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Penn State study shows more modest economic impact from shale gas


By Laura Legere (Staff Writer)

Published: August 30, 2011


•Penn State study shows more modest economic impact from
Marcellus Shale


A new Penn State study of the economic impacts of the Marcellus Shale has found that Pennsylvania natural gas development in 2009 created roughly half the jobs and economic activity reported in earlier, industry-financed studies.

The more modest findings were reported Monday by researchers at the Pennsylvania College of Technology and Penn State Cooperative Extension.

The study, which examined not only how much money Marcellus Shale drillers spend on wages, leasing and royalty payments in Pennsylvania but also where and how those dollars are spent, found that "a significant portion" of the money left the community where the land was leased or was not spent in the year it was earned. Previous economic studies did not consider those factors and instead "assumed that all the dollars accrue to Pennsylvania households and are spent like normal income," the authors wrote.

Because of that, the number of jobs supported by the industry - about 23,000 in 2009 - is smaller than earlier estimates, Penn State researchers wrote. The total economic activity generated by the industry that year is also smaller: $3.1 billion.

A 2010 study by other Penn State researchers and funded by the Marcellus Shale Coalition estimated that the industry supported about 44,000 jobs and generated more than $7.17 billion in economic activity in 2009.

"Our results confirm that where leasing and royalty dollars are going significantly influences the estimated overall impacts," said Timothy Kelsey, Ph.D., a professor of agricultural economics at Penn State and a lead author of the study.

Although the authors noted that mineral rights ownership is often separate from surface ownership and is nearly impossible to study, they looked at property ownership in counties with Marcellus activity and found that only about half the land is owned by residents who also live in those counties. A quarter is owned by Pennsylvania residents who live elsewhere in the state, about 8 percent is owned by residents of other states and about 17 percent is publicly owned.

"This would imply that a large portion of the economic benefits immediately leaves the communities being impacted by drilling," Dr. Kelsey said.

The Penn State researchers detailed other notable findings, including:

- Landowners save or invest about 55 percent of leasing bonus payments and about 66 percent of royalty payments instead of spending them immediately, according to surveys.

- 28 percent of business in Bradford and Washington counties that responded to surveys said their sales had increased because of the gas development and only 3 percent reported a decline in sales.

- And only 18 percent of municipalities directly experiencing drilling activities in the most active Marcellus counties said their tax revenues had increased, while 26 percent of the local governments indicated that their costs had increased.

"This confirms that considering both revenues and costs is critical for having a complete understanding of the impacts of Marcellus Shale," the authors wrote. "These findings from local officials contrast with prior economic studies which predicted that there would be large local tax impacts, but which did not verify what is actually occurring."

David Kay, a senior extension associate with Cornell University's Community and Rural Development Institute who has studied past Marcellus economic impact studies, called the new report "the most careful study of the issue that's been done to date" using a common analytical tool called an input-output model.

The researchers did "a lot of empirical, on-the-ground survey work," he said. "They still had to make a lot of assumptions, but they had to make many fewer assumptions than were made in many of the other studies."

Kathryn Klaber, president of the Marcellus Shale Coalition, pointed to the study's shortcomings, calling it "far from complete and based on years-old data," but said it "illustrates the Marcellus Shale's growing economic strength."

Sharon Ward, director of the liberal-leaning Pennsylvania Budget and Policy Center, welcomed the report, which she said "offers a better assessment of the economic effects and contemplates the uncompensated costs to paint a fuller picture of the role of gas drilling to the state's economy."

She added that although the report does not address the issue of a statewide drilling tax - a tax the center supports - it "makes the case" for such a tax by alluding to "a lack of direct revenue to local governments, plus human, health, and environment impacts."

"The report makes clear that gas drilling brings additional wealth to leaseholders," she said, "but that it also brings additional headaches, and costs, to municipal officials struggling with gas-related impacts for which many receive no offsetting tax income."

Contact the writer: [email protected]
 

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Yes. Shocking isn't it? Yawn.....stretch. All of those academic post about how well it will do for Pennsylvania and how a severance tax will make the State bleed.

When half...if not more of the monies go outside of Pa.

Could have knocked me over with 40,000lbs of MS fracking water in a bucket.

SW
 

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found that "a significant portion" of the money left the community where the land was leased or was not spent in the year it was earned. Previous economic studies did not consider those factors and instead "assumed that all the dollars accrue to Pennsylvania households and are spent like normal income,"


Although the authors noted that mineral rights ownership is often separate from surface ownership and is nearly impossible to study, they looked at property ownership in counties with Marcellus activity and found that only about half the land is owned by residents who also live in those counties. A quarter is owned by Pennsylvania residents who live elsewhere in the state, about 8 percent is owned by residents of other states and about 17 percent is publicly owned.


doesnt say the money left the state, says it left the comunity.

this study says it still put 3.1 billion into economy. just points out that people didnt spend all the lease money in the first year they recieved it. people are putting lease and royalty money into investments so they can retire, at which time a portion of that money will be spent. as more royalty money goes out to more people , more will be spent , further boosting our economy.
 

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I am with Buzz on this one...Farmers havent had money in years, sorry they dont just go and blow it rediculously as soon as their "WELL-fare" checks come in... Farmers were responsible back when they had little money and even more responsible now... The money that companies are shelling out right now for shale gas development will make it into the governments hands soon enough.

And as for the severence tax, simply not needed. The state and federal government is taking their fair share when they tax the mineral right owners for income tax...

Anyone that feels that another tax should be imposed obviously is looking for a free handout on the backs of a thriving industry.....
 

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So.....now where are the arguments about how the rural monies go back to the big cities and they don't stay in the rural communities where the monies come from?

Suddenly now it's OK if "most" of it stays in Pa.?

Oh...and I think the majority of the employment are from out of State companies. A small amount of permanent new Pa. jobs have been or will be created here.

Our cup runneth over.
 

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The rural monies go to the State in the form of income tax on leases and royalties.... and the State spends it where??? Back in the community from whence it came...


Local m unicpalities do not have an income tax or sales tax so I doubt they will get a huge increase if any in tax receipts...

No mention of any increase in State tax collecte?? Fuel tax? Sales tax? Probably just an oversight...
 

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timberdoodle said:
The rural monies go to the State in the form of income tax on leases and royalties.... and the State spends it where??? Back in the community from whence it came...
The State gets a whopping 3.1% on the NET (after cost) of the lease and the royalties (including that fabricated percentage of depletion deduction). Then the State allocates it's Revenues Statewide based primarily on population. I don't know if you gleaned that from my initial post.....but that's what I ment.

timberdoodle said:
Local m unicpalities do not have an income tax or sales tax so I doubt they will get a huge increase if any in tax receipts...
Local Muni's get nothing.

timberdoodle said:
No mention of any increase in State tax collecte?? Fuel tax? Sales tax? Probably just an oversight...
Increase in Fuel tax for what? Increase in Sales tax for what? Probably just not knowing the law.


SW
 

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sorry but the State income tax is a flat tax no deductions.... You pay State tax on what you pay in Federal tax..so do leases and people who receive royalty

The increase in fuel tax collected comes from the enormous increase in truck traffic due to the gas play...The increase in sales taxes cxollected come from the increase in working population spending here..
 

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our local munci is getting around 300k worth of road work done by the gas comps.....our total budget is around 280k for the year.
some of theese are roads that gas comps have damaged (not ruined), others are roads they want to use in future and they are fixing ahead of time. all the roads they are working on are getting improvements to hold the truck traffic, which makes them better than they were before.

with the work they have proposed for next year, they will easly double that.

fuel tax is built into the price at the pump. diesel is about $.38 per gallon. each truck on the road must pay a 2290 highway use tax before you can get a plate for it, that is $550 for a tractor.
the cost of a license plate for trucks was raised to about $1650 (can vary with ifta states) to add money for road repair.

now add up the number of trucks doing this work, the fuel burned every day, etc...etc.
it is a huge increase in FUEL TAX REVENUE.

CHK alone has over 300 water trucks working for them. that is one gas comp, and just the water trucks, not dump trucks, equipment hauling, etc..etc.


lets see, just chk water trucks. one small piece of what going on

300 trucks
100 gal fuel a day
$38 tax per truck
38 x 300= #11,400 a day
$11,400 x 320 working day= $3,648,000

$3,648,000 in fuel tax useing conservative numbers, and only figuring one comps water trucks.
this is revenue that would not be there without gas, it is not shifted from one type of hauling to another. without gas, those trucks would not be on the roads in PA as there is not other work for them.

now if you take those numbers and multiply it across the the several thousand trucks working state wide in this industry, it adds up to a LOT OF TAX REVENUE, just off fuel tax. add to that the fact the gas comps are bonding and fixing the roads they are useing so the expense of fixing them does not lie on local munci or the state.
 

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Several of these companies have built regional headquarters in SW PA as well adding to property tax roles, income taxes, etc. in addition to the construction activity required to build the new headquarters.

Sure, a lot of the initial white collar jobs and experienced field workers came from out of state but the majority of them relocated and changed residency when that happened and the munis and state are seeing an increase in tax receipts just from that. Additionally, as the work continues to ramp up, locals are being hired and trained to do these jobs.

Also, seamless pipe manufacturers and coaters are expanding to keep up with the pipe/casing demand (not to mention the addition of rail, trucking and storage yard employment to keep up with this demand). What about all the local equipment operators needed to work on well pads, grading, logging, pipeline clearing....

There are 1000's of ancillary jobs created with this work.

Now, I do agree, PA needs a middle of the road extraction tax and I am disappointed in Corbett for not pushing for one.
 

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Sorry guys.....I can't get to excited over temporary jobs. Plop down a manufacturing facility that will invest millions in heavy equipment and THEN your talkin.

But this is nothing more than short term jobs and short term revenues. The roads the companies are improving is because they need them to drive their heavy trucks across. When they are all done the road will be half used up....if not more. You have yourselves convinced the roads will be there for 30 years. Start mixing your patch material in ten.

Sw
 

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Sethwood said:
Yup. I'm sure the MS drillers will be around here for at least 40 or 50 years...ya think?
After the Marcellus is done they will drill deeper and go into the Utica through the same well as the Marcellus well went. So yeah I think it will be here long after either of us on this forum will be.
 

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Sethwood said:
Sorry guys.....I can't get to excited over temporary jobs. Plop down a manufacturing facility that will invest millions in heavy equipment and THEN your talkin.

But this is nothing more than short term jobs and short term revenues. The roads the companies are improving is because they need them to drive their heavy trucks across. When they are all done the road will be half used up....if not more. You have yourselves convinced the roads will be there for 30 years. Start mixing your patch material in ten.

Sw

do ya really think gas comps are pouring hundreds of millions into infrastructer so they can leave in 2 years?

do you understand the concept of "bonding the roads" ? that means if they tear them up, they have to fix them, if they tear them up again, they fix them again.

with the economy in the toilet, every state and its residents looking for money and jobs.....now we have a business pouring hundreds of millions into our economy,creating thousands of good paying jobs, and your thinking it's not a good thing for the economy???
 

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Right on the money, concerning road bonding and what it means.

I have already seen substandard roads repaired on the driller's dime and if those roads are still being used several years from now and crumble again, they'll pay to have them repaired...again.

Some don't realize how widespread road posting (generally, 10 ton limits) is now, or how the bonding process works? You would, 'cause you have to run on them everyday.



Becoming almost impossible these days to travel on twp. or state roads in "shale country" and not find 10 ton limit roads. Almost every twp. road where my camp is, now has one of them limit signs on it.

As for the boost to PA's economy, have noticed in the area I'm familiar with, that just about anyone that wants a job and ain't totally useless, already has a job, where drilling has come.

Stopped by the local NAPA back in May, to get a new belt for my camp lawn tractor. They relocated earlier this year, to a newer location. Instead of the one or two guys that used to be there in NAPA outfits, there were four or five.

They now have three delivery trucks, instead of the one they've had for as long as I can remember. Repair shops are busy, especially the few remaining ones that primarily work on big trucks and farm equipment. Welders are busy, as are the restaurants and other local businesses.

The local impact has been noticeable for the past two years and growing. So are the numbers of drilling permits and pad activities.
Now, pipeline operations are popping up in many areas around there, which was predictable: No point in drilling wells, if ya got no way to deliver whatcha find?

Couple major distribution lines going in and many areas have yet to see the smaller pipelines put in, that will eventually connect the wells to the distribution pipelines.

One of my kinfolks up there, worked on pipelines most of his life, traveling around the US and Canada. He once even spent a year in Iraq on a pipeline installation, back in the 70s.

He's dead and buried now, but much of his family is still involved in that work, only now they're all working at home, not in Oklahoma or some other place.
 

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buzz said:
do ya really think gas comps are pouring hundreds of millions into infrastructer so they can leave in 2 years?
What you have to understand is that the gas companies could give a rat's pa-tuti about the roads. The road cost are part 'n parcel to the "project" cost of the well drilling. Ergo, once the well is drilled and the equipment is gone and the roads are deemed usable....it doesn't matter how long they last after that.

buzz said:
do you understand the concept of "bonding the roads" ? that means if they tear them up, they have to fix them, if they tear them up again, they fix them again.
Let's see....Hmmmmmm...Insurance Bonding 101....

1) Contractor pays a premium to Insurance company.
2) Insurance company contract guarantees that if contractor tears up roads and does not fix them, insurance company will fix said roads to meet certain standards.
3) Bond is in force for a certain amount of time. Once this time period has passed, roads could crumble and Bonding Company has no further obligation to perform.

Oh....and as a side note....once the well is drilled, the heavy equipment is now moved elsewhere.....along with the jobs.....so the roads no longer get the heavy wear 'n tear. So...if the roads make it to this point.....the drilling companies are golden.

buzz said:
with the economy in the toilet, every state and its residents looking for money and jobs.....now we have a business pouring hundreds of millions into our economy,creating thousands of good paying jobs, and your thinking it's not a good thing for the economy???
You sound like a politician. Again, these jobs of drilling are "nomadic" by their very nature. It's not like Johnny is going to the Plant every day. Johnny is working in Westmoreland County today....and for the next three weeks he's working in Clearfield County, and after than he's in Crawford County...ect, ect.

Ghee...where will Johnny buy his new house??? Probably in Texas where is drilling company is actually located.
 

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So even a 10 to 20 year period of "prosperity" is not worth consideration?

BTW, once road bonding/drilling activity has ceased, that means local and state funds will again be used for maintaining roads. So that also means many of those will eventually fall into disrepair again, pretty much like they were prior to drilling.

I know of several such roads that were long-ignored by PADOT, yet are now much better, due to being rebuilt properly via bonding money. Once the drilling activity is gone, expect them to last far longer, now that they're updated to modern specs, instead of the old tar and chip rehashes they were for the past 60 years.

Perhaps someone can update us on the current conditions of roads that disintegrated last year, but were rebuilt to modern standards? Many of those roads were coming apart for many years, long before the first drilling truck rolled down them.

Why? Because PA never had the money to rip them up and start over, on what were essentially once dirt roads that began to be paved in the early 20th century.

We all saw the pics of 44 or 144 last spring and all the complaints. What do those roads look like now, after being rebuilt to current standards, with the bonding monies?
 
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