How New York State Exaggerated Potential Job Creation from Shale Gas Development

How New York State Exaggerated Potential Job Creation from Shale Gas Development

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How New York State Exaggerated Potential Job Creation from Shale Gas Development Executive Summary.... 2 Introduction.... 3 New York s shale gas job projection.... 3 Shale gas development would bring few opportunities to current residents.... 7 Additional failures of New York s analysis of socioeconomic impacts.... 8 Conclusion.... 10

shales. 1 - New York State, much of which sits atop the Marcellus Shale and the Utica Shale, is at the center of this public controversy. The Cuomo administration is currently considering regulations that would allow widespread drilling and fracking for shale gas in New York. The regulations being considered are based on the state s 1,537-page environmental impact analysis, which included a socioeconomic impact analysis with job and revenue projections for several different shale gas development scenarios in the state. 2 Food & Water Watch closely examined New York s socioeconomic impact analysis and found that it does the people of New York a disservice. The New York analysis concluded that an average shale gas development scenario would bring 53,969 jobs, but only in the fine print of a footnote of the widely read factsheet is it mentioned that this is a 30-year projection. 3 Moreover, Food & Water Watch found that the analysis: counts many jobs that would be filled by outof-state workers, or by workers with shale gas industry experience who relocate to New York permanently; assumes a rapid pace of shale gas drilling and fracking under the average scenario that would result in more than 20,000 wells being drilled in just three counties of the state (Broome, Chemung and Tioga); fails to account for the negative impacts that drilling and fracking would have on employment in other industries, such as tourism and agriculture; overestimates production jobs by assuming that shale gas wells will produce for 30 years; and misapplies an economic multiplier to estimate the economic spillover effect of gas industry jobs. Based on the New York analysis, Food & Water Watch estimates that in the first year of the average shale gas development scenario, current New York residents can expect only 195 new oil and gas industry job opportunities. This would grow steadily to over 600 new jobs for current New York residents in the tenth year of development, but after this tenth year, there would be next-to-no new jobs for established New York residents. For perspective, the U.S. Bureau of Labor Statistics estimated that 755,892 New Yorkers were unemployed in August of 2011, 4 and thus the impact of 195 new oil and gas industry jobs would be about one-fortieth of 1 percent (i.e., 0.026 percent). This is far from the number of jobs that New York residents have been led to expect from shale gas development. Such minimal economic benefits do not justify the near-term and long-term public costs that would accompany drilling and fracking for shale gas. 2 Food & Water Watch

The oil and gas industry, 5 industry-funded academics 6 and ideological think tanks 7 have promoted shale gas development as a sure-fire job creator in difficult economic times. Proponents of shale gas development have benefited from media 8 and U.S. government 9 reports in which the supposed economic benefits have gone unquestioned. Food & Water Watch recently analyzed one industry-backed job projection and found that it overstated shale gas job creation potential in New York by a factor of 10, or about 900 percent. 10 New York s job projection follows a similar methodology and suffers from similar flaws. A topline claim in the New York socioeconomic impact analysis is that 53,969 jobs could be created assuming an average scenario of shale gas development. 11 But this is a 30-year projection. 12 It assumes that a total of 42,126 shale gas wells would be developed over 30 years, including 21,067 in just the three counties of Broome, Chemung and Tioga. 13 Close examination of this job projection shows that allowing for such extensive shale gas development in New York would actually have a minimal impact on employment in the near term, primarily because most jobs would go to employees from out-of-state. Shale gas development would not provide the broadbased economic growth that New York now needs and that the industry has promised they could deliver. Instead, shale gas development would primarily benefit the oil and gas industry while bringing significant costs to public health, public infrastructure, and the environment. The consulting company Ecology and Environment, Inc. (E&E Inc.) was hired to conduct New York s analysis of the impact that shale gas development would have on employment in the state. 14 E&E Inc. produced a report describing their methodology and findings that became, after minor revisions, Section 6.8 of the New York State Department of Conservation (NYSDEC) Revised Draft Supplemental Generic Environmental Impact Statement (SGEIS). 15 Under New York s average development scenario, A the analysis concluded that 53,969 jobs would be created from drilling and fracking 42,126 shale gas wells over 30 years, compared to the baseline of no shale gas development. 16 New York s 30-year projection of 53,969 jobs comes from three separate projections: a projected 17,634 construction jobs from the preparing, drilling and fracking of 1,652 shale gas wells in year 30; a projected 7,161 production jobs that have accumulated over the 30 years as more and more wells are brought into production; and a projected 29,174 indirect jobs created by the economic spillover effects of construction and production jobs. 17 A 2009 study by the Marcellus Shale Education & Training Center (MSETC) on future education and training needs in Pennsylvania is the basis, in the New York study, of this distinction between jobs before production and jobs during production. 18 However, to make this distinction, MSETC uses the terms drilling phase jobs and production phase jobs, even though some of the drilling phase jobs are associated with pre-drilling activities. 19 New York s use of the term construction jobs obscures the fact that the drilling (and pre-drilling) phase of well development includes white-collar jobs, such as lawyers, lobbyists, accountants, engineers and office assistants, in addition to jobs directly associated with building access roads, constructing pipelines, clearing land and drilling and fracking. 20 A more accurate distinction is used in this report: pre-production phase jobs versus production phase jobs. It takes less than one year to prepare a well site and conduct the drilling and fracking. 21 As a consequence, the number of pre-production phase jobs increases from one year to the next only if the number of new wells developed each year increases; if the number of new wells drilled and fracked stays constant, then no new pre-production phase jobs would be created. A scenarios.

Year # of new wells drilled and fracked # of producing wells New pre- 1 165 165 1759 28 2 330 496 1771 56 3 496 991 1757 84 4 661 1652 1771 113 5 826 2478 1759 140 6 991 3469 1759 169 7 1156 4626 1771 196 8 1322 5947 1756 225 9 1487 7434 1771 253 10 1652 9086 1760 281 11 1652 10738 0 280 12 1652 12390 0 281 13 1652 14042 0 281 14 1652 15694 0 281 15 1652 17346 0 281 16 1652 18998 0 281 17 1652 20650 0 281 18 1652 22302 0 280 19 1652 23954 0 281 20 1652 25606 0 281 21 1652 27258 0 281 22 1652 28910 0 281 23 1652 30562 0 281 24 1652 32214 0 280 25 1652 33866 0 281 26 1652 35518 0 281 27 1652 37170 0 281 28 1652 38822 0 281 29 1652 40474 0 281 30 1652 42126 0 280 31 0 41961-17634 -28 Note: The reason for the variability in the number of new pre-production jobs during the first 10 years is unexplained in the E&E Inc. report. Source: Ecology and Environment Inc. 2011, Table 4-7 for new jobs projected, pages 4-2 and 4-3 for wells drilled and fracked per year 4 Food & Water Watch

The New York job projection assumes that for the first 10 years there is constant growth in the number of new wells developed each year, from 165 new wells in the first year to 1,652 new wells in the tenth year. 22 (See Table 1.) Development is then assumed to level off for years 11 through 30 at 1,652 new wells a year. 23 This means there would not be any new pre-production phase jobs after year 10. Production jobs, in contrast, would accumulate as more wells are brought into production. The New York job projection assumes that a shale gas well will produce for 30 years, so in year 31 the first shale gas wells would be retired under the development scenario. However, while production jobs would accumulate, the pre-production phase of shale gas development requires many times more workers per well than the production phase. 24 The New York analysis, relying on the 2009 MSETC study, estimated that the pre-production phase requires the equivalent B of about 10.7 full-time workers per well. C25 In contrast, again based on the MSETC study, the New York analysis assumed that the production phase requires the equivalent of 0.17 fulltime workers per well, or about one full-time worker to manage the production of six active wells. 26 These estimates of the full-time equivalent (FTE) workforce needed per well, combined with the number of new wells developed and the number of producing wells, allowed New York to project the number of preproduction and production jobs each year under each development scenario. (See Table 1 for annual job creation under the average development scenario.) New York considers pre-production and production phase jobs as direct jobs, from which there is an economic spillover effect that creates indirect jobs. 27 The New York analysis used the Bureau of Economic Analysis (BEA) Regional Input-Output Modeling System (RIMS II) Type I employment multiplier to project indirect job impacts under the different development scenarios. 28 Specifically, the analysis used the oil and gas industry RIMS II Type I multiplier of 2.1766, estimated for the state of New York. 29 This assumption means that for each direct job created from shale gas development, an additional 1.1766 indirect jobs would be created (i.e., 2.1766-1). Thus, New York projected 29,174 indirect jobs by multiplying 1.1766 times the sum of the projected 17,634 construction jobs and 7,161 production jobs. 30 For reasons detailed below, however, New York s projections of direct and indirect job creation from shale gas development are deeply flawed. B C.

Year # of new wells drilled and fracked New phase jobs (total) jobs for transient workers jobs for permanent workers jobs to current NY residents 1 165 1759 1370 389 194.5 2 330 1771 1,305 466 233 3 496 1757 1,212 545 272.5 4 661 1771 1,134 637 318.5 5 826 1759 1,030 729 364.5 6 991 1759 930 829 414.5 7 1156 1771 833 938 469 8 1322 1756 715 1041 520.5 9 1487 1771 614 1157 578.5 10 1652 1760 496 1264 632 11 1652 0-523 523 0 12 1652 0-526 526 0 13 1652 0-524 524 0 14 1652 0-518 518 0 15 1652 0-510 510 0 16 1652 0-497 497 0 17 165 2 0-483 483 0 18 1652 0-465 465 0 19 1652 0-445 445 0 20 1652 0-423 423 0 21 1652 0-401 401 0 22 1652 0-377 377 0 23 1652 0-353 353 0 24 1652 0-329 329 0 25 1652 0-306 306 0 26 1652 0-282 282 0 27 1652 0-259 259 0 28 1652 0-239 239 0 29 1652 0-217 217 0 30 1652 0-199 199 0 31 0-17634 Note: Instead of distinguishing between in-state and out-of-state workers, the New York analysis chose to describe pre-production phase workers as either transient or permanent. Although adopted in this table, this is inappropriate terminology since many out-of-state workers are permanent hires who move from site to site, while some in-state workers, such as in construction, may be temporary and/or transient workers. Source: Ecology and Environment Inc. 2011, Table 4-27. Estimate of new pre-production phase jobs to current residents based on the assumption that half of new permanent pre-production phase jobs go to workers who have moved to New York for shale gas development jobs. 6 Food & Water Watch

residents The New York analysis noted that most pre-production jobs would go to transient, out-of-state workers in the early years of shale gas development. 31 A 2011 MSETC study estimated that 70 to 80 percent of employees were out-of-state during the early stages of Pennsylvania shale gas development. 32 According to interviews and surveys conducted by MSETC, however, the out-of-state portion of newly hired workers was 25 35 percent. 33 This apparent improvement in in-state hiring may have been due in part to out-ofstate workers having established in-state residence, since in the MSETC study an employee that had lived in Pennsylvania for at least one year and had a valid PA driver s license qualified as an in-state worker. 34 This reveals a subtle but crucial problem with the way the New York job projection has been presented. Many of the pre-production jobs that New York projected as permanent employment would actually go to workers who had moved to the state to continue their oil and gas industry employment, not to current residents of New York who have been led to believe that allowing shale gas development would bring new job opportunities for them. Table 2 shows the annual pre-production phase job creation projected by New York, broken down between new jobs for transient and permanent workers. In the first year, New York assumed that only 22 percent of new pre-production phase hires would be permanent, and that the percentage of permanent new hires would steadily increase to 72 percent in year 10. 35 The fifth column of Table 2 lists the number of new production phase jobs for permanent workers that are projected by New York under these assumptions: 389 in the first year, an additional 466 in the second year, and so on. However, as discussed above, many of these permanent workers do not currently reside in New York they would have come from other states, most likely states that currently allow shale gas development. To illustrate this effect, Food & Water Watch assumed that half of the new permanent jobs directly associated with the pre-production phase of shale gas development were taken by employees who had moved to New York State for such work. Under this assumption, pre-production phase employment of current New York residents would only grow in the first 10 years, with 195 new jobs available in the first year increasing to 632 new jobs available in the tenth year. After year 10, based on the New York analysis, the only new permanent pre-production phase hires would be from the transitioning of the transient workforce. For perspective, the U.S. Bureau of Labor Statistics estimated that 755,892 New Yorkers were unemployed in August 2011. 36 Using this figure, the impact of 195 new oil and gas industry jobs would be about one-fortieth of 1 percent (i.e., 0.026 percent). This is far from the number of jobs New York residents have been led to expect.

The average scenario assumed that 165 new wells would be drilled and fracked in the first year of development, increasing gradually to 1,652 new wells in the tenth year of development (see Table 1), after which point the annual number of new wells would stay at 1,652. For comparison, in Pennsylvania in 2010 there were 1,405 new wells developed, and 2,459 new wells have been projected for development in year 2015. 38 New York s rapid pace of shale gas development would be concentrated in certain counties, 39 and it is far from certain that such development could be sustained for 30 years. The New York analysis assumes that 50 percent of the wells would be located in just three counties: Broome, Chemung and Tioga. 40 Under the average development scenario, the number of new wells would increase gradually until reaching 826 new wells per year in years 10 through 30 in these three counties. 41 In total, 21,067 wells would be developed in these three counties. 42 With such extensive shale gas development, significant negative impacts on other parts of the economy, such as agriculture and tourism, would likely result, but the New York analysis fails to account for such negative impacts. Although the New York analysis acknowledges that shale gas development could have negative impacts on employment in other industries, these potential negative impacts are not included in the job projections. 43 Instead, the New York analysis dismisses the significance of such negative impacts with the simple argument that Cattaraugus and Chautauqua Counties still have healthy tourism sectors despite having more than 3,900 active natural gas wells in the region. 44 But the fact that tourism and agriculture exist as industries in Chautauqua and Cattaraugus counties is not a serious argument. It is quite possible that tourism would have been greater in these counties were it not for the past and current gas drilling. Moreover, modern shale gas development is far more intensive than conventional natural gas development: much longer boreholes drilled, much more fracking fluid used, much more wastewater created and much more heavyduty truck traffic. 45 The cumulative impacts that such development would have on other parts of rural economies may be difficult to quantify, but they must not be dismissed. - In projecting production phase jobs, the New York analysis assumed that each new well produces shale gas for 30 years, and further assumed that the estimate of 0.17 FTE production phase workers per well would hold for all 30 years. 46 But this estimate, taken from the 2009 MSETC report, is based on only a few years of shale gas production in Pennsylvania. 47 This introduces significant uncertainty into New York s production phase job projection. New York assumes that production of a typical horizontal well will fall by 75 percent from year 1 to year 4, and by 90 percent by year 15. 48 But if production falls more rapidly than expected, then there would be fewer production phase jobs over the long term. Indeed, the U.S. Securities and Exchange Commission is investigating whether shale gas companies have overstated the productivity of shale gas wells. 49 Rapidly changing estimates of the amount of recoverable shale gas also raise questions about future well productivity, 50 suggesting that the amount of gas that can be recovered from a given location of the shale may vary significantly from well to well. 8 Food & Water Watch

Finally, New York misused employment multipliers in a way that exaggerated the potential economic spillover effect from pre-production and production phase jobs. New York went on to misuse economic multipliers in a way that exaggerated the potential economic spillover effect from these jobs. Indirect jobs are those that would be created down supply chains due to demand created by pre-production and production phase jobs, i.e., from direct jobs. The New York analysis used the Bureau of Economic Analysis (BEA) Regional Input-Output Modeling System (RIMS II) Type I employment multiplier to project indirect job impacts that would stem from preproduction and production phase jobs. 51 Specifically, the New York analysis adopted the oil and gas industry RIMS II Type I multiplier of 2.1766 for the state of New York. 52 Under this assumption, each direct job created from shale gas development would lead to an additional 1.1766 indirect jobs (i.e., 2.1766-1). However, input-output modeling is well suited only for analyzing the economic impact of clearly defined projects for which the interdependencies between relevant economic sectors, over the course of the project, are well understood and quantifiable. 53 For example, when a bridge is to be built, there is a record of understanding of how direct spending on the project leads to indirect spending down supply chains within the regional economy, in part because such projects are not typically new to a region. In contrast, shale gas development would be a new industry in New York. This means the estimate of 1.1766 indirect jobs from each direct job is highly uncertain. development in the state. Yet the New York oil and gas industry multiplier is derived from conventional oil and gas development. Shale gas development, being a fundamentally new industry for the state, would likely have less of a regional multiplier effect because of extensive out-of-state sourcing. Finally, the New York analysis implicitly assumed that all of the pre-production and production phase jobs were in the oil and gas industry when it used the oil and gas industry multiplier. But, according to the MSETC report, shale gas development challenges the traditional notion of oil and gas industry jobs, and jobs would go to a wide array of subcontractors. 55 Because the employment multiplier for the oil and gas industry is larger than it is for most other industries, New York overestimated the number of indirect jobs by using only the oil and gas industry multiplier. 56 These flaws reflect the fact that New York projected indirect job impacts using input-output models despite the explicit warning in the 2011 MSETC study, which stated, Since the analysis focuses on the specific jobs required for drilling and production without regard to formal industry sectors, it would be illogical to apply workforce or economic multipliers to it, which typically are based upon specific industry sectors (emphasis added). 57 The New York analysis ignored this logic and produced an exaggerated projection of the job creation potential of shale gas development. Another flaw is exposed by the fact that the New York analysis assumed that more than 77 percent of workers are out-of-state initially. 54 (See Table 2.) The fact that out-of-state workers hired by out-of-state companies would make up the majority of the workforce for the first 11 years of drilling suggests that there would be greater out-of-state sourcing of supplies and materials than occurs for conventional oil and gas

Conclusion The New York socioeconomic impact analysis, conducted by E&E Inc., fails to provide an accurate projection of the potential benefits of opening up the state to drilling and fracking for shale gas. By exaggerating the potential benefits, New York has failed to serve the public interest. In reality, current residents of New York can only expect intensive shale gas development to create several hundred new shale gas industry jobs for each of the first 10 years, followed by far fewer production jobs created for the next 20 years. Specifically, Food & Water Watch estimates that in the first year of average shale gas development, current New York residents can expect only 195 new oil and gas industry job opportunities. For perspective, the U.S. Bureau of Labor Statistics estimated that 755,892 New Yorkers were unemployed in August 2011, 58 and thus the impact of 195 new oil and gas industry jobs would be about one-fortieth of 1 percent (i.e., 0.026 percent). This is far from the 53,969 jobs that New York residents have been led to expect from opening up their state to shale gas development. The reality that allowing shale gas development is likely to only create several hundred new jobs annually for current residents of New York puts the risks of drilling and fracking for shale gas in proper perspective. Decision makers in New York should see that such minimal job gains do not justify the certain costs to public health, public infrastructure, and the environment that come with shale gas developmen Endnotes 10 Food & Water Watch

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