October 2013, Vol. 240 No. 10


Global Implications Of Shale Development

Thomas B. Murphy, Co-Director, Penn State Marcellus Center of Outreach and Research

As we watch the development of natural gas from the Marcellus Shale in the Northeast, the implications are both obvious and subtle at the same time. The economic outcomes are measureable at the local level with new business opportunities for established shop owners as energy companies and their many contractors make a concerted effort to source goods and services within host communities.

New entrepreneurs are also finding avenues to establish businesses that had not been considered economically viable until now. There are many examples of successful ventures now taking root within Marcellus Shale-rich communities in the states, affecting them in a variety of ways. This boost in localized business development has found its way throughout rural and urban locations of shale development and in regions adjacent, supplying critical human capital and materials needed for the exploration and development of shale gas.

More subtle is the historical shift taking place in how energy is being sourced and used compared with energy development and consumption patterns of the past four decades. Conventional thinking is that North America will now make significant gains in achieving energy independence. The technologies being applied to develop new supplies of natural gas and crude oil are advancing quickly as science evolves.

The overall size of the resource is now better understood with recent reports suggesting early estimates of the Marcellus Shale natural gas potential were somewhat conservative. Third-party firms and academics indicate this shale alone could exceed four times the most recent estimates based on a better understanding of the geology.

For example, Pennsylvania has produced 3.6 Tcf of natural gas from shale since 2008; it is producing 9 Bcf/d when as recently as 2007 there was none coming from shale production. This has allowed the state to move from being a net importer to become an exporter as the largest shale gas-producing state in the U.S. Associated tax revenue to the states with shale gas production is growing in significance, as these production numbers would attest.

Global Shift In Sourcing
But this conversation is really about a global shift in energy sourcing. With new experience in extracting resources and knowledge of shale geology being gained in North America, combined with government regulation entities being trained specifically on this evolving process, we are enabling natural gas development in many other shale-holding nations worldwide.

Governments are moving forward in matching their regulatory expertise and personnel to the emergence of this source of natural gas. The pace of development will vary depending on politics, constraints in infrastructure and availability of technology, but there is still a high indication of continued development worldwide.

Natural gas sourced from shale is now more than one-third of the U.S. total and is expected to exceed 50% by 2035. Looking at trends in the U.S. and increasing use rates, particularly from the electrical power sector, that number could prove to be conservative as newly designed combination heat and power plants are producing that electricity more efficiently using minimal amounts of water.

One of the biggest economic impacts with shale development, depending on the pace of drilling, is on the workforce. At a time when unemployment is high in the U.S., tens of thousands of people are employed in the Marcellus Shale alone. In Pennsylvania, for example, research on what technical skills were required by the industry and pro-active efforts by educational institutions to produce trained students to match these demands have led to more than 80% of new hires coming from local communities case; these new workers are spending money in their communities, paying taxes and the financial impacts regionally are sizable.

Research has shown the multiplier effect from this workforce development is significant in stimulating economic growth including increased real estate prices, heavy demand for hotel rooms and higher rents paid to landlords. This has caused challenges for some but rents have stabilized through entrepreneurs bringing more rental units to the marketplace.

One concern commonly expressed is whether there are enough regulations on the energy industry as they explore and produce natural gas from shale. With the Marcellus you find two examples of how the regulatory process could unfold:

• In New York and Maryland, neither state is developing shale resources at the moment and regulatory efforts are progressing slowly and cautiously regarding their gas drilling permitting process and revisions to each state’s regulatory protocols. Conversely, all other states in the Marcellus footprint are moving forward. Regulatory updates have been added in these states and continue to be strengthened as the extraction process evolves and new science and engineering creates new facets of the process.

• In Pennsylvania, both political parties have supported the doubling of the well inspector’s staff in the field to provide assurances that the process is being done as environmentally friendly as possible. Each year since 2008, the number of in-field inspections has doubled while the rate of regulatory enforcements of well inspections on the 7,000-plus shale wells now drilled in the state has dropped to less than 2%; both are good trends from an environmental standpoint.

Overall, there are many issues connected to the further development of natural gas from shale. As this process advances internationally, new technologies will make the extraction process even more efficient, allowing even greater gas yields from the shale. New efforts will require even less water, use greener chemistry and decrease the all costs associated with the process.

New global applications also bring additional expertise to the discussion, both in the regulatory dialogue and during the gas-development process. These trends indicate there is a historical shift occurring in the sourcing of energy which will likely continue on a timescale measured in decades.

As we look for knowledge gaps and fill them with science-based solutions, it would seem appropriate to advance a similar science-based public policy related to this development.

Thomas Murphy is co-director of Penn State’s Marcellus Center of Outreach and Research (MCOR). He has 27 years of experience working with landowners, researchers, industry, government agencies and public officials during his tenure with the Outreach branch of the university.

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