The Marcellus Shale Boom
By Steve Irwin
Marcellus Shale is becoming a household name, from discussions around kitchen tables to town halls with (sometimes) angry citizens. Endless media coverage, economic analysis, geological prediction, business maneuvers and political debate encompass this complex topic. Even the experts concede that the breadth of this issue will only be fully understood after gas production continues for many more years.
An important effect of natural gas production in Pennsylvania, Ohio, and West Virginia is simple: jobs. In contrast to America’s chronically high unemployment rate, the Marcellus-generated job activity within these regions can only be described as a gold rush. Thousands of trucks, ranging from semi-tankers to white diesel crew-cab pickups, have flooded the streets and back roads of many towns. While billions of dollars in federal spending have done little to nothing to improve jobs and infrastructure, the dollars invested into these reborn communities, once hurting by economic depression, are all thanks to subsurface layers of dirty black shale.
Infrastructure improvements and job creation are not the only byproducts of Marcellus Shale drilling. Land owners are likewise reaping tremendous benefits. Three years ago, some land leased for gas production had a market value of $10 an acre, tops. The driving market force of competition has caused that number to surge, with landowners negotiating payment terms upwards of $3,000 an acre with 15 percent or better royalty rates. That’s cash in hand, checks in the mail, and escrow in the bank.
And still, a mere one percent of expected wells have been drilled within the Marcellus-rich region, with a potential of 200,000 wells. The full potential offers a source of American energy that is hard to estimate. The pipeline system needed to transport the hydrocarbons has only begun to be constructed, with boom-centers of crackers and compressors along the way. This could portend an economic viability extending 100 years.
This phenomenon can be understood in very basic economic terms. The development of Marcellus Shale could only happen in America. Consider: citizens in this nation have long enjoyed not only the unique freedom to pursue happiness but the liberty to own property. Although other portions of the globe could be cashing in shale—namely China, Canada, and Europe—an individual citizen’s control of land, even to the depths of thousands of feet, is unique to the United States. Furthermore, it is only through private industry and corporations that the efficient technology of hydrofracturing is made available. Companies like Chesapeake Energy, Range Resources, Hess, BP, and Consol are all publicly traded and held liable to their creditors, and thus are making private business decisions for their own sake and profit.
Of course, also part of the American phenomenon is the government’s regulatory role, which plays a crucial role in Marcellus development—or the lack thereof. Look no further than the state of New York, where a moratorium on natural gas exploration has capped economic activity. Yet, gas producers remain cautiously optimistic. If Governor Rendell were still in office, things might look different. For the time being, Republican Governor Tom Corbett has only proposed an impact fee on natural gas production, of which the tax portion is not expected to survive state legislation. Maybe Governors John Kasich and Earl Ray Tomblin in bordering Ohio and West Virginia will take note.
Exploration and production of Marcellus Shale is certainly a sign of the times in Pennsylvania, Ohio, and West Virginia, exhibited by the boom towns that have been revived from drilling activity. These times are producing the creation of real jobs and money infused into local communities, and this is just the start. No doubt, Marcellus drilling also provides distinct challenges, which are being hotly debated, and which indeed need to be carefully considered. For now, though, the economic benefits in these dire economic times are undeniable.
Steve Irwin is a senior at Grove City College and a student fellow with The Center for Vision & Values.