The Promise of Shale Energy

Commercialization of shale gas is an interesting economic development challenge. As a Board member of the Nemacolin Energy Institute, I have a unique opportunity to study this phenomenon first hand.

Imagine one day your community’s economy goes from 0 – 60 mph in a heartbeat because millions of years ago pressures in the earth created a massive shale reserve 3,000 – 7,000 feet below ground. And now, a U.S. Geological survey estimates there is nearly 500 trillion cubic feet of natural gas for the oil and gas industry to work on commercializing. This is enough natural gas production potential to meet the total Nation’s demands for decades.

That is the reality for many economic development professionals in Maryland, New York, Ohio, Pennsylvania, and West Virginia. They are faced with helping their community deal with the challenges and opportunities presented by commercialization of natural gas from the Marcellus and Utica Shale reserves. Challenges associated with the drilling process (start-up and wind-down) and the social dynamics that arise when part of the community enjoys instant wealth, and the other part only experiences many of the negative impacts.

According to a Pennsylvania Department of Labor & Industry report, the shale gas industry creates jobs with annual salaries ranging from $27,000 (general laborers) to $102,000 (general & operational managers). Most of the new jobs have been created in the industries of “engineering services”; “highway, street and bridge construction”; and “oil and gas pipeline related structures”. In Pennsylvania, the seasonally adjusted unemployment rate for July 2011 is 1.3 percentage points below the U.S. rate.

According to a 2011 study published by Penn State Extension and Penn College –

“Our findings suggest that the economic impact of Marcellus Shale in Pennsylvania during 2009 ranged between 23,385 and 23,884 jobs, and $3.1 and $3.2 billion in that year. This included about $1.2 billion in labor income and almost $1.9 billion in value added to the Pennsylvania economy. In addition, there will be additional economic impacts of 2009 Marcellus Shale activity in future years as mineral right owners spend the leasing and royalty income they received in 2009 but saved for later use. These are large economic impacts, especially since much of this impact is occurring in relatively small counties. We did not estimate tax impacts of Marcellus Shale activity because we were not comfortable with the reliability of IMPLAN’s tax analysis.”

These are real, well-paying jobs that are fueling (no pun intended) a reversal of economic misfortunes. But, this job growth does not come without challenges and a lot of work for local private/public sector leaders.

The Penn State Extension and Penn College study calls out a number of challenges –

“Equity issues (and conflicts) about Marcellus Shale can occur at multiple levels, including within families whose members disagree on whether to lease, between neighbors who have different visions for the community and for quality of life, between the owner of the subsurface mineral rights and the owner of the land above that parcel, between newcomers and long-term residents, between traffic-impacted boroughs with few wells and surrounding townships with many wells, between regions within Pennsylvania (such as Philadelphia and upstream communities with Marcellus), and even between current and future generations.

A quick look at the Pennsylvania Governor’s Marcellus Shale Advisory Commission Report (7/22/2011) provides a reasonable overview of the many areas that public/private community leaders need to address –

  • Local emergency response, planning, coordination, training, equipment acquisition, communication and implementation.
  • Public safety, including police and fire protection.
  • Public water and sewer infrastructure extension.
  • Costs associated with inspection and long-term maintenance of road and bridge improvements.
  • Increased demand on social services, such as housing, domestic relations, drug and alcohol assistance and education.
  • County and municipal general land use planning.
  • Increased judicial system demands, including training, defendant processing and associated needs.
  • Environment remediation associated with natural gas development.
  • Community based projects to protect and restore land, wildlife, water resources and outdoor recreation opportunities.
  • Local conservation agency oversight.
  • State administered emergency response training, planning and coordination.
  • Public health evaluation, citizen and health care provider education, data collection and investigation.
  • State natural resource agency oversight, permit review and enforcement.

The work described in the Commission Report describes areas that need to be addressed to mitigate near-term impacts of shale gas commercialization in a community. But, there are also longer-term implications that need to be planned for to ensure the community is in a better economic position post depletion of the natural resource than they were prior to the start of drilling. If community leaders fail to address these areas, they risk creating an economic boom-to-bust cycle.

Some estimates for an average well lifespan are as high as 40-years. However, experience in the Barnett Shale Play suggests it could be as low as 7.5-years. On one level it doesn’t matter what the right number is. What matters is there is a finite lifespan that needs to be planned against, because when the shale gas is depleted employment will be negatively impacted.

Private/public sector leaders need to create 15 – 25 year strategic plans to guide the economic development of their community. These plans need to address what is required to manage the impact of the shale gas industry withdrawing from their community. This includes thinking through the challenge of retraining skilled labor and attracting capital investment from industries that can take advantage of the skill set associated with displaced natural gas industry employees who would rather not leave the community they love.

My personal belief is, given that the timeframe is well past any political cycle, this work must be led by the private sector and supported by the public sector. But, effective strategic plans need to be created and action plans developed to guide choices. Just as it “takes a village to raise a child”, it takes a community to create an effective plan to navigate through the challenges and opportunities created by commercialization of shale gas.

Discussion

I am attending the Tri-County Oil and Gas Expo in Farmington, Pennsylvania. It is being held at the Nemacolin Woodlands Resort, an absolutely amazing location for corporate events. If you have not visited the Resort, I wholeheartedly recommend it. I look forward to learning as much as possible and sharing that learning with you in future posts. This is an exciting economic development case study in the making. Done right, and I am confident it will be, the Marcellus and Utica Shale plays can be transformational for our Nation.

Here are some additional posts on shale gas you may find interesting –

Avoiding Fear Based Decision Making

Shale Gas Industry Community Impact

Energy Independence or Free Trade?

Managing The Jed Clampett Effect

Shale Gas – A Unique Economic Development Challenge

What Are Your Thoughts?

From an economic development perspective, how challenging do you feel the shale gas opportunity is? If you have already faced the challenges (e.g. maybe worked as an economic development professional in a community impacted by the Barnett Shale Play), what advice would you offer to colleagues working in the Marcellus and Utica Shale Plays? If you are aware of any community programs that might be considered a success model for dealing with a challenge like this, please share.

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Category Leadership, Place Brand Building, Shale Gas, Strategy

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5 Comments so far

  1. Diedra Freedman

    October 2, 2011

    Interesting opportunity for you to study especially since you are from Utica, NY and have first hand knowledge of what happens when a community fails to properly plan. Utica continues to suffer a multi-generational brain drain because there still are very few available skilled labor jobs. Most college educated residents continue to leave the area to pursue their careers. Maybe the communities of Central NY can learn from the findings of the Nemacolin Energy Institute and manage their shale reserves so that their communities do not create an economic boom-to-bust cycle. We can only hope.

  2. Christopher Miner

    October 3, 2011

    Make contingency plans in case water supply systems are harmed by drilling/fracking – there have been circumstances where fracking has allegedly harmed water supplies. Be sure to examine how these will be funded. Alternately, keep the fracking/drilling down gradient of existing water supplies.

    If the state so provides, harden up any unified field definitions so property owners can share in the benefits of extraction while they are at risk should an environmental disaster occur.

  3. Nadina Cole-Potter

    October 4, 2011

    Housing inventory. Be sure an influx of new workers doesn’t result in pricing out current residents. Some of the residents of flooded-out areas in the U.S. are having a terrible time finding housing because of new oil and gas development worker already there. Get the oil/gas developers to become lenders for new builds that would remain in CRE hands, not as corporate owned housing.

  4. Alan S. Michaels

    October 8, 2011

    Background: the drilling of the Marcellus Shale is big in PA…. coming soon to the NY area I’m in. Most people see the environmentalist’s red tape slowing the process of getting here, but the economic need to move ahead will ensure it happens. Governor Cuomo will take his time to satisfy the environmentalists – he will package the go ahead adding “safely” to every speech.

    In my view, slow and safe is a poor way to run a business – but sometimes it’s a good way for local government to operate. Our slow red tape will make it so we leverage PA’s mistakes – and the technology for the drilling is improving as well based on the experiences in PA.

    From a macro to a micro strategy point of view….. the impact of Marcellus Shale is expected to drive up real estate, new construction, added employment, and generally improve the economy of all the NY Southern Tier area. (It will also spawn a boom in lawsuits – and the law firms here are ready!)

    ___
    P.S. – this is a very informative site – thanks!

  5. Ed Burghard

    October 26, 2011

    Here is a link to a new study evaluating drinking water near fracking sites in PA – http://dailyitem.com/0100_news/x1415460160/Penn-State-study-evaluates-well-water-quality-near-Marcellus-drilling

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