Marcellus Shale Economics 101, More Than Art
When discussing natural gas, the critics of its development tend to dismiss its economic contributions as temporary, as art economist Jannette Barth did in this recent report for Catskill Citizens. However, the economics of shale gas are neither temporary, nor ephemeral, as she asserts in this latest epistle. Natural gas development is cyclical, but studies suggest it will be multi-generational in our region, supplying jobs and other revenue to local economies for years to come.
If we look at what’s occurring in Pennsylvania, we can see the potential for New York when the doors are opened for development. Barth travels around New York State telling everyone the economy will not benefit from natural gas exploration while ignoring what is plain to see across the border in Pennsylvania. I took a look at her claims of negative impacts from natural gas development and found them to be pretty shallow. Let’s review her assertions compared to the evidence.
It Takes More Than Texans
One of Barth’s central theses in her latest report (taken from an earlier “study” by her) is that economic benefits don’t go anywhere but Texas because New York doesn’t have the infrastructure and companies will, therefore, import everything they need from the Lone Star State and take the profits back with them. Here is her fairly startling claim:
Texas has a labor force with the requisite skill sets. The rural counties in upstate New York would have to import the labor, who in many cases will be temporary and transient, and most of their income will be spent in their home states (probably not in New York), greatly reducing the multiplier effect in New York State relative to Texas. In addition, Texas has a very large support industry network for oil and gas activities with all requisite machinery, equipment, etc, many of which are probably manufactured there or at least distributed and contracted for there. Note also that the major gas companies are not headquartered in New York (for example, Chesapeake Energy is in Oklahoma City and XTO is in Fort Worth). New York would have to import most gas industry services, machinery, equipment, and management, and much of this would probably come from established businesses in other states such as Texas, so it is even possible that Texas would derive greater economic benefit from drilling in New York State than would New York. (emphasis added)
This argument, which is filled with speculation as noted may be summed up as “Texas has it all and there’s no point in New York trying.” She cites absolutely no facts to support her argument which is strikingly obvious. Instead, she simply strings together a series of suppositions that ultimately say nothing other than “give it up” based on what I think. This is economics?
The answer is no it is not. What is? Local Chambers of Commerce, and others, successfully working with the industry to ensure sustainable long-term economic growth for their communities. The results are evident in places like Williamsport (Lycoming County), the nation’s seventh fastest growing metro area as a result of natural gas. How does Barth think this growth happened while the rest of the nation faltered? Somehow, I suspect it wasn’t from new art galleries.
This video of John Felmy, chief economist for the American Petroleum Institute, from our recent FracFocus.org event shows Felmy, a Lycoming County native, describing the progress in his home community and continued future growth potential.
I’d say Felmy is a bit more credible than Barth.
Hiding the Incline
Barth also employs some median income data from Texas to suggest counties with natural gas development have fared poorly compared to other counties. Here’s what she says:
For the period from 2003 to 2010, median household income increased by 21.2% in the state of Texas, but in the four core counties, median household income only increased between 10% and 16%. And for the same period, the increase in the average unemployment rates for the four core counties (2 percentage points) was very similar and a little higher than the increase in the state unemployment rate (1.5 percentage points). Finally, the number of people in poverty in the four core shale counties increased, in percentage terms, just as much as statewide.
Notice Barth relies upon data from four Barnett Shale counties and uses the unusual period of 2003-2010. While she is technically correct about the percentage gains in median household income, she leaves out a critically important piece of information and starts her counting well after natural gas had already produced an economic revival. She doesn’t tell the reader these four counties all already had median household incomes well above the state average; from 11% to 57% higher in 2000, in fact, and 7% to 41% higher in 2010. It’s hard to increase your lead when you’re already so far ahead!
But this isn’t all. One of those four counties is Denton County, part of the Dallas/Fort Worth area where natural gas development started in 1995. Denton County got to where it is now, at the top of the heap, as a direct result of natural gas! Here’s what the Joint Urban Studies Center said about that in 2008:
Denton County residents also benefited directly from the Barnett Shale industry. The county experienced tremendous growth in median household income – from $36,914 in 1990 to $66,792 in 2006.
Apparently, art economics works differently than other sectors. Well, not so much. The only thing different here is Barth’s attempt to hide what natural gas did for Denton County and Dallas/Fort Worth.
And, it’s no surprise. The direct effects of natural gas development from shale includes long-term job growth as well as money from leasing and royalties. Opportunities created directly by the natural gas industry include jobs in driving, welding, office work, public relations, engineers and manual labor, just to name a few. Additionally, natural gas industry jobs ensure local youth are able to stay in their home towns and raise their families where they grew up. Towns all too accustomed to decline will have the opportunity to grow once more. Tax bases will swell. Local schools will be able to remain open. Families will be able to stay together. Just take another look at the “Women of the Marcellus” video if you want the proof.
This Penn State study provides further evidence of local hiring:
For this study, the proportion of resident and non‐resident workers was set using data from a Marcellus Shale Education & Training Center online survey of gas companies conducted in 2010 as part of a workforce needs assessment (Brundage et al, 2011). The responses indicated that 62.7 percent of the workers are Pennsylvania residents and 37.3 percent are non‐residents. This percentage likely slightly overestimates the actual percentage of Pennsylvania workers in 2009, and thus our results likely slightly overestimate the economic impact of payroll spending.
Natural gas development will help other industries as well. There are opportunities with natural gas powered vehicles, manufacturing (see another article here), steel and colleges/trade schools (Broome Community College, Corning Community College, and BOCES programs, to name a few). These programs are rapidly developing the skill sets among lresidents for the natural gas industry. Trade school skills such as welding are in high demand by the gas industry.
Help from South of the Border
Across the border from Pennsylvania, we also see multiple businesses enjoying the spinoff benefits of the natural gas industry workers. Check out the video below for some examples.
Vestal Asphalt and Payne’s Cranes are two more New York businesses that have been able to expand and hire several new people thanks to the natural gas industry. The videos below show them speak on their experiences.
It’s About the Land, Stupid!
It’s also about the ability of landowners to hold onto their properties and invest their equity in the community – something Jannette Barth doesn’t even consider. Think about the impacts on the economy thanks to lease payments and royalties. If an economy is ill, as is the case in most areas of the Southern Tier, this money may be viewed as an antibiotic. Such money, when pumped into a local economy, tends to be mostly spent in the local area. Those checks get deposited in local banks. Landowners use the money to pay taxes and mortgages, putting both themselves and the local economy on better footing.
The money they have after that may go to fixing up or replacing homes, barns, equipment and the like. Fixing these provides income to hardware stores, lumber mills, contractors and car dealerships, to name a few. The family farm falls into the hands of the next generation, rather than lenders. And, when the essentials are addressed there is money for more. The ripple effect carries the benefits forward to smaller businesses. Check out the great chart here on the Marcellus Multiplier, for example.
Finally, families can also move towards a positive saving rate. It seems unheard of these days but it is surely possible with the help, directly and indirectly, from the natural gas industry. Here is what the Penn State MSETC study says about that (emphasis is added):
When weighted by the amount of dollars each landowner was paid, about 55 percent of the total leasing dollars were saved in the year they were received (see Table 3), rather than being immediately spent. About 66 percent of all the royalty dollars were similarly saved for the future. Other common uses included paying state and federal taxes (17 percent of leasing dollars), purchasing vehicles (9 percent of leasing dollars), and real estate (5 percent of leasing dollars). Other than the state and federal taxes, these are not typical consumer spending, indicating that households receiving lease and royalty dollars are using these dollars differently than normal income.
Given all the data readily available to any art or other economist not blinded by ideology, natural gas exploration is both the safety net and boost the Southern Tier economy needs. Jannette Barth can’t see it, though. Instead, she produces a three page report of rehashed and undocumented assertions that wouldn’t qualify as a high school economic term paper; full of qualifiers such as “can,” “may be,” “has been reported,” “it’s likely that,” “are likely,” “appears to be consistent” and, my favorite, “if there is any truth to the many indications.”
Let’s just say, “if there is any truth to the many indications” in Janette Barth’s paper …I couldn’t find it.