Economic, Legal, Regulatory & Environmental Issues
The development of the Marcellus Shale play in West Virginia has the potential for significant economic
development for the state, according to a new report from the West Virginia University College of Business
and Economics, Bureau of Business and Economic Research. The report also examines potential impacts associated
with the development of the shale play from 2010 to 2015 as well as the legal, regulatory and environmental
issues associated with further development.
$12 Billion in Business and 7,600 Jobs
"West Virginia's natural gas industry accounted for over $12 billion in business volume and created over 24,400
jobs in 2009," said Dr. Tom S. Witt, BBER director and co-author of the study. "Out of this total, our study
estimates that the Marcellus shale play accounted for the creation of 7,600 jobs and $2.35 billion in business
volume, making it a significant contributor to the economic health of our state. The potential exists for
upwards of nearly 20,000 jobs by 2015 if drilling grows at a 20 percent rate each year."
"This study documents the economic potential of the Marcellus shale play. However, its potential contributions
to our state will only be possible with well informed public policy related to the taxation, regulation and
environmental impact affecting the industry in our state," said Corky DeMarco, executive director, West Virginia
Oil and Natural Gas Association, which commissioned the report.
The Marcellus is the "Tip of the Iceberg"
"Although the results of this study are encouraging, the general consensus throughout the industry is that the
Marcellus only represents the tip of proverbial iceberg," said Jim Crews, Nisource/Columbia Gas Transmission and
WVONGA president. "Horizontal drilling and hydraulic fracturing technology will be exported to other shale and
unconventional hydrocarbon sources in the basin, including previously abandoned formations and the economic results will be exponential."
New! Utica Shale: The Giant Below the Marcellus
The report reviews the growth of the natural gas industry from 2001 through 2009 and estimates the total
economic impact of the industry in 2009. While the bulk of the jobs created directly or indirectly were in the
mining sector, there was significant job creation in other sectors of the economy.
New Drilling Methods Responsible for Growth
With the development of new methods for the exploration and development of unconventional reservoirs such as
those found in the Marcellus shale formation, West Virginia, along with other states in the region, has seen
significant increases in exploration permits since 2005. In fact, West Virginia Marcellus shale permits issued
through 2008 exceeded those of other Marcellus shale states.
Drilling and Completion Cost Per Well: $3.5 Million
To estimate the economic impact of Marcellus shale development in 2009, BBER researchers used information provided by
drilling companies augmented by other data sources. Drilling costs in 2009 averaged $1.5 million per well while well
completion costs averaged $2 million per well. In addition to location setup and drilling costs, the analysis also
considered the costs of leasing, which averaged $914 per acre in 2009 in West Virginia. Using this information and
the IMPLANŽ input-output modeling system, BBER researchers estimated that the total (direct, indirect and induced)
economic impact of the Marcellus shale development in West Virginia in 2009 was:
- Business volume, $2.35 billion
- Employee compensation, $297.9 million
- Employment, 7,600
- Value added, $1.26 billion
- Associated state taxes, $14.5 million
Future Economic Impacts and Tax Policy
The study also estimates the future economic impacts of the development of this formation for the period 2010-2015
under different growth rates in drilling activity each year.
The study also examines tax policy issues facing the natural gas industry and the specific development of the
Marcellus shale play. Major taxes affecting the industry in West Virginia include property and severance taxes. At
the present time Maryland, New York and Pennsylvania do not have severances taxes on the value of natural gas
drilling or production while West Virginia's severance tax rate is 5 percent of the gross value of natural gas
production. Ohio imposes a severance tax on natural gas drilling and production at a rate of 2.5 cents per thousand
cubic feet with some exemptions.
These taxes, as well as the overall regulatory environment, are continuing to evolve
as states face increasing fiscal pressures as well as a recognition that continued development of this resource is
important for economic development, particularly as it relates to downstream value added opportunities.
Other policy issues addressed in the study include regulation and environmental policy at the federal and state level,
permits and the permitting process, divided estates, road utilization and workforce development.
The Authorship Team
The authors of the report in addition to Witt are: Amy Higginbotham, BBER economist; Adam Pellillo, BBER graduate
research assistant; and Dr. Tami Gurley-Calvez, BBER research assistant professor. The report is available at
www.wvonga.com and www.bber.wvu.edu.
|New drilling and well completion technology has turned the previously unproductive Marcellus Shale into what will likely become one of the largest natural gas plays in the world. Hydraulic fracturing increases the permeability of the shale and horizontal drilling increases the length of payzone penetration in the well. Image by Geology.com.
|Map showing the thickness of the Marcellus Shale in West Virginia by the West Virginia Geological and Economic Survey.
|Marcellus Shale in the News