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Socioeconomic Study Is Premised On Incorrect Reserve Estimates
The socio-economic grossly overstates the benefits of horizontal hydrofracking because it grossly overstates the amount of recoverable reserves. In truth, the report does not show any reserve estimates used to determine the number of wells, flow rates, etc – a major flaw in the methodology. It states that it used estimates from the IOGA, which may have over-stated reserves by a factor of 5.These reserve estimates should have been clearly stated along with their precise source. One can infer from the number of wells and their expected production that the study is based on the now discredited 2011 EIA estimates for recoverable reserves in the Marcellus, approximately 400 Trillion cubic feet, an estimate that was off by a factor of 5 according to the more recent and more precise USGS estimate of 80 Tcf for the total Marcellus in four states.1 The USGS report was not released until after the socio-economic study was completed. See Figure 1 below. The extent and productivity of shale gas development has been invariably overstated by “pure play” shale gas companies, by IOGA and gas boosters. 2 The first step is to exaggerate the productive area of the shale and the amount of recoverable reserves. That is what happened with the socioeconomic study, it is premised on over-blown reserve estimates, by a factor of 5 or more.3 Fig. 1 Recoverable Reserve Estimates of the Marcellus Formation
In most New York counties, HVHF exploration in the Marcellus will be a rankprospecting exercise - since the geological conditions that exist in border counties in Pennsylvania simply do not cross the border very far into New York.4 Bradford County, Pa. is near the maximum shale thickness, as shown below. The border counties to the west of Bradford, which are similar to Otsego and Chenango, are already proving marginal. 5 While profitability is more than a function of shale thickness, the isopach gives us a first order indication of where to drill. The prospects for the Marcellus in New York have been consistently overstated - and this has led to grossly unrealistic expectations.6 We can quantify the environmental hazards better than we can forecast the economic upside, so wildcat wells should be treated with an appropriate amount of caution – if allowed at all. Figure 2 shows what the Marcellus looks like to a geologist - the gross shale thickness in feet along the Pennsylvania / New York border. Fig. 2 Gross Thickness of the Marcellus in N. Pa./S. NY.
Most of the Marcellus in New York is composed of the Oatka formation, which is considered “gray shale” as opposed to “black shale”; meaning it has a lower carbon content, and therefore, less likely to be economic.. See Figure 3. The Union Springs formation is the “Marcellus” target in N. Pa. The isopach of the Union Springs formation indicates that only a few border counties in New York are likely to qualify as being economically viable for shale gas exploration – Chemung, Tioga, Broome and Delaware. Most impacted counties, based on recent results in Pennsylvania and on Marcellus and Utica test wells in Otsego County, are probably marginal, so
http://www.scribd.com/doc/71446252/Voodoo-Frackonomics-3-0 http://articles.philly.com/2011-06-29/business/29717422_1_test-wells-marcellus-shaleproduction-rates 6 http://www.nytimes.com/2011/06/26/us/26gas.html?_r=1&emc=eta1
HVHF well applications should be treated as rank explorations both by the DEC and the local townships. Figure 3 The “Marcellus” Oatka Creek and Union Springs Formations
Exploratory wells are demonstrably speculative in nature and typically drilled by transient crews, not with local hires.7 Permitting wildcat wells in environmentally sensitive areas would not only be poor environmental stewardship, it would be bad geology. This is a fundamental flaw with the dSGEIS’s one-size-fits-all approach to well permitting. Shown below is what the Marcellus formation’s more productive Union Springs lens looks like. The shale is thickest in Bradford County. Areas outside the green would be classified as speculations, more often than not with negative impacts on local communities. Fig. 4 Union Springs Formation Isopach In N. Pa. and S. NY.
The socio-economic study was based on grossly overstated gas reserve estimates. This has lead to misleading conclusions in several areas. 1.The number of new-hires in New York is grossly overstated. Both in terms of absolute numbers – there is not as much gas to be drilled as the study implies – and in relative terms, the type of jobs will be exploratory, since most counties will remain marginal for gas production. A disproportionate number of workers will be transient and from out-of-state.. 2. The local property tax is grossly overstated. Based on the IOGA estimates given to the consultant, the value of the gas wells on property tax rolls could be overstated by as much as 5x. This mistake completely alters the risk /reward equation in many townships and counties, since the trade-off is between ad valorem tax and property values. Meaning most impacted towns are likely to see a greater decrease in property values than they are to see off-setting increases in ad valorem values from gas wells – because gas activity will remain exploratory – not productive. 8 3. Negative cost impacts are completely ignored The economic analysis done by Ecology and Environment (E&E) that was prepared as part of the revised dSGEIS estimated the potential jobs and revenues, but did not estimate any costs – even those already leaked by other departments. 9 In their report, all the positives are calculated in great detail, with pages and pages of definitive-looking tables of numbers based on unstated reserve estimates. The negatives are mentioned but not calculated anywhere. E&E acknowledges the following costs that will have to be borne by local governments and communities -with no attempt to quantify these costs: 1. Negative impact on existing industries such as tourism. “Negative changes to the amenities and aesthetics in an area” could deter tourists from coming. 2. Negative impacts on agriculture, as productive land is turned over to the gas industry. 3. Short term labor shortages and the resulting increase in wage rates could hurt existing industries. But “short-term” is not defined. 4. The costs of road construction, improvement, and repair expenditures . 5. Added costs for emergency services such as fire, police, and first aid as a result of
the increased traffic, construction, and production activities. 6. Added costs for public water supply systems. 7. If substantial in-migration occurs, local governments would have to spend more on education, housing, health and welfare, recreation, and solid waste management to serve the additional population. E&E did not mention additional responsibilities of the local Health Department, Assessment, and County Clerks. And somehow, all these increased costs for governmental services will have to be borne without a state tax on gas production. News reports covering DEC’s hydrofracking advisory panel indicate that the DEC never asked E&E to attempt to quantify the negative consequences of hydrofracking….only the perceived economic benefits. This failure - to even attempt to put a price tag on these local costs - is a breathtaking oversight. DEC had an opportunity to provide useful information that we could use to prepare for this industry and weigh the relative costs and benefits, but the agency chose to gloss over and ignore that side of the equation. 4. Most of the economic benefits will simply leave the state The DEC acknowledges that the most of the economic benefit will leave the state either lightly taxed or untaxed. 10 “The draft Generic Environmental Impact Statement found the state would face "significant negative fiscal impacts" from the need for additional enforcement officers to ensure drilling is safe; permitting staffers to review well plans; and repairs for roads damaged by heavy truck traffic from wells.”11 Moreover, the costs will be born by New York resident taxpayers – not the energy companies,12 as noted in the DEC’s report: "Given the many benefits in the New York state tax code for energy companies," the DEC report found, "most, if not, all of the net income generated by these energy development companies" would not face state taxation.”
Any economic analysis of the socioeconomic impacts must start with a clear statement of the gas reserve estimates used. Failing that, the report is of no use for policy makers. It must also consider the costs impacts, or it has no credibility for planning purposes. James “Chip” Northrup Cooperstown http://www.scribd.com/northrup49
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