1. The Economic Impact of Fracking in
Ohio, Pennsylvania, and West Virginia
May 29, 2014
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2. Amanda Woodrum
Policy Matters Ohio
Sharon Ward
Pennsylvania Budget &
Policy Center
The Economic Impact of Fracking in Ohio,
Pennsylvania, and West Virginia
May 29, 2014
Melanie Houston
Ohio Environmental
Council
3. Ohio Environmental Council
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4. What is Hydraulic Fracturing?
“Hydraulic Fracturing is a well stimulation process
used to maximize the extraction of underground
resources” (EPA)
5. What’s the True Economic Story?
Industry study (2011) by Kleinhenz and Associates
predicted 200,000 jobs+ created in Ohio by 2015
and “economic output will increase by over $22
billion and wages by $12 billion by 2015”
Reuters reports(June 14, 2013): “state employment
data, academic research and a week-long tour of
half a dozen factories in Ohio suggests the shale gas
revolution has been a disappointment when it comes
to job creation”
7. www.policymattersohio.org
Multi-State Shale Research Collaborative
• PA: Keystone Research Center, Pennsylvania
Budget and Policy Center
• NY: Fiscal Policy Institute
• Virginia: Commonwealth Institute
• West Virginia Center on Budget and Policy
• Policy Matters Ohio
• Advisory Group: Academics and Experts
8. www.policymattersohio.org
Phase I
• Review of literature on local impacts
• Studies in regions where industry more developed
Phase II
• Case Studies
• Ohio – Carroll County
Phase III
• Policy Development
• Discussions, Best Practices
9. www.policymattersohio.org
Project Goals
1. Develop and disseminate factual information on
social, economic and fiscal impacts of natural gas
drilling
2. Improve understanding about the size and character of
social impacts
3. Help local officials anticipate, plan for, or avoid
negative drilling related impacts
4. Improve capacity to factor actual costs and impacts
into decision making
10. www.policymattersohio.org
Research Methodology
• Why Carroll County? Most active county in Ohio, most
likely to have experienced impacts
• Interviews: local officials, businesses and residents,
informed by review of literature on shale development
• Data where available
• Media
11. www.policymattersohio.org
Ohio Context
• Ohio lags behind Pennsylvania and West Virginia in
industry development.
• As of the end of 2012
– Ohio: 270 wells
– Pennsylvania: 6,245
– West Virginia: 2,120
• In 2013, # of Ohio wells, doubled, but still far fewer
• What does this mean for us? We can also look to these
states to inform expectations of impact
12. www.policymattersohio.org
Economic Impact: Costs v. Benefits
• Net Benefit or Net Cost: The overall local economic
impact - positive or negative – will largely be determined
by:
1. No. of Jobs & who gets them, temporary or permanent?
2. Local economic activity & how many of the dollars stay in the
community
3. Royalties & the local share of them, and
4. Costs to the community, in the short run and the long term.
• With dialogue, good policy and practices at state and
local level, proper oversight, regulations and public
investments we can help reduce costs and increase
benefits
13. www.policymattersohio.org
Economic Context
• Fracking is occurring largely in rural
communities
• Struggling economically for decades
• Population stagnating, young people leaving
• Hard hit by the recession
Shale development has been “a shot in the arm”
14. www.policymattersohio.org
Benefits
• Signing bonuses and royalties
• Local economic activity
• Jobs
• Local rental market activated, hotels and
campsites busy
NOTE: Some of these benefits have been
exaggerated by the industry. There are also
industry practices that reduce benefits to Ohioans.
15. www.policymattersohio.org
Costs
• Rent for local residents
• Traffic and accidents
• Road damage and repair
• Emergency services
• Water use and wastewater
• Health and environmental costs, nuisance
• Planning, infrastructure needs
16. www.policymattersohio.org
Oil and Gas Leases
Benefits
• Signing Bonuses to local
landowners, 95% of land
leased. 1781 leases recorded
in 2011 compared to 495 in
2010
• Government entities signing
lease deals too. Influx of
one-time funds.
– Carrolton School District:
$400,000, cover gap created by
cuts in state and federal funding
– County – long overdue
renovation of courthouse
– Carrolton Village Council – new
fire truck
Costs / Negatives
• Recording office overwhelmed,
dial up internet service,
Chesapeake spent $200k to help
digitize records
• Poor lease deals could detract
from benefits
– Signing bonus variation: $10 to $5800
per acre
– Unfavorable Lease terms in standard
lease
– Property owners finding old leases long
forgotten being dug up
– Use of mandatory pooling increased
significantly, pressure from neighbors,
process may be unfair to landowners
17. www.policymattersohio.org
Oil and Gas Leases
Benefits
• Royalties – federal
minimum 12.5%
Costs / Negatives
• Residents have yet to see much in the way
of royalties.
• Fracking wells tend to taper off dramatically
(Decrease 40% after first year). Lower ROI
than traditional oil wells
• Questionable industry practices
• Bartering, hiding of full value
• “Gathering Expenses” usually deducted
before see royalties (as much as 90% of
royalties). Manipulation of costs by industry
• Lack of transparency in royalty payments,
lease may not allow for audit, or at owner
expense ($10k)
18. www.policymattersohio.org
Local Economic Activity
Benefits
• Oil & Gas industry folks
spending money locally.
• Signing bonuses spent
locally. Money for home and
farm repairs, modern and
more efficient farm equipment
• Economic Indicator:
increase in sales tax revenue
from 2011 to 2012
– 16.5% increase in motor
vehicles and parts
– 20% increase in food and
accommodation
– Gas station sales 60%
Costs / Negatives
• Oil and gas industry is largely out-
of-state companies, represents
profits leaving state.
• No real value-added facilities in
community. However, a natural
gas fired electric power facility is
being proposed in Carroll County
(large enough to serve 700,000
homes). There are midstream
processing centers, some built and
some proposed, in nearby
communities (spillover)
• Water & sewer infrastructure
limitations for development
19. www.policymattersohio.org
Jobs
Benefits
• jobs created, pay good
wages.
• Bigger demand for jobs
in supportive
industries. Local jobs
created in truck driving,
concierge services,
cleaning, restaurant
work, mechanics
Costs / Negatives
• 3000 fracking jobs across Ohio, less
than 1/10 of 1% of all jobs statewide
• Many of these jobs are going to out-of-
state workers
• Carroll County unemployment rate is
down to 8.3% from recession high of
14%, but higher than pre-recession
levels (5.8%)
• Support jobs don’t pay nearly as well
• Worker safety: hard jobs, some
injuries, fatalities. Nationwide, record
high fatalities in 2012. Jobs do not
appear to come with health insurance.
20. www.policymattersohio.org
Housing Market
Benefits
• Influx of out-of-state workers
has increased demand for
rental housing, rental income
increasing significantly
• Campgrounds, hotel full
• Work for rental agent,
concierge services
• Rehab of properties for rental
market, business at local
hardware store
• Market for second-hand
furniture developed
• Investment properties go
quickly, when on market
Costs / Negatives
• Rental prices rise, as much as
three times previous rates, high
per diem for oil & gas workers.
locals have trouble affording
higher rents with local wages.
Shortage of affordable housing
• Locals fear eviction, and lower
quality housing if have to move
• Fast turnover of rental properties
• Cloud over residential properties
near drilling. Sellers separating
mineral rights. FHA restrictions
(not within 300 feet, or if air
quality issues)
21. www.policymattersohio.org
• Traffic
• Road
Damage
& Repair
• Traffic
accidents
• Increased traffic congestion, increase in heavy and
overweight trucks. Can impede police, emergency
vehicles, school buses. Council considers changing
parking rules, and addition of crossing guards in town
center
• Increased wear and tear on roads from heavy trucks,
substantial costs for road repair, need for road
improvements
• Doubled traffic-related incidents, calls to sheriff
quadrupled.
• Accidents involving large trucks increased, large truck
rollovers, related injuries and fatalities
• Damage to roads, guardrails, signage.
• Increased workload for sheriff, firefighters, emergency
services
Traffic, Road Costs
22. www.policymattersohio.org
• Large
amounts of
Water used
• Concern for
contamination
of drinking
water
• An Estimated six million gallons for each well.
• Dry years –water demand could compete with
other needs
• 20 to 40% of chemical laced fracking fluids
remain below ground after drilling, some
chemicals toxic
• Only 6.5% recycled for reuse
• Injection wells and landfills, cost to outside
communities. In 2012, 14.2 million barrels
injected into 200 wells, half from other states
• 95% of Carroll County is well water, residents
feel they are on their own to look out for their
interests, Carroll Concerned Citizens formed
• Ohio has seen earthquakes, illegal dumping,
leaks. Concerns are reasonable
Water Use, Waste Water
23. www.policymattersohio.org
• Flaring
• Noise
• Ecosystem
• Biodiversity
• Trumbull County – gas flared for two weeks near
a neighborhood of 800 low-income families.
• Bright light and loud noise akin to Tornado
warning
• Wildlife fleed, pets hide
• In North Dakota – 1/3 of all gas burned in air,
$100 million in economic waste
• Scenic, serene landscapes in rural area affected
by eye sores and loud noises
• Slurry spills related to pipeline construction cause
degradation of wetlands and streams
Other health & environmental costs,
nuisances
27. The Keystone Research Center/ Budget Policy Center (PA)
Policy Matters Ohio
The Fiscal Policy Institute (New York)
The West Virginia Budget and Policy Center
The Commonwealth Institute (Virginia)
32. Counting the Jobs Measuring Shale-Related
Jobs
Methodology
Conservative method: counting more than direct
employment
Attributes ALL growth to shale, none to coal or conventional oil
and gas
Already includes some supply chain jobs (e.g., pipeline
construction)
All job growth in these industries since 2005 is counted as
“shale-related”
Method is consistent with PA Dept. of Labor & Industry and
PA Independent Fiscal Office and Bureau of Economic
Analysis estimates.
35. Health Care is the Big
Industry-Not Shale
Education and health care
employ 4.5 million people
in the six states – not
33,000
Education and health care
account for one in six jobs
– versus one in 794 for
shale-related jobs
In Pennsylvania,
comparable of jobs have
been lost in the public
sector since 2010 as shale-
related jobs have been
created since 2005
38. Summary of Findings: Similar
and Not
Experience with gas drillers similar
Rapid influx of out of state workers
Few local land use regulations
Limited oversight by local governments
Benefits exist, offset by costs
Ohio and PA, very similar experience
West Virginia, few impacts, fewer benefits
Tioga County PA, the boom was over
39. Major Impacts
Leases and royalty payments
Significant growth, diluted by out of state ownership and
concentration of ownership
Employment and tax revenue
Up most in Greene County, little in Wetzel, employment
down in Tioga
Big sales tax revenue increases in WV
Housing a huge problem in Pennsylvania
Major impacts we expected and those we did not
Roads, crime, road fatalities housing: expected
Foster care, courts, emergency rooms, Early intervention:
unexpected
40. Benefits: Unemployment
Down in Greene
6.9
5.3
3
4
5
6
7
8
9
10
11
12
Unemployment in Greene County and Pennsylvania 2005 to 2013
Recession Pennsylvania Greene
Source. Keystone Research Center based on Bureau of Labor Statics (BLS) data
41. And in West Virginia
47 95
229 298
630
922
1,994
3,880
2005 2006 2007 2008 2009 2010 2011 2012
Heavy Truck Permits, Wetzel
County
42. 80
90
100
110
120
130
140
150
160
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Figure 9. Crime in Greene County is up 31% since 1999-2001 while statewide the crime rate
has fallen by 6% over the same period
Greene
Pennsylvania
Urban, No Drilling
Rural, No Drilling
Source. Multi-State Shale Collaborative based on Pennsylvania State Police and Bureau of Economic Analysis data
Serious crime per 100,000 people indexed to 1999 (1999=100)
Note. The Pennsylvania State Police define serious crime to include murder, forcible rape, robbery, aggravated assault, burglary, larceny,
motor vehicle theft, and arson. Crime per 100,000 people = offenses / population * 100,000
Crime Grew in Both
Pennsylvania Counties
43. Housing Shortage Affected Foster
Care Placements: Greene County
Children in
foster care
services
during this
period
Children in
foster care for
reason of
“inadequate
housing”
during this
period
Percent of
children
served due
to
inadequate
housing
4/1/08-
3/31/09
79 12 15.2%
4/1/09-
3/31/10
73 26 35.6%
4/1/10-
3/31/11
71 24 33.8%
4/1/11-
3/31/12
84 27 32.1%
4/1/12- 89 36 40.4%
44. Benefits: Property Assessment
and Tax Revenue Grew- West
Virginia
$0
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
$600,000,000
$700,000,000
$800,000,000
2005 2006 2007 2008 2009 2010 2011 2012 2013
Class II
Class III & IV Real
Class III & IV Personal
45. Conclusions
Local Governments need more tools to
control growth
Better ability to plan for impacts
Housing programs critical to mitigate
impact on low income families
Severance taxes necessary to ensure
industry pays for impacts
Leaseholders and royalty owners need help
47. Thank You
Sharon Ward
Pennsylvania Budget and Policy Center
412 North Third St.
Harrisburg PA 17101
717-255-7156
www.pennbpc.org
www.multistateshale.org
Kleinhenz and Associates: Ohio’s Natural Gas and Crude Oil Exploration and Production Industry and the Emerging Utica Gas Formation, September 2011
Reuters: http://finance.yahoo.com/news/u-shale-boon-manufacturers-not-063714236.html?fb_action_ids=10200946344916910&fb_action_types=og.recommends&fb_ref=facebook_cb&fb_source=other_multiline&action_object_map=%7b%2210200946344916910%22%3A114955512012914%7d&action_type_map=%7b%2210200946344916910%22%3A%22og.recommends%22%7d&action_ref_map=%7b%2210200946344916910%22%3A%22facebook_cb%22%7d
Who we are and the goals of the project
We saw rapid growth in rig activity in Pennsylvania, and a large decline, particularly as oil prices rose. So the family boom and bust cycle which we expect to play out in decades has occurred in just a few short years in PA, particularly in the Northeastern part of the state, you’ll hear more about that later in the presentation
l
l
Drilling activity is highly dependent on price of the commodity. Regulation and taxation do not appear to be a factor, activity increases when price goes up, and moves where prices are high. The case in PA and actually Arkansas now, as activity has moved to Ohio and the Bakken Shale in North Dakota.
Jobs are related to number of wells and where you are in well production. WVA slower growth, fewer jobs, as PA well development slows will see fewer jobs already seeing that in Northern Tier.
As you might expect, shale does not account for many jobs in Ohio, one might argue that it is because the industry is new.
But let’s compare it to West Virginia, which has had a robust shale gas extraction industry for some time. Even in WV, this still represents a small share of total employment in the state, less than 1% in 2012. In Pennsylvania, the share is even smaller, just 0.4% of total employment.
We selected four counties, Tioga and Washington in PA, Carroll County in Ohio and Wetzel County in WV. All are poorer than state as a whole, higher unemployment, all are at the epicenter of drilling activity.
Questions:
How has drilling affected communities: government, social and human services delivery systems, communities. We looked at a variety of factors, crime, road impacts, housing, emergency services, education. Also looked at economic benefits, tax revenue, employment.
A group of graduate students at Carnegie Mellon university looked at how a 5% severance tax would affect drillers rate of return of their investments, looking at a typical well. They found that the tax would raise double what our current impact fee raises. It would have a small effect on the IRR, reducing it from 13% to 12%. Even in the conservative case return is close to 10%.