West Virginia Shale Development Falls Short of Economic Promise
By Sean O’Leary, WV Center on Budget & Policy, February 7, 2019
The nearly six-fold increase in West Virginia’s natural gas production in the last decade, due largely to shale development, or fracking, has fallen short of expectations for economic growth, job creation, and tax revenue generation, according to a new report released by the Institute for Energy Economics and Financial Analysis (IEEFA) and the West Virginia Center on Budget and Policy. Read report.
The report, Falling Short: Shale Development in West Virginia fails to deliver on economic promises, finds that the shale industry has underperformed economically due to the falling price of natural gas, which has cut into the industry’s profits and under-delivered state tax revenues. It has also missed expectations of creating jobs, reducing poverty, and spurring wider economic growth.
The paradox of a region rich in natural resources that fails to develop economically is known as the “resource curse.” The report asks how West Virginia, which historically exhibits signs of a “resource curse” in the coal industry, can avoid a similar fate with natural gas.
The report recommends increasing the severance tax rate from 5 to 10 percent on all minerals, or at least natural gas, natural gas liquids, and oil that are mostly coming from shale development. Proceeds would finance a Future Fund to diversify economic development and promote state initiatives that rely less on resource extraction and the vagaries of energy markets.
Key findings include:
>> The economic development gains of the shale industry have underperformed initial projections partly due to exaggerated early claims made by the industry and industry-funded studies.
>> Planners failed to anticipate the significant and sustained collapse in natural gas prices resulting from large increases in production.
>> Severance tax revenues grew through Fiscal Year 2015 and then fell off. Fiscal Year 2018 natural gas severance tax revenues were only 15% higher than FY 2008 revenues, adjusted for inflation.
The growth in employment from 2008 to 2017 has been in natural gas pipeline construction, largely temporary jobs while jobs in drilling and related activities have actually declined—about 40% of pipeline construction jobs are held by out-of-state workers.
Natural gas production is concentrated in six of the state’s 55 counties which produce 80% of West Virginia’s natural gas.
Early studies failed to anticipate the collapse of coal mining, driven in large part by the glut of inexpensive shale gas.
“Today, the natural gas industry is again promising significant economic benefits from what it sees as the next big opportunity: Appalachian petrochemical development,” said IEEFA energy analyst Cathy Kunkel, adding, “We find that such claims are likely to be overstated.”
West Virginia has a long history of economic boom-and-bust tied to coal extraction. Despite its vast natural resource wealth, the state has consistently ranked among the poorest in the nation.
“We are looking at how West Virginia can avoid repeating the same mistakes it has with the coal industry and use its natural gas and other resources to contribute to lasting in-state wealth,” said Ted Boettner, Executive Director of the West Virginia Center on Budget & Policy.
See the report here:
http://ieefa.org/wp-content/uploads/2019/02/West-Virginia-Shale-Development-Falls-Short_February-2019.pdf
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{ 3 comments… read them below or add one }
To: Friends and WV Citizens …..
And shale well industry is already just like coal, do huge environmental damages, hurt the population’s health, and not clean up after itself.
See the following article for example:
Gov. Jim Justice’s Barren Mine Lands and Unpaid Taxes
http://appvoices.org/2019/02/13/gov-jim-justices-barren-mine-lands-and-unpaid-taxes/
Such a shame that the surface owners are left out.
(Our properties are damaged because we live and/or own property that is near to
or on the same where the drillers, frackers and pipeliners operate)
https://www.wsj.com/articles/frackers-face-harsh-reality-as-wall-street-backs-away-11551009601
Frackers Face Harsh Reality as Wall Street Backs Away —
Key lifeline for smaller operators fades, as losses pile up and prospects dim for big investment returns
By Bradley Olson and Rebecca Elliott, Wall Street Journal, February 24, 2019
The once-powerful partnership between fracking companies and Wall Street is fraying as the industry struggles to attract investors after nearly a decade of losing money.
Frequent infusions of Wall Street capital have sustained the U.S. shale boom. But that largess is running out.
New bond and equity deals have dwindled to the lowest level since 2007. Companies raised about $22 billion from equity and debt financing in 2018, less than half the total in 2016 and almost one-third of what they raised in 2012, according to Dealogic.