New Penn State Study on Economic Impacts of Marcellus Drilling

A new 62-page study (embedded below) conducted by Penn State and the Pennsylvania College of Technology looks at the economic impact of natural gas drilling in PA. The study, titled “Economic Impacts of Marcellus Shale in Pennsylvania: Employment and Income in 2009,” uses a new (and according to the authors more accurate) methodology to calculate gas drilling’s economic impacts on local communities. The authors suggest the economic impacts of Marcellus drilling for local communities are not as big as previously reported.

Timothy Kelsey, professor of agricultural economics in Penn State’s College of Agricultural Sciences and a lead author of the publication, said the study looked at several aspects of Marcellus Shale natural-gas development in Pennsylvania that had not been considered in previous research and assessed how these factors affected the overall economic impact.

“For instance, we examined where leasing and royalty dollars actually are going and how they are being spent,” Kelsey explained. “The economic impacts will be very different depending on how many dollars go to Pennsylvania households, to state and local governments, and to nonresidents. In addition, how many of those dollars are immediately spent by residents and how many are saved also will affect the impact, as will the proportion of wages being paid to out-of-state workers.”

The study included surveys of landowners, local businesses and local government officials, as well as a GIS analysis of land-ownership patterns among Pennsylvania residents, nonresidents and the state. The researchers combined this information with industry spending data to estimate the spatial distribution of natural-gas-company spending over time. They then entered the data into economic-analysis software to model the state’s economy and estimate multiplier effects.*

Some of the key findings:

  • Marcellus Shale development in 2009 in PA supported nearly 24,000 jobs in the state and generated $3.1 billion in economic activity. This included $1.2 billion in labor income and $1.9 billion in added value.
  • Land ownership in counties with Marcellus activity breaks down as follows: 50% owned by county residents; 25% owned by residents living elsewhere in PA; 8% owned by out-of-state landowners; 17% owned by the public sector, primarily the state. So a large portion (nearly half) of the economic benefits from lease and royalty payments immediately leave the communities where drilling happens.
  • A recent workforce study estimates 37% of Marcellus workers are non-PA residents. This study estimates between 25% and 50% of non-PA residents’ paychecks are sent to their home-state communities.
  • A survey of landowners in Bradford and Tioga counties show that lease holders save or invest about 55% of lease proceeds and about 66% of royalty payments in the year they are received, rather than spending them immediately.
  • A survey of municipal governments in 12 Marcellus counties reports only 18% of governments experiencing Marcellus activity said their tax revenues had increased, and about 26% said costs had increased, especially related to road maintenance.
  • About a third of local businesses in Bradford and Washington counties reported increased sales due to natural-gas development.
  • Businesses across the economy reported positive effects, though hotels, construction companies, transportation concerns, eating and drinking places, wholesalers and financial-services firms were most likely to report higher sales.

*Penn State Cooperative Extension (Sep 4, 2011) – Study indicates economic benefits from Marcellus Shale, but questions remain