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Tuesday, August 30, 2011

Penn State Study Finds Smaller Marcellus Jobs Impact; 'Still Big Numbers'

- Penn State Study Finds Smaller Marcellus Jobs Impact; 'Still Big Numbers'

Tuesday, August 30, 2011
Pittsburgh Post-Gazette
by Bill Toland

Jobs related to natural gas drilling in Pennsylvania's Marcellus Shale field were about half what previous studies had estimated for 2009, but the industry still supported about 23,500 jobs that year, according to a new study issued by Penn State researchers.

"It's still big numbers," said Timothy W. Kelsey, professor of agricultural economics with Penn State's College of Agricultural Sciences, and one of the study's authors.

"It's just not as big as what the industry is talking about."

The study, issued Monday by the Marcellus Shale Education & Training Center, a partnership of the Pennsylvania College of Technology and the Penn State Extension, also said that about half of the land being leased by drillers was owned by people living in those counties in 2009 -- the rest was owned by people or firms based out of state or elsewhere in Pennsylvania, or owned by the state itself.

That means much of the leasing and royalty money derived from drilling goes out of the county in which the drilling takes place, according to the study.

It's an economics phenomenon known as "leakage" -- money that looks as if it is benefitting a particular area is actually going elsewhere. And it's not an economic phenomenon native to gas drilling: Coal interests, limestone and gravel deposits and other mineral-related economic activity is subject to the same kind of leakage.

The study, "Economic Impacts of Marcellus Shale in Pennsylvania: Employment and Income in 2009," bills itself as the first paper to look at not just the number of jobs and amount of revenue generated by drilling but also where that money is going and how quickly it's being spent.

The jobs figure, as with previous studies, accounts for actual jobs created -- front office jobs, drilling jobs, engineering jobs -- as well as "induced" and "indirect" jobs, which are those not created by the industry itself but by the money the industry spreads around to local suppliers, hotels and restaurants, for example.

The study suggested that the industry generated around $3.1 billion in economic activity -- $1.2 billion in income and $1.9 billion in "added value."

Also of note was that locals who benefit from the gas play do not spend their lease and royalty checks immediately, meaning the money is not a direct, immediate benefit to the local economy. By surveying landowners in Bradford and Tioga counties, the study's authors estimate that leaseholders save or invest about 55 percent of leasing proceeds and about 66 percent of royalty payments in the year they are received, instead of spending the money.

The study's attempt to get a more accurate read on who -- and which areas -- benefit from drilling activity was hampered, Mr. Kelsey said, by the absence of any state or county database for who owns mineral rights (and thus owns the royalty rights to gas and shale deposits).

While it was relatively easier to find out who owns the land being leased -- about 51 percent of drilling plots are owned by people in that county -- it's far less clear who owns the rights to the gas below the surface and where those people live. The researchers, in calculating the economic benefits of the shale play, assumed an identical local ownership share (51 percent) for the mineral rights as well as the surface rights.

"We know that's not accurate," Mr. Kelsey said. "But there isn't anybody who has that data."

In many cases, mineral rights were separated from surface rights decades ago. It's more likely, he said, that the mineral rights owner lives out of state than the actual landowners, which means that it's also more likely gas royalty payments are going out of state.

But suspecting that and finding data to prove it are two different things, he said.

The state and county assessment offices need to do a better job of tracking that information if they want to have a more accurate picture of where mineral rights royalties are going, he said.

The study also surveyed 2,000 randomly selected businesses in Bradford and Washington counties to "identify the impacts they are experiencing from Marcellus Shale development." The responses "indicated positive economic impacts are occurring broadly across the economy in the communities where drilling is very actively occurring."

About 23 percent of Washington County business respondents said that natural gas drilling had helped to improve sales, while only 2 percent of respondents said that the drilling had hurt sales.

The full paper is available at

The study was paid for by funding from state Department of Community and Economic Development and money from Penn State and the Pennsylvania College of Technology.

(c)2011 the Pittsburgh Post-Gazette. Distributed by MCT Information Services.

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