Natural gas development in the Pennsylvania Marcellus Shale has been economically beneficial, but maybe not as much as some studies have suggested, according to research by Pennsylvania State University.
Lead author Timothy Kelsey, an agricultural economics professor in the College of Agricultural Sciences, said the study, which was issued on Monday, looked at several aspects of Marcellus development that had not been considered in previous research. The study then assessed how these factors affected the overall economic impact.
"For instance, we examined where leasing and royalty dollars actually are going and how they are being spent," Kelsey said. "The economic impacts will be very different depending on how many dollars go to Pennsylvania households, to state and local governments, and to nonresidents.
"In addition, how many of those dollars are immediately spent by residents and how many are saved also will affect the impact, as will the proportion of wages being paid to out-of-state workers."
Several studies have been published in recent months about the positive economic impacts of the Marcellus Shale in Pennsylvania. A Penn State study commissioned by the industry-led Marcellus Shale Coalition in July said the energy industry had increased economic activity in the state by $11.2 billion in 2010 and had generated $1.1 billion in state and local taxes and supported almost 140,000 jobs (see Shale Daily, July 21). A separate report issued earlier this month said developing the Marcellus would add more than a quarter of a million new jobs to the Pittsburgh region and rebuild the manufacturing sector by 2020 (see Shale Daily, Aug. 18). In addition, another study published this summer said the gas industry in the state may need to fill almost 31,000 jobs to keep up with shale development over the next three years (see Shale Daily, Aug. 2).
However, Kelsey's team is not the first to discount the economic impact of the Marcellus. A Pennsylvania think tank in July said the economic importance of the shale play may be exaggerated (see Shale Daily, July 22).
In the latest study, Kelsey and his team compiled surveys of landowners, businesses and government officials, as well as a geographic information system analysis of land-ownership patterns among Pennsylvania residents, nonresidents and the state. The information was correlated with industry spending data to estimate the spatial distribution of gas company spending over time. The data then was analyzed to model the state's economy and estimate multiplier effects.
According to the results, Marcellus Shale development in 2009 supported between 23,385 and 23,884 jobs in the state and generated around $3.1 billion in economic activity, which included about $1.2 billion in labor income and nearly $1.9 billion in added value.
"These results are about half the size of those estimated in previous Marcellus economic impact studies, but this isn't surprising because we had more detailed information about leasing and royalty income," said Kelsey. "Our results confirm that where leasing and royalty dollars are going significantly influences the estimated overall impacts."
Only about half of the land in counties with Marcellus activity is owned by residents within those counties, he noted. Another 25% is owned by residents living elsewhere in Pennsylvania, and nearly 8% is owned by people living out-of-state. The remaining 17% is owned by the public sector, primarily the state.
"This would imply that a large portion of the economic benefits immediately leaves the communities being impacted by drilling," Kelsey said.
Researchers also looked at wages paid by the industry and where they are going.
"A recent Marcellus workforce study indicated that about 37% of Marcellus workers are non-Pennsylvania residents," said Kelsey. "We estimated two alternative scenarios -- 25% and 50% -- for how much of the payroll going to non-Pennsylvanians is sent back to their home-state communities. We also accounted for how their spending likely differs from typical resident workers."
The research team also found that the amount of lease and royalty payments spent or saved affects the gas play's immediate impacts. Landowners in Bradford and Tioga counties who live within 1,000 feet of active Marcellus wells were surveyed and the results suggested that leaseholders save or invest about 55% of leasing proceeds and about 66% of royalty payments in the year they are received, rather than spending them immediately.
"This means a significant portion of leasing and royalty dollars are not spent in Pennsylvania in the year received, reducing the potential economic impact in that year," Kelsey said.
The Marcellus boom's fiscal impacts on local governments' coffers, which also were reviewed, so far appear to be minimal. All 494 municipal governments in 12 Marcellus counties were surveyed, with 293 responding. Only about 18% of governments experiencing Marcellus activity said their tax revenues had increased and about 26% said costs had increased, especially related to road maintenance.
"To have a complete understanding of the impacts of gas development, you have to consider both revenues and costs," Kelsey noted. "These findings contrast with previous economic studies that predicted large local tax impacts but did not verify what actually is occurring."
Positive impacts were reported by local businesses in two counties, according to the study. About one-third of all responding businesses in Bradford and Washington counties reported increased sales due to Marcellus development; only 3% reported a sales decline.
"Businesses across the economy reported positive effects, though hotels, construction companies, transportation concerns, eating and drinking places, wholesalers and financial services firms were most likely to report higher sales," Kelsey said.
Researchers did not try to quantify other "important but difficult-to-measure" costs of Marcellus development, including effects on the environment and health. Future studies may look at these issues "as better information becomes available about their prevalence and extent," the report noted.
"The long-run implications of Marcellus Shale development are still unknown," Kelsey said. "We believe our results must be viewed as a preliminary, short-term view of the impacts of Marcellus Shale and should be placed in the broader context of these other important concerns."
The debate over economic benefits will continue as drilling activity for oil and gas in the Marcellus continues to grow by leaps and bounds, according to NGI's Shale Daily Unconventional Rig Count. For the week ending Aug. 26, the rig count for the play jumped from the previous week by 7%, or 10 rigs, to 158. The current drilling level marks a 27% increase from one year ago when 124 rigs were operating in the Marcellus.