THE STATE OF MY STATE – THE ECONOMIC NON-IMPACT OF COAL & NATURAL GAS IN WEST VIRGINIA

From a Post by Sean O’Leary, The State of My State (WV Blog), January 9, 2015

They are assumptions bordering on articles of faith in West Virginia. “As coal goes so goes West Virginia’s economy.” And “West Virginia’s best hope for future economic growth is its natural gas industry.”

Those who make these claims regularly brush off objections that neither industry employs more than about 3% of West Virginia workers by suggesting that those meager figures fail to take into account the full impact coal and natural gas have on West Virginia’s economy. They argue that coal indirectly creates tens of thousands of additional jobs in supplier industries and induces tens of thousands more in the broader economy.

Coal mine operator Robert Murray of Murray Energy says that for every coal mining job eleven others are created, which, if true, would mean that more than 40% of all private sector jobs in West Virginia would be attributable to the coal industry alone.

That being the case, one would expect that significant growth in employment in coal and natural gas would have a powerful knock-on effect in the form of increased employment in the rest of West Virginia’s economy. That’s why it will probably come as a surprise to many that, according to Workforce West Virginia, even as employment in the coal and natural gas industries has expanded by more than 22% in the last seven years, all other private sector employment in West Virginia has actually declined by two percent.

In fact, going back to the year 2006 at the dawn of West Virginia’s natural gas boom, there appears to be almost no correlation between employment change in the coal and natural gas industries and private sector employment in West Virginia’s broader economy. Some may suggest that the absence of any visible correlation is attributable to declines in coal jobs offsetting gains in natural gas.

But, when employment data for the two industries is unbundled, we see that employment in coal, although decreasing now, has none the less increased overall since 2006.

Even in 2008, when coal mining employment grew by 10% and natural gas employment by more than 13%, the rest of West Virginia’s private sector actually lost jobs. This disconnect between coal and natural gas job growth and overall private sector employment could mean that the coal and natural gas industries don’t generate the numbers of indirect and induced jobs that many people presume.

On the other hand, it could be the case that the indirect and induced jobs are being generated, but that the gains are being offset by job losses in the rest of the economy. The latter explanation would be particularly disappointing since, in an effort to spur private sector job growth, the state has implemented a steady diet of corporate tax cuts during this time period.

Consequently, boosters of the coal and natural gas industries who are also proponents of cutting of corporate taxes (a group that includes the leadership of both political parties) face the unhappy prospect of having to acknowledge that either the coal and natural gas industries aren’t nearly as important to West Virginia’s economy as they have long insisted or the corporate tax cuts they enacted and which have plunged West Virginia into a series of budget deficits have utterly failed to produce the results they predicted and hoped for.

Of course, it’s also possible (and I would say likely) that both of these are true.

Percentage Change in Employment

Economy, Energy & Environment

E3 Sustainability in the State of West Virginia

From WV Department of Environmental Protection

Date: October 18, 2013

E3 West Virginia (Economy, Energy and Environment in West Virginia) conducted a Charter Signing Ceremony at 10 a.m. on Tuesday, October 22, at the state Department of Environmental Protection headquarters in Charleston.

E3 West Virginia, formed in 2010, is a collaboration of industries, local governments and state and federal resources geared toward helping the state’s industrial and community sectors thrive in a new era focused on sustainability. E3 West Virginia partners work together to promote sustainable environmental and energy practices and economic growth throughout West Virginia.

E3 West Virginia accomplishes its goals through investing in local communities, addressing energy and sustainability challenges, providing technical training and conducting energy and environmental assessments. Since 2010, E3 West Virginia has helped fund 56 industrial facility assessments statewide and 22 local government assessments, resulting in a potential savings of $3.6 million.

E3 West Virginia partners include Appalachian Power; Bridgemont Community and Technical College; Industries of the Future – West Virginia; National Pollution Prevention Roundtable; Natural Capital Investment Fund; Polymer Alliance Zone of West Virginia; U.S. Department of Agriculture; U.S. Small Business Administration; West Virginia Association of Counties; West Virginia Community Development Hub; West Virginia Department of Environmental Protection; West Virginia Department of Commerce; West Virginia Manufacturers Association; West Virginia Manufacturing Extension Partnership; West Virginia Municipal League; and West Virginia University Industrial Assessment Center.

The Marcellus Shale Advisory Commission appointed by the Governor of Pennsylvania has now reported with 96 recommendation aimed at encouraging gas companies to invest in Pennsylvania, protecting environmental resources and helping local governments manage the industry that is remaking their communities.

Key recommendations in the Report are as follows: Enact a drilling impact fee that offsets “uncompensated” costs to local governments. Double civil penalties for violations and increase bonding fees held in case a well is abandoned. Establish construction standards for private water wells and increase the distance for which a driller is presumed liable for contamination. Require the state Public Utility Commission to oversee gathering lines and increase safety standards for pipelines in low-density areas. Update state law to make the Marcellus Shale eligible for “pooling.” That process allows for mineral resources at a certain depth to be added against the owner’s wishes into a larger drilling unit.

Praise for the report has come from Range Resources, EQT Corporation, and the Pennsylvania Independent Oil and Gas Association, among others. The Chesapeake Bay Foundation, Pennsylvania Environmental Council, the Nature Conservancy and Western Pennsylvania Conservancy gave a mixed assessment of the final report.

“We consider the report to be a meaningful first step toward improving Pennsylvania’s oversight of shale gas extraction, but additional improvements must be accomplished as the debate shifts to the General Assembly,” these latter organizations said in a joint release. Others who were not included in the process criticized the 137-page document, saying it was exactly what they feared from a panel stacked with industry executives. “From day one, we knew that the advisory commission is nothing more than a stalling tactic,” said Erika Staaf of the advocacy group PennEnvironment.

For more on this report, visit www.post-gazette.com/pipeline

On June 30, 2011, the New York Department of Environmental Conservation (DEC) announced the release of preliminary  revised regulations on hydraulic fracturing.  I was initially impressed with the scope and depth of the regulation, particularly since the regulations included banning fracking on public lands and air pollution regulations.

However, the New York Water Rangers Campaign, a collection of seven public health/environmental advocate groups, issued a press release that itemizes what the groups have collectively prioritized as the Top Ten Fracking Flaws in the preliminary revised regulations.  Below is an abbreviated version of the list.

1. New York State isn’t proposing to ban any chemicals, even those known to be toxic and carcinogenic.
2. The preliminary draft allows drilling waste to escape treatment as hazardous waste, even if it is in fact hazardous under the law. This means fracking waste could be sent to treatment facilities unable to properly treat it, putting the health and safety of our waters and communities at grave risk.
3. The state proposes allowing sewage plants to treat drilling wastes.
4. Drinking water supplies would be inadequately protected. The preliminary draft increases buffers and setbacks from aquifers and wells. However the protections are inconsistent and can be waived in some instances.
5. Some fracking restrictions would have sunset dates.
6. The preliminary draft does not analyze public health impacts, despite the fact that fracking-related air pollution and the potential for water contamination have serious effects on people—especially the elderly and children, and communities downwind and downstream of proposed fracking operations. There is growing evidence of negative health impacts related to gas extraction in other states.
7. The DEC proposes issuing permits before formal rulemaking is complete, a backward move that leaves New York’s waters and communities at risk.
8. The state is breaking up environmental impact reviews. The thousands of miles of pipelines or compressor stations required for drilling to get the resulting gas to market will be reviewed by a different agency under a different process.
9. While proposing to put the New York City and Syracuse watersheds off- limits to drilling, critical water supply infrastructure would not be protected. The state proposes…….(an inadequate)….. buffer around New York City drinking water infrastructure in which only an additional review would be required and upon which projects could be permitted—not a formal ban.
10. New York’s environmental agency has been subject to steep budget and staff cuts and does not have adequate staff or resources to properly oversee fracking, even if every possible protection were in place.

“Without providing the necessary measures that will prevent pollution from drilling and fracking, New York’s communities and environment will suffer like Pennsylvania’s,where drilling is running wild. On the whole, the revised Draft doesn’t cure the ills of gas development that are the most dangerous so the industry’s interests will win out over public health,” said Tracy Carluccio, Deputy Director, Delaware Riverkeeper Network.

A press release by the New York Department of Environmental Conservation summarizes the preliminary changes.  The recommendations contain these major revisions:

• High-volume fracturing would be prohibited in the New York City and Syracuse watersheds, including a buffer zone;
• Drilling would be prohibited within primary aquifers and within 500 feet of their boundaries;
• Surface drilling would be prohibited on state-owned land including parks, forest areas and wildlife management areas;
• High-volume fracturing will be permitted on privately held lands under rigorous and effective controls; and
• DEC will issue regulations to codify these recommendations into state law.

The complete revised draft is expected to be released for public comment and review in August. The groups are strongly requesting the DEC to expand public comment period from 60 days, one month less than the public comment period for the first draft of the SGEIS, to at least 180 days.

The full 1,095 page Preliminary Revised Draft Supplemental Generic Environmental Impact Statement is available here.

Daniel Yergin, Chairman, Cambridge Energy Research Associates

 A recent article in the Wall Street Journal by Daniel Yergin provides an historical and comprehensive view into fracking, horizontal drilling and so-called unconventional gas from diverse shale formations. What has become known as the “unconventional-natural-gas revolution” has turned a shortage into a large surplus.  This revolution has arrived, moreover, at a moment when rising oil prices, sparked by turmoil in the Middle East, and the nuclear crisis in Japan have raised anxieties about energy security.

As late as 2000, shale gas was just 1% of American natural-gas supplies. Today, it is about 25% and could rise to 50% within two decades. Estimates of the entire natural-gas resource base, taking shale gas into account, are now as high as 2,500 trillion cubic feet, with a further 500 trillion cubic feet in Canada. That amounts to a more than 100-year supply of natural gas, which is used for everything from home heating and cooking to electric generation, industrial processes and petrochemical  feedstocks.

Mitchell Energy’s  light sand fracking,  which breaks up hard shale rock, was combined with the horizontal drilling techniques of Devon Energy, starting in 2002. “At that time,” said Larry Nichols, the chairman of Devon, “absolutely no one believed that shale drilling worked, other than George Mitchell and us.”

In 2003,  Devon Energy drilled 55 wells in the Barnett Shale of Texas, optimizing the combination of fracking and horizontal drilling. The know-how was applied across North America, in such shale formations as Haynesville, mostly in Louisiana; Eagle Ford in South Texas; Woodford in Oklahoma; Horn River and Montney in British Columbia; Duvernay in Alberta; and the “mighty Marcellus,” the huge formation that spreads from Pennsylvania and New York down into West Virginia.

In his energy speech this past week, President Barack Obama said, “Recent innovations have given us the opportunity to tap large reserves—perhaps a century’s worth—in the shale under our feet. The potential here is enormous.” And, in an era of heightened environmental awareness, any incident, even involving a single water well, can become a national event.  As a recent analysis from the MIT Energy Initiative put it, “With over 20,000 shale wells drilled in the last 10 years, the environmental record of shale-gas development is for the most part a good one.  Nevertheless, one must recognize…the damage that can be caused by just one poor operation.”

What many analysts expect to see is the emergence of a set of “best practices,” endorsed by both regulators and industry and tailored to the specific characteristics of the diverse basins across the country.  For shale gas production to succeed on a massive scale, public confidence will be essential.

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—Mr. Daniel Yergin is chairman of IHS Cambridge Energy Research Associates, an energy research and consulting firm. His new book “The Quest” will be published in September. He received the Pulitzer Prize for his book “The Prize: The Epic Quest for Oil, Money and Power.”

In the third article in a series about the dangers of hydraulic fracturing, Ian Urbana of the New York Times tracks 25 years of government officials and industry influence has not only limited the scope of EPA research, but kept results of those studies secret.

“It was like the science didn’t matter,”said Carla Greathouse, author of a 1987 study that concluded some gas drilling waste was hazardous and should be tightly controlled. “The industry was going to get what it wanted, and we were not supposed to stand in the way.” Greathouse’s experience was not an isolated incidence.

Now, the EPA is about to undertake a broad new study to examine the potential risks of natural gas drilling and preliminary results are scheduled to be released next year.  As pressure to find alternatives to foreign oil rises along with gas prices, will history repeat itself? Read the full article here…

Sen. Brooks McCabe (D-Kanawha), lead sponsor of SB 465

The Marcellus Gas and Manufacturing Development Act was passed out of the the Senate Energy, Industry and Mining Committee on Feb. 17th.   The purpose of the Act contained in Senate Bill 465 is to encourage and facilitate “the development of oil and gas wells and the downstream uses of natural gas in this state and the economic development in this state associated with the production and various downstream uses.”   It intends to do that by using tax credits and incentives for industrial expansion (particularly for fractionation and ethane cracker plants) and promoting natural gas as an alternative energy fuel.  It also encourages the West Virginia Economic Development Authority, that agency that oversees TIFs, and the WV Infrastructure and Jobs Development Council to provide public assistance to this private industry sector, Marcellus shale gas, and it’s correlative industries fractionation and ethane cracking.

The bill contains tax breaks geared toward subsidizing both the planned Dominion fractionation plant and an anticipated, but as yet unannounced, cracker plant.  (See  Special Report: Task Force Charged with Opening Door to Chemical Industry in Kanawha Valley, FrackCheck Feb. 18.) The  bill also lowers the bar for the amount of investment qualifying for special privileges to certain manufacturing businesses to enjoy a 95% break on county property taxes.  So if a cracker plant costs $10 million, the owner or ownership entity pays county property taxes on an adjusted appraised value of only $500,000.  There’s a little whip-snapper provision that adds a small penalty if the investment occurs after July 1,2011; the cost of the real estate acquired for expansion is deducted from the basis for computing the credit.

The bill also adds fractionation and cracker plant investments to the list of industrial expansions which qualify for the Manufacturing Tax Credit (up to 5% of the cost of new manufacturing property).

Currently WV Code 11-13A-5a calls for 10% of oil and gas severance fees to be distributed back to the counties, with the majority directed to the counties in which the fees were generated. The bill amends that to allow for distribution of the severance fee to fund permitting and inspection of gas wells as well as highway funds.  Of the excess above the 10% of severance fees that is redirected back to counties, a $2 million Marcellus Shale Permit Fund is established to fund the WVDEP in permitting and inspection of gas wells.  A baseline of $64.8 million must be distributed from severance fees to counties and municipalities for highway maintenance under this bill.

Incentives for investing in natural gas powered vehicles and other alternative fuel powered vehicles (but not ethanol) and investing in the equipment to fuel those vehicles are also included in the bill.

The sponsors are Senators McCabe, Kessler (Acting President), Browning, Unger, Snyder, Stollings, Plymale, Wells, Palumbo, Beach, Klempa, Yost and Foster.  The bill goes to the Finance Committee next.  Story of bill’s introduction , Feb. 9.   Story of bills passage

Text of the Marcellus Gas and Manufacturing Development Act.

Further light reading:

ARTICLE 6F. SPECIAL METHOD FOR APPRAISING QUALIFIED CAPITAL ADDITIONS TO MANUFACTURING FACILITIES

ARTICLE 13S. MANUFACTURING INVESTMENT TAX CREDIT

ARTICLE 13R. STRATEGIC RESEARCH AND DEVELOPMENT TAX CREDIT

§11-13A-5a. Dedication of ten percent of oil and gas severance tax for benefit of counties and municipalities (must scroll down)

St. Mary’s based  company Trans Energy announced it has begun drilling Lucey No. 1H,  its seventh Marcellus shale gas well in Marshall County.   “Trans Energy continues to move to a development phase from an exploration phase as it develops its acreage position in northern West Virginia” , Trans Energy President John Corp stated in a press release dated Jan. 17, 2011.

Dominion Transmission announced that it has reached an agreement with PPG to option the purchase of 56 acres at the Natrium site where the company plans to process natural gas and separate natural gas liquids.  The site, nine miles north of New Martinsville, is close to Dominion’s TL-404 pipeline, an existing transmission line in Ohio and West Virginia that Dominion plans to convert to a wet gas service line.  U.S. Representative David McKinley (R-WV),  welcomes the expansion of gas industry in the 1st District, which is represented by McKinley.  ”Development of Marcellus shale natural gas reserves faces some of the same rigid regulatory obstacles that other energy development projects are facing,” McKinley said. “I plan to vigorously advocate for the responsible removal of barriers to new jobs here, regardless of the energy source.  If it creates and protects jobs in West Virginia, I am in favor of it.”