Marcellus shale drilling & fracking: boom & bust

The boom is becoming a bust; so how to handle this fracking bust?

From an Article by Lydia DePillis, Washington Post, January 15, 2015

PHOTO: Workers tap into Marcellus natural gas at an active hydraulic fracking operation outside of Wellsboro, Pa., operated by Shell. This rig is the only Shell crew operating in the area.

This is the introduction to a five part series about how communities can deal with a natural gas boom. Find the rest of the installments here: Part One, Part Two, Part Three, Part Four, Part Five.

WELLSBORO, Pa. — The sand trucks barely rumble along the quaint main street in Wellsboro anymore. Three years ago, it was difficult to have a conversation with someone walking next to you, the roar of traffic was so constant. Driving, it could take an hour to get from one end of town to another. But the trucks also came with business: Mining companies had started drilling wells all over the rolling hills surrounding this town in northern Pennsylvania, extracting the precious natural gas that lay beneath.

Hydraulic fracturing (“fracking” for short) brought a bonanza to this town the likes of which it hadn’t seen even in the heydays of lumber and coal. With 800 wells drilled over five years, royalties paid to landowners for their mineral rights flowed through the community, helping people buy new farm equipment and donate to local charities. New tax revenues poured into local government coffers that never had much to begin with.

But like all booms, it only lasted while the money was good. Natural gas prices hit a high of $13.42 per million BTU in October 2005, stayed high for three years, then started falling, fast, bottoming out at $1.95 in April 2012, and stood at $3.48 last month. Without enough profit to justify further investment, most of the activity vaporized. Shell Oil, which had bought up most of the leases in Tioga County, went from a dozen drilling rigs to one. Businesses that had been gearing up for years of sustained growth were left hanging.

PHOTO: Workers tap into Marcellus natural gas at an active hydraulic fracking operation outside of Wellsboro, Pa., operated by Shell.

“With really no warning at all, the bottom fell out of that,” says Jim Weaver, the Tioga County planner, who advises the county’s commissioners on land use decisions. “In hindsight, looking at boom and bust cycles that have gone on forever, we should’ve known that. But when the dollar’s dangling in front of you and you’re chasing the carrot, before you know it you’re out on a limb, and the limb gets sawed off.”

Already, some states have decided to avoid the chase: In November, New York Gov. Andrew Cuomo announced that he would not lift the state’s ban on fracking, out of concerns about the potential environmental and health impact. The 185-page report referenced studies conducted in Pennsylvania on outcomes like the birth weight of babies and the accident rate of truck traffic. While the evidence rarely showed conclusive adverse health impacts from fracking, it was enough to convince Cuomo that the benefits didn’t outweigh the risk.

For much of the rest of America with gas beneath it, however, there’s no going back. The discovery of “unconventional” oil and gas reserves in a handful of major subterranean shale formations known as “plays” — the Marcellus underneath Pennsylvania and Ohio, the Eagle Ford in Texas, the Bakken in North Dakota — have completely transformed American energy production, increasing income and tax revenues and driving unemployment down. The shale boom has been credited with reviving domestic manufacturing and bringing natural gas prices to levels many thought America would never see again, and even environmentally-minded politicians are reluctant to give up the economic stimulus the industry provides.

PHOTO: County planner Jim Weaver works in his office in the Tioga County Courthouse building. The natural gas boom has come and gone in Tioga County, Pa., and Weaver is in charge of making sure the community is developed in the way citizens would like.

“I want to have my cake and eat it too,” said Pennsylvania’s new Democratic Gov. Tom Wolf, in response to New York’s decision. But with gas prices so low — and other forms of energy, especially oil, becoming much less expensive — the future of communities who bet their future on fracking is uncertain. They are at risk of falling into what researchers have called the “resource curse,” where local economies over invest in a cash cow, only to sacrifice industries that might provide more sustainable growth over the long term, like tourism or manufacturing.

“Ultimately, Tioga County is a cautionary tale,” the authors wrote. “The economic benefits associated with shale development are limited, come at a price, and may disappear as swiftly as they arrived.”

America, after all, is a nation of booms and busts, from the gold rush of the 1850s to the housing bubble of the 1990s. In this latest boom, worst-case scenarios make headlines all the time: A crime wave and crippling fires and explosions struck North Dakota, for example, where cozy relationships between lawmakers and gas companies led to lax enforcement. Towns in Wyoming suffer when mining booms just pass through, over and over, while profits leave the state and then the country. And then, further down the line, the oil industry blows huge holes in the budgets of drilling-dependent states when prices sink too low to keep the rigs around.

Pennsylvania is trying to avoid that cycle, with mixed success. When gas drilling started in the mid-2000s, Pennsylvania was almost entirely new to the industry. And it has yielded undeniable benefits: According to investment advisors Raymond James, 90 percent of Pennsylvania’s job gains between 2005 and 2012 came from oil and gas. When you’re in the middle of that kind of fossil-fueled expansion, it’s tempting to think it might never come to an end.

But it always does. Whether because some newer, cheaper source of gas gets discovered, or because some key distribution point gets cut off, or because some ballot measure stops drillers in their tracks.

So the question is: If you’re in the path of the oil (and gas) industry, how can you gain from its presence, without becoming so dependent that everything falls apart once it leaves? In other words, can the resource curse be broken?

Tioga County has some of the answers. But they learned them the hard way. In the spring, researchers from the Pennsylvania Budget and Police Center did a case study on the county, and found that the positives and negatives of drilling activity basically came out in the wash.

“Ultimately, Tioga County is a cautionary tale,” the authors wrote. “The economic benefits associated with shale development are limited, come at a price, and may disappear as swiftly as they arrived.”

This is the introduction to a five part series about how communities can deal with a natural gas boom. Find the rest of the installments here: Part One, Part Two, Part Three, Part Four, Part Five.