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Differing views on fracking’s impact

The practice of hydraulic fracturing is under debate across the country in areas impacted by America’s ongoing natural gas boom. In the town of Findlay, Ohio, an increase in manufacturing in recent years has been accompanied by expanded natural gas drilling. That has Greg Auburn, professor of International Business at the University of Findlay feeling optimistic about Ohio’s future employment prospects. “The estimates (for jobs in the natural gas industry) range anywhere from 20,000 to 200,000 over the next 3 years,” he said.

Along with employment projections, researchers have explored other possible costs and benefits of hydraulic fracturing, known colloquially as “fracking.” Studies conducted on the counties above the Marcellus and Barnett Shale for example — where extensive drilling has already taken place — present mixed economic results. Tim Kelsey is a Professor of Agricultural Economics at Penn State and author of “Economic Impacts of the Marcellus Shale in Pennsylvania: Employment and Income 2009.” He argues that possible benefits from increased drilling will impact different towns in different ways. “The potential benefits from hydraulic fracturing are tightly linked to the local labor force and infrastructure conditions as well as the structure and capacity of local governance.”

Back in Findlay, Marathon Petroleum company headquarters sit directly on the town’s main street. According to Kelsey, the Midwest has a historical tradition entrenched in resource extraction through coal mining and oil drilling. Therefore the skilled labor and equipment necessary for hydraulic fracturing already exists in towns such as Findlay. However, the context is quite different in other communities open to shale plays across Ohio.

Amanda Woodrum is a researcher for Policy Matters Ohio. She’s working in collaboration with five not-for-profit research based organizations across Pennsylvania, New York, Virginia, West Virginia and Ohio to develop a comprehensive study of the costs and benefits associated with shale gas drilling. She presented her preliminary findings at the “Unconventional Shale Drilling” conference in Warren Ohio just a few weeks ago. Woodrum said that in counties where workers and technical supplies necessary for drilling cannot be sourced locally, an influx of migrant workers can put a strain on the community which manifests itself in a variety of ways. “Migrant labor requires housing. We’ve seen rapid construction of homes to meet this demand that are often temporary living spaces. We’ve also seen low-wage workers priced out of their communities because the influx of people reduces affordability,” she said.

Shale plays can be temporary and can lead to problems that accompany infrastructure and labor rapidly shifting within geographical regions. “The Boom-Bust nature of drilling is critical to understanding its impact on local economies,” she said. “We have seen in communities across all five states increased retail and food consumption, higher educational enrollment rates and larger tax revenues via severance and property taxes in the first couple years of drilling. However, as the wells start drying up communities experience higher incidences of drug use and criminal activity as well as increased drop-out rates. ”

Professor of Agricultural Economics at Penn State Tim Kelsey developed a basic graph for the economic activity generated by shale production which shows the boom-bust potential of the industry.

Kelsey was assisted in research by David Kay, an economist at Cornell and author of “The Economic Impact of Marcellus Shale Drilling: What Have We Learned? What are the Limitations?” In Kay’s view, local governments need to restructure taxation and investment strategies so funds can be set aside for community development.

“Gas drilling is very intensive at the beginning but little is known about long-term projections. Therefore communities should strategically manage their initial windfall profits from drilling.” He points to Norway’s strategic long-term fiscal management of their finite supply of oil revenues as a model for communities to follow.

Land use royalties can be another source of revenue for communities experiencing drilling and leased land for the first time. Yet in towns across Ohio, Woodrum saw instances where the land used for shale plays was owned by individuals or companies from outside the region. She’s concerned by the amount of power outsiders from the community have over the drilling process. Mr. Kelsey found major disparities in both land distribution and local vs. regional ownership in a report he conducted on the Marcellus shale.

Both Kay and Kelsey are concerned that communities may not be cautious enough about economic projections made by the industry. “These models are based on a number of assumptions,” said Kay. “They are shaped by good geo-physicists who simply don’t have enough information to work off of. Therefore companies have a structural incentive to be optimistic about the amount of natural gas available and assume smooth build-outs over time.”

Kelsey suggests one of the largest burdens for local governments to manage is the maintenance of roads. Natural gas drilling sometimes takes places in remote towns with dirt or gravel streets connecting the various sections of the community, so the truck traffic can be problematic. “Municipalities have been successful in developing formal agreements with gas companies to pay for roads,” Kelsey said. “In many instances these companies will even fund pavement of dirt roads prior to drilling.”

Deborah Rogers is the founder of the Energy Policy Forum and a primary member of the United States Extractive Industries Transparency Initiative. As a resident of Texas, Rogers has seen drilling in the Barnett Shale take place first hand. She questions whether the economic contributions of drilling are worth the costs.

A recent report from the Department of Transportation which estimates that gas drilling cost 2 billion dollars in road damages to the East Ford Shale of South Texas alone. She said in a phone interview with Need to Know that, “State wide Texas has only received 3.6 billion in severance taxes. Furthermore, how much of that tax money is distributed to the cities hosting drilling could be called into question.” She has accused Wall Street executives of price coordination in shale gas and questions the benefits that drilling may hold for individual communities.

Beyond financial costs, economists are increasingly concerned by the potential environmental externalities posed by hydraulic fracturing. Using data from the American Lung Association, Rogers calculated that the impact on public health of air pollution caused by gas drilling activities adds up to $200,000  a day in just the Barnett region. Environmental organizations have opposed drilling along the New York City watershed, because of the possible public health concerns.

Kelsey is in the research stage of developing a model that would quantify the negative externalities imposed by drilling. He argues there has not been substantive analysis of the societal costs of natural gas drilling.

The empirical findings of Woodrum’s case study in Ohio are scheduled to be released between July and September alongside the case studies conducted in five other states.