Economic activity in the Marcellus Shale quadrupled between 2008 and this year, according to an industry-backed study released Wednesday.
Industry spending in the Pennsylvania portion of the play jumped from $3.2 billion in 2008 to an estimated $12.7 billion this year and could top $14.6 billion in 2012, according to a Pennsylvania State University study commissioned by the Marcellus Shale Coalition.
The study updates previous economic impact reports that Penn State released in 2009 and 2010. The studies in the past have been challenged for being commissioned by industry and compiled almost exclusively from industry information, but Marcellus Shale Coalition President Kathryn Klaber said, "Every shale play worth its salt has hired some third party to do an economic assessment. This one is no different. It is relying on facts and figures, not on biased information in any way," adding that the study is not meant to be a "policy paper."
That increased spending correlates to increased production and economic benefits, the study found. Barring a significant drop in prices, the Pennsylvania Marcellus alone could become the most productive natural gas field in the country, accounting for 25% of domestic supply.
Through the end of 2010 the Pennsylvania Marcellus produced nearly 2 Bcf/d from more than 1,405 wells. The study projected that by the end of this year 2,300 wells could produce almost 3.5 Bcf/d -- making Pennsylvania is a net exporter of natural gas. By 2015 the state could produce as much as 12 Bcf/d from the Marcellus, making it second only to Texas for natural gas production.
And by 2020 the Keystone State could produce 17.5 Bcf/d, surpassing the Lone Star State, according to the study.
Those figures suggest that Pennsylvania is already starting to see higher production rates from fewer wells, something Klaber attributed to "innovation in a period of months," specifically longer laterals and higher yields from improved hydraulic fracturing techniques.
The report found that the Marcellus industry increased economic activity in Pennsylvania by $11.2 billion in 2010, generating $1.1 billion in state and local taxes and supporting nearly 140,000 jobs, figures the researchers expect to increase by roughly 10% this year and in 2012.
The report does not include the impact of the Utica or Upper Devonian shales, liquids production, increased midstream spending or the possibility that a stable natural gas supply could spur a local chemical industry and a revived manufacturing sector in Appalachia.
"There are a lot of benefits of shale gas development that are not in this estimate," Klaber said.
While lower natural gas prices in the wake of increased supply have made life difficult for operators, they helped lower energy spending among Pennsylvania consumers by around $633 million through lower natural gas and electricity bills, according to the study. And natural gas companies also paid more than $1.6 billion in lease and bonus payments to Pennsylvania landowners in 2010, the study found.
Quantifying the economic impact of the Marcellus is a key point in the debate over how to tax producers in Pennsylvania. Proponents of a tax believe the industry should do more to offset the local impacts of development and help fill revenue gaps, but at a speech in April Gov. Tom Corbett used the 2010 study to justify his opposition to a severance tax (see Shale Daily, April 27). "So the critics ask me: Why not a severance tax? I guess I respond: Why? They're paying their taxes. They're creating wealth. They're creating income," Corbett said.
The Pennsylvania Budget and Policy Center previously challenged those tax figures, saying that most companies used corporate structures such as limited liability corporations and limited partnerships to avoid paying corporate net income taxes in Pennsylvania.
Although it does not specifically consider the impact of a potential severance tax or impact fee on economic activity in the state, the study does note that "the absence of a severance tax in Pennsylvania along with citygate prices higher than the national average offsets higher costs associated with complex regulations, climate conditions, topography, higher labor costs and other structural factors."
The previous studies said the tax climate in Pennsylvania made it attractive for investment (see Daily GPI, July 28, 2009).
The Marcellus Shale Coalition supports an impact fee in concept, but has not endorsed any specific plan. While noting that many operators are already paying for road repair in the communities where they operate, "we do believe that there are some unmet needs," Klaber said.
The recommendation of the recently adjourned Marcellus Shale Advisory Commission included an impact fee (see Shale Daily, July 19).