A nat­u­ral gas boom that echoes far and wide

The Washington Times Weekly - - National - BY BEN WOLF­GANG

SLO­VAN, Pa. | Paul Bat­tista opened his in­dus­trial sup­ply store in this small town south­west of Pitts­burgh 31 years ago in the hopes of do­ing big busi­ness with the in­fant so­lar-power in­dus­try. He called his store Sun­ny­side Sup­ply as a nod to what he viewed at the time as the fu­ture of Amer­i­can en­ergy.

Times have changed, and so has his cus­tomer base.

Sun­ny­side’s re­cent prof­its are through the roof, up more than 200 per­cent in the past three years. Mr. Bat­tista’s work­force has tripled since 2008, from five to 15 em­ploy­ees. So­lar power wasn’t the eco­nomic sav­ior, how­ever. In­stead, the boom­ing Mar­cel­lus Shale nat­u­ral gas drilling in­dus­try gave the small-town busi­ness­man the means to build a big­ger, bet­ter store and in­vest in new trucks to trans­port goods to gas com­pa­nies drilling across west­ern Penn­syl­va­nia.

“We’re mod­el­ing our busi­ness to what they need,” Mr. Bat­tista said of his ap­proach, which of­ten in­volves night­time trips across the state to fetch rare parts.

Sun­ny­side Sup­ply’s suc­cess is just one side ef­fect of the gas in­dus­try’s mad rush for Penn­syl­va­nia, one of the rich­est parts of the Mar­cel­lus Shale, a mam­moth chunk of marine sed­i­men­tary rock stretch­ing from New York as far south as Ken­tucky. An­a­lysts say “the Shale” holds as much as 516 tril­lion cu­bic feet of nat­u­ral gas, enough to sup­ply Amer­ica’s de­mand for a cen­tury or more.

A method called hy­draulic frac­tur­ing, or “fracking,” is the key to har­vest­ing the boun­ti­ful sup­ply thou­sands of feet be­low ground. Mil­lions of gal­lons of wa­ter are mixed with sand and chem­i­cals and pumped into the ground, crack­ing open the rock and lib­er­at­ing the gas so it can be pumped to wait­ing pipe­lines.

The cut­ting-edge tech­nol­ogy is rev­o­lu­tion­iz­ing the en­ergy in­dus­try, chang­ing the eco­nomic land­scape across the state and giv­ing new life to com­mu­ni­ties that were strug­gling to make ends meet.

En­vi­ron­men­tal crit­ics have raised a num­ber of con­cerns, in­clud­ing the risk of con­tam­i­nat­ing lo­cal wa­ter sup­plies and the im­pact on vul­ner­a­ble small com­mu­ni­ties from bil­lion-dol­lar out­sider cor­po­rate in­ter­ests fo­cused first and fore­most on mak­ing a quick buck. Other crit­ics say the gas com­pa­nies should face higher taxes to help the state’s dire fi­nan­cial sit­u­a­tion.

Sen. Robert P. Casey Jr., Penn­syl­va­nia Demo­crat, has re­jected the idea that drilling for nat­u­ral gas and pro­tect­ing the lo­cal en­vi­ron­ment are mu­tu­ally ex­clu­sive, but he told a Capi­tol Hill hear­ing two weeks ago that there was rea­son to be cau­tious.

“I sup­port re­spon­si­ble gas ex­plo­ration, yet I strongly feel that we must pro­tect against reper­cus­sions that not only harm the en­vi­ron­ment and put peo­ple at risk, but also hurt busi­ness and af­fect the econ­omy. Dam­ag­ing in­ci­dents can spark strong back­lashes and end up stalling eco­nomic de­vel­op­ment.”

Early pay­off

Still, the early pay­off from the en­ergy boom is read­ily ap­par­ent in these parts.

Newly paved roads are com­mon in Wash­ing­ton and sur­round­ing ar­eas. Multi­bil­lion-dol­lar gas com­pa­nies need sturdy path­ways to move their rigs and other equip­ment. The de­cay­ing, pot­hole-rid­dled streets or dusty, un­paved routes of years past won’t cut it.

“Us as a town­ship, we could never af­ford to even think of build­ing a road like that,” said Mr. Bat­tista, tools and equip­ment hang­ing on racks be­hind him and em­ploy­ees busily jot­ting down the day’s or­der.

Other busi­nesses also are see­ing huge pay­days. Rig work­ers for drilling com­pa­nies such as Range Re­sources, one of the big­gest play­ers in the game, end up at lo­cal bars and restau­rants af­ter their shifts.

But they also must eat on the job. The hec­tic sched­ule doesn’t al­low them to clean up and take a for­mal one-hour lunch break. In­stead, the food comes to them.

“It’s the best thing that ever hap­pened to me,” said Frank Puskarich, owner of Hog Fa­ther’s restau­rant in Wash­ing­ton and daily caterer to Range Re­sources’ “frack jobs” across the re­gion. The bois­ter­ous bar­be­cue pit mas­ter said he has hired eight em­ploy­ees who do noth­ing but pre­pare chicken, ribs, brisket, mac­a­roni and cheese and other entrees for tired, hun­gry work­ers. He picked up the con­tract with Fort Worth, Texas-based Range Re­sources five years ago, and that also has helped drive busi­ness to his small es­tab­lish­ment in Wash­ing­ton.

“It’s stand­ing-room only for lunch” ev­ery day, Mr. Puskarich said. “[Busi­ness] has been tremen­dous. There’s a lot of work for peo­ple who want it, and not just in the food busi­ness.”

Along In­ter­state 80 in north­east­ern Penn­syl­va­nia, ho­tels are be­ing built at a fran­tic pace. It’s tough to get a room in places such as Towanda in Brad­ford County, the epi­cen­ter of Mar­cel­lus Shale drilling in the north­ern half of the state.

Brad­ford County and nearby Tioga County now boast two of the low­est un­em­ploy­ment rates in the state, a stark change from just a few years ago.

“These towns a few years ago were on their last legs,” said Gene Barr, vice pres­i­dent of gov­ern­ment and pub­lic af­fairs at the Penn­syl­va­nia Cham­ber of Busi­ness and In­dus­try.

Oth­ers are re­ceiv­ing big checks sim­ply be­cause they are lucky enough to live on land suit­able for drilling. Range Re­sources and other com­pa­nies work out lease agree­ments with res­i­dents, usu­ally farm­ers who part with a few acres in ex­change for up­front money and monthly roy­al­ties for years. Many of those farm­ers carry on their work as usual, tend­ing to their land and har­vest­ing crops, but are able to in­vest thou­sands of dol­lars in new equip­ment be­cause of their deals with en­ergy gi­ants.

A drive through back­woods ar­eas of west­ern Penn­syl­va­nia re­veals new homes with ex­pen­sive sport util­ity ve­hi­cles or lux­ury cars in drive­ways, just seven years af­ter the first Mar­cel­lus Shale well was drilled in the state.

“The in­dus­try, by its very na­ture, has to have good re­la­tions with the landown­ers. They’re our busi­ness part­ners,” said Kathryn Klaber, pres­i­dent of the Mar­cel­lus Shale Coali­tion, a brother­hood of gas com­pa­nies.

Schools also are jump­ing on the band­wagon, of­fer­ing train­ing pro­grams for their stu­dents to lead them into jobs where they of­ten earn $75,000 a year or more. The drilling com­pa­nies re­cruit many of those stu­dents be­fore they grad­u­ate.

A battle over taxes

Penn­syl­va­nia is at­trac­tive to big en­ergy com­pa­nies for an­other rea­son: no sev­er­ance tax on nat­u­ral-gas pro­duc­tion.

The state’s com­peti­tors, in­clud­ing Texas, Ok­la­homa, Wy­oming, Louisiana and West Vir­ginia, all tax gas, but Penn­syl­va­nia re­mains the only state that does not. For years, lawmakers have de­bated whether such a tax is nec­es­sary. Crit­ics con­tend that the in­dus­try has blocked a tax through in­tense lob­by­ing ef­forts and the fi­nan­cial sup­port for lead­ers in the state leg­is­la­ture.

One of most high-pro­file ex­am­ples in­volved Se­nate Pres­i­dent Pro Tem­pore Joseph B. Scar­nati III, who ac­cepted tick­ets for the Fe­bru­ary Su­per Bowl from a lead­ing gas-drilling com­pany. Af­ter­ward, he said he planned all along to re­im­burse the com­pany for the tick­ets, lodg­ing costs and other re­lated ex­penses.

Mr. Scar­nati ear­lier this month in­tro­duced a plan call­ing for gas com­pa­nies to pay the state $10,000 for each well they drill in Penn­syl­va­nia. At least six other tax pro­pos­als are alive and well in the state, in­clud­ing one from state Rep. Greg Vi­tali, a Demo­crat who rep­re­sents the af­flu­ent Philadel­phia sub­urbs.

“I think it is po­lit­i­cal in­flu­ence that’s at play here,” he said in an in­ter­view with The Wash­ing­ton Times on May 23. “The drilling in­dus­try has spent enor­mous amounts of money on po­lit­i­cal con­tri­bu­tions. There is no good pol­icy rea­son to not im­pose this tax.”

Mr. Vi­tali es­ti­mated that his plan would raise $200 mil­lion this fis­cal year, money that would go a long way to plug Penn­syl­va­nia’s pro­jected multi­bil­lion-dol­lar bud­get deficit. It would tax nat­u­ral gas at 6 per­cent of the cur­rent mar­ket value of the fuel. He said that would still give his state an eco­nomic edge over oth­ers, some of which tax gas at nearly 10 per­cent.

The money would be split three ways: A third would go to the state’s gen­eral fund, a third to mu­nic­i­pal­i­ties and a third to en­vi­ron­men­tal stew­ard­ship pro­grams, which fund wa­ter and for­est-restora­tion ef­for ts statewide.

Of the plans on the ta­ble, Mr Vi­tali’s would raise the most money over the next five years, ac­cord­ing to an anal­y­sis from the Penn­syl­va­nia Bud­get and Pol­icy Cen­ter. Other pro­pos­als would im­ple­ment tax rates of about 3 per­cent.

Nat­u­ral-gas pro­po­nents think crit­ics are off base.

“It’s a myth that they’re not pay­ing any taxes,” said Tom Ridge, for­mer Penn­syl­va­nia gov­er­nor and home­land se­cu­rity sec­re­tary and cur­rent ad­viser to the Mar­cel­lus Shale Coali­tion. He ar­gues that the drilling com­pa­nies al­ready pay mil­lions of dol­lars into state cof­fers each year in cor­po­rate and other taxes.

Oth­ers dis­pute that. The Bud­get and Pol­icy Cen­ter re­leased a re­port last month claim­ing that gas com­pa­nies struc­ture their books to avoid taxes.

Ei­ther way, a “tax” ap­pears un­likely. Repub­li­cans dom­i­nate the House and Se­nate, and Gov. Tom Cor­bett, also a Repub­li­can, made a “no new taxes” pledge dur­ing his elec­tion cam­paign last year. Some say he could re­main true to his word but still em­brace an “im­pact fee,” as Mr. Scar­nati and oth­ers have pro­posed.

In­dus­try in­sid­ers also point out that gas com­pa­nies don’t need the gov­ern­ment’s help to start op­er­a­tions, as is of­ten the case with large-scale wind-or so­lar-power projects.

“We’re not wait­ing for sub­si­dies. We’re not wait­ing on new tech­nol­ogy from any­one. This was done the old-fash­ioned way,” said Range Re­sources spokesman Matt Pitzarella.

ANDREW S. GERACI/THE WASH­ING­TON TIMES

Pip­ing is re­moved from a drill used in the “fracking” process to re­cover nat­u­ral gas from the mas­sive Mar­cel­lus Shale in Wash­ing­ton, Pa. The tech­nol­ogy is chang­ing Penn­syl­va­nia’s econ­omy.

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