November 22, 2017

Experts: Shale Gas Drilling’s Liabilities Far Outweigh Potential Economic Benefits

Jannette Barth has argued that industry organizations have touted the economic impact of gas drilling in the Marcellus even though their analyses include enough data inconsistencies to raise large red flags.
By Press Action, April 26, 2012

The natural gas industry needed a better sales pitch. It was moving into new and potentially hostile territory. Not everyone in the Marcellus Shale region was going to welcome gas companies with open arms. And then industry officials received a special gift from their colleagues on Wall Street, the ones instrumental in creating the financial meltdown of 2008. With the economy in a tailspin, the industry found the perfect antidote to what its members viewed as venomous complaints about the natural gas extraction process known as hydraulic fracturing.

Jobs and economic development would become the industry’s rallying cry as it stormed into the region, disrupting communities and destroying ecosystems. Landowners and mineral rights owners were promised huge sums of money if they signed leases to allow natural gas companies to create industrial zones in their backyards. Local business owners were told they could expect a jump in sales as the invading armies of contract workers and drilling companies would spend huge sums of money at local establishments.

But not everyone living in the states located above the Marcellus Shale geological formation was buying what the industry was selling. Many were skeptical. Others were downright angry. Groups of concerned residents emerged to fight the industry’s planned takeover of their communities. They wrote letters to local officials and organized protests. And they sought out experts to analyze the industry’s rosy economic predictions.

For the past few years, one of those experts, Jannette Barth Ph.D., president of J.M. Barth & Associates Inc., an economic research and consulting firm, has been closely following the natural gas industry’s economic claims. She has argued that industry organizations, such as the Marcellus Shale Coalition and the Independent Oil and Gas Association of New York, have touted the economic impact of gas drilling in the Marcellus even though their analyses include enough data inconsistencies to raise large red flags.

Barth joined Deborah Rogers, who served on the advisory committee for the Federal Reserve Bank of Dallas, and Al Appleton, a former commissioner of the New York City Department of Environmental Protection, at an April 24 event in New York City to offer their opinions on whether the gas industry’s numbers add up. The event, “Frackonomics: Debunking the Financial Myths of Shale Gas and Embracing a Green Energy Future,” was sponsored by United for Action and the New York Society for Ethical Culture, with several other organizations serving as co-sponsors.

Barth, who was scheduled to testify during an April 25 forum convened by Democrats in the New York State Senate, issued a “balance sheet” earlier this year that sought to calculate New York’s “net equity from shale gas development.”

Among the “assets” of shale gas development, Barth cited various sources of tax revenue, including taxes paid directly by the gas industry based on future legislation and increased income taxes based on royalty income to leaseholders and lease income to landowners. Shale gas drilling also could stimulate other industries based on the byproducts of natural gas. New York state could see short-term job gains in the gas industry and related industries, according to Barth’s analysis. The state also could see increased spending by leaseholders. Finally, New Yorkers could enjoy lower natural gas costs for heating and cooking as well as lower electricity costs from power plants fueled by natural gas, she said.

According to Barth’s analysis, though, the “liabilities” of shale gas drilling far outnumber the assets. She highlighted several potential paths leading to tax revenue losses, including income tax losses by leaseholders who vacate properties and relocate out of state, income tax losses caused by decreases in tourism and other industries negatively affected by drilling, and property tax losses caused by the negative impact of drilling on property values and financing.

Aside from the tax revenue losses, the liabilities listed by Barth include human health costs associated with water contamination from fracking fluids and wastewater, and air pollution from compressors, leaks and gas released at well sites. Other liabilities cited by Barth were:

Costs associated with declining quality of life due to the creation of an industrial landscape.

Costs associated with declines in organic farming and other agriculture and food manufacturing.

Costs associated with increased air pollution from increased truck traffic.

Costs associated with increased homelessness.

Costs associated with the postponement of investment in renewables.

Costs associated with a long-term bust, characteristic of extractive industries.

In a 2010 paper, Barth explained that “in light of the undisputed potential for environmental harm from gas drilling in the Marcellus Shale, the principal reason advanced for taking the environmental risks is the positive economic impact that such drilling could have for New York State and its counties.” In her analysis, though, Barth has found the gas industry’s job creation claims are exaggerated and the industry often misinterprets economic data.

During the panel discussion at the Frackonomics event in New York, Barth reiterated her point about the boom-and-bust nature of extractive industries. “Extractive industries produce short-term booms followed by long-term busts,” she said.

In his remarks at the event, Appleton argued that to engage in hydraulic fracturing responsibly would be prohibitively expensive for the natural gas industry. “We have to ban fracking in New York state because it can never be effectively regulated,” he said. “The industry will never behave responsibly.”

But as New York residents continue to make strong cases—both environmental and economic—against the use of hydraulic fracturing in their state, Gov. Andrew Cuomo and other high-ranking state officials appear to be getting closer to giving the gas industry a green light to move forward with drilling. The New York State Department of Environmental Conservation, after receiving tens of thousands of public comments on an environmental impact statement on high-volume hydraulic fracturing, is expected to issue a final set of rules this summer allowing gas companies to drill. When that happens, the ball will be back in the opponents’ court. Will they concede defeat? Or will they ratchet up the resistance?