Appalachian Basin

Pennsylvania Rising – Higher and Higher!!

Nothing breeds success more than success and Pennsylvania is having one heck of a run right now thanks to the Marcellus Shale!  It is on track to become “the second largest producer of natural gas behind Texas,” according to a new Penn State study released today.  The report, entitled The Pennsylvania Marcellus Natural Gas Industry: Status, Economic Impacts and Future Potential, indicates the Commonwealth could be producing over 12 billion cubic feet of gas per day by 2015 and upwards of 17.5 bcf per day by 2020 — or about a quarter of all U.S. demand.  But, that isn’t the best part.  Pennsylvania’s Marcellus Shale is yielding jobs, economic opportunity, higher tax revenues and lower electricity costs, among other benefits.  You can view the fact sheet we prepared showcasing the highlights of these findings.  This is a great resource to share.  Now, let’s take a look a more in-depth look at some of the key facts from this study (third in a series that together provide an excellent perspective on the evolution of this industry here in the Commonwealth):

Higher Than Expected Growth in Production – Output at year-end 2010 from the Pennsylvania Marcellus was nearly 2 billion cubic feet per day. These production levels are substantially higher than our previous projections because Marcellus producers are employing advanced well stimulation techniques that are dramatically increasing well productivity.  This dramatic increase in Marcellus drilling activity has occurred during a period of general economic recession and relatively low natural gas prices. Natural gas production from the Pennsylvania Marcellus will likely average 3.5 billion cubic feet per day during 2011 and could exceed 6 billion cubic feet per day during 2012.  Indeed, Pennsylvania is now self-sufficient in supplying itself with natural gas.  The study projects that Marcellus gas production could expand to over 17 billion cubic feet per day by 2020, which would make the Marcellus the single largest producing gas field in the United States.

Higher Than Expected Spending by Industry within Pennsylvania – The study reveals large increases in Marcellus Shale related economic activity, with total spending increasing from $3.2 billion in 2008, to nearly $5.3 billion during 2009, which is up from the estimate of $4.5 billion made in 2009.  Surveys made during the current study indicate 2010 spending was $11.5 billion, which is also higher than the $8.8 billion producers had planned to spend.  The current survey finds companies plan to increase their investment spending to $12.7 in 2011 and over $14.6 billion in 2012.  This is without even counting spending to upgrade interstate natural gas transmission pipelines, the development of other shale formations above and beneath the Marcellus Shale or investments by gas consuming industries made possible by the availability of low cost gas.  Most of the increase came from higher expenditures on exploration, drilling, and pipeline and processing plant investments.  Lease and bonus payments were $2.06 billion during 2010.  This was money that went directly into the hands of landowners often needing it to keep their farms.  The largest expenditure category during 2010 was upstream drilling and completion of wells, which amounted to $7.377 billion, up from $2.15 billion during 2009.  Mid-stream expenditures on gathering and intrastate pipelines and natural gas processing plants accounted for$695 million of spending in 2009 but grew to $1.3 billion in 2010. The planned expenditures for the upstream and mid-stream segments are expected to double yet again in 2011 and 2012.  The Pennsylvania Marcellus Shale industry, in three short years, has emerged as major industry in the Commonwealth and  as a major producer of natural gas and petroleum liquids.

Higher Numbers of Marcellus Wells – The number of operating wells has increased steadily since 2008 when an estimated 280 wells were in production. One year later, 595 wells were operating and 1,055 wells were producing by the end of 2010.  As these wells went into production, total natural gas production increased steadily.  During the last quarter of 2009, the Marcellus industry produced roughly 544 million cubic feet (mmcf) of natural gas. Total production accelerated sharply, exceeding 1.1 BCF per day by July and almost 2.0 BCF per day by the end of the fourth quarter of 2010.  Average annual production of dry natural gas was 311 million cubic feet in 2009 but rose to 1,353 million cubic feet per day in 2010. The following chart tells the story in vivid detail:

Higher Economic Benefits – The Marcellus gas industry provides a direct economic stimulus of $10.4 billion dollars to the Pennsylvania economy. This spending then leads to subsequent rounds of spending and re-spending by other firms on goods and services, which adds another $4.3 billion to total state gross output. These direct and indirect business activities generate additional income in the region, which induces households to purchase $5.7 billion in additional goods and services. The sum of these direct, indirect, and induced impacts is more than $20.46 billion in 2010.  These results imply that for every $1 that the Marcellus industry spends in the state, nearly $2 of total economic output is generated. Among the segments with above average ripple effects throughout the economy are information services, finance and insurance, real estate and rental, health and social services, recreation and hotel and food services.

Higher Value Added – The estimated value added to the Pennsylvania economy in 2010 after subtracting interindustry purchases from gross output, was over $5.3 billion plus there were estimated indirect and induced impacts that increased the total value added generated in the Commonwealth to $11.16 billion during calendar year 2010.  This means the Marcellus Shale added $11.6 billion on a net basis to the Pennsylvania economy in 2010. The indirect and induced impacts were strong throughout the economy but especially pronounced in real estate, professional services and health and social services.

Higher Job Numbers – The Marcellus industry purchases of goods and services, their royalties to landowners, and tax payments directly create more than 67,000 jobs in Pennsylvania.  When indirect and induced impacts are considered, the study estimates the total employment impact associated with Marcellus development amounts to almost 140,000 jobs, which represent the total number of jobs supported by the Marcellus industry. It is estimated 23,730 jobs have been created in construction trade, 16,581 in retail trade, 14,886 in mining, 12,815 in health and social services, 11,042 in professional services, 9,974 in wholesale trade, and 7,767 in hotel and food services. The results of this study indicate that for every $1 million of gross output created by natural gas production in the Pennsylvania Marcellus Shale supports 6.8 jobs.

Higher Tax Revenues – The higher economic output and greater employment by the Marcellus gas industry generate additional tax revenues for federal, state and local governments. It is estimated State and local tax revenues for Pennsylvania increased to slightly over $1.084 billion in 2010 with the bulk of the increase coming from indirect business taxes of $802 million. Federal taxes paid by Pennsylvania increased by an estimated $1.44 billion from Marcellus development with most of the increase coming from higher social security taxes and personal income taxes paid as more people are working and receiving income.

Lower Prices for Energy –  Well, not everything can be higher.  Some things had to be lower and one is energy prices to consumers. It is estimated the increase in Marcellus Shale natural gas production during 2010 reduced natural gas prices by 12.6% from what they would have been without Marcellus production. This reduction in natural gas prices suggests total energy expenditures declined by $633 million during 2010. In other words, without the Marcellus consumers would be paying more than $633 million in additional energy costs. Residential customers or households have electricity and natural gas bills that are $245.1 million lower as a result of gas production from the Marcellus with $217.4 from lower natural gas bills and another $27.7 million from lower electricity bills. Commercial and industrial customers pay $190 and $198.3 million less as a result of Marcellus production gains.  From the household perspective, these reductions in energy expenditures stimulate the Pennsylvania economy, increasing valued added by another $170 million, state and local taxes by $18 million and adding another 2,200 jobs to the impacts previously discussed.

Lower Unemployment – As of April 2011, Pennsylvania had an average seasonally adjusted unemployment rate of 7.5%, which was 1.5% below the national average of 9.0% as reported by the Bureau of Labor Statistics. Roughly half of the counties in Pennsylvania have some level of Marcellus drilling activity but it is the counties in which there is high drilling activity that the reduction in unemployment rate is most apparent and measurable. The study examined six counties with the largest number of Marcellus wells drilled. During 2007, five of the six counties had unemployment rates above the statewide average. By 2011, four of the six counties had unemployment rates below the statewide average. For example, Bradford County had an unemployment rate of 8.33% in 2007 but by the end of April, 2011 it had an unemployment rate of only 5.95%.

Higher Tax Revenues – Pennsylvania imposes a 6% sales tax on all non-essential items including lodging so transient workers will almost inevitably add extra revenue to a local economy. With the large number of workers required for shale gas production this means significant additional sales tax revenue can be generated. The areas in which there is heavy drilling activity have seen a higher positive change in tax revenue.  For example, from 2009 to 2010, Bradford County saw an increase in tax revenues of 13.22%, while the state as a whole saw tax revenues decline (on average) by 2.26%. For counties with no Marcellus drilling, sales tax revenue declined 2.5 percent from 2008 to 2010. For counties with up to 100 Marcellus wells, sales tax revenue declined only 0.6 percent. Finally for counties with more than 100 wells drilled, sales tax revenue actually increased 0.6 percent.  The relationship between sales tax increases and high levels of drilling activity are most apparent in northeastern Pennsylvania (part of our EID Marcellus region).

Rather amazing, isn’t it?  Pennsylvania is, today, in an enviable postion because of its Marcellus Shale success.  It’s rising, higher and higher, and one only hopes New York will join it in the very near future.  It wouldn’t hurt the Delaware River watershed either!


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