Friday, July 30, 2010

Diaspora notes and of course Marcellus

Could I relate all topics to Marcellus issues?  I wonder.  Could be hard to relate casino revenues to Marcellus issues... or maybe not.   Those Marcellus workers need R&R somewhere. Why not at a local casino?  Or those new royalites someone is getting?  I wonder if the casino folks have any targeted marketing.  There's a future post.


Just one of the stranger diaspora stories in some time via news from a place called Zzyzx, California.  Kind of fasincating what ex-Pittsburghers wind up doing.

but on (potentially) future Pittsburghers.  Even on vacation Jim R. points out a really curious Press Release which as best as I can tell is from a firm in Central PA that is trying to take advantage of the Marcellus hype developing some B2B work for the firms and people coming into the state from elsewhere. Could be a worthwhile business model, but also as Jim alludes to in passing, the numbers cited are a bit odd, or at the very least don't add up just on the surface. The quote of note is:
Laura Fisher, Senior Vice President of the Allegheny Conference on Community Development stated recently that 70% of the drilling workforce is not local to Pennsylvania. According to DEP, there was an average of 112 wells drilled per month in 2010. Penn State's State Cooperative Extension Division says that it takes approximately 400 individuals to drill a well. Based on these statistics, one can easily estimate that there are easily over 10,000 gas workers in Pennsylvania from Texas, Louisiana, Oklahoma, Colorado and Wyoming.
Which is not news in itself.  We know pretty well that the Marcellus workforce is mostly from out of state, but I am more convinced than before that the temporary workers flowing through the airport here is the only reason the airport traffic number saw a small increase of late.  That was really the story behind those numbers I bet if anyone wanted to poke at it.  .It says a very different thing about whether it was really a good thing or not for the region in a long term sense.

And I think most people know that when it comes to measuring economic impact, construction jobs, or jobs associated with an initial investment, are very different than jobs that represent permanent job creation. The "400 individuals to drill a well" are not 400 net new jobs for the economy since that isn't even 400 person-years of employment. A lot of those 400 workers will only devote a short period of time to a particular well and move on to another.

On the bigger picture though. WashPo has a look at the oveall recession migration pattern across the nation.

Finally on 'Burgh migration: NPR makes famous someone's mother back in India

and for the now obligatory daily Marcellus Musing:  Forbes has some important musing of its own on the future of Range Resources.   Something a bit obscure, but what may be more telling than the headlines that get repeated ad nauseum is what is happening in the pipeline industry as a result of Marcellus Shale. Read carefully this news from Canada today: Gas foundation crumbling

and I showed up to hear what was to be said at a meeting on Marcellus issues in Lawrenceville. A representative from one of the large driller confirmed what I think was obvious that most players have backed off active drilling in the city, something they were actively pursing at one point.. It's pretty clear they are just too busy elsewhere in the state to really deal with the hassle.  But the big equivocation was they were backing off "for now" and made clear the future was not off the table.  So the question then becomes how actively they are continuing to pursue leasing to prepare for that future.  That and they tried to make a claim that Pittsburgh (as in the city and environs) is on the borderline of a pressure gradient that makes gas development here potentially not worthwhile.  Begs the question of why anyone is drilling in the city and there clearly are some permits issues.  Certainly is leasing activity in different parts of Allegheny County.


Anonymous BrianTH said...

Although inherently unfortunate for obvious reasons, I keep thinking that every foreclosure, short sale, and so on represents an additional household with an increased ability to move to a better job market elsewhere. So as the high rate of foreclosures et al continues, I wonder if we will see a corresponding increase in labor mobility, and consequent faster rate of unemployment reduction.

I also wonder if it is hurting labor mobility that with a couple exceptions (e.g., Texas on the good side, Michigan on the bad side), the predicted flow given relative unemployment rates would be a near-reversal of recent trend: basically, in the aggregate, jobseekers these days should be moving SW to NE. It might take a while for people to accept that new reality.

Friday, July 30, 2010 9:58:00 AM  
Anonymous johnnyg said...

Give it time. People used to fret about the undermining of the Lackawanna County Courthouse in Scranton as well, as the one the purest, largest veins of anthracite coal runs right underneath it. Then the Navy went nuclear and big eastern cities coverted to gas and oil for heat (anthracite--unlike the bituminous 'round here--burns pretty clean from the perspective of soot and particulates, so it was a natural choice for home heating in the city), and the bottom fell out of the anthracite market. The coal is still there.

If your constant worries over the bottom falling out of the nat gas market are true, you have nothing to worry about.

Friday, July 30, 2010 10:11:00 AM  
Blogger David Passmore said...

Chris, I also attended. Personally, I think there are a number of reasons why drilling in the city is unlikely currently. With hydraulic fracing, it takes up to 80 tractor trailer containers to bring in the required water. I am not sure that 80 trucks could be brought into the city for this purpose without being stopped and cited. I am not certain, but I don't think you can drive trucks of this size on city streets legally. They'd have to sneak to the site...I don't imagine an outfit like Chesapeake operating that way, too easy for them to get nailed. Also, as the speaker noted, the shale under PGH is not ideal. In all likelihood, they have thousands and thousands of rural acre holdings where drilling is "ideal" - where it will be cheaper for them to operate, where they can get the water to the site, and where they have optimal conditions from the geological perspective.

There is no compelling reason to begin drilling in the city currently, when they can do it without raising an eyebrow at thousands of other sites. Yes, they have negotiated leases, but the money devoted to those is a drop in their budget bucket.

If there indeed are nefarious elements in the industry hoping to exploit the resource at all costs, they have to be pleased to see so much attention and hysteria being drummed up about city drilling, and so little attention on their true intended sites. I don't think PGH politicians that are sending their wives to the meetings to wave their hands are really helping the public to grasp the real issues. I'm with Rep. Levdansky; our real battlefront is to get the severance tax in place. That will allow us to fund regulatory efforts to the degree that they are needed.

And yes, I'm David Jr., sorry for just popping up out of nowhere...

Friday, July 30, 2010 12:31:00 PM  
Anonymous The Wiz said...

Two thoughts. One on drilling in the city. It is probably inevitable as state law prohibits a municipality from prohibiting such activity. What is going now is a testing of the waters, so to speak. There are plenty of areas to drill outside of the city for now but in the future drilling within city limits will be considered. Companies know that it will take a few years for the permitting, zoning, environmental and safety issues, public opposition, etc., to play out. So they are getting the process started. What may happen is for some of the smaller players that are locked out of the prime gas zones to look for a foothold in the city.

Two. I always hear "All the jobs are taken from drillers from out-of-state." Only a few of the jobs created are actually working on the drilling rig. Most are in support jobs. All well sites need access roads. This means loggers to clear trees,(which will be sold to lumber yards for processing), heavy equipment operators, truck drivers hauling stone, miners mining the stone. It takes 300 truckloads of water to frac the well plus tons of sand a hauled to the site as sand is a major component. Roads will be upgraded and repaired with lots of paving to do. Hundreds of miles of new pipeline will be laid and thousands of steel storage tanks installed meaning more heavy equip operators plus lots of steel workers to make the pipe and tanks. All of this takes lots of fuel to haul and mechanics to keep it all going.

There will be lots of state inspectors added, lots of environmental engineers to do permitting and monitoring, lots of state and local employees doing tax collections. Lots of support personnel doing payroll, scheduling, subcontracting, tracking costs and production, paying royalties, and more.

None of this includes what people will do with their royalties like buying new cars, remodeling homes or building new ones, buying lots of mantoys. The economic impact will be huge and local people and businesses will benefit. It just needs to be done properly.

Sunday, August 01, 2010 12:17:00 PM  
Blogger C. Briem said...

I think I know a little bit about economic impact analysis.. ;-)

Anyway, it makes a big difference to economic impact modeling if the jobs are for workers coming in from elsewhere (the geography depends on your analysis).... and it's a bigger deal if the direct jobs are for workers from outside a region.

Also makes a huge difference if these are jobs associated with the initial investment, as is most construction employment, or net new long term employment.

Beyond that I wont quibble more here... but lots of issues. Are most of those access roads going to be improved to the extent you imply including paving? Do we make a lot of steel pipe in the region any more? Fuel? Cars? and so on... What do we manufacture in the region that directly impacts the whole supply chain is a very interesting question I have been getting lots of questions on.

The impact of the royalties per se is something a bit different and I suspect there will be research into how that $$ is spent well into the future... a natural experiment of sorts for economists.

Sunday, August 01, 2010 1:03:00 PM  
Anonymous BrianTH said...

I was just reading some articles about how Marcellus-related companies are having trouble finding the sorts of commercial real estate they need here. Basically, they tend to need smaller buildings and bigger yards, and due to the relative lack of large plots of flat land, developers had previously tended to occupy most of the plots with structures.

According to the articles, in response some Marcellus companies are just buying plots and contracting for new construction that meets their needs. Meanwhile, developers are starting to put appropriate new projects in their pipelines.

I note all this because I think it is a handy illustration of the sort of indirect impact we may see--indeed, that we may already be seeing, since construction is one of the employment sectors that seems to have been doing well recently.

Monday, August 02, 2010 9:43:00 AM  
Anonymous The Wiz said...

As for the direct jobs, Chesapeake Energy announced several months ago that they would build a dormitory for 280 people along with a training facility to train new workers. They stated that it will take some forty years to develop the gas field and that it is in their benefit to train local people to do the work. Plus other companies are working with universities and community colleges to set up training programs for local people. The out-of-state workers are a temporary necessity until locals acquire the skills needed.

As for cars for the cars and fuel. . . When someone buys a new car, a salesman makes a good commission, the dealer makes a profit and employs secretaries, accountants, landscapers, cleaning people, etc, the service center employs mechanics. Fuel suppliers have lots of employees, too Or are you implying that all monies collected from gas development must be spent only on products that all originate within Pa?

I talked to a truck driver that told me that Allegheny Minerals, maybe the largest limestone company in Pa is concerned that they may not be able to meet the demand for road materials and are looking to expand their mining operations and increase their truck fleets.


Monday, August 02, 2010 9:49:00 AM  
Blogger Jim Russell said...

I'm skeptical that locally trained workers will get much of the direct jobs in the near term. Once the locals are up to speed, what happens to the temporary (more experienced) labor?

Monday, August 02, 2010 6:17:00 PM  

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