Natural gas and hot air

Posted: August 21, 2012

By Arthur Sterngold

Natural-gas industry consultant Tom Shepstone recently touted the benefits of Marcellus Shale production in a newspaper op-ed. The most heartening news, he wrote, is that Marcellus development "has employed more than 238,000 people in the commonwealth, almost 2 percent of the state's population."

This statistic came from a Pennsylvania Department of Labor and Industry report that identified 36 industries affected by Marcellus gas activity. In the last quarter of 2011, these industries employed 238,414 Pennsylvania workers.

Shepstone attributed all of these jobs to Marcellus gas development, even though the department did not make that claim. In fact, state officials included this caveat: "While the vast majority of Marcellus Shale-related employment can be found in these industries, not all establishments in these industries are involved in Marcellus Shale." In other words, not all the jobs in these industries can be attributed to gas production.

The labor department divided the 36 Marcellus-related industries into two groups: core and ancillary. The core group consists of industries directly involved in oil and gas production, such as well drilling and pipeline construction. These industries provided 29,320 jobs in Pennsylvania, all of which Shepstone attributed to Marcellus gas development.

However, some of these jobs are provided by conventional oil and gas companies that aren't involved in Marcellus drilling. While conventional production has been steadily displaced by Marcellus production over the last few years, it still accounted for a third of the gas wells drilled in Pennsylvania last year. This suggests that Marcellus development has nothing to do with about a third of the jobs in the core industries.

Illogical assertion

In addition to the six core industries, the state identified 30 ancillary industries outside the oil and gas sector that contain significant numbers of jobs linked to Marcellus activity. These include power generation, gas distribution, sewage treatment, industrial supplies, engineering, and trucking. In the last quarter of 2011, these ancillary industries employed 209,094 workers in Pennsylvania, several times more than the 29,320 employed in the core industries.

Shepstone assumed that all these jobs are attributable to Marcellus development. But this is illogical. How could Marcellus activity account for 100 percent of the jobs in power generation, sewage treatment, and trucking?

Consider, for example, road and bridge construction, one of the largest ancillary industries listed, with 21,555 employees in Pennsylvania at the end of 2011. At the end of 2008, when Marcellus activity was much lower, the same industry employed 21,094, only 461 fewer than in 2011. Surely Marcellus gas development doesn't even account for most of the jobs in road and bridge construction.

State labor officials did not indicate what share of the jobs in ancillary industries was directly attributable to Marcellus development. But between 2008 and 2011, while employment in core Marcellus-related industries increased 159 percent, employment in the ancillary industries grew only 3 percent. That's only slightly better than the 1 percent drop in total state employment. This suggests that only a small fraction of the jobs in the ancillary industries can be directly attributed to Marcellus activity.

To be generous, let's suppose that at the end of 2011, employment in the ancillary industries was 10 percent higher than it would have been if there wasn't any Marcellus gas drilling. This would mean Marcellus development accounted for about 21,000 jobs in the ancillary industries, rather than the 209,000 assumed by Shepstone.

A lot of jobs

With the lower figure in the core industries, this suggests Marcellus development accounted for about 40,000 jobs in Pennsylvania at the end of 2011. That's a lot of jobs, but it's only a sixth of the 238,000 claimed by Shepstone. The bottom line is that he misinterpreted the data in a way that greatly overestimates Marcellus-related employment.

Later in his article, Shepstone explains that the state's northern-tier counties in particular have benefited from Marcellus-related job growth. He points out that one of those counties, Bradford, "contains the highest number of producing natural-gas wells in the state" and "enjoys one of the lowest unemployment rates in Pennsylvania."

However, Marcellus drilling has been declining in Pennsylvania for months because of industry cutbacks, and some northern-tier counties have been hit especially hard. The number of Marcellus wells drilled in Bradford County in July was 87 percent lower than during the same period last year. Preliminary government data show that Bradford County's unemployment rate had climbed from 5.9 percent in June 2011 to 6.2 percent in June 2012, and residents are bracing for more bad news.

I've argued before that the benefits of Marcellus Shale gas development can outweigh the costs if the industry does a better job of earning the public's trust. Getting the facts straight would be a good place to start.


Arthur Sterngold is an associate professor of business at Lycoming College in Williamsport.

He can be reached at sterngold@lycoming.edu.

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