Friday, September 13, 2013

Cattle, chickens and Marcellus Shale jobs

Fracking – the process of drilling new deep shale gas wells – is on the wane in Pennsylvania, at least for the time being, according to the Philadelphia Inquirer.

The number of drilling rigs in the state has dropped by half, the piece says. Companies are capping wells and even taking writedowns on the value of their leaseholdings. Far fewer water trucks are rumbling along the Northern Tier’s rural byways.

That’s all true, I have no doubt, but here’s the thing to keep in mind: New drilling may be down, but natural gas output in Pennsylvania is still rising very rapidly. According to the Pennsylvania DEP, drillers extracted 1.4 trillion cubic feet of gas from January to June 2013. That’s up more than 22 percent from the previous six months and up 57.2 percent year-on-year.

For that reason, this assertion in the article strikes me as bizarre, to say the least:

It's been a little more than two years since a then-new Gov. Corbett famously pledged to make Pennsylvania "the Texas of the natural-gas boom" - but already it's beginning to look as if the governor was all hat and no cattle, at least on this issue.

Say what?! Pennsylvania has gone from being a net natural gas importer as late as 2010 to producing 10 percent of the nation’s supply – during a period when many other states are equally hell-bent on increasing their production. We’re winning a race in which everyone has started running eight, ten, a hundred times faster than they used to. We’re caught up in one of the most rapid expansions of an industry in the history of the world, and we’re up in front.

And while much of this could have happened with someone else in the governor’s mansion, does anyone seriously deny that Corbett has been among the gas companies’ biggest friends, or that his efforts have helped them along? During the Rendell administration, industry spokespeople I dealt with seemed resigned to a severance tax. Under Corbett, they got an impact fee that touches them far more lightly, not to mention local zoning pre-emption (still under state Supreme Court review) and other goodies.

So where the heck does that “all hat and no cattle” notion come from? The answer I think, is that it’s an understandable misperception, given the pervasive overhyping of shale gas’s economic potential, particularly regarding jobs.

Reasonable analysts have consistently said Pennsylvania's jobs boost from natgas development would be modest – not negligible, particularly in rural areas, but not gargantuan either. They also noted that most of the work in gas extraction occurs early on - once you've leased and drilled the well and hooked up the pipeline, there's not a whole lot to do but let the stuff flow (or not flow, if the prices are too low). 

The data so far shows shale gas operations have created in the neighborhood of 30,000 jobs statewide, a number that is now plateauing. (See Page 14 of this report.) Not bad, but for comparison, the state’s workforce exceeds 6 million. You can parlay that 30,000 into hundreds of thousands of indirect and induced jobs, but only if you use implausibly large multipliers, or economic models that assume all royalties are immediately spent.

Shale gas boosters, however, have tirelessly promoted their industry as a solid, stable and ever-expanding jobs bonanza – jobs now, jobs in future, jobs everywhere, jobs forevermore. And no organization has touted that vision more than the Corbett administration. Shale, the governor has said, will be the engine of a Pennsylvanian industrial renaissance.

Well, if you're banking on generating economic utopia from an industry that, despite remarkable growth, still amounts to less than 0.5 percent of Pennsylvania’s economy, you’re setting yourself up for disappointment. And if that’s what you convince everyone else to expect, you're setting them up for disappointment, too.

This isn’t a case of “all hat and no cattle” – the expansion of natural gas extraction in Pennsylvania is real and significant. But the failure of the industry to live up to a level of hype that never made sense  – well, that may be a case of chickens coming home to roost.

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