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Source: The Buffalo News

Fracking: A border tale of boom and bust

While the gas rush appears to be receding, fracking has led to prosperity in four Pennsylvania counties, bringing jobs, wealth and concern


Posted: May 12, 2014
Originally Published: May 11, 2014

First of three parts

WOODHULL – The sprawling hillside dairy farms of Neil Vitale and Jim Van Blarcom seemed to be, for 3½ decades, reflections of one another on opposite sides of the New York-Pennsylvania border.

But over the past four years, Vitale and Van Blarcom have come to live in different economic worlds.

Vitale’s Organic Farm, located in New York’s Steuben County and beset by what its owner calls high taxes and a regulation-happy state government, has shrunk in size by almost 30 percent. He’s had to sell off land to stay afloat – and it wouldn’t have happened, he said, if the state had let him cash in on the riches buried thousands of feet beneath his property.

“I probably have millions of dollars of natural gas under my feet here,” Vitale said, “and I have to heat my house with wood.”

Those same riches – the natural gas reserves of the Marcellus Shale – also lay beneath Van Blarcom’s Sugar Branch farms 50 miles to the southeast in Columbia Crossroads, Pa. There, the Pennsylvania state government permits Van Blarcom to sell his mineral rights and enjoy a windfall that has allowed him to expand his farm fivefold since 2009.

“I feel blessed,” Van Blarcom said. “What are the odds of being alive and owning real estate now when this gas has been here 350 million years?”

Vitale and Van Blarcom are living symbols of two hard facts.

For areas willing to accept the environmental risk, “fracking” means money and jobs, at least for a while.

And for a long time now, upstate New York – an economic laggard for decades – has been missing out on it all.

In New York’s Southern Tier, where the gas extraction method called hydraulic fracturing remains barred by a state moratorium dating back to 2008, federal labor statistics show that four contiguous gas-rich counties lost 4,945 jobs between September 2009 and September 2013.

Meanwhile, in the four counties of Pennsylvania’s Northern Tier with the most fracked gas wells, 7,978 jobs have been created, and nearly half – 3,893 – appear to be directly related to fracking.

On top of that, per capita income in those Pennsylvania counties leaped 19 percent in the four years ending last September, compared with only 9 percent in the four New York counties, a Buffalo News analysis of economic reports shows.

Environmentalists contend that the damage fracking does to the air and groundwater far outweighs any economic benefits. In addition, Pennsylvania’s boom appears to be ebbing, and it never produced the statewide job benefits that pro-fracking politicians and industry executives touted.

Yet if you put aside the rhetoric from both sides in the fractious fracking debate and look just at the statistics in the areas with the most fracking activity, energy analysts and economists say it’s clear that New York’s fracking moratorium has cost the state jobs, economic development and tax revenue that Pennsylvania won.

“The only thing New York is doing is choosing to ship jobs and business to Pennsylvania,” said Jack Weixel, energy analyst for Bentek Energy, a research firm that analyzes natural gas market trends.


Stark job contrasts

The contrast between New York’s Southern Tier and Pennsylvania’s Northern Tier stretches far beyond the farms. A Buffalo News analysis of federal jobs and economic data shows two entire regions headed in separate directions.

Collectively, New York’s Steuben, Chemung, Tioga and Broome counties lost 2.7 percent of their jobs in the four-year period that ended last September, according to data compiled by the U.S. Bureau of Labor Statistics.

Meanwhile, the most heavily fracked counties in northeastern Pennsylvania – Tioga, Lycoming, Bradford and Susquehanna – saw the number of jobs increase 8.6 percent. In those New York counties in February, the unemployment rate ranged from a low of 8.2 percent in Broome County to a high of 9.1 percent in Steuben County.

In contrast, unemployment fell under 7.5 percent in three of the four counties studied in Pennsylvania.

Economists chalk up those differences to two more important numbers. Thanks to the environmentally driven moratorium on fracking in New York, the number of newly fracked wells in the state is zero. In the four gas-rich counties of Pennsylvania’s Northern Tier, that number is 3,648.

“If you’re going to see real economic impacts, you’re going to see a lot of wells,” said Mark Price, a labor economist at the Keystone Research Center, which studies the Pennsylvania economy.

Environmentalists say Pennsylvania is paying a big price for all those wells. Concerns about possible contaminated well water have surfaced in Butler County, in the western part of the state, and in Dimock, in the northeast. And complaints about air pollution, truck noise and damaged roads follow fracking wherever it goes.

Fracking opponents look at Pennsylvania and see a lesson learned.

“We’ve had the luxury of learning from other people’s mistakes who have rushed into it,” said Brian P. Smith of the Buffalo office of Citizens Campaign for the Environment.

One thing New York most certainly has not done is rush into the fracking revolution, which has pushed the nation toward the brink of energy independence for the first time in decades.

Hydraulic fracturing – where wells are drilled more than a mile deep, then turned horizontally into a hard shale that must be fractured with blasts of water, sand and chemicals – has allowed a billion barrels of crude oil to be extracted from North Dakota’s Bakken Shale, the nation’s biggest oil find ever. Meanwhile, dozens of states – including earthquake-prone California – have embraced fracking to various degrees to extract natural gas.

In New York, the story is very different. There, at least 177 communities and counties have banned hydraulic fracturing, which has been been subject to a “temporary” statewide moratorium since 2008 while the state Department of Environmental Conservation studies whether fracking is safe.

The Department of Health is doing a separate study now, too. And together, it’s all too much for the Joint Landowners Coalition of New York Inc., a 77,000-member-strong group that recently sued Gov. Andrew M. Cuomo along with the two state agencies in hopes of forcing the state to make the to-frack-or-not-to-frack decision.


Small firms can’t wait

The landowners find plenty of sympathy among the several small energy companies that struggle to survive amid the fracking moratorium.

Norwegian-based Norse Energy opened a New York operation in Woodlawn several years ago and started leasing prospective drilling sites in the Southern Tier. But that investment ended up being like throwing money down a dry well.

Unable to drill on the properties it leased, the company went from 70 employees in 2011 into the single digits by last year before it was forced into bankruptcy. Norse later closed its U.S. operations entirely, and its assets were sold in a U.S. Bankruptcy Court late last month for $2.6 million.

“I was still paying a quarter-million a month in lease payments” without producing any gas or any revenue from those hoped-for drilling sites, said S. Dennis Holbrook, the former chief legal officer at Norse Energy. “I was doing this for five years.”

Holbrook blamed environmentalists for “fear mongering” and the state for dawdling on fracking. And he’s not alone.

“New York is being left out,” added John Holko, owner of Lenape Resources in Alexander, one of the surviving but struggling local energy companies. “New York has become one of the laughingstocks of the nation when it comes to opportunity. They’ll do anything to protect the banker on Wall Street, but they’ll do nothing to help the truck driver in Binghamton.”

While Norse Energy went bankrupt betting on New York, several such firms have thriving Pennsylvania operations based in Williamsport.

That small central Pennsylvania city, known largely for the Little League World Series, has become a regional fracking hub with new restaurants and other amenities, said Jonathan Williamson, director of the Center for the Study of Community and the Economy at Lycoming College in Williamsport, Pa., who doubles as a Williamsport City Council member. New hotels can be found along Route 15 – one of the main roads through Pennsylvania’s Northern Tier – in both Williamsport and Mansfield.

Seeing all that, those who support fracking in New York say they are appalled at the state government’s unwillingness to share in the fracking boom.

“You see industry set up in Williamsport and Pittsburgh that should have been set up in Corning, Elmira and Binghamton,” said Scott R. Kurkoski, the attorney for the Binghamton-based landowners’ group. “This should be here and we missed it.”


Trickle-down effect

But is the Keystone State’s fracking boom all it’s cracked up to be?

The numbers show the answer to be both yes and no.

Fracking has prompted a boom in the counties where it has happened – though that boom appears to be receding. And in any case, the reality of Pennsylvania’s gas rush appears to fall short of some of the estimates touted by supporters of fracking.

On the local level, economists said the impact is probably greater than what’s shown by The Buffalo News analysis that found 3,893 new jobs in the “natural resources and mining” sector in the four counties studied.

Those figures leave out the ancillary growth that occurred because of gas drilling – the building of new hotels and gas company facilities, for example, and the growth in the local trucking industry that has suddenly had to ship the vast quantity of water required in the fracking process.

“The exact number of jobs that would be created, I don’t know that. I don’t know if anyone knows that,” said Matthew Rousu, an economics professor at Susquehanna University in Selinsgrove, Pa. “There’s a pretty big trickle-down effect, what they call the ‘multiplier effect.’ Nobody knows how large it is, but it certainly exists.”

Hints of the trickle-down effect can be seen in construction employment in the Pennsylvania counties with the most newly drilled gas wells.

Those counties added 1,474 construction jobs between 2009 and 2011. Meanwhile, the four New York counties added a mere 41 construction jobs in that two-year period.

“Certainly it is true that if you get a lot of drilling, you get a lot of initial employment impacts,” said Mark Price, of the Keystone Research Center.

Gus Trejo is proof of that.

Trejo, the drilling superintendent at a Lycoming County, Pa., site operated by National Fuel Gas Co.’s Seneca Resources, proudly displays his diamond-studded oil derrick necklace – a gift from his wife and children and a testament to how lucrative the oil and gas industry has been for his family.

“Down in Texas, we’ve been drilling these shales for years,” said Trejo, 47, a high school graduate who has labored in drilling operations down south for years before joining the crew in northeastern Pennsylvania.

There are signs, too, that northeastern Pennsylvania enjoys lasting gains from the fracking boom.

Even though the number of wells drilled has fallen by more than half since its 2011 peak, natural resources and mining employment have not plummeted as fracking critics predicted. Jonathan Williamson, of the Center for the Study of Community and the Economy at Lycoming College speculated that those numbers may show that while out-of-state workers came to Pennsylvania to drill wells, they left behind trained local workers who continue to have jobs in the gas fields.


Some growth is fleeting

It’s also true, though, that some of the growth that fracking brings is fleeting. Construction employment actually fell by 96 jobs in the four Pennsylvania counties between 2011 and 2013.

Economists who are critical of fracking say that’s proof that gas drilling won’t produce a long-term economic boom anywhere.

“The bloom is sort of off the rose,” said Frank Mauro, executive director emeritus of the Albany-based Fiscal Policy Institute.

Mauro pointed to a case study released last month by the Multi-State Shale Research Collaborative, which includes both his organization and the Keystone Research Center. That deep dive into fracking’s impact in Tioga County, Pa., found the unemployment rate there bottomed out at 5.8 percent in October 2011 only to quickly climb again once drilling activity started to wane a year later.

What’s more, advocates’ estimates of fracking’s overall economic impact seem inflated. Pennsylvania Gov. Tom Corbett and the Marcellus Shale Coalition, an industry group, have cited figures showing 240,000 jobs in the state tied to the shale boom. But a study released by the U.S. Bureau of Labor Statistics in February showed only 20,943 Pennsylvanians working in the oil and gas industry in the state in 2012. That’s 15,114 more than the industry employed only five years earlier, but a far cry from 240,000.

Corbett got his number by including every employee in 30 “ancillary” industries that are somehow related to the energy industry – meaning that every job in trucking and construction and a host of other industries got counted even though plenty of them had nothing to do with fracking.

The governor never said, though, that all of those jobs resulted from the fracking boom, said Patrick Henderson, Corbett’s deputy chief of staff and energy executive.

Instead, that 240,000 jobs figure also includes “vocations that are being made more secure” by the boom as well as jobs resulting from fracking, Henderson said.

Still, Pennsylvania’s estimates don’t impress people such as John Armstrong, an organizer at Frack Action, a New York City-based group campaigning to halt fracking.

“If you look at Pennsylvania, you see all those rosy projections aren’t coming true,” Armstrong said. “It’s just grossly overstated and it’s just not there.”


Good-paying jobs

There’s no doubt, though, that the fracking boom brightened the jobs picture in northeastern Pennsylvania, where every heavily fracked county added jobs between 2009 and 2013.

Many of those jobs are well-paid. Federal figures show the average annual pay for workers in natural resources and mining topped $70,000 in three of the four Pennsylvania counties last year, and many make much more than that.

Robert Rynearson Jr. of Delaware County learned how good those jobs are when he spent eight months in the past year working on a fracking rig just across the border in Pennsylvania. He said he earned enough to make “29 house payments in three months.” He left the job to open a tattoo shop in Deposit.

All of which raises the question: If New York allowed fracking, would it see the same kind of growth in good-paying jobs?

Economists generally believe the answer is yes, but to a lesser extent.

For one thing, New York’s Marcellus Shale gas reserves are not believed to be as plentiful as those of northeastern Pennsylvania (see accompanying story).

For another, presuming the shale boom happened on both sides of the border at the same time, economists generally believe that some of the growth that happened in Pennsylvania would have happened in New York, thereby creating a more modest boom on both sides of the border.

Some of the regional headquarters of oil and gas companies that have sprouted in Williamsport probably would have been built north of the state line, said Williamson, of Lycoming College.

And it’s also likely that those companies would have spread their drilling activities across the two tiers.

“New York would have shared in the growth,” said Mauro, a fracking critic who also asks: “Is it worth it in the long run to have this sort of short-term boom?”

Fracking opponents argue there are ancillary costs of fracking that remain largely unknown.

Some hints of those costs: Crime in Tioga County, Pa., rose 13 percent between the 1999-2001 period and the peak fracking years of 2010-2012 – while crime statewide fell 6 percent.

County officials reported an increase in homelessness as rents increased, and the number of road bonds issued for highway repairs skyrocketed from 48 in 2009 to 300 only two years later, the report said.

And “if there is environmental damage, there certainly is a cost,” said Rousu, of Susquehanna University. “I’m not sure how much.”

Supporters of fracking insist that the benefits still outweigh the costs – and that those benefits go far beyond jobs. Royalties from lease payments can boost all sorts of retail sales as well as tax revenues. The Tioga County case study showed that sales taxes from auto sales spiked nearly 60 percent from 2009 through 2012 as newly flush local residents traded in their older models for something new.

Fracking supporters say the same sort of benefits would come to the Southern Tier if the state government allows gas companies to begin drilling.

“Will it be as big as it could have been? No. But you’ll still get it,” said Daniel Fitzsimmons, president of the Joint Landowners Coalition of New York. “It would help save our schoolteachers. It would help taxpayers. It would help turning things around for our communities immediately.”

It has certainly helped a lot of Pennsylvanians. Statistics from the U.S. Bureau of Economic Analysis show that while per capita income grew by $3,146 between 2009 and 2012 in the New York counties, residents of the Pennsylvania counties saw their income grow by an average of $5,880.

The rich signing bonuses and royalty payments that farmers receive from the fracked wells on their property are likely the main reason for that, Mauro said.

Proof of that point can be found in the Tioga County case study. Income earned by county residents through higher rents, signing bonuses and royalties spiked from $6 million in 2005 to $97 million in 2010 before leveling off at $74.7 million a year later.


Comfort vs. crisis

That kind of money also spills over into Bradford County at the Van Blarcom farm.

The family used its newfound wealth from nine gas wells to renovate its hillside 1840s farmhouse, erect a new barn, bring in state-of-the art farm equipment and invest in a new side business: raising thousands of pigs to become Hatfield hams.

VanBlarcom has already earned enough to retire, but he’s waiting, because the farming is too good now.

“Now, I can retire at my own pace,” said Van Blarcom.

That sort of sudden windfall sounds good to Vitale, the struggling Steuben County farmer who just wishes he could cash in on the gas beneath his property.

Allowing fracking in the Empire State, Vitale said, may be the only way to preserve small farms for the next generation.

“Small family farms are in a crisis situation,” he said. “There are farmers that are hanging on by a thread. This is the only thing that has come about that has saved some farms.”

And by no means are the farmers the only ones losing out, Vitale said. Towns and school districts are missing out on the tax revenue they would have gotten from a fracking boom, and retailers are losing out on business. And then, he said, there are all those jobs that went to Pennsylvania but not to upstate New York, all because of the protesters and politicians behind New York’s fracking moratorium.

“They have really destroyed the hopes and dreams of thousands of Southern Tier residents,” Vitale said.