Resource Curse: Why the Economic Boom That Fracking Promises Will Be a Bust For Most People

The following article is part of AlterNet's series on poverty, Hard Times USA. 

Drillers hit the country’s first oil jackpot in Pennsylvania in 1859. Towns like Titusville and Pithole grew from a few hundred to more than 10,000 nearly overnight. But with the boom, inevitably came the bust. And it’s a history that may repeat itself in the same region soon.

Eastern states like Pennsylvania, New York, Ohio, and West Virginia sit atop the Marcellus Shale. High-volume horizontal hydraulic fracturing, often referred to as “fracking,” has put a bull’s-eye on the region by companies interested in drilling for gas tucked deep into the shale formations.

There’s been controversy over how much havoc fracking will wreak on the environment, with reports of air pollution, water contamination and other abuses from many living near drilling sites. Investigations continue to assess the impacts on human health and the environment.

But what has received less scrutiny are the economic promises made by gas companies and parroted in the media. The question is often posed whether the environmental risks outweigh the economic gains, but the “gains” themselves are far from a given. A report out of Cornell University titled, “A Comprehensive Economic Impact Analysis of Natural Gas Extraction in the Marcellus Shale,” by Susan Christopherson and Ned Rightor found, “The assertion that shale gas drilling will have positive consequences for both New York and Pennsylvania's economies is based on limited evidence.”

When it comes to long-term economic development, there’s ample evidence to suggest that counties where drilling occurs will be in worse shape down the road, and that even during the drilling and producing phases, there will be a few winners and likely a whole lot of losers, especially among lower-income individuals. Furthermore, the areas targeted for drilling are often the ones already struggling economically, which means less wealthy individuals and communities may become further impoverished.

Christopherson, a professor in Cornell University’s Department of City and Regional Planning, has been studying the economic impacts of fracking in the Marcellus for years. “If those places were rich we wouldn't be asking these questions because they wouldn't want it,” she said.

Collateral Damage

A fracking moratorium remains in place in New York, although it could be lifted at any time. If it is, there are concerns that some of the state’s economically hardest hit areas will take the brunt of drilling. The New York Timesreported that, “Gov. Andrew M. Cuomo’s administration is pursuing a plan to limit the controversial drilling method known as hydraulic fracturing to portions of several struggling New York counties along the border with Pennsylvania.”

The economics of extractive industries like gas drilling are pretty simple. As Philip Bump writes for Grist about Cuomo’s plan:

The areas that will be opened to fracking are those areas over the Marcellus shale formation. That makes sense. But unfortunately, they’re also areas of the state with some of the highest rates of poverty.

But one of the challenges of the fossil fuel economy is that its facilities, refineries, and extraction points are dirty, messy, and rife with pollution. Such things don’t go in the wealthier parts of town — or, often, the wealthier parts of a state.

For residents who are economically struggling, the offer of money for a gas lease can be too good to ignore – some may not realize the risks, while others are willing to incur them because they lack other options.

But if something does go wrong, many feel that they have little recourse because of their economic position. “If they end up with pollution on their own land, they don’t want to talk about it because then they are afraid the gas drillers will go away,” said Alison Rose Levy, a journalist who has been covering fracking in the Marcellus Shale since 2009. “They are in such financial duress that they will sacrifice the water quality on their land, and deny that pollution has occurred even to the point of making themselves or their family members ill because they are afraid of the companies -- they are afraid the company will withdraw the opportunity for some kind of financial benefit.”

Christina and Wayne Woods, residents of Doddridge County, West Virginia have found that many people in their community are unwilling to speak up because they depend on the oil and gas industry for employment. They have neighbors living with water contamination but, “They don’t want to say anything because it’s part of the culture of intimidation by other members of the community,” said Wayne.

The more economically strapped communities are, the more likely that oil and gas companies will find little resistance.

Resource Curse

Pennsylvania has a long history of resource extraction, and so does West Virginia, an epicenter of coal mining. The West Virginia Center on Budget and Policy took a look at how the state has fared in a report called, “Boom and Busts: The Impact of West Virginia’s Energy Economy.”

Report co-authors Sean O’Leary and Ted Boettner assessed whether or not development in the Marcellus Shale underlying the state will be an economic blessing or a curse.  “Although coal and natural gas contribute millions of dollars in revenue to the state's budget, it also appears that communities in West Virginia that historically have relied heavily on natural resource extractive industries have underperformed economically in the long term compared to the state as a whole,” they write.

While energy development boomed in the ‘70s, after it went bust in the ‘80s mining counties suffered in the short- and the long-term. They explain:

They did worse than the state average on a range of factors, such as earnings and personal income growth, population growth, and employment. Today, these counties have higher poverty rates, lower median incomes, and worse health outcomes than the state average. Despite the rebounds in the energy sector in the 2000s, mining counties continue to struggle in comparison with the rest of West Virginia.

Although communities can rely on energy development for economic growth in the short-term, the boom is unsustainable. If trends hold, the boom ultimately leads to a bust, followed by decades of underperformance.

The same could hold true for the fracking boom as research thus far in Pennsylvania suggests.

A report by the Keystone Center found that claims of job creation were hyped. “The Marcellus Shale is making a small positive contribution to recent job growth in Pennsylvania,” they found. “The size of that contribution, however, has been substantially inflated based on a basic misunderstanding of the difference between ‘new hires’ and job creation. The modest contribution of the Marcellus Shale to job growth must also be balanced against the impact of drilling on other industries, such as tourism and the Pennsylvania hardwoods industry.”

Inaccurate job creation numbers aren’t the only problem – there is also an issue of how many jobs may be lost. Fracking of this kind,  Christopherson says, is incompatible with tourism and with agriculture because fracking has a heavy industrial footprint on the landscape: “You have not just the well pad, which are big things, but you have 1,000 truck trips per well multiplied by the number of wells, you have compressor plants, you have the pipelines, you have water extraction sites, you have chemicals and gravel that have to be brought in. In the Eastern part of the US you also have to bring in people -- you have man camps. It drives out other kinds of industry.”

One industry that may be affected is agriculture. A study by Penn State Extension looked at counties with at least 10,000 dairy cows. In those counties that had at 150 wells or more in the Marcellus Shale, there was an 18.5 percent decrease in milk production, while counties without Marcellus wells saw a slight increase in production.

And there are other implications. “Dairy farmers in Northern Pennsylvania and the Southern Tier of New York, who are already in a marginal economic situation, are being further squeezed because of rising costs for transporting their milk to the dairies,” Christopherson and Rightor write. “These businesses may go under during the drilling phase, leaving the region with fewer businesses outside of gas drilling, and thus a less diverse and more volatile economy.”

All this industrialization impacts areas that may not be getting drilling revenue, also. As Christopherson and Rightor report, “These elements of the industrial landscape will be located where geologic or logistical factors dictate, but not necessarily in the jurisdictions where drilling is currently taking place or production (and therefore tax revenue) is being generated.”

Communities may end up with air, water and noise pollution -- and no economic payback. And it doesn’t just drive out industry, it drives out people who live there, especially those at the bottom of the economic ladder.

If you're a low-income person, says Christopherson, “you're in deep trouble” because the cost of living goes up. “In some places in Pennsylvania a gallon of milk costs $7,” she said. “Costs for housing will go skyrocketing because they can rent to drillers. Lower-income people generally get pushed out of their lower-cost housing and they have to leave the area. The economics term for it is 'crowding out' -- the process of intensive natural resource development drives out, crowds out other industries by raising the costs. Companies don't want to move into that area because the labor costs are too high, there is a high cost of living.”

Fracking’s massive industrial footprint means that there are far-reaching consequences for communities, not just at drilling sites. The 37 families that lived at the Riverdale Mobile Home Village in north-central Pennsylvania found out firsthand what “crowding out” is all about.

The park, sitting aside the Susquehanna River suddenly became a hot commodity when gas companies came to town. The families in the park, many of whom were elderly or on fixed incomes, found out they had two months until the land they lived on was being sold. The buyer, writes Walter Brasch of Counterpunch, was Aqua PRV, part of water company Aqua America. “Aqua had received permission from the Susquehanna River Basin Commission (SRBC) to withdraw three million gallons of water a day from the Susquehanna; the 37 families of the mobile home village would just be in the way,” Brasch explains. “The company intends to build a pump station and create a pipe system to provide water to natural gas companies that use hydraulic fracturing.”

While residents of the park owned their trailers, picking up and moving to another location was no easy task. The cost of moving a trailer can range from $6,000 to $11,000 and that’s if you can move the trailer at all. Many of the Riverdale residents had older trailers with tin roofs or siding that couldn’t be moved. And that’s only one part of the problem; the other part is that there was nowhere for them to go.

Brasch writes:

Because the natural gas companies are bringing in thousands of employees to frack the land, there is a shortage of apartments, most with inflated prices to take advantage of the well-paid roustabouts, drivers, and technicians who moved into the area, and spend their money on local businesses eager to improve their own profits. During the past two years, rents have doubled and tripled. …The current mobile home owners paid $200 a month for their lot.

Not only are there few lots available and apartments are too expensive, but most residents don’t qualify for a house mortgage; and there are waiting lists for senior citizen and low-income housing.

The story is the same across the Marcellus region where drilling has taken place. “The natural gas boom has made affordable housing as obsolete as the anthracite coal that once drove the region’s energy economy,” concludes Brasch.

Ripple Effect

Individuals who sign big leases and some businesses, like hotels, bars and retail shops, along with drilling-related companies (trucks, waste disposal, etc. ), will inevitably have short-term gains, but Christopherson cautions, “The rising tide is not likely to lift all boats: there will be losing communities, and individuals who are displaced or left behind. Moreover, the experience of many economies based on extractive industries warns us that short-term gains frequently fail to translate into lasting, community-wide economic development.”

In Pennsylvania, research has found that many of the jobs go to skilled out-of-state workers. “Drilling crews usually arrive from places like Tulsa,” said Christopherson. “They fly in for three weeks, drill and fly home.”

Community members lose out in other ways, too. One of the biggest impacts, and one of the most costly to taxpayers, is truck traffic that has caused accidents and damaged roads. In the report, “The Economic Consequences of Marcellus Shale Gas Extraction: Key Issues,” authored by Christopherson for Cornell University Department of City and Regional Planning, she found that communities are getting shortchanged.

After severe damage to roads, Pennsylvania transportation districts had to post weight limit signs on thousands of miles of roads since fracking began. She writes:

Yet bond security costs for overweight truck travel on a posted road there – the financial incentive for a company to repair road damage -- are limited to a maximum of $6,000 per mile for unpaved roads and $12,500 per mile for paved roads. This is adequate to cover only 10- 20% of the damage; road reconstruction can easily exceed $100,000 per mile. Additional public costs for protecting roads -- pre-bonding surveys, road condition surveys, new data collection systems, and posting roads -- are also significant.

In the Northern Tier of Pennsylvania, she found that trucks were carrying weight over the legal limit. More than 5,800 roadside inspections were performed on trucks working for the drilling industry, and “42 percent of those resulted in pulling either the driver or vehicle out of service,” she reported. The cost to the state for enforcement has reached over $550,000.

Communities also face increased pressure on schools, police, and healthcare services with the influx of workers. Hospitals have complained of rising debt because of the large number of uninsured workers they have started caring for since drilling began.

Because of political maneuvering, fracking is exempt from major national environmental laws like the Clean Water Act and the Safe Drinking Water Act. But even state regulations are not adequately enforced; some states and counties lack the political will and other simply lack the resources, which has led some companies to take advantage, to the detriment of residents.

In Sun Valley, West Virginia it is believed oil and gas companies (or a company) are to blame for millions of gallons of water stolen from fire hydrants – a tab ratepayers may be forced to pick up. Tankers are able to fill up thousands of gallons in less than five minutes, so the culprits haven’t been apprehended.

In Ohio, a company was recently caught dumping 20,000 gallons of toxic fracking wastewater into a local river. In 2011, another company was caught dumping millions of gallons of fracking wastewater into rivers, streams and sewers, with economic and environmental consequences for the communities impacted. The owner got a slap on the wrist.

The longer Marcellus drilling goes on, the more stories communities are collecting about the various impacts. All of these should be taken into consideration when calculating what an area stands to gain or lose from fracking.

“When the economic waters recede, the flotsam left behind can look more like the aftermath of a flood than of a rising tide,” wrote Christopherson.