Study projects boost in Marcellus shale jobs, economy

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, July 22 -- Development of Marcellus shale natural gas could create 280,000 jobs and add $6 billion of federal, state, and local tax revenues over the next decade, a new study commissioned by the American Petroleum Institute concluded. But the growth could be less if state and local governments dramatically increase taxes or impose very restrictive regulations, its author warned.

“Striking the right balance involves looking at all the costs of production,” said Timothy J. Considine of Natural Resource Economics Inc. in Laramie, Wyo. “My recommendation is to get this industry established and let it grow. It will generate additional revenues for economic activity.”

There are many more shale gas plays worldwide as well as in the US, and producers are comparing their economics with those of the Marcellus as they make their exploration and production decisions, Considine warned in a July 21 teleconference with reporters.

“It’s a very different world in 2010. Gas companies can move their chips to other parts of the table,” Considine said. “If too many taxes are imposed, drilling moves elsewhere. We’ve seen this in the United States: Drilling is down in the Rocky Mountains, it’s falling in parts of Texas, and it’s growing in the Marcellus.”

State policies affect activity within the three-state Marcellus region itself, where most of the 57,000 jobs added in 2009 were in Pennsylvania and West Virginia, and not in New York, which has a de facto moratorium on horizontal drilling, he said. Growth was greater in Pennsylvania, which does not have a severance tax, than in West Virginia, which does, he indicated.

Second-largest
The report noted that some estimates place recoverable gas reserves in the formation, which extends from New York’s southern tier across Pennsylvania and into West Virginia, at 489 tcf, placing it second in the world only to the Pars field in Qatar and Iran.

“It’s an exciting development for East Coast energy. A lot of people from New York to Washington have no idea there’s a supergiant gas resource 150 miles west of where they live,” said Considine, adding, “Even under rapid development out to 2020, production would use up only 8% of the reserves in the region. The Marcellus is going to be around for years to come. I view it as a generational resource that will be around well into this century.”

The study is the first to examine Marcellus shale economics in all three states, he noted. It used an economic model developed by the Minnesota-based IMPLAN Group Inc. and produced low, medium, and high development scenarios ranging no change from current state policies to adoption of policies encouraging aggressive development.

Under the low development scenario, New York’s de facto horizontal drilling moratorium stays in place and drilling modestly expands in Pennsylvania and West Virginia from roughly 1,100 wells in 2010 to more than 1,700 wells in 2020, increasing production to 4 bcfd. This would generate $9 billion in value added and more than 100,000 new jobs in 2020, or roughly 12 jobs for every $1 million of value added, according to the NRE study.

In its medium development scenario, modest development begins in New York in 2011, reserves per well are higher, and the pace of future drilling is faster. This would push production to 9.5 bcfd in 2020, generating more than $16 billion in economic output, almost $4 billion of additional tax revenue, and more than 180,000 jobs.

Behind Texas
The high development scenario’s greater level of activity stays within the realm of possibilities based on recent experience in the Barnett shale play in Texas, the NRE study said. In this case, the level of activity could generate almost $25 billion in value added and more than 280,000 jobs. More than 18 bcfd of gas would be produced, making the Marcellus the largest US producer behind all of Texas, the study said.

Considine said the study considers New York development along the state’s southern tier only outside New York City’s watershed and the Delaware River basin. The counties are modestly populated, similar to those in Pennsylvania immediately south, where development of the Trenton deep gas formation already has produced economic benefits, he said.

“We only considered environmental cleanup costs to the extent that companies reported that in their cost data,” he said, adding, “In previous studies, we collected detailed information including collecting and disposing of recovered frac water. We did not consider costs in terms of environmental quality degradation. There are widely differing values you can place on these damages.”

Considine noted that in the Barnett shale play, there are thousands of wells in city parks, residential areas, and other places in the Dallas-Fort Worth region. “Part of the problem with the Marcellus is that people in those parts of Pennsylvania are not used to this level of development,” he said. “I think the industry needs to educate them to place this in perspective.”

API has been trying to do exactly that. “We’ve been going out and trying to get the facts out about this development to counter the misrepresentations other organizations have been making,” said John C. Felmy, its chief economist, who also participated in the teleconference. “We admit that incidents have happened, that any incident is one too many, and that we have standards and practices designed to avoid them.”

Local services
Impacts on demands for local governmental services won’t be as great as in several rural parts of the US West in the 1970s when several large electric utilities constructed coal-fired power plants, he and Considine maintained. “The comparison of size is important. The difference between building a 1,000-Mw power plant for billions of dollars and these gas wells in million-dollar terms is substantial,” Felmy observed.

“These wells are continuous economic contributors, with ongoing activity. It is qualitatively different,” Considine added. “That’s not to denigrate the difficulties and adjustment. But thinking of this in boom-town development terms is not quite accurate.”

He said the study forecast job growth through three different channels: directly in the oil and gas industry, indirectly from a chain of outlays in supporting industries, and economic growth from property owners’ royalties and new jobholders spending money from their paychecks and paying taxes.

“Maintaining production from these wells will be like running on a treadmill,” he predicted. “Slowing down drilling and production would negatively impact employment and economic growth. If governments pursue policies that encourage the development of natural gas, the ultimate benefits to the economy, the tax base, and society would be significant.”

Federal water regulation is not needed, added Stephanie Meadows, an API senior upstream policy advisor, who also participated in the teleconference. “The states are doing a proper job. We developed guidance documents to help them, but the states are acting on their own,” she told reporters. “Many members in the Marcellus are not API members, so our guidance documents are designed to help them. The events are few and far between. There’s no need for another layer of oversight.”

Felmy recalled seeing seismic crews collecting data when he was growing up in Pennsylvania and wondering what they were finding. “Now we know, and it was impossible to produce until recently,” he said. “There’s no question that the resource is a wonderful play. But developing the gas is only the first step. You still have to get pipes through those hills to the trunk lines, and you have to cross bodies of water. Pennsylvania has several major trunk lines already, but enough additional costs could tip the scales.”

Contact Nick Snow at nicks@pennwell.com.

Related Articles

Magellan, PAA form Saddlehorn crude pipeline joint venture

02/27/2015 Magellan Midstream Partners LP and Plains All American Pipeline LP have formed Saddlehorn Pipeline Co., a 50-50 limited liability joint venture, to...

Recent CSIS report outlines main US oil infrastructure challenges

02/27/2015 The US crude oil renaissance has created strong demand for expanded US transportation systems, resulting in five primarily challenges, a recent Cen...

PetroChina mulling sale of its stake in Arrow CSG

02/27/2015

PetroChina is reportedly considering selling its half of Arrow Energy’s Queensland coal seam gas (CSG) resources.

Michie named Oil & Gas UK chief executive

02/27/2015

Deirdre Michie has been named chief executive of Oil & Gas UK, replacing Malcolm Webb, who will retire May 31.

MARKET WATCH: NYMEX crude oil prices swing down again

02/27/2015 The contract for US light, sweet crude oil for April delivery plunged by more than $2.80/bbl on the New York market Feb. 26 as volatility sent crud...

Low crude prices pressure Latin American producers, CSIS forum told

02/26/2015 Depressed crude oil prices are putting new pressure on Latin American producing countries to improve terms if they expect to attract outside invest...

Petroleum detected in fish tested after Yellowstone River pipeline spill

02/26/2015 Detectable levels of petroleum were found in tests of fish pulled from the Yellowstone River downstream from a broken petroleum pipeline near Glend...

Suriname bid round draws lackluster response

02/26/2015 The dramatic fall in oil prices is being blamed for the lack of interest shown by international oil companies (IOCs) in the deepwater offshore Suri...

House panel launches probe of DOS’s Keystone XL application process

02/26/2015 The US House Oversight and Government Reform Committee began an investigation of the US Department of State’s environmental impact statement for th...
White Papers

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected