When the Marcellus Music Stops

This was prepared as an op-ed for the Post-Gazette, but was not accepted for publication. It appears here just as it would have in the PG.

Over the past year, I’ve attended a number of town meetings about Marcellus Shale natural gas and “fracking”. A recurring theme has been, “Is our municipality ready to handle the ‘boom’ from Marcellus drilling: a radical increase in road traffic, influx of transient workers, and demand for public services (including health care, police, fire, and emergency responders)?” Now recent news from the U.S. Department of Energy, and the response of the natural gas industry, suggests that it may not be too soon for Pennsylvanians to ask the question, “Are we ready to deal with the (inevitable) ‘bust’ that will follow?”

In a preview of its Annual Energy Outlook (to be published this April), the Energy Information Authority revised its forecast for “recoverable” Marcellus Shale gas from 410 trillion cubic feet (Tcf) down to 141 Tcf. It also predicts that wellhead prices for natural gas will remain near their current, nearly all-time, lows “through 2023”. The combined effect of these two predictions amounts to a reduction in the prospects for shale gas development by more than a trillion dollars over the next decade. Accordingly, and very quickly, the gas industry has begun to pull back. On the same day as the EIA report, Chesapeake Energy (the most aggressive company in exploiting the Marcellus “play”), announced that it will reduce shale gas drilling by nearly 70%. Other gas companies took similar action.

We know, through economic research and the experience of our own region, that extraction industries (such as mining, and oil or gas drilling) follow predictable “boom-and-bust” cycles. During the boom, some individuals and businesses benefit from higher incomes: lease-holders, retailers, hoteliers and landlords. But rising prices affect everyone, and the combination of higher prices and competition for labor causes a “squeezing out” phenomenon, where existing businesses can’t grow and tend to leave the area. Meanwhile, public services have to ramp-up to meet the new demands. (Experienced City of Pittsburgh officials tell me that one new traffic light, for a simple crossroads, will cost over $200 thousand.)

Then, the bust. It’s not only that revenue falls from the heights of the boom, not only that the ramped-up public costs remain “stranded” for future taxpayers to deal with. In fact, revenues tends to fall below pre-boom levels, as those who profited from the boom – if they had stayed around at all – take their wealth, their families and their employees away to greener pastures. The laid-off shop clerks, waitresses, and other low-paid workers are more likely to stay, unemployed.

On top of this economic battering, communities face the environmental legacy of the extraction activity – and of operators suddenly hostile, bankrupt, or simply missing. Whether the natural resource (gold, coal, ore, oil, or gas) has “played-out,” or just loses its market, the operators don’t hang around after the party, waiting to clean up.

As the bust approaches, operators cut corners and dodge regulations. It was not uncommon, for example, for strip-miners to leave the rusting hulk of one bulldozer at a site, claiming that the mine was still ‘working,’ until long after any demand for restoration could be presented. When fracking stops, whom can we count on to cap the wells, to decontaminate the holding ponds, and maintain the condensate tanks and pipelines?

So, what if the fracking bust, instead of being, say, fifteen or twenty years away, arrives within the next two or three?

Under our current Harrisburg regime, we have the worst of both sides in preparing for such an outcome. On the one hand, we garner no public revenue from gas drilling (call it “impact fee” or “severance tax” or “what-you-like”); on the other hand, municipal officials are intimidated by the prospect of preemptive state legislation. Even without passing, the Corbett/Scarnati bills (SB1100/HR1950) have frozen most communities in their tracks.

How does a public official prepare? How are yours preparing?