Penn State report even more bullish on Marcellus Shale

An updated Pennsylvania State University economic study of the Marcellus Shale gas boom is even more bullish than past reports, projecting that Pennsylvania could supply a quarter of the nation's natural gas by 2020.

The industry-sponsored study, which will be released Wednesday, says that Marcellus natural gas production is outpacing predictions made only a year ago. Production from Pennsylvania wells, which already supply more fuel than is consumed in the state, could multiply eightfold by the end of the decade.

"Our estimates suggest that in 2020 the Marcellus industry in Pennsylvania could be creating more than $20 billion in value added, generating $2 billion in state and local tax revenues, and supporting more than 250,000 jobs," said the authors associated with Penn State's department of energy and mineral engineering.

The study is likely to generate considerable controversy. Anti-drilling activists said past Penn State reports overstated the jobs created by gas development and failed to count the cost of potential environmental problems of drilling.

The study's release, coinciding with the conclusion of Gov. Corbett's Marcellus Shale Advisory Commission's inquiry into the industry, is likely to reinforce the governor's conviction that natural gas will be a major economic driver in Pennsylvania for decades to come.

"This is not meant to be in any way a policy agenda, or it's not meant to influence any particular outcome," said Kathryn Z. Klaber, the president of the Marcellus Shale Coalition, which funded the study. "But it is critical that we all understand what's at stake."

The study was written by Timothy J. Considine, a former Penn State professor who is now director of the Center for Energy Economics and Public Policy at the University of Wyoming; Robert W. Watson, a Penn State petroleum engineer; and Seth Blumsack, a Penn State energy economist.

In two previous reports, the authors argued that a proposed severance tax on gas production would retard the industry, which critics interpreted as overt advocacy on a controversial public policy issue.

The new study is less assertive on the tax issue, noting only that Marcellus operators are competing for capital with other shale regions and the absence of a severance tax in Pennsylvania helps offset the higher costs of drilling here.

"The projections developed in this report depend upon the Pennsylvania Marcellus maintaining its relative competitive position," it says.

The study says that Marcellus producers are drilling fewer wells than predicted a year ago, but the horizontal wells are more productive because the laterals are reaching greater distances.

Last year, Marcellus well production averaged 1.3 billion cubic feet per day - 30 percent more than last year's study had predicted. By the end of 2010, average daily production surpassed 2 billion cubic feet.

"These production levels are substantially higher than our previous projections because Marcellus producers are employing advanced well stimulation techniques that are dramatically increasing well productivity," the study said.

By 2020, the researchers predict the Marcellus Shale will generate 17 billion cubic feet of gas a day, which would amount to about a quarter of the nation's needs, according to the U.S. Energy Information Administration.

The Marcellus Shale is fast becoming a major star in a nationwide shift of fossil-fuel exploration into "unconventional" rock formations that require hydraulic fracturing to unlock entrapped oil and gas. "Fracking" involves the high-pressure injection of water, chemicals, and sand into deep geologic formations.

Marcellus drilling is still in its infancy. The first well was drilled in 2004, but full-scale production started only three years ago.

In addition to estimating the economic impact of the drilling industry and the royalties paid to landowners, the study's authors also attempted to estimate the economic impact that Marcellus gas production has had on consumers in the form of lower gas and electricity prices - natural gas is used for power generation, heating homes, and as a raw material in petrochemicals and fertilizer.

The researchers estimate that Marcellus production drove down natural gas prices by 12.6 percent last year, saving Pennsylvania residences and industries $633 million in energy costs.

"From the household perspective, reductions in energy expenditures act like a tax cut for the Pennsylvania economy, increasing discretionary income," the study said.