Economists clash on jobs fracking to bring to NY

Reuters News
Posted: Apr 30, 2012 7:08 AM
Economists clash on jobs fracking to bring to NY

By Joan Gralla

NEW YORK (Reuters) - New York's four-year review of whether to allow recovery of natural gas using a controversial fracking technique has focused on environmental risks, while a less visible but robust debate on the economic benefits is also taking place.

A study commissioned by New York's Department of Environmental Conservation, that found tens of thousands of jobs would be created, has come under fire and the consultant it hired is revisiting its calculations.

Fewer jobs and tax revenues than touted, as some critics maintain, could tip the cost-benefit analysis away from the drilling industry.

Energy companies are pushing Governor Andrew Cuomo, who took office in 2011, to legalize an advanced kind of fracking. The Democrat last year cited the industry's job-creating potential to revive the upstate economy, but since then his comments have been sparse and focused on conducting a factual analysis.

Cuomo has said a decision on high-volume fracking, which extracts gas and oil from shale by injecting large amounts of water, sand and chemicals to fracture the rock, will be made later this year. Some analysts say he might end the current moratorium but impose environmental restrictions.

Environmentalists have raised concerns about possible air and soil pollution, and point to potential links to earthquakes in Ohio, and contaminated water in Pennsylvania and Wyoming.

Some economists have said unsightly rigs and possibly scarred landscapes could hurt tourism, which in 2010 produced $6.5 billion of state and local taxes and supported 674,000 jobs.

Timothy Considine, an economics professor at the University of Wyoming in Laramie, says the economic benefits fracking companies offer are clear. "They're spending money to build those wells, spending money to operate them, companies are earning profits and people are earning wages," he said.

Last year, Ecology and Environment Inc estimated that fracking would create 17,634 construction jobs in New York, along with 7,161 production positions. With 29,174 indirect jobs, the total of new hires rises to 53,969.

However, the Washington, D.C.-based consumer advocacy group, Food & Water Watch, said those figures were for a 30-year-period, and inflated the job estimates. A Department of Environmental Conservation fact sheet based on the consultant's research used the figures with the 30-year period referred to in footnotes.

Hugh MacMillan, a senior researcher with Food & Water Watch, also accused Ecology and Environment Inc of lumping jobs for accountants, lawyers and engineers into the construction category.

Ecology and Environment Inc referred questions about its work to the Department of Environmental Conservation.

"We are carefully reviewing all comments we received... including those on the socio-economic study," said a department spokeswoman. She said the comments would be fully responded to in the final supplemental generic environmental impact statement.


The consultant's forecast was based on what it calls a medium development scenario, with an average of 1,652 wells drilled a year. Lower job estimates were provided for a less optimistic scenario that assumes 413 wells are drilled a year; that would create a total of 13,491 jobs.

New workers could earn from between $622 million to $2.5 billion a year, under the two scenarios. New York's personal income tax revenue would rise by $31 million to $125 million a year, according to the Ecology and Environment Inc study.

But Mark Partridge, the Swank Professor of Rural-Urban policy at Ohio State University in Columbus, said the current near-record low price of natural gas - just above $2 per million British thermal units - likely will restrain fracking.

"The low scenario is more what I would consider realistic" for New York, he said.

Neighboring Pennsylvania now is in the middle of a fracking boom that began several years ago, but its energy companies had a compelling reason to rush in.

In July 2008, the price of natural gas futures hit about $13.70 per million British thermal units, according to the Energy Information Administration. "The good thing about this (fracking) industry is that it's really brought down prices, but on the other hand it's brought down the incentive to go out and drill for gas," Partridge said.

Prices are expected to recover over time as demand for the cleaner-burning fuel rises.

Gary Krellenstein, a managing director at Kroll Bond Rating Agency, said: "We're probably seeing an aberration in natural gas prices right now." Energy companies likely are looking at New York's share of the Marcellus and Utica shale formations as long-term investments, he added.

The Food & Watch analysis of the New York consultant's report found that under the first year of the rosier scenario, "current New York residents can expect only 195 new oil and gas industry job opportunities" out of nearly 1,800 total jobs.

Helene Jorgensen, an economist with the Center for Economic and Policy Research, a Washington, D.C. think tank, found other flaws with the consultant's forecasts. "The estimated employment impact is greatly overestimated due to underlying assumptions about the number of jobs created per well drilled and maintained, and the average lifespan of the wells," she said.

The consultant assumed the wells would produce for 30 years. "But we know that well production falls off very quickly," she said. Similarly, one worker is expected to maintain six wells a year, but the 30-year time frame fails to take into account how much the amount of work needed drops after two years, she said.

(Reporting By Joan Gralla; Editing by Tim Dobbyn)