States that are (and can) being commercially developed. Here is the short list –

  • Antrium Shale, Michigan
  • Caney Shale, Oklahoma
  • Conesauga Shale, Alabama, Mississippi
  • Fayetteville Shale, Arkansas
  • Floyd Shale, Alabama
  • Gothic Shale, Colorado
  • Haynesville Shale, Louisiana
  • New Albany Shale, Illinois, Indiana, Kentucky
  • Pearsall Shale, Texas
  • Marcellus Shale, Ohio, West Virginia, Pennsylvania, New York, Maryland
  • Utica Shale, Ohio, West Virginia, Pennsylvania, New York
  • Woodford Shale, Oklahoma

You can see that shale reserves can be found in a number of states. That means many communities have the potential to be impacted by the development of shale gas, making it an important challenge for the economic development professionals in these areas.

Shale Gas Extraction and Distribution Means Jobs

A study by Penn State University concludes shale exploration created 29,000 jobs in Pennsylvania in 2009; another 98,000 estimated for 2010. Another study found 70,000 jobs were created in Texas through exploration of that state’s shale. Near-term job creation is one of the positive outcomes from the shale gas industry that can help transform a community from uncertainty to optimism. Although if economic growth is not managed properly it can take a community through a roller coaster ride from boom to bust.

Jobs associated directly with drilling gas wells are just one source of jobs. Industry Week published a paper on the job growth potential from the Tier I and Tier II supplier industry entitled “Marcellus and Shale Gas Energy Supply Chain.” There are also jobs associated with waste management. You can get a sense of the variety of jobs created by the shale gas industry by visiting this website.

Shale Gas Requires Quality Economic Development

The upside potential of shale gas is fairly clear. But, without effective economic development there is the potential for downside risk. A study by Cornell University in New York identified four important ones.

  1. Rapid increase in demand for government services, and local governments are typically ill prepared.
  2. The expectation of wealth works against economic diversification and increases the cost of doing business for other industries.
  3. Housing and labor costs rise.
  4. After the initial ram-up construction phase, many jobs may disappear.

These challenges will demand economic development professionals leverage all their skills to help guide their community’s readiness to ensure the economy doesn’t fall apart after the drilling stops.

If your community is directly affected by the shale gas industry, buckle up because it will be a fast ride and a lot of hands-on learning. If your community is not involved, take the opportunity to learn from your colleagues who will be dealing with some very interesting problems and opportunities. This is an amazing economic development case study in the making. Look for my next blog post on this subject in the near future.

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Supplemental Reading

Economic Implications of Natural Gas Drilling in the Marcellus Region

Study Suggests Businesses Benefiting from Marcellus Shale Development

Natural Gas Boom Brings Riches to a Rural US Town

Gas Drilling Having Substantial, and Sometimes Surprising, Economic Impact

Community and Economic Implications of Marcellus Shale Development

Nemacolin Energy Institute publishes a free newsletter to help you stay current on the news from the Marcellus and Utica shale gas plays. Just click on the subscribe button.

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6 Comments so far

  1. Perry Varnadoe

    June 1, 2011

    Just wanted to let you know that today I discovered your posts on Marcellus/Utica Shale and the relationship to economic development professionals. It is by far the best information I have come across on this topic.

    So many of us in the field, especially in rural areas, hear the footsteps of this phenomenon and don’t if it is hype or a real boom….and if it is boom, how to maximize the economic impact of it in communities. Your piece on this was excellent!

    Thanks again, and look forward to reading more.

    Perry Varnadoe
    Director
    Meigs County Economic Development Office

  2. Mike Jacoby

    June 2, 2011

    Ed,
    Thanks for sharing the good information. Muskingum County is starting to see the beginnings of the boom, and we hope our historic strength of the oil and gas industry and our central location will help bring more jobs and investment. Can you suggest a good source to identify prospect companies that will supply the Utica and Marcellus plays?
    -Mike Jacoby

  3. Joel Saeks

    June 2, 2011

    There is one thing missing from this, and that is the ecological impact. To get where these deposits are requires new roadways, the extraction process does impact the aquifers in the area often times destroying them and making them toxic for consumption. These sources are also finite. When the gas runs out what happens to these communities? I live in Wilmington where a couple of years ago the largest company left leaving 8000 people unemployed, and revenues down for all businesses.Yes it may bring in revenue in the short run but at what cost.

    If our country wants energy it is time to invest in alternative renewable clean sources. There is an easy source of methane constantly available it is waste both human and animal not to mention garbage. Most landfills now have methane running the power derived from the landfill. It is time for this country to stop looking for answers quickly and think also about the future. As one great person once said “To continue to do something the same way and expect a different outcome is the definition of insanity”. We need to stop being like little kids who want what they want now and learn to act more like adults and put off gratification after weighing all the options.

  4. Todd Shelton

    June 2, 2011

    Ed,

    I reiterate what Perry said. This is the best information I have seen on the topic of Marcellus/Utica Shale and the relationship to economic development professionals. I also look forward to future posts on this topic.

    Many Thanks,

    Todd

  5. Ed Burghard

    June 4, 2011

    Joel – Here is a link to an EPA study on the environmental impact of fracking. http://water.epa.gov/type/groundwater/uic/class2/hydraulicfracturing/wells_coalbedmethanestudy.cfm I hope you find it helpful.

  6. David Scrimgeour

    June 6, 2011

    This is a complex topic, not only from the economic development perspective. There is a great deal of opposition to this type of exploration and this Guardian article on what has been happening in PA makes for uncomfortable reading “Meet the families whose lives have been ruined by gas drilling”:
    http://www.guardian.co.uk/environment/2011/apr/12/families-gas-drilling
    A fundamental issue for EDAs is therefore the question of whether the economic benefits justify the environmental consequences for communities and individuals. And what are the long term benefits to the regions once the exploration companies move on, are there any?

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