Policy Documents

The Economic Opportunities of Shale Energy Development

Timothy Considine, Robert Watson, Nicholas Considine –
May 1, 2011

Directional drilling and hydraulic fracturing have unlocked vast new reserves of natural gas in the United States. Development of these resources is now well under way in Pennsylvania and West Virginia. Unlike their neighbors to the south, however, New York residents are not directly benefiting from natural gas development as the result of a government imposed moratorium, itself a response to environmental concerns surrounding hydraulic fracturing. This study analyzes the economic and environmental impacts of shale gas drilling in New York and finds the net economic benefits to be significantly positive. Specifically:

• An end to the moratorium would spur over $11.4 billion in economic output.

• Some 15,000 to 18,000 jobs could be created in the Southern Tier and Western New York, regions which lost a combined 48,000 payroll jobs between 2000 and 2010.*

• Another 75,000 to 90,000 jobs could be created if the area of exploration and drilling were expanded to include the Utica shale and southeastern New York, including the New York City watershed. (This assumes a regulatory regime that protects the water supply but permits drilling to continue.)

• Localities and the state stand to reap $1.4 billion in tax revenues if the moratorium is allowed to expire. This study also reviews the public records of environmental violations reported by the Pennsylvania Department of Environmental Protection over the period 2008–10. It then quantifies the impact of these violations on land, water, and air resources. The costs of these environmental impacts are then estimated on the basis of the value of the environmental amenities at stake. Our main finding is that the cost of these environmental impacts is far smaller than the economic benefits that drilling can provide.

• The typical Marcellus shale gas well generates about $4 million in economic benefits.

• The economic damage resulting from the environmental impacts of a typical shale gas well comes to $14,000. The expected environmental costs are so low because the probability of an environmental event is small, and those that do occur are minor and localized in their effects.

Those environmental problems that have arisen in connection with hydraulic fracturing in no way call into question the soundness of that procedure. In reality, they result from improper drilling and well-casing technique and defective formulation of cement. Such errors and flaws allow wells to penetrate shallow gas deposits, permitting the gas within them to escape and enter groundwater supplies. Marcellus gas resides far below these deposits and any aquifers. More stringent design standards should be adopted, and more active regulatory oversight should be exercised. These steps would reduce the incidence of such problems.

Our findings suggest that the current shale gas drilling moratorium imposes a significant and needless burden on the New York State economy. In short, the economic benefits of developing shale gas resources in New York State are enormous and could be growing, while the environmental costs of doing so are small and could be diminishing if the moratorium is lifted and if proper policies are put into place.