The Institute compares Marcellus shale to Barnett, Fayetteville
Published: November 30, 2012
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If it’s true that history repeats itself, then the riches flowing from the Marcellus Shale are destined to expand in the coming years.
The Institute for Public Policy and Economic Development reached this conclusion in a study describing the economic impact Marcellus gas recovery will have on the economy of Pennsylvania’s 10th Congressional District, as well as the surrounding locales. Historical comparisons of the Marcellus Shale to the more developed Barnett Shale in Texas, and the Fayetteville Shale in Arkansas were central to the report.
Shale fields have already become a major supplier of domestic natural gas. The United States produces about 20 trillion cubic feet (Tcf) of natural gas per year, and between 2007 and 2010, shale gas production rose from just 1 billion cubic feet (Bcf) to 365 Bcf.
This upward trend is, in all probability, destined to continue. The U.S. Energy Department also estimates that there is 141 Tcf of gas in the Marcellus Shale formation alone.
Teri Ooms, executive director of The Institute for Public Policy & Economic Development, says that the economic riches being generated in Texas and Arkansas bode well for Marcellus. In both of those states, counties adjacent to the actual drilling sites have had economic spillover effects, and select business interests are choosing locations near the gas fields.
Because China possesses huge gas reserves, gas exports from the United States may lag. However, India represents a potentially fertile market for gas sales, and the bursting supply of gas within the United States gives the country a real opportunity for energy independence. "Achieving energy independence would really change our foreign policy," comments Ooms.
According to Ooms, a wide variety of regional business sectors can expect to generate escalating profits from gas recovery. These include environmental specialists, metal fabricators, diesel mechanics, truckers, food service vendors, retail stores, bars, and hotels. The Marcellus Shale is also fertile ground to examine niches to start new businesses.
However, as is the case in Texas and Arkansas, gas drilling poses genuine environmental risks. Ooms says that drillers must proceed with integrity, and she expects no consensus will ever be achieved about the safety of gas recovery because public opinions are so emotional and so susceptible to manipulation, a lack of science, or “crooked” science.
“Despite anyone’s opinions about safety, drilling in the Marcellus region is not going to just go away, but no one should have to suffer quality-of-life issues due to development of any one industry,” says Ooms. “There’s not one industry out there without accidents, and our region’s geology has proven to be somewhat new to the drillers.”
Leaps and bounds
Ken Patton, owner of Proforma LBP Marketing Concepts in Laceyville, also expects revenues from natural gas to continue growing in leaps and bounds. He is personally seeing new business from pipeline construction, as well as work for machine shops, quality control inspectors, truck drivers, and mechanics.
“People follow the money,” says Patton. “Long term economic profitability will continue to grow for our region.”
Patton also serves as mayor of Laceyville, and says last year’s devastating flood now has a direct connection to the natural-gas business. According to Patton, Laceyville alone lost 300 families, and flood clean-up still is not completed. “If not for the gas dollars we have received, what would we have done?” he says.
Patton identifies one factor that could slow the flow of gas profits and that is the depressed price of natural gas. New drilling definitely has slowed in response to these low prices, and no increases in the price of gas appear to be in sight anytime soon. “These drillers are all portable, so they can pick up and go where conditions are the most profitable,” adds Patton. “But, dollars and drilling are still going on here.”
Tom Pritchard, vice president of business development at Friedman Electric, reports that his company’s new Industrial Sales Oil and Gas Division has encountered steady business. The division’s sales team has been increased from three to five. “We did have a bit of a surprise in the amount of learning we had to do in order to move forward,” says Pritchard.
He also says that the regional gas business has been slowed due to low wellhead prices. Last year’s unusually warm winter also curbed demand, which no one saw coming.
“An overabundance of gas in the country is now a reality, but there’s no question drilling will still continue to move forward,” says Pritchard.
The concerns of both Patton and Pritchard about depressed gas prices are well-founded. The United States Energy Information Association reports that the wellhead price of domestic natural gas fell from about $4.48 to $3.95 per thousand cubic feet during 2010 to 2011, triggering cut backs in production.
Frank Joanlanne, president of Borton Lawson Engineering, a civil and transportation architect, has been cashing in on the Marcellus with engineering work for well platforms and compressors, plus water infrastructure and reuse systems. The company offers design and survey work, without installation.
He confirms that the low natural-gas prices are definitely impacting drilling and the supporting contractors. However, profits for land owners and transportation companies are still booming.
Joanlanne foresees the widespread use of gas hydrocarbons for domestic manufacturing, and believes this application will eventually be the biggest and longest lasting scenario associated with the Marcellus. He says manufacturing traditionally goes to areas where the cheapest raw materials exist, and the Marcellus Shale fits this bill perfectly. Above all, Joanlanne describes the opportunities from natural gas recovery as “evolving.”
“About 20 to 30 percent of our shale revenues would not have existed 10 years ago, and many of our old clients are now gone,” he explains. “We were very lucky that we got in early with the gas drillers.”