Economics of Unconventional Shale Gas Development: Case Studies and Impacts

248 Pages·2015·4.04 MB·English

by  William E. Hefley, Yongsheng Wang (eds.)

Natural Resource Management and Policy
Series Editors: David Zilberman · Renan Goetz · Alberto Garrido
William E. Hefl ey
Yongsheng Wang Editors
Economics of
Unconventional
Shale Gas
Development
Case Studies and Impacts
Economics of Unconventional Shale Gas
Development
NATURAL RESOURCE MANAGEMENT AND POLICY
Editors:
David Zilberman
Department of Agricultural and Resource Economics
University of California, Berkeley
Berkeley, CA, USA
Renan Goetz
Department of Economics
University of Girona, Spain
Alberto Garrido
Department of Agricultural Economics and Social Sciences
Technical University of Madrid, Spain
EDITORIAL STATEMENT
There is a growing awareness to the role that natural resources, such as water, land, forests
and environmental amenities, play in our lives. There are many competing uses for natural
resources, and society is challenged to manage them for improving social well-being.
Furthermore, there may be dire consequences to natural resources mismanagement.
Renewable resources, such as water, land and the environment are linked, and decisions made
with regard to one may affect the others. Policy and management of natural resources now
require interdisciplinary approaches including natural and social sciences to correctly address
our society preferences.
This series provides a collection of works containing most recent fi ndings on economics,
management and policy of renewable biological resources, such as water, land, crop protection,
sustainable agriculture, technology, and environmental health. It incorporates modern thinking
and techniques of economics and management. Books in this series will incor porate knowledge
and models of natural phenomena with economics and managerial decision frameworks to
assess alternative options for managing natural resources and environment.
The Series Editors
More information about this series at
http://www.springer.com/series/6360
William E. Hefl ey • Yongsheng Wang
Editors
Economics of
Unconventional Shale Gas
Development
Case Studies and Impacts
Editors
William E. Hefl ey Yongsheng Wang
Katz Graduate School of Business Washington and Jefferson College
University of Pittsburgh Washington , PA , USA
Pittsburgh , PA , USA
ISBN 978-3-319-11498-9 ISBN 978-3-319-11499-6 (eBook)
DOI 10.1007/978-3-319-11499-6
Springer Cham Heidelberg New York Dordrecht London
Library of Congress Control Number: 2014955366
© Springer International Publishing Switzerland 2015
T his work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of
the material is concerned, specifi cally the rights of translation, reprinting, reuse of illustrations, recitation,
broadcasting, reproduction on microfi lms or in any other physical way, and transmission or information
storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection
with reviews or scholarly analysis or material supplied specifi cally for the purpose of being entered and
executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this
publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher’s
location, in its current version, and permission for use must always be obtained from Springer.
Permissions for use may be obtained through RightsLink at the Copyright Clearance Center. Violations
are liable to prosecution under the respective Copyright Law.
T he use of general descriptive names, registered names, trademarks, service marks, etc. in this publication
does not imply, even in the absence of a specifi c statement, that such names are exempt from the relevant
protective laws and regulations and therefore free for general use.
While the advice and information in this book are believed to be true and accurate at the date of
publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for
any errors or omissions that may be made. The publisher makes no warranty, express or implied, with
respect to the material contained herein.
Printed on acid-free paper
Springer is part of Springer Science+Business Media (www.springer.com)
Contents
Introduction ..................................................................................................... 1
William E. Hefl ey, Megan K. Kiniry, and Yongsheng Wang
Direct Economic Impact of the Value Chain
of a Marcellus Shale Gas Well ....................................................................... 15
William E. Hefl ey and Shaun M. Seydor
Analysis of the Shale Gas Economy in Washington
County, Pennsylvania ...................................................................................... 47
Yongsheng Wang and Diana Stares
The Shale Gas Economy in the Northeast Pennsylvania Counties ............. 71
Kirsten Hardy and Timothy W. Kelsey
Marcellus Shale and the Commonwealth of Pennsylvania ......................... 93
Timothy W . Kelsey and Kirsten Hardy
Eagle Ford and the State of Texas ................................................................. 121
Thomas Tunstall
Communities Experiencing Shale Gas Development ................................... 149
Kathryn J. Brasier, Lisa Davis, Leland Glenna,
Timothy W . Kelsey, Diane K. McLaughlin, Kai Schafft,
Kristin Babbie, Catharine Biddle, Anne DeLessio-Parson,
Danielle Rhubart, and Mark Suchyta
Origins and Consequences of State-Level Variation
in Shale Regulation: The Cases of Pennsylvania
and New York .................................................................................................. 179
Ilia Murtazashvili
v
vi Contents
Sector Effects of Shale Gas Development ..................................................... 203
Alan Krupnick, Zhongmin Wang, and Yushuang Wang
Achieving Balance Between Economic, Sociodemographic,
Environmental, and Regulatory Concerns: A Shale Gas Perspective ........ 233
Clifford A. Lipscomb, Sarah J. Kilpatrick, Yongsheng Wang,
and William E. Hefl ey
Introduction
William E. Hefl ey , Megan K. Kiniry , and Yongsheng Wang
Abstract Shale gas development has changed the energy discussion in the United
States, as existing reserves of natural gas coupled with horizontal drilling and
hydraulic fracturing make exploitation of these reserves economically feasible. US
energy portfolio has changed signifi cantly due to this new development. The impor-
tance of natural gas is seen as likely to continue to expand over the coming years
and is expected to increase even further with environmental considerations, such as
greenhouse gas emissions. This chapter provides a background view of unconven-
tional shale gas development across the United States.
Emerging Importance of Unconventional Shale Gas Development
Technological advances in horizontal drilling and hydraulic fracturing (or “fracking”)
make it economically feasible to exploit the vast reserve of shale gas and oil in the
United States. It signifi cantly changed the existing energy portfolio. With the supply
of cheap gas, related industries have started building plants near those new low-cost
energy sources. New supply chains and industries started forming in these areas. This
new development increased competitiveness of US manufacturing and stimulated its
export. The importance of natural gas is seen as likely to continue to expand over the
coming years and is expected to increase even further with environmental consider-
ations, such as greenhouse gas emissions (MIT Energy Initiative 2 011 ).
W. E. Hefl ey (*)
Joseph M. Katz Graduate School of Business and College of Business Administration ,
University of Pittsburgh , Mervis Hall , Pittsburgh , PA 15260 , USA
e-mail: wehefl [email protected]
M. K. Kiniry
College of Business Administration , University of Pittsburgh ,
Pittsburgh , PA 15260 , USA
e-mail: [email protected]
Y. Wang
Department of Economics and Business , Washington and Jefferson College ,
60 South Lincoln Street , Washington , PA 15301 , USA
e-mail: [email protected]
© Springer International Publishing Switzerland 2015 1
W.E. Hefl ey, Y. Wang (eds.), Economics of Unconventional Shale
Gas Development, Natural Resource Management and Policy 45,
DOI 10.1007/978-3-319-11499-6_1
2 W.E. Hefl ey et al.
Horizontal drilling and hydraulic fracturing producing natural gas from deposits
such as the Marcellus Shale is making the United States a net producer of natural
gas, rather than being a net importer of natural gas (Natural Gas Weekly, July 19.
2010 ). In fact, studies have estimated the recoverable reserves in just the Marcellus
Shale at over 489 trillion cubic feet (Tcf), making the Marcellus Shale the world’s
second-largest reserve, with only the South Pars fi eld in Qatar and Iran being larger
(Engelder 2 009) . With the Marcellus Shale deposits sitting deep below 95,000
square miles in New York, Pennsylvania, West Virginia, Ohio, Maryland, and
Virginia, this huge gas deposit is physically close to the population centers of the
Mid-Atlantic and Northeast United States. An existing and potential market of over
16 billion cubic feet (Bcf) of natural gas per day resides within a 200-mile radius of
the Marcellus Shale deposits.
The spread of Marcellus drilling in Pennsylvania has increased rapidly in recent
years. Figure 1 shows the number of unconventional wells permitted and drilled in
Pennsylvania between 2004 and 2013. Projections suggest that as many as 60,000
Marcellus wells will exist in Pennsylvania by 2030 (Hopey 2 011 ).
T he predicted natural gas output from shale is predicted to be higher than esti-
mated earlier because of a signifi cantly larger number of drilling rigs producing new
wells and faster production times (i.e., more wells drilled per drilling rig resulting
in faster cycle times to gas sales) (Pursell 2 010 ). In Pennsylvania by the middle of
2011, there are more than 1,600 Marcellus Shale wells in production, producing 432
billion cubic feet (Bcf) of natural gas during the fi rst half of 2011 (Olson 2 011 ).
Marcellus Shale well production in southwestern Pennsylvania alone, including
Allegheny, Armstrong, Beaver, Butler, Fayette, Greene, Washington, and
Westmoreland counties, during the fi rst 6 months of 2011 increased 55 % to 127
billion cubic feet (Litvak 2 011 ).

Fig. 1 Number of unconventional wells permitted and drilled in Pennsylvania (Source: PA
Department of Environmental Protection, Bureau of Oil and Gas Management, Oil and Gas
Reports) ( h ttp://www.portal.state.pa.us/portal/server.pt/community/oil_and_gas_reports/20297 )
Introduction 3
T hese technological innovations in America’s natural gas industry are resulting
in new opportunities for growth in domestic production, employment, government
revenue, and savings of millions in energy costs from other countries. Specifi cally,
production of “shale gas” has become highly widespread and growing throughout
the United States and developing globally. With many countries looking to reduce
their dependence on imported natural gas through the development of natural gas
from shale, this growth is not limited to the United States. In 2014, the UK govern-
ment is planning to award licenses for onshore shale gas exploration (Williams
2014) . The application of these technologies for shale gas exploration and produc-
tion causes rapid transformation to the environmental and socioeconomic landscape
also which continues to develop every day; therefore, stakeholders must now
address the impacts and challenges that result from the application of these innova-
tions in unconventional shale gas development.
Shale has become a highly publicized word throughout the news. Publicized, yet
unproductive as 50 % of surveyed Americans noted little to no knowledge of frack-
ing with 60 % with no opinion on the subject (Boudet 2 014) . An uneducated public
is unable to participate in the constructs of a national growth opportunity; therefore,
the following research has been accumulated to bridge the gap between recognition
and understanding.
P revious studies have examined the economic impact of exploration and produc-
tion in the mining sector. For example, Black et al. (2 005 ) found that an earlier coal
boom spurred economic growth in the non-mining sectors, while the subsequent
coal bust resulted in lower economic growth in the non-mining sectors of the region.
As Fig. 1 s hows, Marcellus drilling in Pennsylvania has risen signifi cantly since
the fi rst well just over a decade ago. As the number of Marcellus wells continues to
grow and the awareness of this industry becomes better understood (both for posi-
tive and potentially negative impacts), there have been a number of studies that are
examining the economic impact of the Marcellus Shale development. Several of
these studies address the economic impact of Marcellus Shale drilling (e.g.,
Considine 2 010 ; Considine et al. 2 010 ; Barth 2 010 ; Higginbotham et al. 2 010 ; The
Perryman Group 2 008 ), while others examine the environmental and social impacts
(Sample and Price 2 011 ; Ubinger et al. 2 010 ; U. S. Department of Energy 2 009 ).
Beyond the direct spending impacts of Marcellus plays, discussed further in Chap. 2
by Hefl ey and Seydor, there are additional economic impacts that come as a result of
this spending. Kay argues that these impacts may be mixed; some will be winners,
while others may not (Kay 2 011 ). These impacts extend throughout the entire supply
and value chains of the Marcellus Shale wells, as explained by Kathryn Klaber, for-
mer president and executive director of the Marcellus Shale Coalition, who described
economic impact as not just coming from drilling and exploration. In an interview
with the Pittsburgh Post-Gazette (Gannon 2 010 ), she said, “It doesn't stop with the
natural gas companies. There are law fi rms, accounting fi rms, small town grocers and
dry cleaners all starting to realize – in the areas where this is happening – that there
is business to be had and economic opportunities throughout the supply chain.”
These additional impacts are comprised of indirect impacts and induced impacts.
The indirect impacts are additional economic activity of the value chain network