In what is becoming a standard give and take in Pennsylvania, the Marcellus Shale industry released a study last week showing how its economic importance in the state is growing and critics dismissed the findings as overstated.

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 found that increased spending correlated with higher production levels, lower unemployment rates and higher tax revenues for states and cities, and that 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.

The study updates previous economic impact reports that Penn State released in 2009 and 2010.

Those studies have been called into question in the past 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.”

By 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 already a net exporter of natural gas. By 2020 the Keystone State could produce 17.5 Bcf/d, surpassing Texas, according to the study.

The figures suggest Pennsylvania is getting more production from fewer wells, something Klaber attributed to “innovation in a period of months,” specifically higher yields from longer laterals and improved hydraulic fracturing techniques.

That development 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 that should grow through the decade, according to the report.

The Pennsylvania Budget and Policy Center (PBPC), a nonpartisan think tank, is skeptical. “Overall, we welcome the gas industry’s contribution to Pennsylvania’s economy, but with this study, the industry continues to overstate the economic benefits and underestimate the costs of increased drilling in the Marcellus Shale,” Director Sharon Ward said last Wednesday.

Ward pointed to Pennsylvania Department of Labor and Industry statistics counting fewer than 19,000 direct employees in core Marcellus industries last year. Those “core” industries refer to six job categories crucial for development, such as extraction jobs, but the state also considers 21 “ancillary” industries, like trucking (see NGI, June 27; June 6).

The study gave the Marcellus industries credit for directly creating 67,000 jobs in all industries in the state, not just those 27, through “purchases of goods and services, their royalties to landowners and tax payments” and reached its 140,000 total by including the “indirect and induced” impacts on businesses ranging from hotels to health care to recreation.

“The study also inflates the amount of tax dollars generated by the industry,” Ward said. “The study attributes $1.1 billion in state and local taxes to industry activity in 2010. This is much higher than a recent Department of Revenue report that attributed $219 million in 2010 state tax payments to the gas industry and its affiliates.” That state report found that natural gas development companies in Pennsylvania paid more than $1.1 billion in state taxes since 2006 (see NGI, May 9).

“The study also suggests that a drilling tax or fee will deter investment in the Marcellus Shale,” Ward said. “That has not been the case in places like West Virginia, Texas and Arkansas. All three states have drilling taxes and led the nation in new gas wells in 2010, well ahead of Pennsylvania, without a drilling tax.”

The study pointed to tax breaks that Texas, Arkansas, Oklahoma and Louisiana offer during the early years of production, when shale wells typically produce at high rates. Some lawmakers have challenged that break in Texas (see NGI, April 4). The study also concluded that the lack of a severance tax in Pennsylvania offset higher operating costs in the state.

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