Updates to the NYSDEC September 2011

revised draft SGEIS:Community & Economic Impacts

Presented by the Cornell University Community & Regional Development Institute

November 9, 2011

David KayCaRDI

dlk2@cornell.edu

Scope of Presentation

• The Economic Assessment Report • http://www.dec.ny.gov/docs/materials_minerals_pdf/rdsgeisecon081

1.pdf

• Portions of this report included in the Revised Draft

SGEIS• Most of sections 6.8 (Socioeconomic Impacts) and 7.8 (Socioeconomic

Mitigation Measures) of the Revised Draft SGEIS are directly quoted from or

derived from the Economic Assessment Report.

•Not included in this slide show

• Visual (6.9/7.9), Noise (6.10/7.10) and

Transportation (6.11/7/11)

• Community Character (6.12/7.12)

Economic Assessment Report and the SGEIS •Entire report is new

•Analysis driven by drilling scenarios

(“low”, “average”, “high”)

•Topics considered

• Employment, income

• Population – not included

• Housing – not included

• Government revenues and

expenditures

• Environmental Justice – not included

•Statewide analysis plus a focus on three

“representative” subregions• Region A (Chemung, Tioga, and Broome counties) 50% of

new wells assumed

• Region B (Otsego,Delaware, and Sullivan counties) 23% of

new wells

• Region C (Chautauqua and Cattaraugus counties) 5% of

new wells

• Rest of NYS (in shale gas region) 22% of new wells

•The three regions were selected to evaluate differences

between them

• high, moderate, and low production potential

• areas that have/haven’t experienced gas development in

the past

• differences in land use patterns

A B

C

Economic Assessment Report and the SGEIS Key Assumptions

• Amount of natural gas development that will

occur• Designed to provide order-of-magnitude estimates

for the socioeconomic analysis, not to forecast

actual well development

• Expected rate of development (number of wells

per year)

• Length of time over which that development

would occur

• Length of time and amount individual wells

produce

• Distribution of development throughout the

state

Socioeconomic Impacts: Assumptions

Timeline Assumptions:

•10 year “ramp-up” of new well development,

then flat-line

•30 year development period

•60 year production period

•New wells assumed to have 30 year production

life

•Number of productive wells assumed to peak in

year 30

“It is unlikely that new well construction would occur under a steady, constant rate… The actual track of well construction would likely be much more cyclical in nature than as described.”

Socioeconomic Impacts: Other Development AssumptionsDEC developed scenarios based in part on assumptions and

information from IOGA- NY (a gas industry association)• For the low rate of development, DEC assumed a rate of 25% of

IOGA-NY‘s estimated average rate • 67% of Marcellus and Utica Shale is assumed

developable?????????• 90% of all wells assumed to be horizontal, average 160

acres/horiz. well• 10% of all wells assumed to be vertical, average 40 acres/vert.

well• Specific decline curves assumed (steeply declining rate of gas

per well produced each year; the rate of decline affects profitability, total gas yield, etc.)

Royalty payments, particularly in the initial stages of well production when natural gas production is at its peak, can result in significant increases in income. Signing bonuses/bonus bids also can provide significant additional income to property owners.

Socioeconomic Impacts: Other Development AssumptionsAccording to a Marcellus Shale Education

and Training Center analysis• An average natural gas well using the high-

volume hydraulic fracturing technique requires 410 individuals working in 150 different occupations.

• The manpower requirements to drill a single well were calculated to be 11.53 full-time equivalent (FTE) construction workers

• 1 FTE worker (approx.) is required to operate/maintain every 6 wells in production

The high development scenario not included in socioeconomic section of the SGEIS “in order to be conservative in assessing the positive potential economic benefits of high volumehydraulic fracturing”.

“The high development scenario was used as the conservative assumption of activity for all other sections of this SGEIS.”

Socioeconomic Impacts: Scenario Summary

Low Development Scenario• Viewed as lower boundary of

possible development• 9,461 horizontal wells at build

out• 1,071 vertical wells at build

out• 371 horizontal wells/yr• 42 vertical wells/yr• 25% of estimated average

rate of development

Average Development Scenario• Viewed as upper boundary of

possible development• 37,842 horiz. wells at build

out• 4,284 vert. wells at build out• 1,484 horizontal wells/yr• 168 vertical wells/yr

Maximum build out completed in 30 years

Socioeconomic Impacts: DEC Conclusions“Expected to have a significant, positive impact on the economy of New York

State…significant positive economic impact at the regional and local levels.”

Socioeconomic Impacts: DEC Conclusions

“The majority of these indirect jobs would be concentrated in the construction, professional, scientific, and technical services; real estate and rental/leasing; administrative and waste management services; management of companies and enterprises; and manufacturing industries”

Economic impacts based on estimated number of wells time of jobs per well

Socioeconomic Impacts: DEC Conclusions“Some industries in the regional economies may contract as a result of the proposed natural gas development. Negative externalities associated with the natural gas drilling and production could have a negative impact on some industries such as tourism and agriculture.”

No further analysis of this topic.

Socioeconomic Impacts: DEC Conclusions

“Significant increases in property value are expected where the subsurface mineral rights and land are held jointly with land ownership and the exploitation of the subsurface resources is not limited in some way... Properties where the mineral rights are not held jointly with land ownership, or where there is some restriction on drilling, would not experience this increase in value.”

“It is possible that… various impacts, particularly those associated with the construction phase, could reduce the value of properties close to the wells relative to similar properties not located close to wells.”

Socioeconomic Impacts: DEC Conclusions

Given the uncertainty associated with the actual level of future development of these reserves….it is impossible to definitively quantify the fiscal impacts of this action [but…]

Significant positive impact on revenues collected by New York State.

State land revenues: not expected to be large relative to the total New York State budget.

New York State would experience a large increase in its personal income tax receipts… some increase in its corporate tax receipts.

Could result in significant added costs for New York State‘s government.

Fiscal impacts on NY State Government

“The projected change in total assessed value

and property tax receipts

that would result under any

of the development

scenarios would be significant.”

“local governments would also experience

some significant negative fiscal impacts”

“Typical” Well Tax Property Tax Payments - Broome

Socioeconomic Impacts: Proposed Mitigations

Potential for “adverse impacts in regions with high drilling activity, particularly acute in the short term, including

* localized impacts on the housing market caused by the in-migration of construction and production workforces and

* an increase in demand for certain state and local government services, resulting in increased government expenditures.

THEREFORE:1. Monitor the pace and concentration of development throughout the state2. Consult with local jurisdictions, as well as applicants, to reconcile the timing of

development with the needs of the communities.3. Encourage the hiring of local labor… a jobs training program or apprentice

program should be developed through the SUNY system

My Critique of Study

A number of useful elements but several major critiques:

•“Average” and possibly even “low” estimates may exaggerate potential gas extraction•Effects of bonus and royalty payments ignored, leading to underestimate of benefits•Tax revenues may well be overestimated even if drilling scenario is accurate•Assumption of smooth rates of change in drilling levels “smooths out” the highs and lows that are most likely to stress community capacity to respond

See more comments at:http://cce.cornell.edu/EnergyClimateChange/NaturalGasDev/Documents/PDFs/Cornell%20SGEIS%20Comments.pdf