MARCELLUS SHALE: Is The Battle Over?

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BY DENISE FUREY/ The Marcellus Shale Coalition held its third annual Shale Gas Insight conference at the Pennsylvania Convention Center in Philadelphia last week. The conference included over 30 presentations or panel discussions that echoed three themes.

First, in the words of Gov. Tom Corbett, we are “witnessing a second industrial revolution” owing to shale-gas development. Second, the sector has and must continue to produce shale gas in a manner that has minimal impact upon the environment. Third, the development of shale gas and oil will strengthen our national security through reduced reliance on energy from some of the more-troubled parts of the world, in particular the Middle East.

Over 150 speakers and panelists addressed conference attendees. In addition to a video presentation by the Governor, Drexel University President John Fry spoke; his institution hopes to ride the new industry.

The closing luncheon on Thursday included speeches by a brace of Republican luminaries: Lt. Gov. Jim Cawley and former Speaker of the US House of Representatives Newt Gingrich. The Corbett Administration has staked major economic claims on shale-gas development and its spokespersons used the convention as a theater for their accomplishments.

The development of shale gas has had a profound effect on the Pennsylvania economy. MSC President Kathryn Klaber noted, “An estimated 240,000 [people] can attribute their jobs to the oil and gas industry” in Pennsylvania. Pennsylvania Secretary of Labor & Industry Julia Hearthway stated shale gas-related jobs on average pay better than other those in other sectors. In 2012 the average wage across all industries in Pennsylvania was $48,400 while the average annual income of those working core natural-gas sector functions was $83,100.

A common complaint a few years ago was much of the increased employment in the sector was going to workers brought in from other states. Initially the oil and gas companies coming into the state needed to bring outside workers as Pennsylvania did not have people with the needed skills. However, now, with investments in training local residents, most workers are native Pennsylvanians. William desRosiers of Cabot Oil stated that 95% of its workforce is now local. To help fill the ongoing need for more petroleum engineers, Drexel University is planning to develop a curriculum in this area.

The impact of the five-year shale-gas boom is being felt in Philadelphia in other ways, although there are no shale-gas reserves anywhere near the city. For a while the industry has touted the decrease in electric and gas heating rates for Philadelphians owing to lower natural-gas prices resulting from the abundance of shale gas. John Fry pointed out US households on average saved $1,200 in energy costs last year.

While wholesale natural-gas prices have risen by roughly 25% to $3.62 per million British Thermal Units (mmBTUs) from last year, consumer utility rates remain modest. Suburban Philadelphia based UGI Corp spokesman Thomas Swopes stated even after a recent rate increase UGI gas customers are still paying 30% less than they were five years ago.

More recently, Philadelphia is seeing the impact of shale gas on local employment. Two Philadelphia-area refineries were revitalized because of their proximity to low-cost shale gas. According to Hearthway, roughly 18,000 jobs were at risk if these refineries were not saved.

Exxon’s Stephen Pryor spoke of how of cheap shale gives the US chemical industry a competitive advantage over foreign competitors. He noted there are currently 125 new chemical projects planned in the US with an estimated $84 billion in investments.

Philadelphia is geographically well situated for this chemical industry, given its proximity to the natural-gas feedstock and the Delaware River as a means of exporting products. Sri Iyer of Braskem, a chemical company already located near the Philadelphia Energy Solution refinery, said his company would be interested in even more feedstock. The challenge will be building the sufficient pipeline infrastructure through an urban environment to meet any increased demand.

Many speakers complained less-than-constructive regulation is a barrier to the economic development of shale gas. Cawley, who chairs the State’s Marcellus Shale Advisory Commission, said, “Regulators need to keep up with industry, not the other way around.” That being said, Cawley believes we need to protect the environment and boasted under the Corbett Administration the Pennsylvania Dept. of Environmental Protection oversight of the Marcellus Shale has doubled.

Gingrich was more pointed in his comments about some regulators. Like many at the conference, he argued most regulation of the sector should be done at the state level, as the geology of shale oil and gas plays vary from state to state. He was particularly critical of the US Environmental Protection Agency, which he believes is on a mission to “regulate, restrict and destroy” fossil-fuel development.

There were numerous panels on environmental issues focusing on best practices and evolving technologies.

Gone was defensive tone of earlier MSC conferences where the industry spent a lot of time disputing assertions that hydraulic fracturing was the culprit causing widespread and uncontrolled pollution. Former Democratic DEP Secretary Hanger in a regent blog wrote, “Extensive testing conducted by the State and the EPA found that the water posed no health risks.” It should be noted the EPA plans to study fracking in more detail and plans to publish its finding next year. However, Marty Durbin, the new CEO of the American Natural Gas Alliance, felt confident to assert the “fight to do it (hydraulic fracturing) is over.” Fracking is an industrial process and as such has risks, but Durbin believes the risks have been and will continue to be effectively managed.

There remain opponents to fracking but the hue and cry has diminished. In prior years there were numerous demonstrators outside the Convention Center. This year there were fewer protestors than police officers and security guards.

There remain voices in the Pennsylvania legislature for a moratorium on fracking. State Sen. Jim Ferlo (D-Allegheny) has drafted legislation to this effect. However, it appears he has little supports as most Democrats have moved away from “ban it” to “tax it”.

Congresswoman Allyson Schwartz (D-Northeast), the front-runner among Democrats to challenge Gov. Corbett next year, wants to impose an excise tax of 5% on gross proceeds from extracted natural gas. Texas and Oklahoma have excise taxes of 7.5% and 7% respectively, she points out. However, opponents of an excise tax, including Corbett, have responded the industry is already paying impact fees to reimburse municipalities and the State for expenses relating to the activities of the oil and gas companies. Furthermore, Pennsylvania has the second-highest state corporate tax rate in the country at 9.9%. Conversely, Texas does not have a corporate income tax; instead, it relies on franchise taxes that usually add up to more an effective income-tax rate of 2.72%. Oklahoma’s corporate tax rate is 6.0%.

Opposition to hydraulic fracturing has been rooted in the urban areas of the state, primarily Philadelphia and to a lesser extent Pittsburgh. One panelist, Sam Houston University Prof. Gene Theodori, observed most opposition is where there is no development.

The perception of shale gas in Philadelphia has been positively affected by the saving of jobs at the aforementioned refineries.

Gingrich and others emphasized not only the economic value of the US’ becoming more energy-sufficient, but the implications for national security. Over the past 12 years, Gingrich noted, the US has become involved in conflicts in the Middle East that have not resulted in positive outcomes. He believes in order for the US to be a leading military power, we need a strong manufacturing base enhanced by cheap, sustainable energy supplies.

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One Response to MARCELLUS SHALE: Is The Battle Over?

  1. Last sentence of my comment should read: “And if you think Karen’s success (with others) in getting the recommendation for a moratorium on fracking into the Pennsylvania Democratic Party’s platform by a vote of 115-81 at a meeting of grassroots leaders, and getting this done against the will of the party’s elite and its compromised leaders, is losing – then you are woefully unawares of a grassroots movement that grows by the day even as the frackers dine on their fine meals.

    J. Stephen Cleghorn, PhD
    October 4, 2013 at 10:49 am

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