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Shale Is Truly a Bipartisan Issue
A new report from the Bipartisan Policy Center's Energy Project -- co-chaired by former Senators Byron Dorgan (D-ND) and Trent Lott (R-MS) -- reveals what many of us have known for some time: the development of natural gas from shale is a boon for job creation and is generating enormous benefits for consumers in the form of lower energy costs.

A new report from the Bipartisan Policy Center’s Energy Project — co-chaired by former Senators Byron Dorgan (D-ND) and Trent Lott (R-MS) — reveals what many of us have known for some time: the development of natural gas from shale is a boon for job creation and is generating enormous benefits for consumers in the form of lower energy costs.

At EID we’re always happy to discuss how developing oil and natural gas from shale is good for the economy and energy security. But in this case, we’ll let BPC do most of the talking. From the BPC release:

The full report expands on these benefits in greater detail, but it’s absolutely worth highlighting what the BPC Energy Project offers as its opening statement about the assessment:

The outlook for North America’s natural gas supply has improved dramatically in recent years as horizontal drilling and hydraulic fracturing technologies have made it possible to commercially develop tight and shale gas reserves. These shale gas basins are located in diverse geographical areas, including Arkansas, Colorado, Ohio, Oklahoma, Pennsylvania, New York, West Virginia, Texas and Louisiana. Effective and responsible development and use of these newly accessible resources provide an enormous opportunity for the United States and has the potential to fundamentally improve our nation’s economic and energy security.

It’s worth noting, too, that the members of BPC’s Energy Project represent a diverse set of interests and backgrounds. Membership includes President Obama’s former National Security Adviser (General James Jones, USMC (Ret.)), former EPA administrator William Reilly, and representatives from companies and organizations like Booz Allen Hamiltion, the Arkansas Public Service Commission, BNSF Railway Company, the International Brotherhood of Electrical Workers (IBEW), and the American Council on Renewable Energy. Also represented: Ralph Cavanaugh, the Energy Program Director for none other than Natural Resources Defense Council (NRDC).

Responding to Partridge, et al. on Recent Utica Jobs Report
I appreciate the opportunity to briefly respond to the paper issued last week by researchers from Ohio State’s Dept. of Agricultural, Environmental, and Developmental Economics.

I appreciate the opportunity to briefly respond to the paper issued last week by researchers from Ohio State’s Dept. of Agricultural, Environmental, and Developmental Economics.

In that report, authors Partridge and Weinstein take issue with the methodology employed in a study we prepared in September for the Ohio Oil and Gas Energy Education Program (OOGEEP). Throughout the text, the authors both state and imply that our analysis isn’t “independent,” presumably because our work drew on data and funding provided by Ohio energy producers. It also suggests that the methods we use to arrive at our conclusions are “old” and “unreliable.” Neither assertion is accurate.

It’s important to note that the primary intent of our research project is to prepare Ohioans for what is expected to be a significant upsurge in activities associated with energy development in the state. This study was not prepared for the purpose of seeking additional research grants, nor does it advocate in favor of one particular energy source, or one particular energy policy, over another.  The purpose of the study is to inform users about the general costs and benefits of potential Utica development.  It is in this sense that it can be used as an aid in decision-making, providing information on the extent of support a community or region might be able to provide when planning for different development possibilities.

It’s also worth pointing out that we only modeled what the first five years of Utica development might look like, drawing on the best information available to us. Over time, it is of course true that direct returns from the construction and completion of oil and gas wells will naturally diminish. Ohio will not drill 1,600 new wells each year ad infinitum. However, the energy produced from those wells is expected to be produced for several decades, and if it does, those volumes are expected to apply downward pressure on energy prices, generating significant cost-savings for downstream users, and creating high-wage, long-term jobs in the process.

According to Partridge, et al., a more preferred approach to modeling the potential economic impacts of development would entail waiting several years until more data comes in, and then preparing analyses comparing shale-producing counties to those without activity. As a general proposition, we agree. But unfortunately, we do not have access to a crystal ball. In absence of the ability to collect data that has not yet been generated, we apply a standard input-output methodology to characterize the potential for jobs and inter-industry purchases in Ohio. Armed with these forecasts, Ohioans can be trained to work in and with this industry, and share in its growth. And investors can make better, more-informed decisions regarding their investments with forward looking estimates.

Specific to the Partridge paper, the authors use what they admit is a rule of thumb multiplier of two and assume that direct expenditures are only found in the oil and gas / mining sector. (p. 12)  In fact, the Considine study (and ours, indirectly) uses a detailed expenditure budget that allows us to appropriately spread investments by the industry across a variety of industries. So, in fact, we (and Considine) also account for direct expenditures in many other industries.  Moreover, the use of the REMI model is far different than the use of IMPLAN or RIMS multipliers.  The REMI model is a dynamic forecasting and policy analysis tool that incorporates the complete inter-industry relationships found in input-output models. It, however, integrates input-output, computable general equilibrium, econometric, and economic geography methodologies. It takes into account interregional inter-industrial connections; commuting information, job relocation and population changes.

Considine uses a multiplier of 2.07, well within range of the 2.0 multiplier used by Partridge, et al. A simple calculation of direct expenditures yields at least 100,000 jobs. Assuming each well costs $10 million to site, construct, drill, complete and prepare for production – we multiply that figure by 1,650 wells and then divide it by $150,000 output per employee. Hence our estimate of 110,000 jobs.

Regarding Partridge’s assertion that a multiplier of two is on the high end, the Federal Reserve System’s Fiscal Impact User Guide states:

[N]ational output multipliers tend to range between 2.5 and 4.0 depending on the industry.

That is, it is assumed that each $1.00 of direct activity spurs $1.50 to $3.00 of indirect and induced activity (be it output, wages, income, or employment).

Partridge asserts that we used the “old” input output method that does not account for what would have happened without the energy development.  (footnote, p 5, and p.11, paragraph 3).  Of course, in our study, we explain that using REMI, we report the difference between the baseline growth (what would occur if the Shale investment would not take place) and the stimulated growth (p. 11 of our report).

In response to Partridge’s statement that “Foremost, impact studies are not viewed as best practice by academic economists and would be rarely used in peer reviewed studies by urban and regional economists.” There is an entire professional association devoted to the study and refinement of these methods called the International Input-Output Association. It publishes a double-peer reviewed journal entitled Journal of the International Input-Output Association and its editorial board includes a member of Ohio State faculty.  Moreover, the Journal of Regional Science recently reviewed an update of a classic input-output text by Miller and Blair (Volume 51, Issue 1, pages 196–197, February 2011).  The reviewer notes:

“While selected material in the opening chapters will be useful for undergraduate teaching, we expect the extensions in the second part of the book will be most useful for postgraduates, researchers, and academics.”

Partridge is an editor for the Journal of Regional Science.

Partridge additionally indicates that we did not adequately explain the meaning of “created and supported” when we write of jobs (footnote 2, page 5.).  We do offer an explanation of employment, but not specifically created and supported.  We define employment in terms of jobs. This includes full-time, part time, and temporary positions. A job is equal to the annual average of monthly jobs in that industry (the same definition used by QCEW, BLS, and BEA nationally). Thus, one job lasting 12 months is equal to two jobs lasting six months each, which in turn is equal to three jobs lasting four months each. A job can be either full-time or part-time.

Partridge, however, conveniently uses the word “jobs” throughout the paper and refers to BLS job growth over a six-year period when inaccurately calculating his rule of thumb multiplier (p. 12, Partridge report). His report uses employment in two industrial sectors and ignores other industries that are involved in direct spending associated with shale-related drilling and exploration.

In short, although our study benefited from insight, data and funding provided by industry, it is a study that is sound in its methods and reasonable in its conclusions. Our firm could not have built the reputation that it has over the past 15 years if we were to compromise on this approach. You can be assured that in this case, as in all others, we did not.

The Things We Make, Make Us

It is by now an impossible-to-deny fact that the responsible development of American energy resources from shale is an extraordinary generator of U.S. jobs, a reality confirmed once again last week in a report that pegged the current number of jobs tied to shale exploration at more than 600,000.

To their credit, even opponents of development are starting to acknowledge shale as a job creator, though they usually try to explain it away by suggesting that the only new jobs being created are ones in the hotel, restaurant and general services industries. Of course, they’re too polite (or craven) to put it in these terms, but the implication is clear: To them, those jobs aren’t “real.” And perhaps we’re even being a bit too polite in characterizing their views in that way.

Needless to say, we don’t happen to view the issue the same way they do. The way we see it, those jobs are real — and they’re making a difference in local communities at a time when it’s needed most. But the same way we reject the notion that hotel and restaurant jobs are second-class jobs, we also know that lots of other jobs, in lots of other industries, are being created as well. This week, a report authored by PricewaterhouseCoopers provides additional facts, figures and data in support of that contention — and if you haven’t seen it yet, it’s definitely worth a read.

The study, organized with input and assistance from the National Association of Manufacturers, took a long, hard look at how the development of the nation’s shale resources relates to American economic growth through 2025. What they found was impressive, and serves as a very important reminder of the very important opportunities that responsible development can make and is making possible.

The study found shale gas development has the potential to revive our economy by increasing energy affordability, resulting in significant cost savings for businesses while also stimulating  significant demand growth for manufacturing — potentially creating more than one million new jobs through 2025.  With the United States suffering from an 8.6 percent unemployment rate, the creation of a million new jobs would be welcome relief.

The study also highlights the fact that developing our nation’s shale resources will continue to provide an abundance of supply that keeps prices low for consumers. These low prices also help manufacturers, who rely heavily on a stable supply of affordable energy (and feedstock material) in order to compete with folks all around the world. According to the study, the lower feedstock and energy costs would save U.S. manufacturers a staggering $11.6 billion per year. This is money that can instead be invested in new facilities and, most importantly, new jobs.

Of course, these are only the long-term benefits.  The study also examined short-term impacts that are already being realized throughout the nation.  Specifically, the study mentions:

These are only a handful of examples. Other examples abound in communities where shale development is currently taking place. Ohio, as referenced above, is currently experiencing a resurgence in its steel industry, the likes of which has not been seen in decades, returning once idle plants and mills to bustling centers of commerce and employment.

The study comes in the wake of (and, in effect, confirms) a report from earlier this year by the American Chemistry Council (ACC), which examined the benefits accruing to the petrochemical industry as a result of shale development. ACC found that the development of natural gas could create 400,00 new jobs, generate $132.4 billion in new U.S. economic growth, and generate $43.9 billion in tax revenues for state, federal and local governments.

Reviewing recent experience and forward looking independent economic studies such as these reveals a clear trend:  The safe and responsible development of the nation’s shale resources is not only providing new life to the manufacturing sector, but is also providing hope and much-needed jobs to American workers, along with spurring significant economic growth in communities throughout the country. And for an economy that continues to struggle, the bright spot of oil and gas development is shining clearer than ever before.

Jobs and Opportunity: Stories from the Bakken

Brian Carpenter
EID Guest Columnist; Sturgis, S.D.
 
 
 

Sturgis, South Dakota sits on the northern end of the Black Hills, about 30 miles from Rapid City and an hour north of Mount Rushmore.  It’s probably best known for the Sturgis Motorcycle Rally held each August.  This event is internationally renowned with up to half a million motorcyclists from all over the world attending the rally for a week of fun and entertainment.

But the rest of the year Sturgis is a quiet town with a population of 6,500.  Like many small towns across America, economic opportunities can be hard to come by, especially in recent times.  Good paying jobs here are scarce, and many young people find it necessary to move away to pursue a future filled with promise.  It is a sad realization when one discovers they must travel away from their home and family; sometimes long distances, to make an honest and successful living. That’s why many people here see the economic activity generated by North Dakota’s Bakken play as a tremendous opportunity.  Even though the Bakken formation itself is about a five hour drive north of Sturgis, it’s having a dramatic impact on the lives of many people in this area.

One such individual is Bailey Cleland.  Bailey is a 21 year old native of Sturgis.  He had planned on going into the Navy after high school, but a knee injury disqualified him from service.  After some searching he found a good job with Paragon Water Solutions, a North Dakota based company.  Paragon treats both the salt and fresh water used in the oil and natural gas development process, removing the drill cuttings from the water and allowing it to be re-circulated throughout well development.  They pioneered the use of a vacuum filtration device to clean rig water. During the three or four days it takes them to clean the water in a rig’s reservoir, Cleland and his crew live in trailers at the well site.

Paragon pays $17 per hour to start, with a raise usually offered after three months.  The crew works twelve hours per day, eighty-four hours per week.  They work for two weeks and then get two weeks off, during which time Cleland returns to Sturgis.  Workers get overtime pay for every hour after forty hours. You can see how this compensation can add up quickly or in Cleland’s words “That’s how you really make your money.”

When asked about his opinion regarding oil and natural gas development in North Dakota Cleland said:

“This is an opportunity to change your life.  It’s an opportunity to make a lot of money and get ahead and save for your future.”

Cleland said that he enjoys the hard work, the mechanical experience he is gaining, and the problem solving skills he is developing as part of his job.  He realizes the work may not last forever and he hopes to work in the industry for approximately five years or just long enough to save up enough money to start his own welding shop.

Jacob Evans tells a similar story.  Evans, also a 21 year old Sturgis native, used to work for a local pizza restaurant.  Now he works for Marquis Alliance Energy Group.  He is responsible for waste material disposal and centrifuge operations.  His job involves stabilizing the solid waste material from the well development process.  The cuttings recovered are mixed with fly ash and other substances which render them safe for disposal.  This mixture is then trucked away to a central site for burial. When asked how he likes his job he said, “I love it!  I get to work with heavy equipment, and I make really good money.”

While Evans likes his job he will be the first to tell you the hours are long and the work is hard.  He works twelve hours per day and seven days per week during his time on the rig.  He says the hard work and long hours are worth it.  Evans stated that after less than three months of employment he is making $3,600 per month, plus $50 per day in per diem pay as well as a $100 per day rig bonus for every day he is on the rig.  When asked how this new opportunity has shaped his life Evans had some profound and reflective words to share:

“I kind of got into some trouble before,” he said.  “This has enabled me to pay off some things and make a new start.  It’s a golden opportunity to make a future for yourself.  There are more jobs than people, and you can make more money than anything else in the area.”

Evans also brought up a point that is often overlooked.  The Bakken Shale does not discriminate and provides good jobs for all citizens.  In fact, Evans said it was an especially good opportunity for those who did not plan, or are unable, to go to college.

Jenn Tobin’s husband, Wade, also works in the North Dakota oil and gas fields. The Tobin’s have been married for thirteen years and have three children.  They moved to Sturgis from Clear Lake, SD in August of this year.  Wade has a degree in industrial engineering.  He had worked for a company in Watertown, SD for several years, but a bad business climate led to layoffs and he lost his job.  After a couple of other engineering jobs, Wade took a job with Halliburton.  Using the knowledge he gained at Halliburton he recently left to open his own business as an independent contractor.

The Tobin family places a high priority on Jenn being able to stay at home with her children during their most formative years.  They also wanted to send the kids to a Christian school.  The good salary that Wade earns through his employment in the oil and gas industry enabled this to come true with Jenn at home and the children being enrolled at a Christian school in a nearby town.  In this case it is clear that the oil and gas industry’s presence here allowed the Tobin’s to reach important goals they set for their family. Jenn is excited about the situation and the opportunity it presents her family.

“I love being at home,” Jenn says.  “There are some challenges to being alone sometimes, like when the snow blower is broken and the sidewalk needs to be shoveled. But I am the only child of a single mother.  I’ve always been independent and been able to manage.  I appreciate the sacrifice my husband is making for his family and the opportunity the natural gas and oil industry has provided us. This is a much needed stepping stone to achieve our long-term goals and provide for our family.”

 

How Are You Going to Spend Your Extra $926?

Maybe it’s a mortgage payment. Or monthly tuition for your kids. For some (no, not me), maybe it’s a new pair of shoes. But whatever you decide to spend it on, thanks to a new study released this week, at least you’ll know now where it came from: natural gas from shale.

That’s right, Christmas shoppers. According to a new paper issued today by IHS CERA — and commissioned by our colleagues at America’s Natural Gas Alliance (ANGA) — that $926 represents the average amount of extra disposable income delivered to every American household each year through 2015 as a result of low natural gas prices, which themselves are made possible by shale. What happens after 2015? The story gets even better, with the average American family finding an extra $2,000 in their pocket each and every year through 2035.

A little extra money around the holidays is certainly a welcome development, but what does this study have to say about the most important issue facing our country today — jobs? Quite a lot, it turns out. According to IHS CERA, the development of energy from shale is singularly responsible for the creation of more than 600,000 jobs across the United States – jobs that happen to pay an eye-popping $23.16 per hour, on average (I wish blog-writing was similarly lucrative).  By 2015, this figure is expected to grow to nearly 870,000, surpassing 1.6 million new jobs by 2035. And that’s just associated with the development of resources from shale – no limestone, no sandstone, no marble rye (also known by us geologists as the tastiest of the formations).

As mentioned, a copy of the full report can be found here. With so many facts and figures that themselves are headline-worthy, it’s hard to whittle them all down. But for folks on the go, here’s a quick round-up of the highlights:

 

 

 

 

With jobs and investment comes greater GDP, and increased tax revenues at the local, state, and federal level:

 

 

 

 

Development is spurring lower gas prices, providing savings for household and industrial consumers across the nation:

 

 

 

 

 

 

 

 

 

*UPDATE* Shale Puts Russia, Saudis on the Defensive

The shale revolution is rapidly becoming global, but the Bear still refuses to be bullish on its prospects.

Most of us know about the enormous economic benefits being delivered to Americans every day thanks to the safe and responsible development of America’s shale resources. From creating jobs to reducing energy prices, and everything in between, expanded domestic production of natural gas and oil from shale has been one of the lone high notes in an otherwise bleak economic composition.

But there is another story unfolding about the shale revolution, one that’s been wildly unreported and yet one with enormous geopolitical implications: the weakening of Russia’s grip on the global natural gas market. We highlighted this phenomenon earlier this year when the Baker Institute released a study that found shale gas development in the United States and around the world could cut Russia’s market share in natural gas by more than half.

And according to the Wall Street Journal this week, Russia is starting to fight back, albeit with a hefty dose of debunked talking points about hydraulic fracturing contaminating water supplies:

Shale gas has revolutionized the gas business in the U.S., and industry experts and executives say the same could happen in Europe and Asia.

Russia, however, has repeatedly downplayed the role of shale gas and insisted it won’t hurt its lucrative model of extracting gas at deposits in West Siberia and pumping it through huge pipelines to consumers in Russia and Europe.

But in a sign the phenomenon is in fact being taken seriously, the board of directors at the world’s biggest gas producer, state-owned OAO Gazprom, this week highlighted environmental risks and the high costs of production in Europe.

“The production of shale gas is associated with significant environmental risks, in particular the hazard of surface and underground water contamination with chemicals applied in the production process,” Gazprom said in the statement following the board meeting.

Of course, such push back (which contradicts well-established facts about hydraulic fracturing) is not limited to the state-run gas company. At a recent event, Russia’s Prime Minister Vladimir Putin himself tried to undermine shale gas with his own environmental “assessment”:

Asked if development of shale gas resources threatened Russia’s dominance of Europe’s energy market, Mr Putin grabbed a notepad to draw diagrams of how “fracking” – the method used to extract such gas – could damage the environment.

Putin also allegedly said that where shale gas is extracted, “you will be sick” because production poses a “real threat to the environment.” He praised France for “recognizing” that link.

Hyperbolic rhetoric and cute drawings, however, aren’t Russia’s only strategies.

As the oil and gas market undergoes significant change (the United States is on track to beat its peak output of oil and natural gas by the end of this decade, and is also projected to become a net exporter of petroleum products by the end of this year), Russia is desperately looking for allies to help maintain its power. Last month, Putin announced that Russia will begin coordinating with OPEC, the organization that formed half a century ago in part to protect market share and control prices.

Russia and several OPEC countries also recently convened in Doha to discuss collaboration for natural gas pricing, a decision partially driven by growing global shale gas development, particularly in North America. As Platts points out, shale gas is “one of the major challenges facing the producers and exporters of conventional gas” present at the meeting.

The Saudis, meanwhile, are also viewing the shale revolution with concern, as the massive expansion of U.S. oil production in areas like the Bakken in North Dakota and the Eagle Ford in south Texas has reduced the need for imports from Saudi Arabia:

OPEC estimated in a recent report that global reserves of tight oil could be as high as 300 billion barrels, above Saudi Arabia’s conventional reserves of 260-billion barrels, which are currrently seen as the second-largest in the world after Venezuela.

Global output of non-conventional oil is set to rise 3.4 million bpd by 2015, still dominated by oil sands, to 5.8 million bpd by 2025 and to 8.4 million bpd by 2035 when tight oil would be playing a much bigger role. By 2035, the United States and Canada will still be dominating unconventional oil production with 6.6 million bpd, the group forecasts.

What’s the upshot here? Russia is scrambling to undermine the shale revolution, not only in its own back yard (Poland has enormous shale gas resources and is moving forward with development) but also throughout the world. If countries previously dependent on Russia or OPEC suddenly discover that they have more leverage over the prices these countries charge — or if they discover their own shale resources at home — the control once wielded by OPEC countries and the Russian Federation will be considerably reduced. And with that loss of power comes a considerable loss of public funding; the Russian government is heavily dependent upon oil and gas tax revenue (in 2008, one-third of Russia’s total government revenue came from oil and gas production), and in 2010 Saudi Arabia generated more than $180 billion in oil export revenues.

Creating jobs, growing the economy, reducing the deficit, and even weakening hostile regimes. Is there anything the shale revolution can’t do?

UPDATE (12/16/2011, 4:19pm ET) If there’s one thing autocrats don’t like, it’s competition, and the Wall Street Journal reports that Vladimir Putin is, indeed, feeling the pinch with respect to Russia’s (declining) energy hegemony. Apparently the Prime Minister is trying to learn all he can about hydraulic fracturing, the technology that is helping to loosen Russia’s grip on global natural gas markets, presumably so he can better campaign against it (though if he does take the time to learn the facts, he’ll discover that its alleged environmental impacts are dramatically overstated). After asking “What’s on Vladimir Putin’s mind?” the Journal gave, among others, this likely answer:

[P]erhaps he is worried about the impact of surging shale gas supply will have on state-owned gas giant Gazprom. It makes much of its revenues exporting gas to Europe, at prices linked to oil prices. If the U.S. were able to export gas to Europe, its market dominance could be eroded; Cheniere Energy recently signed a 20-year deal to supply gas to the U.K.’s BG Group. Europe, too, could eventually produce its own shale gas, particularly in Poland. The extra competition isn’t a great prospect for Gazprom – or Russian politicians, who rely on oil and gas tax revenues to balance the books.

When It Comes to Job Creation, The Facts Speak for Themselves

Organization committed to stopping hydraulic fracturing suggests real jobs created by real economic activity do not exist.

It’s one thing for groups opposed to the development of American energy resources from shale to suggest that the massive economic stimulus currently being made possible as a result of these activities is overstated – notwithstanding the fact that their own jobs as professional activists depend on these activities continuing.  But it’s a completely different thing to suggest that these jobs simply do not exist. Given all we continue to see in communities across the country where responsible shale development is taking place, it’s a statement that would make even Jean-Paul Sartre blush.

Unfortunately, that’s exactly what Food & Water Watch — which is a non-profit organization that accepts tax-deductible donations — has suggested with its latest report, which takes aim in particular at a recent study projecting massive economic growth for the state of New York if shale development is allowed to move forward. The broader implication, though, is that all economic models are all fundamentally flawed, so any projection of economic gain from energy development activity is, according to FWW, “dubious.”

Before we get to the many problems in FWW’s report, we thought it would be important to point out from the get-go the irony of Food & Water Watch accusing others of inflating data. This is the same organization, as you might remember, that inflated its own participation rates for an anti-hydraulic fracturing call-to-action, apparently in an effort to make its fundraising emails more appealing.

As to the report, our job here at EID is to read through the document so you don’t have to. What follows is a sampling of the questionable claims made by FWW, accompanied by a healthy dose of reality.

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Food & Water Watch: “Local, state and federal policymakers should look to actual employment data, not dubious economic forecasts.” (p. 2 )

EID: As it turns out, the oil and gas industry – particularly those companies active in shale – has a very strong record when it comes to creating jobs, and an equally strong standing with respect to “actual employment data.” For example, a Financial Times article that was published the same day FWW released its analysis has the headline: “Oil shale boom boosts US jobs market.” Perhaps that was published too late to make it into the qualifying footnotes of FWW’s report.

But that’s far from the whole story. A study from IHS Global Insight found that in 2010, America’s independent oil and gas producers supported nearly 400,000 direct jobs nationwide, all while generating around $263 billion in gross economic output.

At the state level, the jobs numbers are also significant. In Louisiana, the oil and gas industry supports more than 310,000 jobs in the state, driven not only by offshore production by also the Haynesville Shale, the nation’s largest producing shale gas field. Production in the Barnett Shale in north Texas has created more than 119,000 jobs throughout the state. According to the Pennsylvania Department of Labor & Industry, the Marcellus Shale supports 214,000 jobs across the Commonwealth. In fact, the unemployment rates for Tioga (7.6 percent), Bradford (6.4 percent), and Susquehanna (8.1 percent) counties — three of the most significant areas in terms of Marcellus production — are all lower than the statewide unemployment rate for Pennsylvania. It’s also worth pointing out that the average salary for workers in the industry is roughly 64% higher than the statewide average for Pennsylvania. Even those working in ancillary industries make about 35% more than the Pennsylvania average income.

As for the job creation potential in New York, the state’s Department of Environmental Conservation (DEC) has estimated that as many as 53,000 new jobs could be created from the development of the state’s portion of the Marcellus Shale.

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Food & Water Watch: Alleges that “fracking fluid migration underground” are among the “environmental and public health risks” of hydraulic fracturing and shale development. (p. 3 )

EID: This is contradicted directly by state regulators from across the country – including the head of the New York DEC – and President Obama’s own EPA Administrator Lisa Jackson has confirmed that the process has not contaminated ground water. The reality is that hydraulic fracturing has been used more than 1.2 million times over the past 60 years, not just for oil and natural gas, but for water wells, geothermal wells, and even by EPA as a clean-up tool at Superfund sites. It should be noted, though, that FWW’s source for this claim is none other than the New York Times series attacking the industry, a series that has been almost universally panned, not only by two notable Democratic governors but also by the Times’ own public editor.

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Food & Water Watch: “[D]irect jobs are not created when royalty and lease payments are made.” (p. 5 ) FWW uses this baseless claim to conclude that “$2.02 billion of the $2.95 billion in in-state spending consisted of landowner payments and taxes. This leaves $930 million in in-state spending toward direct job creation.” (p. 6 )

EID: The billions of dollars injected into the economy each year in the form of royalty and lease payments associated with oil and natural gas development don’t play a role in creating jobs? That would probably come as news to the thousands of folks, many in unrelated industries, whose jobs can be directly tied back to royalty payments in Texas, as detailed in this study commissioned by the Fort Worth Chamber of Commerce last summer. But beyond that, there’s also an interesting sleight of hand here. FWW asserts that royalties and lease payments don’t create jobs, but then claims that “landowner payments and taxes” don’t create jobs either. But taxes are not lease payments; taxes are collected by the government. Without notice, FWW seamlessly broadens its interpretation of what constitutes royalties and lease payments to include taxes, then uses that dubious definition to undermine the economic impacts of shale development. But doesn’t tax collection require staff (i.e. jobs) too, ranging from tax attorneys and paralegals to auditors and other administrative staff? Is FWW suggesting these jobs don’t exist either?

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Food & Water Watch: “Food & Water Watch conservatively assumed that at least half of the gas industry jobs would be filled by out-of-state workers if New York is opened up to shale gas development.” (p. 8 )

EID: FWW believes that if a company is not headquartered in a particular state, then most of the workers will also come from out of state. This is completely unsupported by the data. Of the thousands of new hires made by the industry in neighboring Pennsylvania, an overwhelming majority of the workers (71%) are from Pennsylvania. The industry has also spent more than $411 million over just the past three years to fund the repaving and improvement of local roads, as well as to enhance the state’s transportation infrastructure. This activity also requires workers, which means jobs in Pennsylvania for Pennsylvanians. Replicating this success in New York would bring similar benefits to the Empire State, particularly to areas that have experienced economic malaise for decades.

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Food & Water Watch: “[A]n employment multiplier of 1.92 better estimates the potential total jobs across industries created by shale gas development in New York in 2015.” In the very next paragraph, FWW says the number of jobs created with that multiplier is “less than 1 percent of projected private sector employment in 2018 in the state of New York, which is projected to be 8,6975,730.” (p. 2)

EID: It’s ironic that FWW would criticize others for not understanding how to use a multiplier and then turn around and, in the very next paragraph, misuse a multiplier. As FWW says, the 1.92 multiplier is an assessment of the overall economic impact in 2015, yet the group suggests that the multiplier can easily be applied to 2018 as well, regardless of constantly changing economic realities. FWW takes an abstract employment figure (materialized without the use of “dubious” economic models), multiplies it by a number that they do not understand, and then divides the result by a broader employment figure for a completely different year.

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Food & Water Watch: “[T]he oil and gas extraction industry has one of the largest employment multipliers of any industry”. (p. 9)

EID: We agree, and this is why there are thousands upon thousands of people across the country who have jobs, thanks to the responsible development of shale oil and gas resources. Look no further than North Dakota – which boasts the lowest unemployment rate in the nation (3.5%) and a budget surplus that could allow the state to eliminate its property tax – to see just how powerful an economic engine the oil and gas industry can be.

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Food & Water Watch: “[J]ob creation in health and human services, presumably due to shale gas industry accidents, is included.” (p. 4)

EID: For a subtle jab, this gets a “nice try.” But as it turns out, everyone needs dentists, physicians and optometrists, even those who are in peak physical condition. Moreover, FWW may want to examine the available data. According to the Bureau of Labor Statistics, the incidence rate for injuries and illnesses among all industries is 3.8 per 100 workers. The oil and gas industry is less than a third of that, with a rate of only 1.2 per 100 workers.

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Oil and Gas are a ‘Major Engine’ for Growth in Louisiana

New study finds Louisiana leads the country in crude oil production, generating outsized economic benefits for the state.

We’ve pointed out many times before how responsible oil and gas production is a significant source of new job creation and new public revenues. Folks in Louisiana — a major oil and gas producing state — recognize this as well as anyone, but a new study detailing the benefits of energy development may even surprise people down in the bayou.

That study, authored by LSU Professor Emeritus Loren Scott and released by the Louisiana Mid-Continent Oil and Gas Association (LMOGA), reached the following impressive conclusions about oil and gas in Louisiana:

One additional important finding of the study is the multiplier of oil and gas employment; that is, the number of spinoff jobs created from each job created in the industry. In Louisiana, that multiplier is five. Put differently, each job created in the industry creates on average four additional jobs in support industries, including not only in oil and gas service firms but also in local restaurants, hotels, and other small businesses.

With well-established production both offshore in the Gulf of Mexico and in the northern part of the state in the Haynesville Shale (which earlier this year overtook the Barnett in Texas as the nation’s largest producing shale gas field), it’s clear that Louisiana has been blessed with massive oil and gas deposits. And with new shale plays constantly coming into focus — including the Tuscaloosa Marine Shale, which could hold seven billion barrels of oil — Louisiana is a state that appears well positioned for sustained future economic growth, thanks in large part to the responsible development of oil and gas resources.

Maryland Strongly Supports Natural Gas Production

New poll finds Maryland voters, like their neighbors in New York and Pennsylvania, want to participate in the shale gas revolution

It may be news to government officials in Annapolis who have imposed a temporary pause on hydraulic fracturing, but voters throughout the state of Maryland actually support natural gas production. Big time.

A new poll by Gonzales Research & Marketing Strategies finds that an incredible 80% of Marylanders support natural gas production in the United States, including 60% who “strongly support” it. The poll finds large majority support for developing natural gas among both men and women, across all political affiliations, and in every region of the state.

As for producing natural gas specifically in western Maryland, where the Marcellus Shale could provide significant new economic opportunities for the Old Line State, nearly 75% of voters in the state express support. Production in western Maryland also enjoys majority support across all demographics polled in the state.

This poll comes as another Quinnipiac survey in New York shows a plurality of voters support Marcellus Shale development, a fact that has remained consistent in Quinnipiac’s polling over the past few months. A Siena poll from last month also found more New Yorkers supported than opposed natural gas production.

And in neighboring Pennsylvania, where the Mighty Marcellus is the source of significant job creation and the rebirth of manufacturing, voters say the economic benefits of drilling outweigh any perceived environmental issues by 62 percent to 30 percent.

Throughout the United States, natural gas development enjoys 81% support according to a recent poll by the American Consumer Institute (ACI).

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Shale Is Truly a Bipartisan Issue

Thursday, January 19th, 2012

A new report from the Bipartisan Policy Center’s Energy Project — co-chaired by former Senators Byron Dorgan (D-ND) and Trent Lott (R-MS) — reveals what many of us have known for some time: the development of natural gas from shale is a boon for job creation and is generating enormous benefits for consumers in the form of lower energy costs.

At EID we’re always happy to discuss how developing oil and natural gas from shale is good for the economy and energy security. But in this case, we’ll let BPC do most of the talking. From the BPC release:

The full report expands on these benefits in greater detail, but it’s absolutely worth highlighting what the BPC Energy Project offers as its opening statement about the assessment:

The outlook for North America’s natural gas supply has improved dramatically in recent years as horizontal drilling and hydraulic fracturing technologies have made it possible to commercially develop tight and shale gas reserves. These shale gas basins are located in diverse geographical areas, including Arkansas, Colorado, Ohio, Oklahoma, Pennsylvania, New York, West Virginia, Texas and Louisiana. Effective and responsible development and use of these newly accessible resources provide an enormous opportunity for the United States and has the potential to fundamentally improve our nation’s economic and energy security.

It’s worth noting, too, that the members of BPC’s Energy Project represent a diverse set of interests and backgrounds. Membership includes President Obama’s former National Security Adviser (General James Jones, USMC (Ret.)), former EPA administrator William Reilly, and representatives from companies and organizations like Booz Allen Hamiltion, the Arkansas Public Service Commission, BNSF Railway Company, the International Brotherhood of Electrical Workers (IBEW), and the American Council on Renewable Energy. Also represented: Ralph Cavanaugh, the Energy Program Director for none other than Natural Resources Defense Council (NRDC).

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Responding to Partridge, et al. on Recent Utica Jobs Report

Wednesday, December 21st, 2011

I appreciate the opportunity to briefly respond to the paper issued last week by researchers from Ohio State’s Dept. of Agricultural, Environmental, and Developmental Economics.

In that report, authors Partridge and Weinstein take issue with the methodology employed in a study we prepared in September for the Ohio Oil and Gas Energy Education Program (OOGEEP). Throughout the text, the authors both state and imply that our analysis isn’t “independent,” presumably because our work drew on data and funding provided by Ohio energy producers. It also suggests that the methods we use to arrive at our conclusions are “old” and “unreliable.” Neither assertion is accurate.

It’s important to note that the primary intent of our research project is to prepare Ohioans for what is expected to be a significant upsurge in activities associated with energy development in the state. This study was not prepared for the purpose of seeking additional research grants, nor does it advocate in favor of one particular energy source, or one particular energy policy, over another.  The purpose of the study is to inform users about the general costs and benefits of potential Utica development.  It is in this sense that it can be used as an aid in decision-making, providing information on the extent of support a community or region might be able to provide when planning for different development possibilities.

It’s also worth pointing out that we only modeled what the first five years of Utica development might look like, drawing on the best information available to us. Over time, it is of course true that direct returns from the construction and completion of oil and gas wells will naturally diminish. Ohio will not drill 1,600 new wells each year ad infinitum. However, the energy produced from those wells is expected to be produced for several decades, and if it does, those volumes are expected to apply downward pressure on energy prices, generating significant cost-savings for downstream users, and creating high-wage, long-term jobs in the process.

According to Partridge, et al., a more preferred approach to modeling the potential economic impacts of development would entail waiting several years until more data comes in, and then preparing analyses comparing shale-producing counties to those without activity. As a general proposition, we agree. But unfortunately, we do not have access to a crystal ball. In absence of the ability to collect data that has not yet been generated, we apply a standard input-output methodology to characterize the potential for jobs and inter-industry purchases in Ohio. Armed with these forecasts, Ohioans can be trained to work in and with this industry, and share in its growth. And investors can make better, more-informed decisions regarding their investments with forward looking estimates.

Specific to the Partridge paper, the authors use what they admit is a rule of thumb multiplier of two and assume that direct expenditures are only found in the oil and gas / mining sector. (p. 12)  In fact, the Considine study (and ours, indirectly) uses a detailed expenditure budget that allows us to appropriately spread investments by the industry across a variety of industries. So, in fact, we (and Considine) also account for direct expenditures in many other industries.  Moreover, the use of the REMI model is far different than the use of IMPLAN or RIMS multipliers.  The REMI model is a dynamic forecasting and policy analysis tool that incorporates the complete inter-industry relationships found in input-output models. It, however, integrates input-output, computable general equilibrium, econometric, and economic geography methodologies. It takes into account interregional inter-industrial connections; commuting information, job relocation and population changes.

Considine uses a multiplier of 2.07, well within range of the 2.0 multiplier used by Partridge, et al. A simple calculation of direct expenditures yields at least 100,000 jobs. Assuming each well costs $10 million to site, construct, drill, complete and prepare for production – we multiply that figure by 1,650 wells and then divide it by $150,000 output per employee. Hence our estimate of 110,000 jobs.

Regarding Partridge’s assertion that a multiplier of two is on the high end, the Federal Reserve System’s Fiscal Impact User Guide states:

[N]ational output multipliers tend to range between 2.5 and 4.0 depending on the industry.

That is, it is assumed that each $1.00 of direct activity spurs $1.50 to $3.00 of indirect and induced activity (be it output, wages, income, or employment).

Partridge asserts that we used the “old” input output method that does not account for what would have happened without the energy development.  (footnote, p 5, and p.11, paragraph 3).  Of course, in our study, we explain that using REMI, we report the difference between the baseline growth (what would occur if the Shale investment would not take place) and the stimulated growth (p. 11 of our report).

In response to Partridge’s statement that “Foremost, impact studies are not viewed as best practice by academic economists and would be rarely used in peer reviewed studies by urban and regional economists.” There is an entire professional association devoted to the study and refinement of these methods called the International Input-Output Association. It publishes a double-peer reviewed journal entitled Journal of the International Input-Output Association and its editorial board includes a member of Ohio State faculty.  Moreover, the Journal of Regional Science recently reviewed an update of a classic input-output text by Miller and Blair (Volume 51, Issue 1, pages 196–197, February 2011).  The reviewer notes:

“While selected material in the opening chapters will be useful for undergraduate teaching, we expect the extensions in the second part of the book will be most useful for postgraduates, researchers, and academics.”

Partridge is an editor for the Journal of Regional Science.

Partridge additionally indicates that we did not adequately explain the meaning of “created and supported” when we write of jobs (footnote 2, page 5.).  We do offer an explanation of employment, but not specifically created and supported.  We define employment in terms of jobs. This includes full-time, part time, and temporary positions. A job is equal to the annual average of monthly jobs in that industry (the same definition used by QCEW, BLS, and BEA nationally). Thus, one job lasting 12 months is equal to two jobs lasting six months each, which in turn is equal to three jobs lasting four months each. A job can be either full-time or part-time.

Partridge, however, conveniently uses the word “jobs” throughout the paper and refers to BLS job growth over a six-year period when inaccurately calculating his rule of thumb multiplier (p. 12, Partridge report). His report uses employment in two industrial sectors and ignores other industries that are involved in direct spending associated with shale-related drilling and exploration.

In short, although our study benefited from insight, data and funding provided by industry, it is a study that is sound in its methods and reasonable in its conclusions. Our firm could not have built the reputation that it has over the past 15 years if we were to compromise on this approach. You can be assured that in this case, as in all others, we did not.

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The Things We Make, Make Us

Wednesday, December 14th, 2011

It is by now an impossible-to-deny fact that the responsible development of American energy resources from shale is an extraordinary generator of U.S. jobs, a reality confirmed once again last week in a report that pegged the current number of jobs tied to shale exploration at more than 600,000.

To their credit, even opponents of development are starting to acknowledge shale as a job creator, though they usually try to explain it away by suggesting that the only new jobs being created are ones in the hotel, restaurant and general services industries. Of course, they’re too polite (or craven) to put it in these terms, but the implication is clear: To them, those jobs aren’t “real.” And perhaps we’re even being a bit too polite in characterizing their views in that way.

Needless to say, we don’t happen to view the issue the same way they do. The way we see it, those jobs are real — and they’re making a difference in local communities at a time when it’s needed most. But the same way we reject the notion that hotel and restaurant jobs are second-class jobs, we also know that lots of other jobs, in lots of other industries, are being created as well. This week, a report authored by PricewaterhouseCoopers provides additional facts, figures and data in support of that contention — and if you haven’t seen it yet, it’s definitely worth a read.

The study, organized with input and assistance from the National Association of Manufacturers, took a long, hard look at how the development of the nation’s shale resources relates to American economic growth through 2025. What they found was impressive, and serves as a very important reminder of the very important opportunities that responsible development can make and is making possible.

The study found shale gas development has the potential to revive our economy by increasing energy affordability, resulting in significant cost savings for businesses while also stimulating  significant demand growth for manufacturing — potentially creating more than one million new jobs through 2025.  With the United States suffering from an 8.6 percent unemployment rate, the creation of a million new jobs would be welcome relief.

The study also highlights the fact that developing our nation’s shale resources will continue to provide an abundance of supply that keeps prices low for consumers. These low prices also help manufacturers, who rely heavily on a stable supply of affordable energy (and feedstock material) in order to compete with folks all around the world. According to the study, the lower feedstock and energy costs would save U.S. manufacturers a staggering $11.6 billion per year. This is money that can instead be invested in new facilities and, most importantly, new jobs.

Of course, these are only the long-term benefits.  The study also examined short-term impacts that are already being realized throughout the nation.  Specifically, the study mentions:

These are only a handful of examples. Other examples abound in communities where shale development is currently taking place. Ohio, as referenced above, is currently experiencing a resurgence in its steel industry, the likes of which has not been seen in decades, returning once idle plants and mills to bustling centers of commerce and employment.

The study comes in the wake of (and, in effect, confirms) a report from earlier this year by the American Chemistry Council (ACC), which examined the benefits accruing to the petrochemical industry as a result of shale development. ACC found that the development of natural gas could create 400,00 new jobs, generate $132.4 billion in new U.S. economic growth, and generate $43.9 billion in tax revenues for state, federal and local governments.

Reviewing recent experience and forward looking independent economic studies such as these reveals a clear trend:  The safe and responsible development of the nation’s shale resources is not only providing new life to the manufacturing sector, but is also providing hope and much-needed jobs to American workers, along with spurring significant economic growth in communities throughout the country. And for an economy that continues to struggle, the bright spot of oil and gas development is shining clearer than ever before.

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Jobs and Opportunity: Stories from the Bakken

Thursday, December 8th, 2011
Brian Carpenter
EID Guest Columnist; Sturgis, S.D.
 
 
 

Sturgis, South Dakota sits on the northern end of the Black Hills, about 30 miles from Rapid City and an hour north of Mount Rushmore.  It’s probably best known for the Sturgis Motorcycle Rally held each August.  This event is internationally renowned with up to half a million motorcyclists from all over the world attending the rally for a week of fun and entertainment.

But the rest of the year Sturgis is a quiet town with a population of 6,500.  Like many small towns across America, economic opportunities can be hard to come by, especially in recent times.  Good paying jobs here are scarce, and many young people find it necessary to move away to pursue a future filled with promise.  It is a sad realization when one discovers they must travel away from their home and family; sometimes long distances, to make an honest and successful living. That’s why many people here see the economic activity generated by North Dakota’s Bakken play as a tremendous opportunity.  Even though the Bakken formation itself is about a five hour drive north of Sturgis, it’s having a dramatic impact on the lives of many people in this area.

One such individual is Bailey Cleland.  Bailey is a 21 year old native of Sturgis.  He had planned on going into the Navy after high school, but a knee injury disqualified him from service.  After some searching he found a good job with Paragon Water Solutions, a North Dakota based company.  Paragon treats both the salt and fresh water used in the oil and natural gas development process, removing the drill cuttings from the water and allowing it to be re-circulated throughout well development.  They pioneered the use of a vacuum filtration device to clean rig water. During the three or four days it takes them to clean the water in a rig’s reservoir, Cleland and his crew live in trailers at the well site.

Paragon pays $17 per hour to start, with a raise usually offered after three months.  The crew works twelve hours per day, eighty-four hours per week.  They work for two weeks and then get two weeks off, during which time Cleland returns to Sturgis.  Workers get overtime pay for every hour after forty hours. You can see how this compensation can add up quickly or in Cleland’s words “That’s how you really make your money.”

When asked about his opinion regarding oil and natural gas development in North Dakota Cleland said:

“This is an opportunity to change your life.  It’s an opportunity to make a lot of money and get ahead and save for your future.”

Cleland said that he enjoys the hard work, the mechanical experience he is gaining, and the problem solving skills he is developing as part of his job.  He realizes the work may not last forever and he hopes to work in the industry for approximately five years or just long enough to save up enough money to start his own welding shop.

Jacob Evans tells a similar story.  Evans, also a 21 year old Sturgis native, used to work for a local pizza restaurant.  Now he works for Marquis Alliance Energy Group.  He is responsible for waste material disposal and centrifuge operations.  His job involves stabilizing the solid waste material from the well development process.  The cuttings recovered are mixed with fly ash and other substances which render them safe for disposal.  This mixture is then trucked away to a central site for burial. When asked how he likes his job he said, “I love it!  I get to work with heavy equipment, and I make really good money.”

While Evans likes his job he will be the first to tell you the hours are long and the work is hard.  He works twelve hours per day and seven days per week during his time on the rig.  He says the hard work and long hours are worth it.  Evans stated that after less than three months of employment he is making $3,600 per month, plus $50 per day in per diem pay as well as a $100 per day rig bonus for every day he is on the rig.  When asked how this new opportunity has shaped his life Evans had some profound and reflective words to share:

“I kind of got into some trouble before,” he said.  “This has enabled me to pay off some things and make a new start.  It’s a golden opportunity to make a future for yourself.  There are more jobs than people, and you can make more money than anything else in the area.”

Evans also brought up a point that is often overlooked.  The Bakken Shale does not discriminate and provides good jobs for all citizens.  In fact, Evans said it was an especially good opportunity for those who did not plan, or are unable, to go to college.

Jenn Tobin’s husband, Wade, also works in the North Dakota oil and gas fields. The Tobin’s have been married for thirteen years and have three children.  They moved to Sturgis from Clear Lake, SD in August of this year.  Wade has a degree in industrial engineering.  He had worked for a company in Watertown, SD for several years, but a bad business climate led to layoffs and he lost his job.  After a couple of other engineering jobs, Wade took a job with Halliburton.  Using the knowledge he gained at Halliburton he recently left to open his own business as an independent contractor.

The Tobin family places a high priority on Jenn being able to stay at home with her children during their most formative years.  They also wanted to send the kids to a Christian school.  The good salary that Wade earns through his employment in the oil and gas industry enabled this to come true with Jenn at home and the children being enrolled at a Christian school in a nearby town.  In this case it is clear that the oil and gas industry’s presence here allowed the Tobin’s to reach important goals they set for their family. Jenn is excited about the situation and the opportunity it presents her family.

“I love being at home,” Jenn says.  “There are some challenges to being alone sometimes, like when the snow blower is broken and the sidewalk needs to be shoveled. But I am the only child of a single mother.  I’ve always been independent and been able to manage.  I appreciate the sacrifice my husband is making for his family and the opportunity the natural gas and oil industry has provided us. This is a much needed stepping stone to achieve our long-term goals and provide for our family.”

 

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How Are You Going to Spend Your Extra $926?

Tuesday, December 6th, 2011

Maybe it’s a mortgage payment. Or monthly tuition for your kids. For some (no, not me), maybe it’s a new pair of shoes. But whatever you decide to spend it on, thanks to a new study released this week, at least you’ll know now where it came from: natural gas from shale.

That’s right, Christmas shoppers. According to a new paper issued today by IHS CERA — and commissioned by our colleagues at America’s Natural Gas Alliance (ANGA) — that $926 represents the average amount of extra disposable income delivered to every American household each year through 2015 as a result of low natural gas prices, which themselves are made possible by shale. What happens after 2015? The story gets even better, with the average American family finding an extra $2,000 in their pocket each and every year through 2035.

A little extra money around the holidays is certainly a welcome development, but what does this study have to say about the most important issue facing our country today — jobs? Quite a lot, it turns out. According to IHS CERA, the development of energy from shale is singularly responsible for the creation of more than 600,000 jobs across the United States – jobs that happen to pay an eye-popping $23.16 per hour, on average (I wish blog-writing was similarly lucrative).  By 2015, this figure is expected to grow to nearly 870,000, surpassing 1.6 million new jobs by 2035. And that’s just associated with the development of resources from shale – no limestone, no sandstone, no marble rye (also known by us geologists as the tastiest of the formations).

As mentioned, a copy of the full report can be found here. With so many facts and figures that themselves are headline-worthy, it’s hard to whittle them all down. But for folks on the go, here’s a quick round-up of the highlights:

 

 

 

 

With jobs and investment comes greater GDP, and increased tax revenues at the local, state, and federal level:

 

 

 

 

Development is spurring lower gas prices, providing savings for household and industrial consumers across the nation:

 

 

 

 

 

 

 

 

 

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*UPDATE* Shale Puts Russia, Saudis on the Defensive

Thursday, December 1st, 2011

The shale revolution is rapidly becoming global, but the Bear still refuses to be bullish on its prospects.

Most of us know about the enormous economic benefits being delivered to Americans every day thanks to the safe and responsible development of America’s shale resources. From creating jobs to reducing energy prices, and everything in between, expanded domestic production of natural gas and oil from shale has been one of the lone high notes in an otherwise bleak economic composition.

But there is another story unfolding about the shale revolution, one that’s been wildly unreported and yet one with enormous geopolitical implications: the weakening of Russia’s grip on the global natural gas market. We highlighted this phenomenon earlier this year when the Baker Institute released a study that found shale gas development in the United States and around the world could cut Russia’s market share in natural gas by more than half.

And according to the Wall Street Journal this week, Russia is starting to fight back, albeit with a hefty dose of debunked talking points about hydraulic fracturing contaminating water supplies:

Shale gas has revolutionized the gas business in the U.S., and industry experts and executives say the same could happen in Europe and Asia.

Russia, however, has repeatedly downplayed the role of shale gas and insisted it won’t hurt its lucrative model of extracting gas at deposits in West Siberia and pumping it through huge pipelines to consumers in Russia and Europe.

But in a sign the phenomenon is in fact being taken seriously, the board of directors at the world’s biggest gas producer, state-owned OAO Gazprom, this week highlighted environmental risks and the high costs of production in Europe.

“The production of shale gas is associated with significant environmental risks, in particular the hazard of surface and underground water contamination with chemicals applied in the production process,” Gazprom said in the statement following the board meeting.

Of course, such push back (which contradicts well-established facts about hydraulic fracturing) is not limited to the state-run gas company. At a recent event, Russia’s Prime Minister Vladimir Putin himself tried to undermine shale gas with his own environmental “assessment”:

Asked if development of shale gas resources threatened Russia’s dominance of Europe’s energy market, Mr Putin grabbed a notepad to draw diagrams of how “fracking” – the method used to extract such gas – could damage the environment.

Putin also allegedly said that where shale gas is extracted, “you will be sick” because production poses a “real threat to the environment.” He praised France for “recognizing” that link.

Hyperbolic rhetoric and cute drawings, however, aren’t Russia’s only strategies.

As the oil and gas market undergoes significant change (the United States is on track to beat its peak output of oil and natural gas by the end of this decade, and is also projected to become a net exporter of petroleum products by the end of this year), Russia is desperately looking for allies to help maintain its power. Last month, Putin announced that Russia will begin coordinating with OPEC, the organization that formed half a century ago in part to protect market share and control prices.

Russia and several OPEC countries also recently convened in Doha to discuss collaboration for natural gas pricing, a decision partially driven by growing global shale gas development, particularly in North America. As Platts points out, shale gas is “one of the major challenges facing the producers and exporters of conventional gas” present at the meeting.

The Saudis, meanwhile, are also viewing the shale revolution with concern, as the massive expansion of U.S. oil production in areas like the Bakken in North Dakota and the Eagle Ford in south Texas has reduced the need for imports from Saudi Arabia:

OPEC estimated in a recent report that global reserves of tight oil could be as high as 300 billion barrels, above Saudi Arabia’s conventional reserves of 260-billion barrels, which are currrently seen as the second-largest in the world after Venezuela.

Global output of non-conventional oil is set to rise 3.4 million bpd by 2015, still dominated by oil sands, to 5.8 million bpd by 2025 and to 8.4 million bpd by 2035 when tight oil would be playing a much bigger role. By 2035, the United States and Canada will still be dominating unconventional oil production with 6.6 million bpd, the group forecasts.

What’s the upshot here? Russia is scrambling to undermine the shale revolution, not only in its own back yard (Poland has enormous shale gas resources and is moving forward with development) but also throughout the world. If countries previously dependent on Russia or OPEC suddenly discover that they have more leverage over the prices these countries charge — or if they discover their own shale resources at home — the control once wielded by OPEC countries and the Russian Federation will be considerably reduced. And with that loss of power comes a considerable loss of public funding; the Russian government is heavily dependent upon oil and gas tax revenue (in 2008, one-third of Russia’s total government revenue came from oil and gas production), and in 2010 Saudi Arabia generated more than $180 billion in oil export revenues.

Creating jobs, growing the economy, reducing the deficit, and even weakening hostile regimes. Is there anything the shale revolution can’t do?

UPDATE (12/16/2011, 4:19pm ET) If there’s one thing autocrats don’t like, it’s competition, and the Wall Street Journal reports that Vladimir Putin is, indeed, feeling the pinch with respect to Russia’s (declining) energy hegemony. Apparently the Prime Minister is trying to learn all he can about hydraulic fracturing, the technology that is helping to loosen Russia’s grip on global natural gas markets, presumably so he can better campaign against it (though if he does take the time to learn the facts, he’ll discover that its alleged environmental impacts are dramatically overstated). After asking “What’s on Vladimir Putin’s mind?” the Journal gave, among others, this likely answer:

[P]erhaps he is worried about the impact of surging shale gas supply will have on state-owned gas giant Gazprom. It makes much of its revenues exporting gas to Europe, at prices linked to oil prices. If the U.S. were able to export gas to Europe, its market dominance could be eroded; Cheniere Energy recently signed a 20-year deal to supply gas to the U.K.’s BG Group. Europe, too, could eventually produce its own shale gas, particularly in Poland. The extra competition isn’t a great prospect for Gazprom – or Russian politicians, who rely on oil and gas tax revenues to balance the books.

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When It Comes to Job Creation, The Facts Speak for Themselves

Wednesday, November 16th, 2011

Organization committed to stopping hydraulic fracturing suggests real jobs created by real economic activity do not exist.

It’s one thing for groups opposed to the development of American energy resources from shale to suggest that the massive economic stimulus currently being made possible as a result of these activities is overstated – notwithstanding the fact that their own jobs as professional activists depend on these activities continuing.  But it’s a completely different thing to suggest that these jobs simply do not exist. Given all we continue to see in communities across the country where responsible shale development is taking place, it’s a statement that would make even Jean-Paul Sartre blush.

Unfortunately, that’s exactly what Food & Water Watch — which is a non-profit organization that accepts tax-deductible donations — has suggested with its latest report, which takes aim in particular at a recent study projecting massive economic growth for the state of New York if shale development is allowed to move forward. The broader implication, though, is that all economic models are all fundamentally flawed, so any projection of economic gain from energy development activity is, according to FWW, “dubious.”

Before we get to the many problems in FWW’s report, we thought it would be important to point out from the get-go the irony of Food & Water Watch accusing others of inflating data. This is the same organization, as you might remember, that inflated its own participation rates for an anti-hydraulic fracturing call-to-action, apparently in an effort to make its fundraising emails more appealing.

As to the report, our job here at EID is to read through the document so you don’t have to. What follows is a sampling of the questionable claims made by FWW, accompanied by a healthy dose of reality.

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Food & Water Watch: “Local, state and federal policymakers should look to actual employment data, not dubious economic forecasts.” (p. 2 )

EID: As it turns out, the oil and gas industry – particularly those companies active in shale – has a very strong record when it comes to creating jobs, and an equally strong standing with respect to “actual employment data.” For example, a Financial Times article that was published the same day FWW released its analysis has the headline: “Oil shale boom boosts US jobs market.” Perhaps that was published too late to make it into the qualifying footnotes of FWW’s report.

But that’s far from the whole story. A study from IHS Global Insight found that in 2010, America’s independent oil and gas producers supported nearly 400,000 direct jobs nationwide, all while generating around $263 billion in gross economic output.

At the state level, the jobs numbers are also significant. In Louisiana, the oil and gas industry supports more than 310,000 jobs in the state, driven not only by offshore production by also the Haynesville Shale, the nation’s largest producing shale gas field. Production in the Barnett Shale in north Texas has created more than 119,000 jobs throughout the state. According to the Pennsylvania Department of Labor & Industry, the Marcellus Shale supports 214,000 jobs across the Commonwealth. In fact, the unemployment rates for Tioga (7.6 percent), Bradford (6.4 percent), and Susquehanna (8.1 percent) counties — three of the most significant areas in terms of Marcellus production — are all lower than the statewide unemployment rate for Pennsylvania. It’s also worth pointing out that the average salary for workers in the industry is roughly 64% higher than the statewide average for Pennsylvania. Even those working in ancillary industries make about 35% more than the Pennsylvania average income.

As for the job creation potential in New York, the state’s Department of Environmental Conservation (DEC) has estimated that as many as 53,000 new jobs could be created from the development of the state’s portion of the Marcellus Shale.

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Food & Water Watch: Alleges that “fracking fluid migration underground” are among the “environmental and public health risks” of hydraulic fracturing and shale development. (p. 3 )

EID: This is contradicted directly by state regulators from across the country – including the head of the New York DEC – and President Obama’s own EPA Administrator Lisa Jackson has confirmed that the process has not contaminated ground water. The reality is that hydraulic fracturing has been used more than 1.2 million times over the past 60 years, not just for oil and natural gas, but for water wells, geothermal wells, and even by EPA as a clean-up tool at Superfund sites. It should be noted, though, that FWW’s source for this claim is none other than the New York Times series attacking the industry, a series that has been almost universally panned, not only by two notable Democratic governors but also by the Times’ own public editor.

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Food & Water Watch: “[D]irect jobs are not created when royalty and lease payments are made.” (p. 5 ) FWW uses this baseless claim to conclude that “$2.02 billion of the $2.95 billion in in-state spending consisted of landowner payments and taxes. This leaves $930 million in in-state spending toward direct job creation.” (p. 6 )

EID: The billions of dollars injected into the economy each year in the form of royalty and lease payments associated with oil and natural gas development don’t play a role in creating jobs? That would probably come as news to the thousands of folks, many in unrelated industries, whose jobs can be directly tied back to royalty payments in Texas, as detailed in this study commissioned by the Fort Worth Chamber of Commerce last summer. But beyond that, there’s also an interesting sleight of hand here. FWW asserts that royalties and lease payments don’t create jobs, but then claims that “landowner payments and taxes” don’t create jobs either. But taxes are not lease payments; taxes are collected by the government. Without notice, FWW seamlessly broadens its interpretation of what constitutes royalties and lease payments to include taxes, then uses that dubious definition to undermine the economic impacts of shale development. But doesn’t tax collection require staff (i.e. jobs) too, ranging from tax attorneys and paralegals to auditors and other administrative staff? Is FWW suggesting these jobs don’t exist either?

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Food & Water Watch: “Food & Water Watch conservatively assumed that at least half of the gas industry jobs would be filled by out-of-state workers if New York is opened up to shale gas development.” (p. 8 )

EID: FWW believes that if a company is not headquartered in a particular state, then most of the workers will also come from out of state. This is completely unsupported by the data. Of the thousands of new hires made by the industry in neighboring Pennsylvania, an overwhelming majority of the workers (71%) are from Pennsylvania. The industry has also spent more than $411 million over just the past three years to fund the repaving and improvement of local roads, as well as to enhance the state’s transportation infrastructure. This activity also requires workers, which means jobs in Pennsylvania for Pennsylvanians. Replicating this success in New York would bring similar benefits to the Empire State, particularly to areas that have experienced economic malaise for decades.

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Food & Water Watch: “[A]n employment multiplier of 1.92 better estimates the potential total jobs across industries created by shale gas development in New York in 2015.” In the very next paragraph, FWW says the number of jobs created with that multiplier is “less than 1 percent of projected private sector employment in 2018 in the state of New York, which is projected to be 8,6975,730.” (p. 2)

EID: It’s ironic that FWW would criticize others for not understanding how to use a multiplier and then turn around and, in the very next paragraph, misuse a multiplier. As FWW says, the 1.92 multiplier is an assessment of the overall economic impact in 2015, yet the group suggests that the multiplier can easily be applied to 2018 as well, regardless of constantly changing economic realities. FWW takes an abstract employment figure (materialized without the use of “dubious” economic models), multiplies it by a number that they do not understand, and then divides the result by a broader employment figure for a completely different year.

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Food & Water Watch: “[T]he oil and gas extraction industry has one of the largest employment multipliers of any industry”. (p. 9)

EID: We agree, and this is why there are thousands upon thousands of people across the country who have jobs, thanks to the responsible development of shale oil and gas resources. Look no further than North Dakota – which boasts the lowest unemployment rate in the nation (3.5%) and a budget surplus that could allow the state to eliminate its property tax – to see just how powerful an economic engine the oil and gas industry can be.

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Food & Water Watch: “[J]ob creation in health and human services, presumably due to shale gas industry accidents, is included.” (p. 4)

EID: For a subtle jab, this gets a “nice try.” But as it turns out, everyone needs dentists, physicians and optometrists, even those who are in peak physical condition. Moreover, FWW may want to examine the available data. According to the Bureau of Labor Statistics, the incidence rate for injuries and illnesses among all industries is 3.8 per 100 workers. The oil and gas industry is less than a third of that, with a rate of only 1.2 per 100 workers.

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Oil and Gas are a ‘Major Engine’ for Growth in Louisiana

Sunday, November 6th, 2011

New study finds Louisiana leads the country in crude oil production, generating outsized economic benefits for the state.

We’ve pointed out many times before how responsible oil and gas production is a significant source of new job creation and new public revenues. Folks in Louisiana — a major oil and gas producing state — recognize this as well as anyone, but a new study detailing the benefits of energy development may even surprise people down in the bayou.

That study, authored by LSU Professor Emeritus Loren Scott and released by the Louisiana Mid-Continent Oil and Gas Association (LMOGA), reached the following impressive conclusions about oil and gas in Louisiana:

One additional important finding of the study is the multiplier of oil and gas employment; that is, the number of spinoff jobs created from each job created in the industry. In Louisiana, that multiplier is five. Put differently, each job created in the industry creates on average four additional jobs in support industries, including not only in oil and gas service firms but also in local restaurants, hotels, and other small businesses.

With well-established production both offshore in the Gulf of Mexico and in the northern part of the state in the Haynesville Shale (which earlier this year overtook the Barnett in Texas as the nation’s largest producing shale gas field), it’s clear that Louisiana has been blessed with massive oil and gas deposits. And with new shale plays constantly coming into focus — including the Tuscaloosa Marine Shale, which could hold seven billion barrels of oil — Louisiana is a state that appears well positioned for sustained future economic growth, thanks in large part to the responsible development of oil and gas resources.

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Maryland Strongly Supports Natural Gas Production

Thursday, October 27th, 2011

New poll finds Maryland voters, like their neighbors in New York and Pennsylvania, want to participate in the shale gas revolution

It may be news to government officials in Annapolis who have imposed a temporary pause on hydraulic fracturing, but voters throughout the state of Maryland actually support natural gas production. Big time.

A new poll by Gonzales Research & Marketing Strategies finds that an incredible 80% of Marylanders support natural gas production in the United States, including 60% who “strongly support” it. The poll finds large majority support for developing natural gas among both men and women, across all political affiliations, and in every region of the state.

As for producing natural gas specifically in western Maryland, where the Marcellus Shale could provide significant new economic opportunities for the Old Line State, nearly 75% of voters in the state express support. Production in western Maryland also enjoys majority support across all demographics polled in the state.

This poll comes as another Quinnipiac survey in New York shows a plurality of voters support Marcellus Shale development, a fact that has remained consistent in Quinnipiac’s polling over the past few months. A Siena poll from last month also found more New Yorkers supported than opposed natural gas production.

And in neighboring Pennsylvania, where the Mighty Marcellus is the source of significant job creation and the rebirth of manufacturing, voters say the economic benefits of drilling outweigh any perceived environmental issues by 62 percent to 30 percent.

Throughout the United States, natural gas development enjoys 81% support according to a recent poll by the American Consumer Institute (ACI).

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