Study: Marcellus Shale Investments Will Triple From 2008 to 2011
Washington PA Observer Reporter
26 May 2010
By Michael Bradwell, Business editor
mbradwell@observer-reporter.com
An update to a 2009 Penn State study on the economic impact of drilling
for natural gas in the Marcellus Shale strata, released Tuesday,
projects that investment spending by the drilling industry will have
tripled in Pennsylvania from 2008 to 2011.
Declaring the long-term outlook for Marcellus gas production
"remarkable," the authors also project that by 2020, employment in
Pennsylvania's natural gas industry would expand to 200,000 jobs and
annual gains in state and local tax revenue would exceed $1 billion.
According to the study by Timothy Considine, Robert Watson and Seth
Blumsack of Penn State's College of Earth and Mineral Sciences, which
was presented Tuesday to the General Assembly, Marcellus shale gas
producers spent a total of $4.5 billion to develop the shale gas
resources in 2009. The group estimates that the spending generated $3.9
billion in value added impact from spending on goods and services to
support the drilling activity; contributed $389 million in state and
local taxes; and created more than 44,000 jobs.
For 2009, natural gas output averaged 327 million cubic feet per day of
natural gas equivalents, including dry natural gas and petroleum
liquids, with output at the end of the year reaching more than 500 mcf.
In a survey conducted for the study, in which gas producers were asked
for estimates of drilling activity, spending levels and production
rates, the authors wrote that results "clearly show a significant
ramp-up in activity, with total spending increasing from $3.2 billion
during 2008 to more than $4.5 billion during 2009."
They also said their survey found that drillers plan to increase their
investment spending to $8.8 billion for 2010 and to more than $11
billion in 2011.
"This evidence confirms that the Pennsylvania Marcellus industry is
poised for a substantial take-off in development," the study said.
While acknowledging that the projected economic impact from Marcellus
activity in their update was similar to the forecast made in 2009 at a
much earlier stage of the shale's development, the authors said the
minor differences were attributed to a significant decline in natural
gas prices and changes in the economy because of the current nationwide
recession.
Despite the downturn, the study estimates a dramatic expansion of
Marcellus gas production from just over 327 mcf per day in 2009 to more
than 13 billion cubic feet per day by 2020. Using that estimate,
employment would expand by 200,000 jobs and annual gains in state and
local tax revenue would exceed $1 billion.
However, the authors note that the imposition of any significant
severance tax on Marcellus natural gas output "could induce a
redirection of investment flows to other shale plays. Any revenues
gained from a severance tax could be offset by losses in sales and
income tax receipts resulting from lower drilling activity and natural
gas production as producers shift their capital spending to other
plays."
There are currently three different severance tax proposals at various
stages of discussion in Harrisburg.
The industry practice of hydraulic fracturing, which uses water, sand
and chemicals to release the gas molecules from the shale, also is
under increased regulatory scrutiny. The Environmental Protection
Agency is studying the fracking process, while Pennsylvania has
proposed stricter regulations on drilling and wastewater disposal to
address environmental concerns.