2014.5.28 economic impactsfrackingcombined


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  • EPA: http://water.epa.gov/type/groundwater/uic/class2/hydraulicfracturing/wells_hydrowhat.cfm
    Picture: http://today.uconn.edu/blog/2011/12/fracking-%E2%80%93-good-news-or-bad-for-america%E2%80%99s-energy-needs/
  • Kleinhenz and Associates: Ohio’s Natural Gas and Crude Oil Exploration and Production Industry and the Emerging Utica Gas Formation, September 2011

    Reuters: http://finance.yahoo.com/news/u-shale-boon-manufacturers-not-063714236.html?fb_action_ids=10200946344916910&fb_action_types=og.recommends&fb_ref=facebook_cb&fb_source=other_multiline&action_object_map=%7b%2210200946344916910%22%3A114955512012914%7d&action_type_map=%7b%2210200946344916910%22%3A%22og.recommends%22%7d&action_ref_map=%7b%2210200946344916910%22%3A%22facebook_cb%22%7d
  • Who we are and the goals of the project
  • We saw rapid growth in rig activity in Pennsylvania, and a large decline, particularly as oil prices rose. So the family boom and bust cycle which we expect to play out in decades has occurred in just a few short years in PA, particularly in the Northeastern part of the state, you’ll hear more about that later in the presentation
  • Drilling activity is highly dependent on price of the commodity. Regulation and taxation do not appear to be a factor, activity increases when price goes up, and moves where prices are high. The case in PA and actually Arkansas now, as activity has moved to Ohio and the Bakken Shale in North Dakota.
  • Jobs are related to number of wells and where you are in well production. WVA slower growth, fewer jobs, as PA well development slows will see fewer jobs already seeing that in Northern Tier.
  • As you might expect, shale does not account for many jobs in Ohio, one might argue that it is because the industry is new.
    But let’s compare it to West Virginia, which has had a robust shale gas extraction industry for some time. Even in WV, this still represents a small share of total employment in the state, less than 1% in 2012. In Pennsylvania, the share is even smaller, just 0.4% of total employment.
  • We selected four counties, Tioga and Washington in PA, Carroll County in Ohio and Wetzel County in WV. All are poorer than state as a whole, higher unemployment, all are at the epicenter of drilling activity.
    How has drilling affected communities: government, social and human services delivery systems, communities. We looked at a variety of factors, crime, road impacts, housing, emergency services, education. Also looked at economic benefits, tax revenue, employment.
  • A group of graduate students at Carnegie Mellon university looked at how a 5% severance tax would affect drillers rate of return of their investments, looking at a typical well. They found that the tax would raise double what our current impact fee raises. It would have a small effect on the IRR, reducing it from 13% to 12%. Even in the conservative case return is close to 10%.
  • 2014.5.28 economic impactsfrackingcombined

    1. 1. The Economic Impact of Fracking in Ohio, Pennsylvania, and West Virginia May 29, 2014 Thank you for joining us. We will begin in a moment. Please check your speakers/phone connection. If you experience any problems, please let us know by typing in the chat box. Follow the OEC on Twitter: @OhioEnviro. The hashtag for this webinar is #OECwebinar
    2. 2. Amanda Woodrum Policy Matters Ohio Sharon Ward Pennsylvania Budget & Policy Center The Economic Impact of Fracking in Ohio, Pennsylvania, and West Virginia May 29, 2014 Melanie Houston Ohio Environmental Council
    3. 3. Ohio Environmental Council The OEC is the Ohio’s most comprehensive, effective and respected environmental advocate for a healthier, more sustainable Ohio. Our experts work daily to restore, protect, and strengthen the quality of life for families and communities—from the air we breathe and the water we drink to the food we eat and natural resources we enjoy. Please join us! OEC members:  Receive great benefits  Become part of the community working to restore, protect, and strengthen the quality of life for families and communities in Ohio. Become a member today at www.theOEC.org.
    4. 4. What is Hydraulic Fracturing? “Hydraulic Fracturing is a well stimulation process used to maximize the extraction of underground resources” (EPA)
    5. 5. What’s the True Economic Story?  Industry study (2011) by Kleinhenz and Associates predicted 200,000 jobs+ created in Ohio by 2015 and “economic output will increase by over $22 billion and wages by $12 billion by 2015”  Reuters reports(June 14, 2013): “state employment data, academic research and a week-long tour of half a dozen factories in Ohio suggests the shale gas revolution has been a disappointment when it comes to job creation”
    6. 6. www.policymattersohio.org Fracking in Carroll County An Impact Assessment
    7. 7. www.policymattersohio.org Multi-State Shale Research Collaborative • PA: Keystone Research Center, Pennsylvania Budget and Policy Center • NY: Fiscal Policy Institute • Virginia: Commonwealth Institute • West Virginia Center on Budget and Policy • Policy Matters Ohio • Advisory Group: Academics and Experts
    8. 8. www.policymattersohio.org Phase I • Review of literature on local impacts • Studies in regions where industry more developed Phase II • Case Studies • Ohio – Carroll County Phase III • Policy Development • Discussions, Best Practices
    9. 9. www.policymattersohio.org Project Goals 1. Develop and disseminate factual information on social, economic and fiscal impacts of natural gas drilling 2. Improve understanding about the size and character of social impacts 3. Help local officials anticipate, plan for, or avoid negative drilling related impacts 4. Improve capacity to factor actual costs and impacts into decision making
    10. 10. www.policymattersohio.org Research Methodology • Why Carroll County? Most active county in Ohio, most likely to have experienced impacts • Interviews: local officials, businesses and residents, informed by review of literature on shale development • Data where available • Media
    11. 11. www.policymattersohio.org Ohio Context • Ohio lags behind Pennsylvania and West Virginia in industry development. • As of the end of 2012 – Ohio: 270 wells – Pennsylvania: 6,245 – West Virginia: 2,120 • In 2013, # of Ohio wells, doubled, but still far fewer • What does this mean for us? We can also look to these states to inform expectations of impact
    12. 12. www.policymattersohio.org Economic Impact: Costs v. Benefits • Net Benefit or Net Cost: The overall local economic impact - positive or negative – will largely be determined by: 1. No. of Jobs & who gets them, temporary or permanent? 2. Local economic activity & how many of the dollars stay in the community 3. Royalties & the local share of them, and 4. Costs to the community, in the short run and the long term. • With dialogue, good policy and practices at state and local level, proper oversight, regulations and public investments we can help reduce costs and increase benefits
    13. 13. www.policymattersohio.org Economic Context • Fracking is occurring largely in rural communities • Struggling economically for decades • Population stagnating, young people leaving • Hard hit by the recession  Shale development has been “a shot in the arm”
    14. 14. www.policymattersohio.org Benefits • Signing bonuses and royalties • Local economic activity • Jobs • Local rental market activated, hotels and campsites busy NOTE: Some of these benefits have been exaggerated by the industry. There are also industry practices that reduce benefits to Ohioans.
    15. 15. www.policymattersohio.org Costs • Rent for local residents • Traffic and accidents • Road damage and repair • Emergency services • Water use and wastewater • Health and environmental costs, nuisance • Planning, infrastructure needs
    16. 16. www.policymattersohio.org Oil and Gas Leases Benefits • Signing Bonuses to local landowners, 95% of land leased. 1781 leases recorded in 2011 compared to 495 in 2010 • Government entities signing lease deals too. Influx of one-time funds. – Carrolton School District: $400,000, cover gap created by cuts in state and federal funding – County – long overdue renovation of courthouse – Carrolton Village Council – new fire truck Costs / Negatives • Recording office overwhelmed, dial up internet service, Chesapeake spent $200k to help digitize records • Poor lease deals could detract from benefits – Signing bonus variation: $10 to $5800 per acre – Unfavorable Lease terms in standard lease – Property owners finding old leases long forgotten being dug up – Use of mandatory pooling increased significantly, pressure from neighbors, process may be unfair to landowners
    17. 17. www.policymattersohio.org Oil and Gas Leases Benefits • Royalties – federal minimum 12.5% Costs / Negatives • Residents have yet to see much in the way of royalties. • Fracking wells tend to taper off dramatically (Decrease 40% after first year). Lower ROI than traditional oil wells • Questionable industry practices • Bartering, hiding of full value • “Gathering Expenses” usually deducted before see royalties (as much as 90% of royalties). Manipulation of costs by industry • Lack of transparency in royalty payments, lease may not allow for audit, or at owner expense ($10k)
    18. 18. www.policymattersohio.org Local Economic Activity Benefits • Oil & Gas industry folks spending money locally. • Signing bonuses spent locally. Money for home and farm repairs, modern and more efficient farm equipment • Economic Indicator: increase in sales tax revenue from 2011 to 2012 – 16.5% increase in motor vehicles and parts – 20% increase in food and accommodation – Gas station sales 60% Costs / Negatives • Oil and gas industry is largely out- of-state companies, represents profits leaving state. • No real value-added facilities in community. However, a natural gas fired electric power facility is being proposed in Carroll County (large enough to serve 700,000 homes). There are midstream processing centers, some built and some proposed, in nearby communities (spillover) • Water & sewer infrastructure limitations for development
    19. 19. www.policymattersohio.org Jobs Benefits • jobs created, pay good wages. • Bigger demand for jobs in supportive industries. Local jobs created in truck driving, concierge services, cleaning, restaurant work, mechanics Costs / Negatives • 3000 fracking jobs across Ohio, less than 1/10 of 1% of all jobs statewide • Many of these jobs are going to out-of- state workers • Carroll County unemployment rate is down to 8.3% from recession high of 14%, but higher than pre-recession levels (5.8%) • Support jobs don’t pay nearly as well • Worker safety: hard jobs, some injuries, fatalities. Nationwide, record high fatalities in 2012. Jobs do not appear to come with health insurance.
    20. 20. www.policymattersohio.org Housing Market Benefits • Influx of out-of-state workers has increased demand for rental housing, rental income increasing significantly • Campgrounds, hotel full • Work for rental agent, concierge services • Rehab of properties for rental market, business at local hardware store • Market for second-hand furniture developed • Investment properties go quickly, when on market Costs / Negatives • Rental prices rise, as much as three times previous rates, high per diem for oil & gas workers. locals have trouble affording higher rents with local wages. Shortage of affordable housing • Locals fear eviction, and lower quality housing if have to move • Fast turnover of rental properties • Cloud over residential properties near drilling. Sellers separating mineral rights. FHA restrictions (not within 300 feet, or if air quality issues)
    21. 21. www.policymattersohio.org • Traffic • Road Damage & Repair • Traffic accidents • Increased traffic congestion, increase in heavy and overweight trucks. Can impede police, emergency vehicles, school buses. Council considers changing parking rules, and addition of crossing guards in town center • Increased wear and tear on roads from heavy trucks, substantial costs for road repair, need for road improvements • Doubled traffic-related incidents, calls to sheriff quadrupled. • Accidents involving large trucks increased, large truck rollovers, related injuries and fatalities • Damage to roads, guardrails, signage. • Increased workload for sheriff, firefighters, emergency services Traffic, Road Costs
    22. 22. www.policymattersohio.org • Large amounts of Water used • Concern for contamination of drinking water • An Estimated six million gallons for each well. • Dry years –water demand could compete with other needs • 20 to 40% of chemical laced fracking fluids remain below ground after drilling, some chemicals toxic • Only 6.5% recycled for reuse • Injection wells and landfills, cost to outside communities. In 2012, 14.2 million barrels injected into 200 wells, half from other states • 95% of Carroll County is well water, residents feel they are on their own to look out for their interests, Carroll Concerned Citizens formed • Ohio has seen earthquakes, illegal dumping, leaks. Concerns are reasonable Water Use, Waste Water
    23. 23. www.policymattersohio.org • Flaring • Noise • Ecosystem • Biodiversity • Trumbull County – gas flared for two weeks near a neighborhood of 800 low-income families. • Bright light and loud noise akin to Tornado warning • Wildlife fleed, pets hide • In North Dakota – 1/3 of all gas burned in air, $100 million in economic waste • Scenic, serene landscapes in rural area affected by eye sores and loud noises • Slurry spills related to pipeline construction cause degradation of wetlands and streams Other health & environmental costs, nuisances
    24. 24. www.policymattersohio.org Dialogue around Public Policy Recommendations
    25. 25. www.policymattersohio.org awoodrum@policymattersohio.org www.policymattersohio.org Amanda Woodrum Researcher
    26. 26. Understanding the Impacts Unconventional Gas Development in the Marcellus Shale Ohio Environmental Council, May 29, 2014 Sharon Ward, PA Budget Policy Center
    27. 27.  The Keystone Research Center/ Budget Policy Center (PA)  Policy Matters Ohio  The Fiscal Policy Institute (New York)  The West Virginia Budget and Policy Center  The Commonwealth Institute (Virginia)
    28. 28. Background The Infant Industry Explained
    29. 29. Natural Gas: Not an Infant Industry
    30. 30. Drilling Boom and Bust in Short Term 0 20 40 60 80 100 120 140 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 MonthlyAverageOperatingDrillingRigs OH PA WV Drill Rig Location 2008-2013
    31. 31. Employment Impacts The Job Myth
    32. 32. Counting the Jobs Measuring Shale-Related Jobs Methodology  Conservative method: counting more than direct employment  Attributes ALL growth to shale, none to coal or conventional oil and gas  Already includes some supply chain jobs (e.g., pipeline construction)  All job growth in these industries since 2005 is counted as “shale-related”  Method is consistent with PA Dept. of Labor & Industry and PA Independent Fiscal Office and Bureau of Economic Analysis estimates.
    33. 33. How Much Employment? Not Much
    34. 34. Shale Jobs One Tenth of 1% of Ohio Jobs
    35. 35. Health Care is the Big Industry-Not Shale  Education and health care employ 4.5 million people in the six states – not 33,000  Education and health care account for one in six jobs – versus one in 794 for shale-related jobs  In Pennsylvania, comparable of jobs have been lost in the public sector since 2010 as shale- related jobs have been created since 2005
    36. 36. Community Impacts Case Studies in Ohio, WVA, Pennsylvania
    37. 37. Case Studies in Four High Activity Counties
    38. 38. Summary of Findings: Similar and Not  Experience with gas drillers similar  Rapid influx of out of state workers  Few local land use regulations  Limited oversight by local governments  Benefits exist, offset by costs  Ohio and PA, very similar experience  West Virginia, few impacts, fewer benefits  Tioga County PA, the boom was over
    39. 39. Major Impacts  Leases and royalty payments  Significant growth, diluted by out of state ownership and concentration of ownership  Employment and tax revenue  Up most in Greene County, little in Wetzel, employment down in Tioga  Big sales tax revenue increases in WV  Housing a huge problem in Pennsylvania  Major impacts we expected and those we did not  Roads, crime, road fatalities housing: expected  Foster care, courts, emergency rooms, Early intervention: unexpected
    40. 40. Benefits: Unemployment Down in Greene 6.9 5.3 3 4 5 6 7 8 9 10 11 12 Unemployment in Greene County and Pennsylvania 2005 to 2013 Recession Pennsylvania Greene Source. Keystone Research Center based on Bureau of Labor Statics (BLS) data
    41. 41. And in West Virginia 47 95 229 298 630 922 1,994 3,880 2005 2006 2007 2008 2009 2010 2011 2012 Heavy Truck Permits, Wetzel County
    42. 42. 80 90 100 110 120 130 140 150 160 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Figure 9. Crime in Greene County is up 31% since 1999-2001 while statewide the crime rate has fallen by 6% over the same period Greene Pennsylvania Urban, No Drilling Rural, No Drilling Source. Multi-State Shale Collaborative based on Pennsylvania State Police and Bureau of Economic Analysis data Serious crime per 100,000 people indexed to 1999 (1999=100) Note. The Pennsylvania State Police define serious crime to include murder, forcible rape, robbery, aggravated assault, burglary, larceny, motor vehicle theft, and arson. Crime per 100,000 people = offenses / population * 100,000 Crime Grew in Both Pennsylvania Counties
    43. 43. Housing Shortage Affected Foster Care Placements: Greene County Children in foster care services during this period Children in foster care for reason of “inadequate housing” during this period Percent of children served due to inadequate housing 4/1/08- 3/31/09 79 12 15.2% 4/1/09- 3/31/10 73 26 35.6% 4/1/10- 3/31/11 71 24 33.8% 4/1/11- 3/31/12 84 27 32.1% 4/1/12- 89 36 40.4%
    44. 44. Benefits: Property Assessment and Tax Revenue Grew- West Virginia $0 $100,000,000 $200,000,000 $300,000,000 $400,000,000 $500,000,000 $600,000,000 $700,000,000 $800,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Class II Class III & IV Real Class III & IV Personal
    45. 45. Conclusions  Local Governments need more tools to control growth  Better ability to plan for impacts  Housing programs critical to mitigate impact on low income families  Severance taxes necessary to ensure industry pays for impacts  Leaseholders and royalty owners need help
    46. 46. Apocalypse Not: Severance Tax No Burden to Drillers
    47. 47. Thank You Sharon Ward Pennsylvania Budget and Policy Center 412 North Third St. Harrisburg PA 17101 717-255-7156 www.pennbpc.org www.multistateshale.org