Natural Gas Naysayers Nimbly Avoid Facts, But Benefits Remain
No matter how good the story is regarding natural gas, there always seems to be naysayers, desperate to disparage the industry by spinning, twisting or understating the facts to speculate about some potential downside for which they offer little or no evidence.
The natural gas industry in Pennsylvania is finally getting some overdue recognition for its transformation of this state’s recession prone economy. A recent Associated Press (AP) article entitled Landowners Gain Billions in Royalties from Shale Gas Drilling articulated some of the benefits.
The article also provides, though, ample witness of how far some folks will go to discredit the revolutionary impact of natural gas in the minds of the casual observer, hoping we don’t have a calculator or a search engine.
Here’s some of what the AP article stated and notice how one academic chose to diminish the impacts (emphasis added):
In Pennsylvania alone, royalty payments could top $1.2 billion for 2012, according to an analysis by The Associated Press that looked at state tax information, production records and estimates from the National Association of Royalty Owners.
One economist noted that the windfall payments from the natural gas boom are wonderful for individuals but that they represent just a tiny portion of total economic activity.
For example, the $1 billion for Pennsylvania landowners sounds like a lot, but “it’s just not going to have a big impact on the overall vitality of the overall economy,” said Robert Inman, a professor of economics and public policy at the University of Pennsylvania’s Wharton business school. “I think the issue is, what difference does it make for the individual families?”
It appears Professor Inman has an unusual definition of “tiny” and I’m not sure how he reconciles the idea that individuals are benefited without families also gaining. Families win on several levels.
The first impact consists of all those savings on heating bills, which especially benefit lower and middle-class families. As a result of the burgeoning supply of natural gas on the market since the shale boom, natural gas prices fell to a 10 year low of $2.27/MMBtu in March of 2012. The Energy Information Administration says the average homeowner who heated with natural gas probably saved still another $50 in 2012 even though it already costs less than one-third the price of oil heat. More people are heating with natural gas now than ever as a result.
Coincidently, more electricity suppliers are using natural gas to run electricity producing turbines, which is leading to cheaper electricity too. According to the Energy Information Administration, natural gas currently accounts for 25% of our current electricity production, which is up almost 100% in the last 10 years and saving families, businesses and manufacturers billions of dollars nationwide.
I believe the publishing of this statement from Professor Inman is intended to downplay the impact that our energy sector has on the Pennsylvania economy and goes to the heart of what is driving the “anti” free-market attitude permeating our higher education. It deliberately downplays the private sector’s importance. Why?
For a possible answer let’s look at what Professor Inman said about the infamous financial stimulus a few years ago now. Wharton published a paper in 2009 entitles, Not With the Plan: State Budget Woes Create a Black Hole for U.S. Stimulus Funds, quoting Professor Inman stating:
The $787 billion stimulus allocates $223.2 billion over three years to the states — approximately $240 per person each year. Inman estimates that $108 of that is earmarked for poverty prevention programs such as unemployment, Medicaid, assistance for needy families and public housing. The remaining $132 goes to non-welfare programs, such as transportation, education and general-purpose spending.
Obama and his economic advisors are hoping this $132 will be spent right away, to stimulate the economy. But Inman’s research on state spending and taxation has revealed a potential problem for the Obama strategy. Historically, when states receive assistance from the federal government they save a portion of that assistance in “rainy day” funds, in anticipation of less federal money at a later date. “They spread it out, much like a family would if they received a check from the federal government,” Inman says.
He calculates that the average state will use about $69 of the $132 in non-welfare dollars to fill in revenue gaps, will spend about $8 more per person on capital outlays, allocate about $4 per person right away to pay off incurred debts, and then put the remaining $51 into a savings account, earning interest, for later contingencies — including, perhaps, less federal aid in the future. “The bottom line is, we’re going to give the states $132 in stimulus, but only half of it is ever going to find its way into the economy in the next year or two. All the best efforts to try to get states to spend the full stimulus package will be undone by the incentives of the states themselves.”
Summarizing, Inman’s research indicates the government stimulus may have, at best, led to $63 actually reaching any one person, nationwide, over a 1-2 year period, due to the natural malfunctions of government built into the public sector, which invariably produces mediocre results.
Now, compare this $63 from the infamous stimulus to the savings in consumer heating costs from natural gas production in Pennsylvania. We have not only the $50 of recent savings, but also the hundreds of dollars of additional savings from the years 2009-2011 as Pennsylvania natural gas prices to consumers plummeted from $16.22 per thousand cubic feet to $11.97, not to mention the cheaper electricity, the thousands of jobs, the CNG savings, the increased spending and the considerable lease and royalty income put in the hands of landowners. We can safely assume the natural gas industry has had a far more positive influence on the state’s economy dollar for dollar than the economic stimulus. Moreover, when you factor in that $0.41 of every dollar spent on the stimulus package was borrowed money, it’s real dollars vs. borrowed cents.
Are we going to see these dots connected by the media or Professor Inman? Of course not. That would add context to the argument which would derail the agenda of the folks eager to denigrate natural gas.
It’s also worth noting the $1.2 billion in royalties that is the subject of the story is not so “tiny” when considers the multiplier effects and all other income generated by natural gas production. Yes, Pennsylvania’s total gross domestic product in 2011 was about $500 billion, according to the U.S. Department of Commerce and royalties alone only constitute 0.24% of it, but that is only a small portion of the enormous impact natural gas production has had in the state. A 2011 Penn State report on the economic impact the Marcellus Shale on the state’s economy stated: Marcellus producers plan to spend significantly more in 2011 and 2012, generating more than $12.8 billion in value added or the regional equivalent of gross domestic product in 2011 and another $14.5 billion during 2012.
According to the Recovery Act in Pennsylvania website, $33.8 billion came to PA over a four year period from 2009-2012. That’s an average of $8.45 billion per year. Compare that to Penn State’s estimate for the planned and forecast expenditures of the natural gas industry during the period of 2009-2012, which are $43.239 billion. If that isn’t enough, the stimulus spending has ended, but the natural gas industry in Pennsylvania is forecast to spend $17.195 billion in 2015 and as much as $20.246 billion in 2020, according to the Penn State study.
The purpose of this comparison is not to indict Professor Inman on 3 sentences in a news story, but rather to put some perspective on what we read and hear, so much of which is agenda-driven. Think back to 2009 and how the media coverage of the stimulus plan was predicted to save the world as we know it, as if our future were dependent on government action. Do you see the same treatment of the natural gas industry? No.
This difference is a direct result of inherent bias in news coverage. Those who are diligent processors of Marcellus Shale news pick-up on the innuendos and the slants, but skepticism regarding the free-market is an established fact of life among casual observers, one reinforced in favor of constantly enlarging government intervention by a media that concurs.
They favor a strategy that inherently picks the winners and losers rather than letting consumers decide who makes the best, most affordable product or treats their customers the best. If we stay on this path, the free-market will eventually be subsumed into a form of “state-capitalism,” where there are fewer and fewer consumer choices and only a vicious circle of economic decline. Consumer choices are what drive an economy and its productivity. Consumers are choosing natural gas because it makes sense and is getting the job done without government intervention.
One more thing; 0.24% of Pennsylvania’s GDP is not very large in government spending numbers, but up here in Marcellus Shale country, we are talking about $1.2 billion being dropped into rural Pennsylvania communities, not the population centers of the state. Up here, we are talking about Penn State’s report of over $1 billion generated in state and local taxes. We are talking about the creation of over 200,000 jobs. But, perhaps the greatest impact is what we are feeling as small business owners, up here, in rural Pennsylvania, and that’s hope. Not the kind that Washington D.C. peddles, but the kind Americans traditionally have had.