Wednesday, July 21, 2010

Marcellus News and News and News

There is a flood of Marcellus news this hour:

AP has a headline: Report: Marcellus reserves worth $2 trillion.  The report out today that it is referencing is here: The Economic Impacts of the Marcellus Shale: Implications for New York, Pennsylvania, and West Virginia. This is interesting because it is from a consultant who was one of the authors of the Penn State Reports on this, but he has clearly gone and done this one on his own. Even though at least one news article is already calling this newest report one a "Penn State Report".  I've mentioned already that I have read that Penn State economist David Passmore is doing an economic impact study of Marcellus Shale that is due to be completed in thefall.  I will read that closely when it comes out and will be interested to see how different it is from any of these reports.

Christian Science Monitor follows up on this with: Could shale deposits bring mid-Atlantic states $2 trillion?

Just for reference.  The total Gross Domestic Product (GDP) of the entire state of Pennsylvania, including all its included workers, industries, firms and incidentals, is $533 billion/year per the BEA.  So they are saying that the value of Marcellus Shale is worth the equivalent of all the economic activity of everything in the state for 4 straight years.   Everything!  From everything manufactured in the state to the value generated by services such as the entertainment value of the Pirates.  Gives some perspective on the mania if nothing else.  I can't quite imagine what would be happening if natural gas prices were as high as they were a  couple years ago and not the lows they are at today. 
Forbes has: Range Resources Is King Of The Marcellus Shale

and the Charleston Gazette has: Marcellus shale: Jobs for local workers?

The Marcellus Shale folks have fired back at city council: MSC Statement on Pittsburgh City Council’s Misguided Resolution on Shale Gas Development.

The EPA is poking around: EPA takes new look at gas drilling, water issues

I wonder if any journalist jobs are included in those economic impact reports?

and not about Marcellus at all... but just funny.

5 Comments:

Anonymous BrianTH said...

And the model doesn't include the economic impact of businesses locating to be near a steady gas supply, which could be significant. And it doesn't include the other layers of potential gas production in the area (e.g., Utica Shale), which could also be significant.

On the other hand, accounting for the fact that not all this will happen in PA, and that the total economic impact will be spread over many years . . . actually, you still get a pretty big annual number once production is in full swing. But maybe not so big we fall into the resource curse.

By the way, the speculation about the net harmful effects of a severance tax in PA seemed entirely speculative and largely ungrounded.

Wednesday, July 21, 2010 10:49:00 PM  
Blogger C. Briem said...

By the way, the speculation about the net harmful effects of a severance tax in PA seemed entirely speculative and largely ungrounded.

There is a certain lack of economics in that report. This isn't a new topic (taxes on natural resources and their impacts on exploration and development) and what is missing is some model looking at how a severance tax would or would not be capitalized into land valuation. If a tax is fully capitialized into land values then it shouldn't impact development that much, but the real estate windfall of PA and WV landowners would be different. More complicated than that, but that is a starting point before you begin to make statements on how taxes impact output.

Here is the state of state severance taxes of late:

http://www.ncsl.org/default.aspx?tabid=12625

Wednesday, July 21, 2010 11:08:00 PM  
Anonymous BrianTH said...

That makes sense. Just an idle thought, but I wonder if that pushes in the direction of a pure volume based severance tax (it would seem to me that would be easier to capitalize into land values, since it reduces the number of uncertain variables).

Of course thinking more broadly, I'd want to account for what we do with the severance tax money. If we use it in ways that would make other sectors more productive (e.g., infrastructure and education investments), or even just create a sovereign wealth fund (ala the Alaska Permanent Fund), then the benefits of diversification may outweigh any marginal decrease in the rate of gas exploitation.

Thursday, July 22, 2010 8:23:00 AM  
Anonymous Anonymous said...

You need to keep in mind that the trillions will be paid out over a seventy five to hundred year period. It will take 40 to 50 years just to drill all the wells and the wells should produce for 40 to 50 years, although the great majority of production will be in the first five years. Of course, new methods of well management will develop over that 100 yr period and increase production so it may be four trillion $$$ or more when all is said and done.

Plus, there are other gas layers to develop. There is the Utica shale layer that is just now being looked at. Prelim estimates say it is at least as big as the Marcellus and may be double the gas potential. But the Utica is a harder shale and requires different fracing techniques.

Look into GasFrac Energy Services. A Canadian firm that has developed a method of fracing Utica wells without using water. Could be a big aid in relieving some the Marcellus concerns if can be economically ised for Marcellus wells.

the wiz

Thursday, July 22, 2010 10:39:00 AM  
Blogger David Passmore said...

Chris, my son, who works in Pittsburgh, sent me a link to your blog.

Yes, we are doing another estimate the economic impact of Marcellus Shale development. We also have some things brewing about the severance tax with our statewide REMI model.

For many reasons, I have trouble describing these reports as "Penn State reports," for they were one by individual researchers, some of whom are no longer at Penn State, who must, as we all must,take personal, not institutional, responsibility for our work.

Right now, I have no idea whether the Considine et alia reports are correct or not. As we mention in an article currently in press (see http://pbcbriefing.blogsome.com/2010/07/26/pennsylvania-business-central-in-press-4/), "The report is heavy on conclusions, but light on the necessary scientific documentation of processes applied to reach these conclusions. We do not know if the report’s conclusions are incorrect. Rather, we just do not know how they were drawn from the data." And, yes, we have asked, but, as Nietzsche once wrote, "When you look into an abyss, the abyss also looks into you."

We shall chat some time, Chris.

Monday, July 26, 2010 4:32:00 PM  

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