Interview with Dr. Tim Kelsey – Professor at PennState University
Dr. Tim Kelsey is a Professor of Agricultural Economics in the Penn State College of Agricultural Sciences. He has authored several papers on the potential impact of the shale energy industry in Pennsylvania. I first became acquainted with Tim through his published work. I found his writing both thought provoking and a pleasure to read. It is Tim’s insight into this emerging industry that prompted me to reach out and interview him for the Strengthening Brand America Project. I think you will find Tim’s perspective extremely useful. After you’ve read this interview, consider reading Tim’s papers on the subject for even more insight.
Melissa Ward and Timothy W. Kelsey. “Local Business Impacts of Marcellus Shale Development: The Experience in Bradford and Washington Counties, 2010.” University Park, PA: Cooperative Extension, The Pennsylvania State University, 2011. 4 pages
Kelsey, Timothy W., and Melissa M. Ward. “Natural Gas Drilling Effects on Municipal Governments Throughout Pennsylvania’s Marcellus Shale Region, 2010.” Penn State Cooperative Extension. Marcellus Education Fact Sheet. 2011. Impacts on Govt Survey copy
Andrews, Eleanor, and Timothy W. Kelsey. “Downtown Business Communities and Marcellus Shale Development in Pennsylvania.” Penn State Cooperative Extension. Marcellus Education Fact Sheet. 2011. Downtown Businesses copy
Michele Rodgers, Neal Fogle, Timothy W. Kelsey, Stan Lembeck, Ross Pifer, Walt Whitmer, and Peter Wulfhorst. “Marcellus Shale: What Local Government Officials Need to Know.” Cooperative Extension, The Pennsylvania State University, 2008. 24 pages. Business Impacts copy
The discovery of a cost effective way to drill for and commercialize shale energy holds promise for helping America along a path to increased energy independence. But, with any industry reliant on non-renewable natural resources, in addition to economic benefit comes responsibility for appropriate stewardship. The current discussion on shale gas refers to the risk of a boom-bust cycle for communities impacted by the drilling. Can you describe what a boom-bust cycle is and what the negative consequences might be for a community if experienced?
There are three phases of shale energy commercialization and the potential impacts on a community are different in each. The first is the Development Phase. This is relatively short-lived (though it could be years) and labor intensive. It involves construction of the well pad, access road, and collection pipeline. It also involves drilling the well, fracturing the shale and reclamation of some of the ground disturbance. The second is the Production Phase. This tends to be long-lived but requires only a small and steady workforce. Activities in this phase involve trucking water and condensate from the well site, monitoring production and occasionally a partial re-drill of the well or a re-fracturing of the shale. The third and final phase is Reclamation. This is when the well is dismantled and the well site reclaimed.
During the Development Phase, a single well can involve over 400 people across 150 different occupations on a part-time basis. This translates to roughly 13 FTEs per well. In the Production Phase, the required FTEs per well drop to 0.18. The boom-bust cycle results from a community reacting to the impacts of the Development Phase created by a dramatic increase in population and demand for services, and not being prepared to adjust quickly enough for the precipitous decline associated with the Production Phase.
As an example, housing is a major challenge during the Development Phase. Skilled labor from outside the community is required for the drilling process. That creates a population inflow that can exceed the community’s housing capacity. As a result, rental costs for houses and apartments can rise dramatically, new hotels may be constructed, and the industry may build temporary housing for workers.
John S. Gilmore authored a paper in the Journal of Science 1976 describing the boomtown phenomenon. In it John says, “As population grows at boom rates, existing local services fall short of need. School classrooms, retailing inventories, housing, and the number of physicians in the community do not grow as rapidly as the number of people increases. Many people’s recreational requirements are not satisfied by the available opportunities. The quality of life in the community is degraded.”
Shifting from rapid growth for demand in services to an abrupt collapse of that demand is difficult for communities to effectively manage and without adequate planning often results in the community experiencing an economic boom-bust cycle.
I believe many of the risks to a community’s economic well being from shale gas development is predictable. What are some of the biggest concerns that local public and private sector leaders should be aware of?
There are a number of studies that have been done to describe the community impacts of the shale energy industry. One paper entitled “Marcellus Shale Exploration and Development: Organizing a Community Task Force” describes the impacts in 10 broad areas – environmental and natural resources, water resources, local infrastructure, sociodemographic changes, local economy, health and safety, consumer protection, legal and regulatory, local government, and local service demand. Community leaders need to understand the potential impacts and proactively plan to address them in order to effectively manage through the transition from the Development Phase to the Production Phase. Every community is unique, so strategies will need to be local.
A key is to not over build. There needs to be a workable balance between responsiveness to high demand during the Development Phase and the sustainable demand levels in the Production Phase. An example is building a hotel that a company can rent out for employees to live in that can later be converted to support travel & tourism in the area.
Can you share other examples where communities that have done a good job in working with the industry to help ensure the risk of a boom-bust scenario is minimized?
Finding ways for existing businesses to create a competitive advantage from having access to a low-cost and plentiful supply of energy is a real opportunity. One example is Procter & Gamble’s [http://thetimes-tribune.com/news/p-g-drill-site-generates-gas-to-spare-1.1024840#axzz1mU2bZbi6] Mehoopany plant that has its own wells to supply energy and is actually exporting excess natural gas to the market. This improvement in overhead cost structure helps ensure the long-term sustainability of local employment at that facility.
Focusing on attracting businesses that are related to the natural gas industry can be an effective strategy to stabilize job growth in a community. For example, companies involved in natural gas powered vehicle manufacturing or in the conversion of traditional gas vehicles to natural gas. Or, like the P&G example, attraction of manufacturing operations and/or businesses that can use natural gas as a low cost energy source.
How can communities benefit from creating a positive collaboration with company leaders in the natural gas industry?
There is evidence that Industry/Local collaboration has worked well on specific issues. However, there is also an issue of accountability. Often the industry does not see the cause and effect relationship between a given problem and their working in the area. Road damage and the need for repair are easy for the Industry to see culpability. But, rising crime rates and divorces are seen as a social issue not related to the industry. Locals however, simply know that before the industry started doing business in their community they never experienced issues of this nature in the numbers they are currently experiencing so in their minds cause and effect is very clear.
There is a strong need for and value in having a collaborative relationship between the industry and local leaders. Government officials indicate that when they engage with the industry government liaisons many problems can be resolved quickly and to mutual satisfaction. It is important for local leaders to really get to know these liaisons and to get the company involved with the community on multiple levels.
Community task force is another model of collaboration that seems to have promise. Diverse constituencies meet monthly to share information and address emerging problems. They talk about what is going on and they share facts to foster a common understanding. Quality moderation appears to be a key for success. It is also important to ensure every Group in a community with a meaningful interest is on the task force.
