Academic journal article Agricultural and Resource Economics Review

The Economic Impact of Shale Gas Development: A Natural Experiment along the New York / Pennsylvania Border

Academic journal article Agricultural and Resource Economics Review

The Economic Impact of Shale Gas Development: A Natural Experiment along the New York / Pennsylvania Border

Article excerpt

Over the past decade, the technological advancements of hydraulic fracturing and horizontal drilling have led to the economic feasibility and rapid growth of natural gas production using shale and other unconventional sources. Hydraulic fracturing ("fracking") is the process of injecting pressurized fluids into shale gas deposits to create a network of cracks in the formations at 5,000 to 10,000 feet below the earth's surface. These cracks release natural gas trapped in the underground shale formations, allowing it to flow into wells at the surface. More than 99 percent of the fracking fluid is water; the remainder is a combination of sand and chemicals (Higginbotham et al. 2010).

The rapid evolution of shale gas development is expected to allow for an increase in the U.S. supply of natural gas to meet domestic demand for electricity and to position the United States to become a net exporter of the product by 2019 (Energy Information Administration (EIA) 2013). Currently, more than half of the natural gas produced in the United States comes from unconventional sources such as deep gas deposits, tight gas deposits, shales, coal-bed methane deposits, and geopressurized zones (Jacquet 2012). Between 2000 and 2009, approximately 190,000 conventional and unconventional natural gas wells were drilled (Jacquet 2012), and shale production was expected to grow from 7.85 trillion cubic feet in 2011 to 16.70 trillion cubic feet in 2014 (EIA 2013). With an estimated annual growth rate of 2.6 percent, shale gas development is the largest of potential sources of growth in the domestic supply of natural gas (EIA 2013).

The largest deposits in the United States are found in the Marcellus shale, which covers 95,000 square miles spanning Ohio, West Virginia, New York, Pennsylvania, and parts of western Maryland and Virginia. The shale is estimated to contain 141 trillion cubic feet of recoverable natural gas representing nearly 30 percent of all domestic reserves (EIA 2012). It dates to more than 350 million years ago and consists of relatively coarsely grained sandstone, siltstone, and shale (Higginbotham et al. 2010). Its low permeability and relatively deep depths restricted the ability to extract the gas by conventional methods, but the introduction of fracking and horizontal drilling techniques transformed the energy potential of the Appalachian Basin. These innovations led to rapid expansion of natural gas production in Pennsylvania-from 332 unconventional wells drilled in 2008 to 1,352 in 2012 (Pennsylvania Department of Environmental Protection 2015)-and shale gas withdrawals, as shown in Figure 1, increased from a few billion cubic feet per month in 2009 to more than 250 billion cubic feet per month in 2013 (EIA 2014).

Simultaneously, shale gas development has sparked debate over potential risks to human health and the environment. Opponents assert that fracking increases the risk already posed by gas extraction of contaminating ground water, depletes local aquifers, releases methane into the atmosphere, and damages local infrastructures and ecosystems. Supporters of shale gas development stress its potential economic benefits, its role in a diversified U.S. energy portfolio, and the role of properly designed regulations to mitigate potential concerns about health and the environment (e.g., Brasier et al. 2011, Howarth, Ingraffea, and Engelder 2011).

While shale gas development may provide measurable benefits such as new jobs, tax revenue, and reductions in greenhouse gas emissions relative to other fossil fuels, the industry currently represents considerably less than 1 percent of the U.S. economy, and its impact on local economies is uncertain. A number of recent studies have predicted that shale gas will create millions of jobs and billions in tax revenue and added value nationwide in the next twenty years. For example, according to IHS (2012), an industry consulting firm, by 2035 the United States will invest more than $3 trillion in capital expenditures for unconventional natural gas activity, employment in the industry is expected to grow 3. …

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