Pennsylvania’sMarcellus Shale

By Katrina CurrieCommonwealth Foundation

The Marcellus Shale is a large and difficult-to-drill geological formation roughly a mile or more underground containing natural gas.•The shale covers more than two-thirds of Pennsylvania.• Estimates place the volume of recoverable gas in the entire formation (not just Pennsylvania)

at 489 trillion cubic feet.• This once unreachable gas is now recoverable, thanks to the combination of two previously

existing technologies: horizontal drilling and hydraulic fracturing.

Introduction

Where is Drilling Occurring?

Dozens of drilling companies are investing in Pennsylvania and boosting the economy by creating high-paying, permanent jobs.

• More than 10,500 new jobs were created within Marcellus Shale related industries from 2009 Q4 to 2011 Q1, according to the Center for Workforce Information and Analysis:– This doesn’t include indirect jobs that

are being created by drilling – from railroad companies to manufacturing.

– Estimated average annual earning is nearly $70,000.

– Taking a more long-term view, from 2008 Q1 to 2010 Q3, employment in core industries increased by nearly 94%, while total jobs in Pennsylvania dropped 2%.

Economic Impact

Since 2008, 7 out of 10 new hires in the industry are filled by Pennsylvanians

Economic Impact Cont.Take Bradford County, for example:• Three years ago it was economically struggling. Now, it is a state leader in Marcellus wells

drilled and in job creation.– Bradford County now boasts the second lowest unemployment rate in the state.

– In one year added 2,500 new jobs—that’s a nearly 10% growth!

– Local hotels and campgrounds reported 100% higher sales in 2010, along with 50% of financial businesses, 35% of construction firms and nearly 30% of transportation firms seeing increases.

– Jim VanBlarcom, a Bradford County dairy farmer, was able to double his dairy herd size, thanks in part to royalty money from leasing farmland.

State and Local Tax Revenue • Drillers have already contributed more than $1.3 billion since 2006 in state and local taxes,

according the Pennsylvania Department of Revenue.

Department of Revenue Data (analyzed by Penn State)

• Pennsylvania counties with 150 or more Marcellus wells experienced an 11.36% increase in state sales tax collections between 2007 and 2010. – Counties with no Marcellus wells drilled experienced a 6.55% decrease in sales taxes during that same

period.

Local Communities• In 2010, Bradford County received an estimated $1 million from the drilling industry through minor

revenue streams like recording and copying fees.

Lease Holders• Since 2006, the industry is estimated to have paid out more than

$7 billion in lease and royalty payments, which are taxable by the state.

A Real Stimulus

Environmental Impact

Table 1

Federal Acts Pennsylvania Acts and Laws Monitoring Agencies

Clean Water Act (CWA) Oil and Gas ActPennsylvania Department of

Environmental Protection (DEP)

Safe Drinking Water Act (ADWA) Oil and Gas Conservation Law Fish and Boat Commission

Clean Air Act Coal and Gas Resource Coordination Act PA Department of Transportation

Endangered Species Act Clean Streams Law County Conservation Districts:

Resource Conservation and Recovery Act (RCRA)

Solid Waste Management ActSusquehanna River Basin Commission

(SRBC)

Comprehensive Environmental Response Compensation and Liability Act (CERCLA)

Dam Safety and Encroachment ActDelaware River Basin Commission

(DRBC)

Emergency Planning and Community Right to Know Act (EPCRA) Safe Drinking Water Act

PA Department of Conservation and Natural Resources.

Occupational Safety and Health Act Water Resources Planning Act  

  Worker and Community Right to Know Act  

  Vehicle Code  

  Municipalities and Planning Code  

OversightNatural Gas Activities Must Comply With Nearly 20 State and Federal Acts/Laws

Highlights of State Oversight• Endangered species surveys must be conducted before drilling can occur.• All wells are registered with bonds.• All wells are subject to frequent inspections.• After well completion, each company is required to return the drilling site to its original form,

including ground cover, within nine months.• Drillers assume responsibility for surface or ground water pollution if it occurs within 2,500 feet of

the well.

Above and Beyond Regulations• Drilling companies are looking at ways to use water impacted by AMD for hydraulic fracturing.• The drilling industry is working with the Fish and Boat Commission to develop protocols to ensure

invasive species aren’t being transported between watersheds.

Regulations

Marcellus Regulatory Changes (HB 1950)Environmental Protection and

Oversight Old Regulations New Regulations

Bond (per well) $2,500 $4000 per well under 6000 feet; increase per number of wells; $10,000 per well for depths of 6,000 feet or

greater

Blanket Bond $25,000 Up to $250,000 for wells under 6,000 feet and up to

$600,000 for wells over 6,000 feet

Setbacks from Private Water WellsWells may not be drilled within 200

feet May not be drilled within 500 feet

Setbacks from Public Water Supply Systems

200 feet for waste pits and impoundments

May not be drilled within 1,000 feet of existing supply extraction point

Setbacks from BuildingsWells may not be drilled within 200 feet of existing occupied structures

Wells may not be drilled within 500 feet of existing occupied structure

Presumed Liability for Impaired Water Supply

Private water supplies within 1,000 feet of well

Private water supplies within 2,500 feet

Duration of Presumed Liability for Impaired Water Supply

six months One Year

Water Supply Restoration Obligations

Restore or replace with adequate quantity and quality

Restore or replace affected water supplies to assure compliance with PA Safe Drinking Water Act

standards

Drilling in Floodplains n/aProhibition of well sites with impoundments or tanks

containing hazardous material or flowback water

Security, Fencing, Lighting n/aCounties can set requirements equal to those imposed

on other industrial uses within the particular zoning district

Notice Requirements: DEP 24 hours' notice before drilling and before certain casing and cementing

Expanded 24 hours requirements; pressure testing of production casing strings; hydraulic fracturing; and

plugging well

Public LandsImpact considered in permit

applicationsRequires EQB to establish permit

conditions for wells

Wastewater Transportation Requirements

Implementation of wastewater disposal plan

Maintain record of wastewater for 5 years; wastewater produced, company disposing, location and disposal

method Air Contaminant Emission

reporting n/c

Submit to the department report identifying and quantifying air contaminant emissions

Well Site Restoration Requirements

Site restored within 9 months Site restored within 9 months

Myth #1: Hydraulic fracturing is a new technology.• Fracking has been used for over 60 years. It was first used in PA in the 1950s and since 1980s nearly all

wells in PA have been fracked.

Myth #2: Fracking requires massive amounts of water.• While a single well takes approximately 3 million gallons of water to fracture, the majority of drilling

companies are reusing the wastewater produced from hydraulic fracturing, reducing the amount of water used.

• In perspective, the quantity of water used for drilling is not significant.• According to Susquehanna River Basin Commission (SRBC), the gas industry

uses about 2 million gallons of water per day from the Susquehanna watershed. In comparison, the recreation industry, such as ski resorts and golf clubs, use 50 million gallons a day.

• Thermoelectric power plants are by far the largest users of water in Pennsylvania at 6.43 billion gallons per day.

Marcellus Myths

Marcellus Myths Cont.

-

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000

7,000,000,000

Pennsylvania Surface and Groundwater Withdrawals by Industry

Gallons Per Day

Source: Pennsylvania Fish & Boat Commission, Pennsylvania Angler & Boater, January/February 2011

Marcellus Myths Cont.Myth #3: Water withdrawals have serious negative consequences on our waterways.• The Department of Environmental Protection (DEP) requires a water management plan with drilling

applications, which identifies where water would be withdrawn and the volume of water. This ensures water consumption does not exceed water supply.

• DEP works closely with SRBC. SRBC tightly regulates water use within the watershed; water withdrawal permits can take up to a year.

Myth #4: Groundwater is in danger of contamination caused by fracking chemicals.• Since the 1950s, thousands of wells have been hydraulic fractured in Pennsylvania, and according to

the DEP the process has never led to groundwater contamination. This is because thousands of feet separate the water table from Marcellus Shale drilling and the geology in the Appalachian Basin prevents fluids from migrating into aquifers.

Myth #5: The chemicals used in fracking are dangerous and a secret.• A complete list of the chemicals and concentrations used at each well is maintained by the DEP.

Pennsylvanians can use FracFocus.org to easily look up chemicals used in Marcellus wells.

Marcellus Myths Cont.Myth #6: Fracking and wastewater aren’t well regulated.• Pennsylvania strictly monitors drilling and has one of the strongest enforcement programs in the

nation. For example, the drilling industry is held to Total Dissolved Solids (TDS) standards that are 300% more stringent than other industries in the state.

• Three options for wastewater in PA: it can be recycled and reused by drilling companies; it can be taken to a licensed treatment facility, such as Eureka in Williamsport, where its treated to meet drinking water standards; or it can transported to other states with geology that allows for underground storage.

• “Landfill” waste such as drill cuttings, soil and containment liners can be taken to licensed municipal landfills at the drillers’ expense.– For example, in 2010, Wayne Township Landfill received $1.7 million in fees from drilling companies that

allowed it to expand its operations, upgrade equipment and purchase more properties.

Myth #7: Drillings causes radioactive waterways.• There is no radiation above background levels in Pennsylvania’s waters.

– This has been confirmed by more than four independent water surveys by groups such as the Pennsylvania Department of Environmental Protection, the Pennsylvania American Water Company, and the Pittsburgh Water and Sewer Authority.

DEP Protection

• The DEP has firmly stated that it is adequately funded and staffed right now to monitor the drilling industry and hold it accountable.

• The DEP’S Bureau of Oil and Gas Management is entirely funded through natural gas permits.– The DEP increased permitting fees from $100 to more than $5,000, which is estimated to have

brought in $11 million in FY 2009-10—a 1,600% increase in revenue from the previous year.

• Risks associated with drilling include spills, leaking pits or tanks, and methane migration.• The drilling industry is being held accountable for any damages it causes—not simply to mitigate

damages but also to cover the cost of environmental cleanup and make whole any person or entity harmed by the accident.– For example, when EOG Resources failed to have a backup pressure barrier at their well and fracking fluids spilled

in Clearfield County, the company paid eight times in fines the cost for the investigation and cleanup.

Impact and Risks

• Naturally-occurring methane gas can seep into water wells if the well being drilled is not properly cased.

• Methane migration is a legitimate concern, and the state responded promptly to update drilling standards in Feb. 2011 to require more stringent casing layers to prevent methane migration.

• Many of Pennsylvania's drinking wells were already contaminated before drilling.

• Where there has been demonstrated contamination caused by natural gas drilling, gas companies have installed safer, higher-quality drinking wells.

According to the Center for Rural Pennsylvania more than 40% of drinking water supplies from wells in Pennsylvania do not meet safe drinking water standards, due to improper water well construction, wholly unrelated to oil and gas.

Pennsylvania is one of four states with no standards on water well construction.

UnderstandingMethane Migration

Severance Tax

Commonwealth Foundation’s Position• The Commonwealth Foundation opposes any new tax on Marcellus Shale

drillers that doesn’t directly pay for unaddressed industry impacts on the environment and infrastructure.

• Environmental concerns should be and are being met by the state’s current laws and regulations.– State law requires drilling companies to repair damaged roads. In 2010, the drilling

industries paid out $200 million in road repairs.

Quick Facts on Tax Debate• Drillers already pay the taxes common to every other business in Pennsylvania.

There are no tax loopholes.• Gas companies have already put more money into improving local

communities’ roads than a severance tax could have generated over that same time.

• States with natural gas taxes have friendlier business climates. For instance, Texas and Wyoming have neither personal income nor corporate income taxes.

Marcellus Tax vs. Impact Fee

Marcellus Impact Tax/FeeIn February, Gov. Tom Corbett signed House Bill 1950 into law. • Bill addressed Marcellus Shale in three ways: enabling counties

to enact an impact “fee” on drillers, increasing regulations, and defining local governments’ authority over drilling.

HB 1950 is really a tax, not a “fee”• It is a tax because the rate is tied to natural gas prices, not

based on actual impacts.• Second, significant redistributions of the tax revenue goes to

fund statewide programs that are unrelated to the impact of drilling.

The good/bad overview• Good: Not imposed at the state level.• Bad: Tax based on natural gas prices, not local impact; littered

with corporate welfare.

Marcellus Impact Tax Cont.Revenue Distribution• The funding formula funnels the first $23 million in revenue to statewide programs. Local

communities get 60% of whatever is left, with the state getting the rest for additional programs. (See distribution chart on following slide.)– About 460 Marcellus wells need to be taxed this year to feed the state its $23 million. Only three

counties have enough producing wells currently to generate more than $23 million.– Bradford County commissioners – where the lion's share of drilling is occurring – have said “no

thanks” to a new tax.

Corporate Welfare• $6.3 million to Environmental Stewardship Fund (Growing Greener) through fee; then in

2013, it redirects $20 million from the Oil and Gas Lease Fund – otherwise dedicated for state parks and forests.

• More than $11 million over three years to bribe the Shell cracker plant to the state.• Nearly $20 million over three years for natural gas vehicle development.• $1 million for rail freight assistance.• Beautification project grants, via Commonwealth Financing Authority!

Marcellus Shale Tax

Distribution

County Conservation

Districts ($15 million - over next 3

years)

PA Fish and Boat

Commission ($1 million)

Public Utility Commission ($1 million)

Department of Environmental

Protection ($6 million)

PA Emergency Management

Agency ($750,000)

State Fire Commissioner

($750,000)

Rail Freight Assistance($1 million)

Natural Gas Vehicle

Program($15 million - over next 3

years)

Remainder

Local Governments

(60%)

Counties with Wells

(21.6%)

Municipalities with Wells

(22.2%)

All Munis in Counties with

Wells (16.2%)

Statewide Initiatives

(40%)

Local Deteriorated

Bridges (10%)

Water & Sewer(10%)

To DCED for LNG Facilities

(2%)

Environmental(20%)

Parks and Recreation

(6%)

Environmental Cleanup & protection

(8%)

Environmental Stewardship

Fund(4%)

Hazardous Site Cleanup Fund

(starts in 2014) (2%)

Marcellus Tax Revenue Distribution

Conclusion• Politicians are singling out the drilling industry, which is creating tens of thousands of jobs,

rescuing families from foreclosure, generating prosperity for small-business owners and lowering energy rates.

• Natural gas companies should not be required to sustain programs unrelated to the industry, nor should they be forced to subsidize related industries such as natural gas vehicles.

• Pennsylvania laws ensure drilling companies, and not taxpayers, are held responsible for their environmental and infrastructural damages.

Questions?