In This Issue
Summer Issue of The Bridge on Shale Gas: Promises and Challenges
June 15, 2014 Volume 44 Issue 2

Social Impacts of Shale Development on Municipalities

Thursday, June 26, 2014

Author: Iryna Lendel

The shale revolution has been studied primarily for its regional and national economic benefits, which are due to the spread of industries in the shale-related supply chain. There has been significantly less attention to local costs and benefits.

The pace of economic development activities and their impacts are defining social changes in counties and municipalities where shale-related development occurs and require adequate public policies to address them. This article addresses economic, physical, and social impacts in Ohio municipalities and townships where upstream and midstream industries have been expanding their Utica shale operations.

Phases of Shale Development

There are three major phases to shale exploration: development, production, and reclamation. The development phase—drilling and creating midstream infrastructure—involves building well pads, roads, bridges, pipelines, gas plants, storage facilities, and other related structures. This 4- to 8-week phase is construction- and labor-intensive (with as many as hundreds of workers depending on the necessary infrastructure), but expectations for massive involvement of the state’s labor force in the construction phase are uncertain. Many construction crews consist of nonresidents who travel among sites, and may return to the same site numerous times, to perform very specific operations that require particular skills.

The production phase of development is significantly longer—an average well can commercially produce for about 10 years at the current level of technology. Labor involvement is low (e.g., a dozen workers per well per year), but may likelier include local labor. Well maintenance, environmental monitoring, and processing gas plant jobs in this phase require highly and moderately skilled labor and pay salaries that are extremely attractive compared to average wages in rural areas.

The moderately labor intensive reclamation phase is very short (1–2 weeks) and may or may not involve local labor.

Scope and Concentration of Shale Gas Activity in Ohio

Since 2010, when the development of Utica shale started in Ohio, numerous counties and townships have been affected by the construction of wells, roads, pipelines, and other midstream infrastructure—from 33 drilled horizontal wells in 2011 to 300 in 2012 and 600 by the end of 2013 (these numbers do not include permitted wells).

As of June 2013, 737 drilled and permitted wells were concentrated in 140 townships in 23 counties. For example, there are 280 permits issued to drill shale wells in Carroll County alone, where the reported 2012 population was 28,587—about 100 people per well drilled. There are 7 wells per 10 square miles in Carroll County, but this density is significantly higher in the 13 townships where the well development is occurring. In neighboring Harrison County, which has the second largest number of issued drilling permits, there are about 150 people per well, and every 20 square miles of landscape averages 5 wells.

Table 1

The top 10 townships in Ohio (based on number of approved drilling permits), with a total population of about 12,000 people, are home to 301 permitted wells—more than 40 percent of all horizontally drilled wells in the state (Table 1). In Loudon, Lee, Seneca, and Stock townships the number of people per well is fewer than 30, bringing the state’s average number of people per well to below 40.

The impacts of this scale and concentration of development are discussed in the following sections.

Economic Impacts

Studies have projected employment growth, wealth creation, and an increase in Ohio’s gross state product from development of the Utica shale (e.g., ACC 2013; Kleinhenz and Associates 2011); conservative estimates point to the support of about 40,000 jobs and $5.8 billion in output1 in 2013 (e.g., Thomas et al. 2012). The Ohio Department of Jobs and Family Services reports that in the fourth quarter of 2012, employment in core shale-related industries increased by 17.7 percent (1,319 jobs) compared to the same quarter in 2011.2 At the same time, employment in ancillary industries (e.g., freight truck delivery and environmental consulting) declined by 0.1 percent (77 jobs).3

There are conflicting statistics about the number of jobs created in counties that are home to drilling and midstream projects, but there is no doubt that these counties experienced a boost of economic activity—sales receipts for 2013’s first quarter were 14 percent higher ($4.1 billion) compared to 2012’s first quarter ($3.6 billion) (Hill and Kinahan 2013).

There are many acres of land under drilling leases owned by public and institutional entities, schools, governments, and private businesses. These property owners are paid lease bonuses for granting drilling rights to oil- and gas-producing companies and receive royalty payments as a percentage of production value if a well drilled on their property produces hydrocarbons.

Increased wealth in some of these counties has introduced challenges such as a growing demand for financial services, financial management, and family wealth planning for those who have become “rich overnight.” In addition, anecdotal stories of charitable donations from those in core shale counties indicate philanthropic development in these communities, but there are few management resources to support and guide such efforts.

The drilling boom of Utica is predicted to extend over the next 10 years, and the associated wealth accumulation and increased spending may be expected over, minimally, the next 20 years.

Jobs

Some 400 workers are typically needed to construct and maintain a well for its lifetime. They have about 150 different occupations and work at different times during the well’s three phases. The total number of hours worked by these individuals on a single well over the course of the year is the equivalent of 11.5 full-time jobs.4 For counties and townships with a high density of wells, the impacts can be substantial and threaten to overwhelm existing infrastructure and resources.

In Louisiana, development of the Haynesville shale began in 2006 and by 2008 had led to a reported increase of shale-related employment of 32,742 jobs (Loren C. Scott & Associates 2009, p. 10). Also in 2008, Barnett (Texas) reported the distribution of employment triggered by shale development across many sectors: 28 percent of jobs in retail, 15 percent in food services, 10 percent in new construction, 6 percent in each of the following—the crude petroleum and natural gas industry, maintenance and repair, and health services—and 4 percent and 3 percent in business services and transportation, respectively (Perryman Group 2011, p. 128). These statistics suggest the job opportunities that may accompany the Utica shale development and what skills people should acquire to be hired locally. 

Infrastructure Challenges

The dramatic rise in Ohio’s shale gas well development has resulted in considerable job growth and industry expansion in the associated townships and municipalities. The movement of equipment and supplies involves extensive truck traffic over local roads and requires increased housing for workers; office, storage, and production space for businesses; and significant business and social services and infrastructure to support business operations and minimize social disruption for local citizens. Other infrastructure challenges affect housing and hospitality business development; water, sewer, and telecommunications; and electricity.

Housing assessments, for example, should consider new construction that will be purchased and occupied after the boom. Establishing the correct affordability bracket of new housing will help to ensure a successful real estate market for years to come and reduce the construction of houses doomed to foreclosure.

Other infrastructure needs are linked to housing and hospitality business development; in Carroll County, for example, a dozen motels are under construction. The local natural gas company is expanding its pipeline web to serve the increased residential and manufacturing demand. Private markets can finance increased needs for water, sewer, and telecommunications, and electricity may be subsidized by the government in accordance with the Rural Electrification Act.

Construction and maintenance of roads in an area of shale development are challenging due to the associated heavy truck traffic. This is less of a concern in Ohio, however, as many rural roads lack hard surfaces and development companies often build improved roads during the major construction phase. Moreover, Ohio’s Chesapeake Company uses a flexible pipeline water system, significantly decreasing the number of trucks on roads and thus reducing the wear and tear on roads and improving public safety.

Social Services and Quality of Life

Shale development significantly affects predominantly rural communities with relatively low population density, little economic and social diversification, and limited local governance capacity. These communities cannot easily absorb change, and the development has been associated with challenges to social and family services, emergency response services, and law enforcement. Increased communication capacity, enhanced equipment and training, and, most importantly, additional individuals are needed to provide these services.

Statistical evidence of population growth in townships specifically due to increased economic activity in the Utica footprint is lacking, but there is certainly an in-migration of temporary labor, which strains the availability of rental property and other local resources (the size and duration of this surge are largely dependent on the economic pace of the shale development).

Small community infrastructures are ill equipped to handle shale development–related emergencies and the increase in crimes related to the influx of male workers in their 20s and 30s. Increased substance abuse, disorderly conduct, and warrants from other states due to the nomadic nature of temporary workers all require an increased police presence. But neighboring townships with populations of about 1,000 often share a sheriff and a volunteer fire response team.

Most temporary workers do not bring their families to the Utica region, but hosting communities should be ready for the associated challenges reported by townships in the Marcellus play, such as accommodating incoming children (e.g., in schools and day care) and hiring more staff for family and social services.

The biggest complication is the cost of increased emergency, social, and community services and whether the demand for these services occurs before local budgets can generate the income to fund them.

Local Perceptions

Although Marcellus shale development is significantly older than the Utica play, a 2011 survey in the Marcellus footprint showed 47 percent of Pennsylvanians supporting shale development, 19 percent opposing it, and a surprising 34 percent neither supporting nor opposing it and/or remaining undecided (Stedman et al. 2012). The same study indicates that 40 percent of respondents have limited or no knowledge of regulations, legal implications, drilling procedures, and employment opportunities. They knew only slightly more about economic, social, and environmental implications. Moreover, a higher number of survey respondents believed that their quality of life would decrease rather than increase as a consequence of the Marcellus development. They were greatly concerned about crime, affordable housing, road conditions, and environmental issues.

Conclusions

Utica shale development in Ohio raises many concerns that must be addressed to ensure successful and efficient development of both the state and local economies. In 2014 the critical phase of the state’s midstream infrastructure development will determine the pace of shale development and set the stage for consequent social and economic impacts.

Shale development occurs largely in rural areas, where small municipalities and townships experience major social impacts. The rapid short-term influx of out-of-state workers has direct and significant consequences, such as changes in the community’s culture and quality of life as well as cost-of-living and tax increases to cover the need for enhanced physical and social infrastructure.

An open community dialogue combined with state government assistance for educational and infrastructure needs can help capture the benefits and avoid a boom-to-bust cycle by establishing procedures and mechanisms for local control and sustainable long-term planning.

Most shale-related regulations are stipulated at the state government level, which is also where most tax benefits accrue (only a small share of increased state tax revenue comes to municipalities). Small communities often do not have the personnel and funding to respond to the challenges they face and lack land zoning regulations and appropriate strategies to address the changes associated with shale development.

Public policy changes are needed so that towns directly affected by shale development receive an appropriate share of economic benefits that currently accrue at the state and national levels. Appropriate policies can also promote local control and monitoring as well as training to help residents in affected communities acquire the skills needed to benefit from employment opportunities. State and municipal governments should support the creation of an inventory of major assets and resources, comprehensive plans including local regulations, and zoning and land development ordinances to bolster local control.

References

ACC [American Chemistry Council]. 2013. Shale Gas, Competitiveness, and New US Chemical Industry Investment: An Analysis Based on Announced Projects. Economics & Statistics Department, May. Washington.

Hill E, Kinahan K. 2013. Ohio Utica Shale Region Monitor. Published by Maxine Goodman Levin College of Urban Affairs, Cleveland State University, Ohio.

Kleinhenz and Associates. 2011. Ohio’s Natural Gas and Crude Oil Exploration and Production Industry and the Emerging Utica Gas Formation: Economic Impact Study. Prepared for Ohio Oil and Gas Energy Education Program. Cleveland Heights, OH.

Loren C. Scott & Associates. 2009. The Economic Impact of the Haynesville Shale on the Louisiana Economy in 2008. Prepared for the Louisiana Department of Natural Resources. Baton Rouge. Available at http://dnr.louisiana.gov/assets/docs/mineral/ haynesvilleshal e/loren-scott-impact2008.pdf.

Perryman Group. 2011. A Decade of Drilling—The Impact of the Barnett Shale on Business Activity in the Surrounding Region and Texas: An Assessment of the First Decade of Extensive Development. Waco, Texas. Available at http://barnettprogress.com/media/BarnettShaleStudy11.pdf.

Stedman RC, Jacquet JB, Filteau MR, Willits FK, Brasier KJ, McLaughlin DK. 2012. Marcellus shale gas development and new boomtown research: Views of New York and Pennsylvania residents. Environmental Practice 14:382–393.

Thomas A, Lendel I, Hill E, Southgate D, Chase R. 2012. An analysis of the economic potential for shale formations in Ohio. Cleveland State University. Available at http://urban.csuohio.edu/publications/center/center_for_ economic_development/Ec_Impact_Ohio_Utica_Shale_2012.pdf.

 FOOTNOTES

 

1 Equivalent of gross state product.

 

2 Core and ancillary industries in this report were identified using multiple studies of the Marcellus shale development in Pennsylvania. Core industries are essential for oil and gas development, such as pipeline construction and well drilling. Ancillary industries provide essential supplies and services for core industries, such as freight trucking and environmental consulting.

3 Data from Quarterly Economic Trends for Ohio Oil and Gas Industries, July 2013. Ohio Department of Jobs and Family Services. Available at http://ohiolmi.com/OhioShale/Ohio Shale Report July 2013.pdf.

4 Data from the Penn State Marcellus Center for Outreach and Research. Available at www.marcellus.psu.edu; also see http://news.psu.edu/story/175878/2009/06/23/job-growth- expected-natural-gas-industry-development.

About the Author:Iryna Lendel is assistant director, Center for Economic Development, Maxine Goodman Levin College of Urban Affairs, Cleveland State University, Ohio.