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Marcellus Benefits Far Outweigh Environmental Concerns, Says Report

The economic benefits of developing shale natural gas resources in the state of New York are "enormous" and vastly outweigh the "small" environmental costs, according to a new report by the Manhattan Institute's Center for Energy Policy and The Environment.

"The Economic Opportunities of Shale Energy Development," which was issued on Tuesday, was compiled by Timothy J. Considine, who directs the Center for Energy Economics and Public Policy at the University of Wyoming. He previously worked at Pennsylvania State University (Penn State).

Co-author Robert W. Watson of Penn State also chairs the Pennsylvania Department of Environmental Protection's (DEP) Oil and Gas Technical Advisory Board. Nicholas B. Considine, also a co-author, is an analyst at Natural Resource Economics Inc.

"Our findings suggest that the current shale gas drilling moratorium imposes a significant and needless burden on the New York state economy," the authors said. "In short, the economic benefits of developing shale gas resources in New York state are enormous and could be growing, while the environmental costs of doing so are small and could be diminishing if the moratorium is lifted and if proper policies are put into place."

New York has had a de facto hydraulic fracturing (fracking) moratorium in place since 2008 after former Gov. David Paterson directed state regulators to prepare a supplemental generic environmental impact statement (SGEIS) to update drilling regulations (see Daily GPI, July 28, 2008). Paterson last December vetoed an outright fracking ban but extended until July 1 the SGEIS (see Shale Daily, June 1; Dec. 14, 2010).

State legislators also continue to push for a ban on fracking. Late Monday the state's Assembly approved legislation to limit fracking; the state Senate has yet to act (see related story).

The Manhattan Institute's report said the moratorium is a mistake.

"Directional drilling and hydraulic fracturing have unlocked vast new reserves of natural gas in the United States," the report said. "Development of these resources is now well under way in Pennsylvania and West Virginia. Unlike their neighbors to the south, however, New York residents are not directly benefiting from natural gas development as the result of a government-imposed moratorium, itself a response to environmental concerns surrounding hydraulic fracturing."

According to their research, the authors said the net economic benefits to the state from gas drilling would be huge:

The authors also reviewed the public records of environmental violations reported by the Pennsylvania DEP between 2008 and 2010, where extensive Marcellus Shale drilling is under way. The researchers then quantified the impact of these violations on land, water and air resources.

"The costs of these environmental impacts are then estimated on the basis of the value of the environmental amenities at stake," the authors said. "Our main finding is that the cost of these environmental impacts is far smaller than the economic benefits that drilling can provide."

As they explained, a "typical Marcellus Shale gas well generates about $4 million in economic benefits" while the economic damage resulting from the environmental impacts of a typical shale gas well comes to $14,000.

"The expected environmental costs are so low because the probability of an environmental event is small, and those that do occur are minor and localized in their effects," the report stated.

Environmental problems that have arisen in Pennsylvania in connection with fracking "in no way call into question the soundness of that procedure. In reality, they result from improper drilling and well-casing technique and defective formulation of cement. Such errors and flaws allow wells to penetrate shallow gas deposits, permitting the gas within them to escape and enter groundwater supplies.

"Marcellus gas resides far below these deposits and any aquifers. More stringent design standards should be adopted, and more active regulatory oversight should be exercised. These steps would reduce the incidence of such problems."

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