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Wall Street Journal Market Watch

 

The Case For Fracking in New York

May 09, 2013

By Diana Furchtgott-Roth

PRINTER FRIENDLY

Using data from neighboring Pennsylvania

The New York Supreme Court Appellate Division ruled last week that towns can ban the recovery of natural resources within their borders through zoning. But that doesn’t mean that New York towns above the Marcellus Shale, a gas-rich region that New York shares with Pennsylvania, would be wise to leave the natural gas in the ground.

Pennsylvania has been extracting the gas through hydrofracturing, but a state moratorium in place since 2010 has prohibited New Yorkers from doing the same. In a new analysis of data from Pennsylvania, I show that counties with hydrofractured gas wells have performed better in terms of income growth and employment than those which have no wells. The more wells a county contains, the better it performed.

Thanks to contrasting policies of Pennsylvania and New York, it’s possible to examine what exploration of the Marcellus Shale might do for income and growth in New York’s economy.

Using the Pennsylvania data to project hydrofracking’s effect on New York counties, I find that the incomes of those who live in the 28 New York counties above the Marcellus Shale have the potential to expand by as much as 15% over the next four years if the state’s moratorium is lifted. New York State residents would lose by enacting zoning laws against hydrofracturing, just as they are losing through the moratorium.

Later this year, New York’s state government will decide whether it will permit hydraulic fracturing, or, instead, turn its current moratorium into a permanent ban. The government should lift the ban, and let individual towns decide the issue.

In weighing their choice, New York government and city officials have an abundance of useful data from neighboring Pennsylvania. There, nearly 5,000 hydrofractured wells have been dug since 2002. If New York lifts its moratorium, companies will be drilling the same type of wells to exploit the same subterranean source of gas. Pennsylvania’s experience is a good guide to what would happen in New York.

Any reasonable decision about hydrofracturing will weigh costs against benefits. One benefit is economic growth in the areas where modern drilling techniques are used. A broad analysis of hydraulic fracturing by the Yale Graduates in Energy Study Group compared the cost of repairing potential environmental damage to a projection of likely benefit to consumers as well as producers. The study concluded that benefits exceeded costs by a factor of up to 400.

Counties within Pennsylvania differ widely in the extent of their exploitation of natural gas resources. These circumstances provide a rich vein of comparative information with which to estimate the potential benefits of hydrofracturing in New York.

The number of horizontal, hydraulically fractured wells drilled in each of the 67 Pennsylvania counties from 2002 to 2011 is available in tables at the Pennsylvania Department of Environmental Protection website.

Numbers of such wells were low until 2007, when unconventional well drilling began in earnest in Pennsylvania.

Counties in Pennsylvania which contain hydrofractured gas wells have performed better across economic indicators than those which do not. Economic performance correlates with a county’s number of such wells, and therefore is best among the counties most prolific in hydrofracturing.

Between 2007 and 2011, per capita income rose by 19% in Pennsylvania counties with more than 200 wells, by 14% in counties with between 20 and 200 wells, and by 12% in counties with fewer than 20 wells. In counties without any hydrofracking wells, income went up only by 8%. It is important to note, too, that counties with the lowest per capita incomes experienced the most rapid growth.

Meanwhile, employment growth in Pennsylvania counties, measured as the percentage change in jobs from 2007 to 2011, tells a similar story. During the recession of 2007 through 2009 employment was declining throughout America. Where there was no drilling, the number of jobs shrank in each county by an average of 3.27%. Counties with fewer than 20 unconventional wells improved only marginally on this number, losing 3.23% of jobs on average.

However, those counties with between 20 and 200 wells lost on average less than 1% of their jobs, and those with more. Finally, the most striking value is the growth of employment in counties with more than 200 wells. These counties added jobs at an average rate of 8%. None of the six counties with more than 200 unconventional wells failed to add jobs in the 2007-2011 period, despite the economic turmoil that gripped the rest of the state, and the nation, during this period.

Pennsylvania’s counties are narrowing the economic growth rate gap that existed between them and New York’s counties, and this is most pronounced in counties where many hydrofractured wells have been drilled. Income of residents in the 28 New York counties above the Marcellus Shale has the potential to expand by 15% or more over the next four years if the state’s moratorium is lifted.

Shale gas drilling startup expenditures make the first hydraulically fractured wells especially lucrative for a local economy.

A New York county that permitted the drilling of a mere 20 wells could, in a four-year period, see per capita income rise 3% more than it would have if no wells had been drilled. If all New York counties above the Marcellus Shale were to pursue this course, they could collectively have $4.2 billion more in income just in the last year of that four-year period. On the other hand, drilling 400 wells in a county, which some Pennsylvania counties have done in a similar timeframe, could raise incomes by over $8 billion, or 6%, with commensurate increases in statewide gains. Tax revenues would increase with incomes.

In addition, new natural gas production spurred by hydraulic fracturing would constitute an in-state energy supply, attracting more manufacturing back to the state.

If New York State were to lift its moratorium on hydrofracturing, individual towns would have to decide whether they want to profit from their underground shale. In balancing costs against benefits, it’s important to be precise about those benefits. New York’s towns can see immediate and concrete benefits in hydrofracturing wells: more money in resident’s pockets, more tax revenue for the state.

These data deserve close attention and consideration as New York State, and individual towns, decide if they want Pennsylvania’s growth.

Original Source: http://www.marketwatch.com/story/the-case-for-fracking-in-new-york-2013-05-09

 

 
 
 

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