economics

Tue, 2014-12-02 04:00Sharon Kelly
Sharon Kelly's picture

Hard Times in a Boom Town: Pennsylvanians Describe Costs of Fracking

If you're looking for the shale gas boom, northeastern Pennsylvania is the place to start.

The Marcellus is the largest and fastest growing shale gas play in the U.S. and more than half of its 50 most productive wells were drilled in Susquehanna County in the northeast. Susquehanna and neighboring Bradford County produced 41 percent of all Marcellus gas this June.

While drilling is down in other shale gas plays across the US, with major oil companies selling off their stakes and CEO's expressing regret for buying in, the Marcellus has bucked some of the downward trends so far.

A recent report from the Post Carbon Institute, “Drilling Deeper: A Reality Check on U.S. Government Forecasts for a Lasting Tight Oil and Shale Gas Boom,” has grave warnings about the Energy Information Administration's figures nationwide, concluding that two-fifths of the shale gas the agency expects to be produced between now and 2040 will likely never materialize. While many high-profile shale gas plays have already peaked in terms of gas production per well, the Marcellus appears to be an outlier in terms of productivity, researcher David Hughes concludes.

Enormous amounts of shale gas are being produced in Pennsylvania. In the first six months of this year, drillers here pumped 2 trillion cubic feet of gas. And much of this gas came from the Marcellus shale's twin sweet spots, in the Northeast and Southwest corners of the state.

In the whirlwind of activity, some locals in here struck it rich – those who owned large tracts of land and negotiated their deals at exactly the right moment. Driving through the county, it seems like every back road has a red-and-white permit sign marking a shale gas well, a water impoundment, or other Marcellus-related infrastructure.

Tue, 2014-10-28 05:00Sharon Kelly
Sharon Kelly's picture

When the Shale Runs Dry: A Look at the Future of Fracking

If you want to see the future of the shale industry — what today's drilling rush will leave behind — come to Bradford, Pennsylvania.

A small city, it was home to one of America's first energy booms, producing over three quarters of the world's oil in 1877. A wooden oil rig towering over a local museum commemorates those heady days, marking the first “billion dollar oil field” in the world.

But times have changed dramatically in Bradford. Most of the oil has been pumped out, leaving residents atop an aging oil field that requires complicated upkeep and mounting costs. Since its height in the 1940's, Bradford's population has steadily declined, leaving the city now home to only 8,600 people, down from over 17,000. 

The story of Bradford these days is a story of thousands of oil and gas wells: abandoned, uncapped, and often leaking.

To drive through McKean County, home to Bradford and much of the Allegheny National Forest, is to witness an array of creative ways people have found to hide the remnants of this bygone boom. Rusted metal pipes — the old steel casings from long abandoned wells — jut from lawns and roadsides. Mailboxes are strapped to some of the taller pipes. In autumn, abandoned wells are tucked behind Halloween props and hay bales in front yards.

The aging steel pipes aren't just on land. They line creek beds, water flowing around one rusted pipe then another.

Hundreds are even submerged in the Allegheny Reservoir, small bubbles of methane gas the only visible sign of their existence. But in many cases, these rusted top hats from now deceased wells simply protrude from locals' lawns.

They are visual reminders that, for local communities where mining or drilling happens, fossil fuel wealth burns hot and short. Where there's a boom, there's bound to be a bust.

Fri, 2014-10-24 04:20Brendan Montague
Brendan Montague's picture

How Traditionalist Hayek Feared Science Would Lead to Socialism

Margaret Thatcher’s intellectual love affair with the economist Friedrich von Hayek continued despite divergent views on the importance of science, rationality and truth… 

Margaret Thatcher presented a clear argument before the Royal Society in 1988: The free market economy depended on a sustainable natural ecology. And science provided the necessary knowledge to guide the industry on what would, in fact, be sustainable.

The then-Prime Minister's argument was based on reason. It was rational to expect her fellow free market ideologues to agree with her simple premise. But it seemed Thatcher's adherence to science, distilled during her time studying chemistry at Cambridge, was not shared by her philosophical allies.

Thu, 2014-10-09 15:40Farron Cousins
Farron Cousins's picture

Impoverished Nations To Suffer More As Climate Change Worsens

For most Western societies, climate change has largely been an “out of sight, out of mind” issue. Even the disasters that we have seen in America – more extreme droughts, floods, hurricanes, etc. – have not been enough to spark meaningful action from the government. But for people in developing parts of the world, the effects of climate change are not only real, but they are severely impeding their way of life right now.

A new report by the Overseas Development Institute (ODI) says that those same developing countries, which also happen to be some of the most impoverished nations in the world, are already experiencing the disastrous effects of climate change at an alarming rate. And because they are so poor, they are unable to fund both anti-poverty initiatives and climate change mitigation programs.

The report lays out the problem bluntly:

The international community has fundamentally failed to put in place at sufficient scale either the financing or the delivery mechanisms needed to strengthen the resilience and enhance the adaptation capabilities of vulnerable people. As a result, government and household budgets in the poorest countries have been left to foot the bill for a threat that originates principally in richer countries.

Wed, 2014-09-17 02:16Brendan Montague
Brendan Montague's picture

“Starting With a Mistake, A Remorseless Logician Can End Up in Bedlham”

Hayek achieved his dream of becoming a university academic, but could he really challenge the intellectual prowess and political influence of the master John Maynard Keynes?

Friedrich von Hayek had abandoned his early socialism in favour of neoliberal free market ideas. But the fashionable theory sat somewhere between the two. John Maynard Keynes, who always denied being influenced by the German revolutionary Karl Marx, had apparently devised a historic compromise between the markets and socialist state planning.

Keynes argued that the government should use its economic powers to manage the markets. This included government lending and spending to promote growth, and encouraging housewives to spend their savings. The Cambridge professor attained his prestige and influence because his prescriptions had survived academic scrutiny and practical application during the wars.

Hayek had an almost impossible task. He had to devise an economic counter-argument to Keynes, and to expose any logical inconsistency in his analysis and works. The “war of ideas” would have global economic consequences. And the Marxists, Fabians and Keynesians who dominated both Cambridge and the London School of Economics (LSE) were not going to make it easy.

Tue, 2014-07-08 15:56Guest
Guest's picture

Addressing Global Warming is an Economic Necessity

David Suzuki

This is a guest post by David Suzuki

Those who don’t outright deny the existence of human-caused global warming often argue we can’t or shouldn’t do anything about it because it would be too costly. Take Prime Minister Stephen Harper, who recently said, “No matter what they say, no country is going to take actions that are going to deliberately destroy jobs and growth in their country.”

But in failing to act on global warming, many leaders are putting jobs and economic prosperity at risk, according to recent studies. It’s suicidal, both economically and literally, to focus on the fossil fuel industry’s limited, short-term economic benefits at the expense of long-term prosperity, human health and the natural systems, plants and animals that make our well-being and survival possible. Those who refuse to take climate change seriously are subjecting us to enormous economic risks and foregoing the numerous benefits that solutions would bring.

The World Bank — hardly a radical organization — is behind one study. While still viewing the problem and solutions through the lens of outmoded economic thinking, its report demolishes arguments made by the likes of Stephen Harper.

Tue, 2014-03-04 05:00Sharon Kelly
Sharon Kelly's picture

The View from Europe: America’s Shale Boom Looks More Like a Blip

The fracking boom has progressed at breakneck speed across the U.S., with roughly one in 20 Americans now living within a mile of a well drilled since 2000.

So, how much has the economy benefitted from this drilling surge?

Not much, according to a report presented to the European Union Parliament last month, which found “no evidence that shale gas is driving an overall manufacturing renaissance in the US.”

The shale boom’s economic contributions are very narrow, inflating local economies in places where drilling is intense but generating little impact on the country’s overall economic growth, the Institute for Sustainable Development and International Relations, a French think tank, concluded.

Although natural gas prices have fallen from their highs in 2008, benefitting consumers, those low levels are unlikely to be sustained and the U.S. is still expected to remain heavily reliant on importing crude oil, the researchers found.

Even using very optimistic assumptions, the report said, the industry’s cumulative long term effect on America’s Gross Domestic Product (GDP) will be less than one percent. “Despite very low and ultimately unsustainable short-term prices of natural gas, the unconventional oil and gas revolution has had a minimal impact on the US macro-economy,”

That’s not the amount that shale gas will add to the economy each year, the researchers said. Instead, the industry will make up no more than 0.84 percent of total GDP between 2012 and 2035 – the years when the shale boom is projected to be at its height. To put that in context, the personal care products industry – hair styling, cosmetics and the like – contributed 1.4 percent of GDP in 2010 – nearly double the impact that the EU report found the shale gas rush could have.

Fri, 2013-07-26 09:00Laurel Whitney
Laurel Whitney's picture

New Nature Study Calls Melting Underwater Arctic Permafrost An "Economic Time Bomb"

Three academics walk into a bar.

After what must have been the worst happy hour ever, they emerge having discovered that melting oceanic permafrost could come with a hefty $60 trillion dollar price tag, slightly less than the entire world economy.

We calculate that the costs of a melting Arctic will be huge, because the region is pivotal to the functioning of Earth systems such as oceans and the climate. The release of methane from thawing permafrost beneath the East Siberian Sea, off northern Russia, alone comes with an average global price tag of $60 trillion in the absence of mitigating action — a figure comparable to the size of the world economy in 2012 (about $70 trillion). The total cost of Arctic change will be much higher.

Penned in a recent issue of Nature, Gail Whitman (Sustainability professor at Erasmus University Netherlands), Chris Hope (Policy modeler, University of Cambridge) and Peter Wadhams (Ocean physics, University of Cambridge) set out to calculate the economic consequences of an ice-free Arctic, which some have estimated could happen as early as 2020.

Their main concern followed the melting of underwater permafrost - called methane clathrates - in which natural methane gas beneath the ocean is trapped in frozen beds of ice. Normally, the cold temperatures of ocean water and high pressure of ocean sitting atop the clathrates keep them in place. But with the Arctic ice cap quickly melting, the warming may penetrate farther toward the ocean floor and release this 50 Gt reservoir of methane.

Like stinky bubbles emanating from their Arctic bathtub, methane, a much more powerful greenhouse gas than CO2 with about 20x the warming capability, could either be released gradually over time, or in one fell swoop, accelerating atmospheric warming.

Wed, 2012-12-19 10:16Farron Cousins
Farron Cousins's picture

Group Sues Obama Administration Over Offshore Oil And Gas Leasing Program

A lawsuit has been filed against the Obama administration over the economic claims that the Bureau of Ocean Energy Management (BOEM) made in their 5-year plan to open up new areas around the United States to offshore oil and gas leasing.  The suit, filed by the Center for Sustainable Economy (CSE), says that the administration not only grossly exaggerated the economic benefits of increased energy exploration, but also that they failed to take all costs into account.

BOEM’s plan would lease a total of 15 new areas for exploration, including areas within the Gulf of Mexico, the Cook Inlet, Alaskan waters, and the Beaufort Sea.  But rather than focusing strictly on the environmental impact of the projects, CSE took an approach that tends to have better results in Washington – Economics.

The economic argument is very powerful, as CSE explains that the increased oil and gas exploration will cost the United States more than it will gain.  And according to federal laws (specifically Section 18 of the Outer Continental Shelf Lands Act), in order to grant permission for projects such as the leasing program, there must be a net public gain. 

For example, the best estimates for the amount of money to be made from oil and gas in these areas ranges from $1 to $2 billion per year.  However, these areas currently provide an economic boost of as much as $70 billion a year from fishing, tourism, and other activities, all of which could be decimated in the event of an oil spill.

Tue, 2012-07-03 15:51Ben Jervey
Ben Jervey's picture

Bloomberg Stunner: How Chesapeake Energy Paid Less Than a 1% Tax Rate On $5.5 Billion in Profits

Chesapeake Energy, a company that is no stranger to financial scandals, has found itself on the front page of the financial papers again. This time, the subject is taxes. Or how Chesapeake barely pays them.  

Over its 23-year history, Chesapeake Energy, the second largest producer of natural gas in the U.S., and the company described by its founder and CEO Aubrey McClendon as “the biggest frackers in the world,” has earned roughly $5.5 billion in pre-tax profits. To date, the company has paid $53 million in taxes. That’s an effective tax rate of under 1 percent - a massive taxpayer subsidy.

The corporate income tax rate in the U.S. is 35 percent. 

The Bloomberg article that exposed these stunning figures is quick to note that this is far less than the 12 percent rate that GE paid in 2010 that caused such public outrage, and even a tiny percentage of the 18 percent effective rate that Google had to answer for.

So how does Chesapeake pull this off? Mostly, it’s due to a rule written in 1916 that allows oil and gas producers to, according to Bloomberg, “postpone income taxes in recognition of the inherent risk of drilling wells that may turn out to be dry.

The break may be outdated for companies such as Chesapeake, which, thanks to advances in technology, struck oil or gas in 99.6 percent of its wells last year.“ When the policy was written, drillers struck “dry wells” roughly 80 percent of the time.

Pages

Subscribe to economics