Evaluating Pittsburgh’s Municipal Hydraulic Fracturing Moratorium:
The Costs and Benefits of Fracing vs. Coal Power Generation
Team 11:
Elise Houren
Mike Roth
Max Schwartz
Colleen Wang
Energy and Energy Policy
December 9, 2013
Introduction
On November 16th, 2010, the Pittsburgh City Council passed a city ordinance banning natural gas
drilling within city limits, the first of its kind in the nation.1 In justifying the ban, the Council
declared
that the commercial extraction of natural gas in the urban environment of Pittsburgh
poses a significant threat to the health, safety, and welfare of residents and
neighborhoods within the City. Moreover, widespread environmental and human health
impacts have resulted from commercial gas extraction in other areas. Regulating the
activity of commercial gas extraction automatically means allowing commercial gas
extraction to occur within the City, thus allowing the deposition of toxins into the air,
soil, water, environment, and the bodies of residents within our City.2
When the ban passed, 2,413 shale gas wells had already been drilled statewide, according to the
State’s well reporting website. While no wells had been drilled within city limits, the ordinance
ended leasing activity – 362 acres had already been leased.3 The ban was not without controversy,
controversy which continued long after the passage of the ban. In 2012, the state of Pennsylvania
passed Act 13, its comprehensive shale gas regulation.4 A provision of that law gave the state’s
Public Utility Commission the ability to review and overturn municipal fracing regulations. In
September of that year, the Commission invalidated Pittsburgh’s ban, stating that it conflicted
with state law.5 Pittsburgh has not decided to modify the ban, and the ban has not been challenged
Ben Price, “Pittsburgh Bans Natural Gas Drilling,” The Community Environmental Legal Defense Fund,
November 16, 2010, http://www.celdf.org/press-release--pittsburgh-bans-natural-gas-drilling
2
Pittsburgh Municipal Code §618.01, accessed December 7, 2013
http://fracking.weebly.com/uploads/9/4/8/2/9482774/pittsburgh-ordinance.pdf
3
“Pittsburgh Bans Natural Gas Drilling,” CBS News, November 16, 2010, accessed December 7, 2013,
http://www.cbsnews.com/news/pittsburgh-bans-natural-gas-drilling/
4
“Act 13,” Pennsylvania Department of Environmental Protection,
http://www.depweb.state.pa.us/portal/server.pt/community/act_13/20789
5
Laura Olson and Joe Smydo , “PUC says Pittsburgh's ban on natural gas extraction conflicts with state
law,” Pittsburgh Post-Gazette, September 11, 2012, accessed December 7, 2013, http://www.post1
in court.6 The ban remains relatively uncontroversial within Pittsburgh.7 The passage of the
municipal fracing ban means that Pittsburgh, while the commercial and logistical hub of
Marcellus shale gas drilling, does not support any drilling economy of its own with in city limits.8
As noted above, potential environmental and human health effects stemming from drilling were
the primary concern of the Pittsburgh City Council when they approved the ban in 2010. At the
same time, Pittsburgh is powered by some of the dirtiest coal-fired power in the nation, and health
risks due to air pollutant exposure adversely affect citizens of the city. This paper investigates
whether Pittsburgh has made the correct choice. Our thought experiment analyzes a scenario in
which one of Pittsburgh’s dirtiest power plants – the Cheswick Power Station, is replaced with a
significantly cleaner Natural Gas Combined Cycle (NGCC) power plant. This analysis is carried
out assuming that the hypothetical NGCC plant is supplied using natural gas extracted from
beneath the city using modern shale gas extraction techniques. With this paper, we seek to
quantify whether the potential damages arising from natural gas exploration within Pittsburgh city
limits outweigh the potential benefits derived from using this natural gas to replace coal that
fuels the Cheswick Power Station.
Background
Natural Gas in the 21st Century – The Shale Gas Revolution, Fracing and the Marcellus
Basin
gazette.com/neighborhoods-city/2012/09/11/PUC-says-Pittsburgh-s-ban-on-natural-gas-extractionconflicts-with-state-law/stories/201209110196#ixzz26CWnyggO
6
Anya Litvak, “Pittsburgh Drilling Ban after Effects - Pittsburgh Business Times,” accessed December 9,
2013, http://www.bizjournals.com/pittsburgh/blog/energy/2010/11/pittsburgh-drilling-ban-aftereffects.html.
7
Liz Reid,“Five Candidates Vie for Open Seat on Pittsburgh City Council,” accessed December 9, 2013,
http://wesa.fm/post/five-candidates-vie-open-seat-pittsburgh-city-council.
8
Romy Varghese, “Pittsburgh Rebound Sparked by Spurned Gas Frackers,” Bloomberg, August 8, 2012,
accessed December 6, 2013, http://www.bloomberg.com/news/2012-08-09/pittsburgh-rebound-sparked-byspurned-gas-frackers.html
As recently as five years ago, most energy experts predicted that the U.S. had discovered the
majority of its domestic natural gas reserves. The EIA’s Annual Energy Outlook 2008, which
utilizes 2006 data, forecasted that domestic natural gas production would grow by 5% over the
next two decades, to 19.4 trillion cubic feet in 2030.9 The gap between relatively constant supply
and an increasing nationwide demand would necessitate the import of expensive liquefied natural
gas. These projections, similar to many in the field of energy forecasting, proved to be incorrect.
In actuality, The U.S. produced over 20 trillion cubic feet of natural gas in 2008 and 24 trillion
cubic feet in 2012.10 The 2013 Annual Energy Outlook now projects domestic gas production to
reach 30 trillion cubic feet by 2030, a 55% increase over 2008 projections.11 Due to increased
domestic production, natural gas prices have tumbled from nearly $8.00 per thousand cubic feet
to $2.66 per thousand cubic feet.12 The natural gas import market collapsed, and the terminals
Figure 1: The Shale Gas Revolution – Production in Bcf/day, 2000-2013
Source: EIA, http://www.eia.gov/energy_in_brief/article/about_shale_gas.cfm
“EIA Annual Energy Outlook 2008: With Projections to 2030” (Energy Information Administration
Office of Integrated Analysis and Forecasting, June 2008),
http://www.eia.gov/forecasts/archive/aeo08/pdf/0383(2008).pdf.
10
“U.S. Dry Natural Gas Production,” accessed November 5, 2013,
http://www.eia.gov/dnav/ng/hist/n9070us2A.htm
11
“Annual Energy Outlook, 2013,” Energy Information Agency, accessed November 10, 2013,
http://www.eia.gov/forecasts/aeo/pdf/0383(2013).pdf
12
“U.S. Natural Gas Wellhead Price,” accessed November 5, 2013,
http://www.eia.gov/dnav/ng/hist/n9190us3A.htm
9
built to process natural gas imports are retrofitting to process burgeoning natural gas exports.13
What energy analysts couldn’t predict in 2008 was the “Shale Gas Revolution” – the discovery
and exploitation, using cutting-edge drilling technology, of natural gas reserves locked within
vast deposits of shale rock located across the country (see Figure 2 below)..
Figure 2: Shale Gas Basins across the United States.
Source: http://www.pickensplan.com/news/2010/04/07/map-natural-gas-shale-basin-locations-in-the-unitedstates/
Shale Gas Basins
Shale is an extremely common family of sedimentary rocks, comprising more than fifty percent
of the planet’s sedimentary rock.14 Partially this is because the definition of shale is quite broad,
including impermeable, extremely fine-grained sedimentary rocks of a variety of compositions
13
14
http://texas.construction.com/texas_construction_projects/2011/0418_changingmarkets.asp
http://www.halliburton.com/public/solutions/contents/shale/related_docs/H063771.pdf
and structures.15 Critically, the amount of organic matter contained rock formations can vary
considerably. In certain formations, organic matter accumulates within the sediment, and as the
sediment is transformed by the heat and pressure of burial into rock, the organic material within is
transformed into hydrocarbons. Organic matter in shale is the original source of all hydrocarbons
– the pressure of burial slowly pushes the hydrocarbons into sandstones and limestones, where
they were traditionally extracted.16
Figure 3: A comparison of pore sizes in shale (left) and sandstone (right). Note that the scale of
the left-hand image is 2000 times smaller than that on the right.
Source: Chris Perry and Larry Wickstrom, “The Marcellus Shale Play: Geology, History and Oil & gas
Potential in Ohio,”
http://www.dnr.state.oh.us/Portals/10/Energy/Marcellus/The_Marcellus_Shale_Play_Wickstrom_and_Pe
Significant volumes of natural gas (as well as associated “natural gas liquids” such as butane,
ethane and propane) remain trapped in the shale, both within pores in the rock and within the
shale matrix itself.17 Unlike sandstones or limestones, which have relatively high “porosity” –
which allows hydrocarbons to flow relatively easily through the rock– shale has very fewer,
Quinn Passey et al., “From Oil-Prone Source Rock to Gas-Producing Shale Reservoir – Geologic and
Petrophysical Characterization of Unconventional Shale-Gas Reservoirs” (Society of Petroleum Engineers,
2010), doi:10.2118/131350-MS.
16
“Shale Gas Background Note,” accessed December 1, 2013,
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/48332/5057-backgroundnote-on-shale-gas-and-hydraulic-fractur.pdf
17
Passey et al., “From Oil-Prone Source Rock to Gas-Producing Shale Reservoir – Geologic and
Petrophysical Characterization of Unconventional Shale-Gas Reservoirs.”
15
smaller and less well connected pores, making it nearly impermeable to hydrocarbons.18 As a
result, oil and gas flow very slowly through the rock and cannot be removed using traditional
techniques. This delayed exploitation of shale resources until the refinement of a series of new
drilling techniques, discussed below.19 Shale formations containing commercially recoverable gas
exist between 500-11,000 feet below ground.20 The EIA projects that these formations contain
approximately 665 trillion cubic feet (tcf) of technically recoverable shale gas reserves.21 These
reserves are distributed in basins around the country, but current production comes from only a
handful of formations, mostly in Texas and its neighbors (the Barnett, Woodford and Haynesville
basins), and Pennsylvania (the Marcellus.)
The Marcellus Shale
The Marcellus Shale is the largest shale gas basin in the country, stretching over approximately
95,000 mi2 from central New York State into Western Pennsylvania, Ohio and West Virginia.22
The Marcellus is a shale rock formation with high concentrations of organic material, laid down
during the Devonian period of Earth’s history (approximate 350-400 million years ago) when a
shallow sea filled the eastern U.S. west of the Appalachians.23 Today, this layer of rock is
generally buried at least 5,000’ below ground, and may reach more than 9,000’ in some areas
(though in others it is actually present at the surface).24 Estimates of total recoverable gas reserves
John A. Harper, “The Marcellus Shale—An Old ‘New’ Gas Reservoir in Pennsylvania,” Pennsylvania
Geology 38, no. 1 (2008): 2–13.
19
Ibid.
20
Lisa Sumi, Shale Gas: Focus on the Marcellus Shale (Oil & Gas Accountability Project/Earthworks,
May 2008), http://www.marcellus.psu.edu/resources/PDFs/Focusonthemarcellus.pdf.
21
Peggy Wells, “Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137
Shale Formations in 41 Countries Outside the United States,” June 2013.
22
Rameshwar Srivastava et al., “Impact of the Marcellus Shale Gas Play on Current and Future CCS
Activities” (National Energy Technology Laboratory, August 2010).
23
J. Daniel Arthur, Brian Bohm, and Mark Layne, “Hydraulic Fracturing Considerations for Natural Gas
Wells of the Marcellus Shale,” in Groundwater Protection Council Annual Forum. Cincinnati, 2008,
http://www.thefriendsvillegroup.com/HydraulicFracturingReport1.2008.pdf.
24
Sumi, Shale Gas: Focus on the Marcellus Shale.
18
within the shale basin range from 141 tcf to upwards of 339 tcf.25 At current rates, this is about 613 times U.S. yearly natural gas consumption. As described above, hydrocarbons trapped in
shales provided the source for many traditional oil and gas resource plays. In the case of the
Marcellus, it was one of the reservoirs of the oil and gas which fueled the 19th and early 20th
Century oil booms throughout Appalachia and created companies like John D. Rockefeller’s
Standard Oil.26 Modern exploration of the Marcellus began with the development of new drilling
technologies, particularly horizontal drilling and hydraulic fracturing, discussed below. In 2005,
an exploration company called Range Resources imported those technologies from another shale
gas play, the Barnett Shale of Texas.27 Range Resources’ wells produced significant gas outflows,
and the Marcellus boom began. Since 2005, 7,323 “unconventional” (i.e. hydrofractured shale
gas) wells have been drilled across the state of Pennsylvania alone.28 Prices for oil and gas leases,
which had remained relatively constant for many years prior, spiked, jumping from $25/acre to as
much as $6,000 in 2010, though prices have subsequently fallen.29
Production of natural gas from the Marcellus Shale remains strong and growing, with more than
1.4 tcf produced in the first six months of 2013, a 57% increase compared to the first half of
2012.30If the land directly above the Marcellus Shale comprised its own country, it would be the
25
2012 EIA Annual Energy Outlook (low), Vello Kuuskraa, Scott Stevens & Keith Moodhe, Technically
Recoverable Shale Gas and Shale Oil Resources: An Assessment of 137 Shale Formations in 41 Countries
Outside the United States (2013).
26
Arthur, Bohm, and Layne, “Hydraulic Fracturing Considerations for Natural Gas Wells of the Marcellus
Shale.”
27
John A. Harper, The Marcellus Shale—An Old “New” Gas Reservoir in Pennsylvania 38 Pa. Geol. 9
(2008).
28
DEP Office Of Oil And Gas Management Spud Data,
http://www.depreportingservices.state.pa.us/ReportServer/Pages/ReportViewer.aspx?/Oil_Gas/Spud_Exter
nal_Data
29
Chris Perry and Larry Wickstrom, “The Marcellus Shale Play: Geology, History and Oil & gas Potential
in Ohio,”
http://www.dnr.state.oh.us/Portals/10/Energy/Marcellus/The_Marcellus_Shale_Play_Wickstrom_and_Perr
y.pdf
30
Marie Cusick, “Marcellus Shale Gas Production Numbers Surge,” State Impact, August 19, 2013,
accessed December 9, 2013 http://stateimpact.npr.org/pennsylvania/2013/08/19/marcellus-shale-gasproduction-numbers-surge/
eighth-largest natural gas producer in the world.31 As noted above, this production would not be
possible without two significant technological improvements in drilling techniques: horizontal
drilling and hydraulic fracturing (known as “fracing” within the oil and gas industry). Together,
these techniques have unlocked significant new resource plays across the United States and the
world, while at the same time raising significant questions about their impact on air and water
quality, water supply, and community infrastructure.
Shale Gas Mining Technology: Horizontal Drilling and Hydrofracturing
As noted above, the geological features of shale make it difficult to produce commercially viable
quantities of gas using traditional drilling techniques. Instead, the oil and gas industry has
developed and refined a series of alternative techniques, allowing shale basins like the Marcellus
Shale to be opened to development. Horizontal drilling, the first of the new techniques used in the
Marcellus Shale, allows wells to access a significantly larger portion of the gas-baring rock than a
comparable vertical well. Horizontal wells are drilled in the exact same manner as a vertical well
to within 300-500’ of the gas-bearing rock formation.32 At that point, the well itself is curved,
until it reaches a horizontal orientation perpendicular to the initial portion of the well, within the
target formation.33 The horizontal portion of the well can be extended more than 8,000’ from the
initial wellhead, allowing a single well to drain significantly more of the formation.34 Horizontal
wells produce between 2.5 and 7 times more natural gas than a comparable vertical well.35 This
“Marcellus Shale gas growing faster than expected,” Associated Press, October 22, 2013, accessed
December 7, 2013, http://online.wsj.com/article/AP2e119ea41fcd43248a082bc6e6ad4e24.html
32
Lynn Helms, “Horizontal Drilling,” DMR Newsletter 35, no. 1 (2008),
http://www.landownerassociation.ca/rsrcs/Horizontal.pdf.
33
Ibid.
34
Ibid. at 3
35
Derek Lammers and Taylor Williams, “THE PROCESS OF HYDROFRACKING AND ITS
ENVIRONMENTAL IMPACT,” accessed November 26, 2013,
http://136.142.82.187/eng12/Chair/data/papers/3212.pdf.
31
increased productivity means that fewer wells need to be drilled, reducing the requirements for
well pads, pipelines and other surface disturbance.36
While horizontal drilling does allow a single well to be far more productive than its traditional
vertical counterpart, it still does not address the non-permeability issues associated with shale.
This is where the second innovation – fracing – comes into play. Natural fractures in the
Marcellus Shale are common along the shore of Lake Erie, as well as areas of Kentucky, West
Virginia and Ohio; these natural fractures allow hydrocarbons to drain from the Marcellus Shale
at a high enough rate to maintain oil and gas production.37 Hydrofracturing creates and extends
similar fractures along a well bore using sand, chemicals and water pressure in order to create
open fractures deep underground. Fracing works by pumping sand and a fluid (traditionally
water, though kerosene was used historically) down the well bore at high pressure until the rocks
within the target layer begin to crack.38 The sand acts to “prop open” these newly created
fractures, and the fractures increase the surface area of the well, allowing more gas to flow into
the well bore.39 Fracing is a complex process, requiring significant resource and novel technical
inputs which raise a number of questions about potential environmental effects. First, significant
amounts of water are necessary to maintain the tremendous pressure that opens fractures; 2.5
million to as much as 8 million gallons of water are used during drilling and fracture
stimulation.40 Second, fracing fluid is not merely water; it contains a complex mix of chemicals
which increase the viscosity of the water and limit corrosion to the well casing.41 In most cases,
the precise contents of fracing fluid are closely kept trade secrets, and environmental laws in
Arthur, Bohm, and Layne, “Hydraulic Fracturing Considerations for Natural Gas Wells of the Marcellus
Shale.”
37
Harper, “The Marcellus Shale—An Old ‘New’ Gas Reservoir in Pennsylvania.” 22.
38
Ibid.
39
Ibid.
40
Brian G. Rahm et al., “Wastewater Management and Marcellus Shale Gas Development: Trends,
Drivers, and Planning Implications,” Journal of Environmental Management 120 (May 15, 2013): 105–
113, doi:10.1016/j.jenvman.2013.02.029.
41
J. Daniel Arthur et al., “Evaluating the Environmental Implications of Hydraulic Fracturing in Shale Gas
Reservoirs” (ALL Consulting, 2008).
36
Pennsylvania and elsewhere do not always require public disclosure.42 Large amounts – up to
5,000 gallons – of hydrochloric acid is also pumped into well before the fracturing fluid to clear
any residue within the bore, and other additives, such as potassium chloride, are used to prevent
other potential problems.43 After the initial fracturing of the well, as much as 20% of this water
may flow back out through the wellhead, necessitating containment and disposal efforts.
Furthermore, there are concerns that the fracing fluids and gas that remain underground may
migrate into groundwater, contaminating drinking water supplies.44
42
LAURA LEGERE , Gas rules offer more - but not complete - disclosure of fracking chemicals, The
Times Tribune 7 November 2010, http://thetimes-tribune.com/news/gas-rules-offer-more-but-notcomplete-disclosure-of-fracking-chemicals-1.1060647
43
Arthur et al., “Evaluating the Environmental Implications of Hydraulic Fracturing in Shale Gas
Reservoirs.” at 18.
44
Stephen G. Osborn et al., “Methane Contamination of Drinking Water Accompanying Gas-Well Drilling
and Hydraulic Fracturing,” Proceedings of the National Academy of Sciences 108, no. 20 (May 17, 2011):
8172–8176, doi:10.1073/pnas.1100682108.
Figure 4: Horizontal drilling and hydrofracturing processes.
Source: http://www.propublica.org/special/hydraulic-fracturing-national
Figure 5: Pittsburgh at 8:38 am: Corner of Liberty and Forbes Ave 1940 vs. 2013.
The City of Pittsburgh
The City of Pittsburgh is located in southwest Pennsylvania at the confluence of the Allegheny,
Ohio, and Monongahela rivers. The city received its official charter in 1816 from the
Commonwealth of Pennsylvania and accounts for 55 square miles of Allegheny County.45
Pittsburgh’s population peaked at 676,806 in 1950 and has since declined to 306,211 as of 2012.46
The decline in Pittsburgh’s population is due in large part to the collapse of the steel industry in
the early 1980’s.47
45
Joel A. Tarr, Devastation and Renewal: An Environmental History of Pittsburgh and Its Region
(University of Pittsburgh Pre, 2005).
46
“Pittsburgh (city), Pennsylvania,” United States Census Bureau, accessed December 9, 2013,
http://quickfacts.census.gov/qfd/states/42/4261000.html
47
Tarr, Devastation and Renewal.
During the height of steel manufacturing in Pittsburgh, environmental quality was hugely
problematic. In the 1940’s, air pollution was so severe that it blocked out sunlight, requiring
streetlights to be lit 24 hours a day48. Since then, however, Pittsburgh has been transformed from
a city that was often referred to as “Hell with the lid taken off” to the United States “2011 Most
Livable City” as rated by the Economist’s Intelligence Unit49.
Despite the drastic and consistent improvement in Pittsburgh’s air quality over time, it still ranks
amongst the 6th most polluted city in the United States with regard to short term and year-round
particulate pollution50. Additionally, due in large part to EPA classified Hazardous Air Pollutants
(HAP) emissions, residents of Pittsburgh and Allegheny county have twice the risk of developing
cancer compared to residents in other parts of Pennsylvania51.
The Case Study
Below, we introduce and describe our case study for the city. It begins with an assessment of the
Cheswick Power Station, one of the dirtiest coal-fired power plants in the Pittsburgh region. It
then follows with an assessment of the availability of land for shale gas drilling within the city,
and the maximum number of wells and gas production that this land would allow. Finally, it
concludes with a build-out analysis describing the wells built and production estimates for those
wells.
“Pittsburgh, the ‘smoky city’,” accessed December 9, 2013,
http://www.popularpittsburgh.com/pittsburgh-info/pittsburgh-history/darkhistory.aspx
49
“Pittsburgh Reigns As One Of World's Most Livable Cities,” Office of the Mayor, accessed December 9,
2013, http://www.pittsburghpa.gov/rss/print.htm?mode=print&id=1662
50
“American Lung Association’s Annual State of the Air Report Finds Air Quality Improvements in
Nation’s Most Polluted Cities,” American Lung Association, accessed December 9, 2013,
http://www.lung.org/press-room/press-releases/state-of-the-air-2012.html
51
Drew Michanowicz, et al. “Pittsburgh Regional Environmental Threats Analysis Report August 2013,”
University Of Pittsburgh Graduate School Of Public Health, accessed December 9, 2013,
http://www.heinz.org/UserFiles/Library/PRETA_HAPS.pdf
48
The Cheswick Power Station: History & Emissions
The Cheswick Power Station is located along the Allegheny River in Springdale, Pennsylvania,
approximately 15 miles east of downtown Pittsburgh. It was built in 1970 and has a nameplate
capacity of 637 MW.52 The most current electric production and emissions data for the Cheswick
plant come from the US Environmental Protection Agency’s (EPA) Electric Generation Resource
Integrated Database (eGRID) and the Allegheny County Health Department’s (ACHD) Point
Source Emission Inventory Report.
Figure 6: The Cheswick Power Station
In 2009 the Cheswick Power Station generated 2,765,084 MWh of electricity and had a capacity
factor of 50%. As outlined in the table below, the Cheswick Power Station alone was responsible
for 81% of SO2 emissions, 31% of NOx emissions, 20% of PM10 emissions, and 23% of PM2.5
emissions for all of Allegheny County in 2009. In 2009 the EPA mandated that emitters record
“Group Against Smog and Pollution,” accessed December 9, 2013, http://gasppgh.org/projects/coal/cheswick-power-plant/
52
and report the emissions of 187 Hazardous Air Pollutants (HAP) as well as the emissions of the
criteria pollutants listed below. According to ACHD, the Cheswick Power Station was also
responsible for the emission of 85.2% of total hydrochloric acid and 92.8% of hydrofluoric acid
in Allegheny County in 200953. 2009 data for Allegheny County total C02eq emissions is not
available, however, in 2012, the Cheswick Power Station was responsible for 24% of total
Allegheny county C02eq emissions from large facilities and 64% of power plant C02eq emissions.54
Total 2009 Pollutant Emissions
(Metric Tons)
CO
NOx
PM10
PM2.5
S02
VOC
C02
CO2eq
Cheswick
Power Plant
265
2721
248
195
30087
9
2,571,085
2,585,258
Total Allegheny County
Point Source Emissions
5051
8846
1223
855
37068
1530
-
% of Total Allegheny
County Emissions
5%
31%
20%
23%
81%
1%
2012 data: ~24%
*Criteria Emissions Data from ACHD. C02 & C02eq data is from eGRID.
Cheswick Power Plant: Natural Gas vs. Coal Fuel
There are several power plants in Allegheny County (population 1.2 million) that have been
converted from coal to natural gas, including one adjacent to Cheswick Power Station, commonly
referred to as Allegheny Energy Units 1-5. Many of these conversions include replacement of
coal boilers with combined cycle natural gas turbines.55 This section outlines the fuel
requirements and potential air emission benefits from substituting natural gas for coal for power
production at the Cheswick Power Station. According to the US Energy Information Association
(EIA), the average heat content of bituminous coal consumed in the US contains 22 million BTU
Marie Kelly and Douglas Oleniacz, “Point Source Emission Inventory Report,” Allegheny County Health
Department, April 30, 2011, accessed December 1, 2013,
http://www.achd.net/air/pubs/pdf/2009_PointSource_Emission_Inventory.pdf
54
“2012 Greenhouse Gas Emissions from Large Facilities,” Environmental Protection Agency, accessed
November 28, 20 13, ghgdata.epa.gov
55
Brian Reinhart et al., “A Case Study on Coal to Natural Gas Fuel Switch,” Black and Veatch.
53
per metric ton. 56 The Cheswick Power Plant heat input in 2009 was 27,647,162 MMBtu and the
plant’s nominal heat rate was 10,000 BTU/kWh. 57 In order to generate 2.77 million MWh of
electricity, the plant required approximately 1 million metric tons of bituminous coal, which were
shipped by barge along the Allegheny River. The table below lists emissions factors for the
Cheswick Power Station as well as the Argonne National Lab US average reported emissions for
a coal boiler plant and natural gas combined cycle plant (NGCC).
Pollutant Emissions
lbs/MWh
CO
NOx
PM10
PM2.5
S02
VOC
C02
Cheswick Power
Plant
0.211
2.169
0.198
0.155
23.988
0.007
2050
Argonne National Lab
Coal Boiler US AVG
0.217
3.228
0.470
0.394
10.443
0.026
2072
Argonne National Lab
NGCC US AVG
0.062
0.139
0.002
0.002
0.004
0.004
901
Cheswick Power emissions factors are consistent across ACDH and EIA data and similar to
Argonne’s US average data for coal power plants. In order to quantify the annual difference in
emissions between coal and natural gas to generate power, the 2009 Cheswick Power station
emissions are compared with the average NGCC power plant operated under Argonne National
Lab emission factors listed in the table above. As outlined in the table below, if the Cheswick
Power plant was retrofitted to combust natural gas with a NGCC turbine, total emissions of all
pollutants would fall substantially between 49%-100%. In absolute scale, the two highest
reductions are 1.4 million metric tons of C02, 30,081 metric tons of S02 and 2,547 metric tons of
NOx.
“Glossary: Coal,” accessed November 28, 2013, http://www.eia.gov/tools/glossary/?id=coal
“eGRID,” Environmental Protection Agency, accessed November 28, 2013,
http://www.epa.gov/cleanenergy/energy-resources/egrid/index.html
56
57
Pollutant
CO
NOx
PM10
PM2.5
S02
VOC
C02
Emissions from 2,765,084 MWh of Production (Metric tons)
Argonne NGCC US
Emissions
Cheswick Power Plant
AVG
Reduction
265
77
187
2721
174
2547
248
2
246
195
2
192
30087
6
30081
9
5
5
2571085
1130090
1440995
% Change
71%
94%
99%
99%
100%
49%
56%
The Cheswick Plant: A Natural Gas Combined Cycle Alternative
A NGCC design is the most common for newly constructed natural gas power plants.58
Figure 7: A simplified diagram of a Natural Gas Combined Cycle power plant, showing
both the gas turbine and steam turbine that produce electricity.
Source: http://www.ucsusa.org/clean_energy/our-energy-choices/coal-and-other-fossil-fuels/hownatural-gas-works.html
58
H. Cai, M. Wang, A Elgowainy, and J. Han, Updated Greenhouse Gas and Criteria Air Pollutant
Emission Factors and Their Probability Distribution Functions for Electric Generating Units (Chicago:
Argonne National Lab, 2012), 43.
NGCC plants operate by combusting natural gas in order to rotate a turbine and produce
electricity. The waste heat produced during the first combustion cycle is captured and used to
convert water into steam. This steam is used to spin a second generator and produce additional
electricity.59 This double cycle results in efficiency levels approaching 50%, a vast improvement
over conventional boiler based power plants that operate at roughly 30% efficiency.6061 It is the
combination of the relatively cleanliness of the fuel – natural gas vs. coal – and this increased
efficiency that allows for the reduced emissions rates described the table above. NGCC plants are
relatively simple to construct, requiring only a 2.5-year lead-time for permitting and
construction.62
According to the National Energy Technology Lab (NETL), a current natural gas combined cycle
power plant requires 6,719 Btu of natural gas to generate each kWh of electricity. 63 Assuming
that 1 cf of natural gas contains 1,000 Btu, producing 2.77 MWh would require 18.6 Bcf of
natural gas annually.
The Feasibility of Drilling for Gas in Pittsburgh
While Pittsburgh has become the economic and logistical hub of the Marcellus shale gas industry,
exploration and drilling has been largely concentrated well outside of the Pittsburgh area. To date,
only 30 wells have been drilled in Allegheny County, while more than 800 have been drilled in
neighboring Washington County, and over 1,100 in Bradford County in the north-central portion
“How it Works: Water for Natural Gas,” Union of Concerned Scientists, accessed December 9, 2013,
http://www.ucsusa.org/clean_energy/our-energy-choices/energy-and-water-use/water-energy-electricitynatural-gas.html
60
“Natural Gas Combined-Cycle Plant,” National Energy Technology Laboratory, accessed December 9,
2013, http://www.netl.doe.gov/KMD/cds/disk50/NGCC%20Plant%20Case_FClass_051607.pdf
61
“Average Tested Heat Rates by Prime Mover and Energy Source, 2007 – 2011,” Energy Information
Administration, accessed December 9, 2013, http://www.eia.gov/electricity/annual/html/epa_08_02.html
62
“Gas-fired combined-cycle power plant,” accessed December 9, 2013,
http://www.axpo.com/axpo/ch/en/axpo-erleben/kraftwerke/gas-kombikraftwerk.html
63
“Natural Gas Combined-Cycle Plant,” National Energy Technology Laboratory
59
of the state.64 While this is due largely to Pittsburgh’s fracing ban, the lack of previous
exploration activity means that certain questions about gas production would need to be answered
before drilling could begin. First and most basic, how much gas is recoverable from Marcellus
shale in the Pittsburgh area? Second, most Marcellus shale development has occurred in primarily
rural areas in Pennsylvania; moving into an urban area means that the surface impacts of drilling
must compete with denser, urban development. Simply put, is there enough open space in
Pittsburgh to allow for sufficient gas production to meet the demand of a Cheswick sized plant?
Assessing the Resource
Producing an estimate of gas reserves for any particular portion of the Marcellus shale is a
difficult undertaking. Gas reserves vary based on a number of factors, including organic content
of the shale, permeability of the rock, the time over which the organic material within the rock
has been subjected to heat, and the thickness of the rock itself.65 Each of these factors is
determined through repeated drilling and core analysis. The relative importance of each of these
factors can vary widely within a single shale basin like the Marcellus.
The Marcellus shale has been categorized into two “core” areas, where the interaction of the
factors noted above create regions where resource estimates (known as “gas in place” or GIP) are
highest. The first is located in north-central Pennsylvania, centered on Bradford County and the
New York border, while second is in southwest Pennsylvania and includes Pittsburgh and its
suburbs.66 This southwestern “core” occurs in an area where the Marcellus shale is relatively thin,
“Pennsylvania Counties with Active Wells,” accessed December 9, 2013,
http://stateimpact.npr.org/pennsylvania/drilling/counties/
65
W. A. Zagorski et al., “An Overview of Some Key Factors Controlling Well Productivity in Core Areas
of the Appalachian Basin Marcellus Shale Play,” in Critical Assessment of Shale Resource Plays (abs.):
AAPG/Society of Exploration Geophysicists/Society of Petroleum Engineers/Society of Petrophysicists and
Well Log Analysts Hedberg Research Conference, Austin, Texas, 2010,
http://www.searchanddiscovery.com/abstracts/html/2011/annual/abstracts/Zagorski.html.
66
Ibid. at 2.
64
only 50-200’ thick.67 However, other factors, including very high concentrations of organic
matter and larger pore sizes (leading to greater permeability) lead to high GIP estimates of 40-175
Bcf/mi2.68
Fig. 7: Range Resources Corporation estimates of gas in place in Upper Devonian, Marcellus
and Utica shales throughout southwest Pennsylvania.
Source: Roger Manny, Range Resources Corporation 14 (2013).
Two further geologic characteristics make southwest Pennsylvania an especially productive
region for natural gas. First, the area contains multiple, “stacked” layers of natural gas-bearing
shales, most of which have not been developed to the extent of the Marcellus. Located above the
Marcellus, a series of shale reservoirs known as the Upper Devonian Shale contain another 40130 Bcf/mi2 of estimated GIP.69 Below the Marcellus, located at approximately 9,000’-11,000’ is
the Utica Shale.70 The Utica Shale, like the Marcellus, is an important developing gas basin, and
67
Ibid. at 7.
Roger Manny, “Range Resources Corporation,” November 12, 2013.
69
Ibid. at 12.
70
David G. Hill, Tracy E. Lombardi, and John P. Martin, “Fractured Shale Gas Potential in New York,”
Northeastern Geology Environmental Science 26 (2004): 57–78.
68
also has its highest concentrations of GIP in southwest Pennsylvania, reaching 60-180 Bcf/mi2 in
the Pittsburgh area.71 In total, this leads to GIP estimates potentially as high as 200-400 Bcf/mi2
in the shale plays 4,000’ – 11,000’ below Pittsburgh.72 The city of Pittsburgh is approximately
55.5mi2 in extent; given the range of GIP estimates, this suggests that there are between 11,100
Bcf and 22,200 Bcf of potentially recoverable gas reserves within city boundaries.73 Even if
development focuses only on the Marcellus shale, the formation contains between 2,220 Bcf and
9,712 Bcf in estimated recoverable gas.
Assessment of Open Space in Pittsburgh
Though horizontal drilling techniques discussed above have limited the surface impacts of gas
exploration, drilling still requires open space. Horizontal drilling requires a well pad which is at
minimum 3 acres in size,74 essentially the same and area as two soccer fields.75 Such a pad can
serve as the host of up to as many as 8 individual horizontal wells, draining 640 acres (or a square
mile).76 After the initial drilling and fracing of the well, surface uses drop significantly (due to
the removal of the drilling rig and any fracing fluid containment ponds or tanks) to only ~1 acre.77
Pennsylvania state regulations further limit where drilling can take place – well bores must be set
back 300’ – 1,000’ from existing waterways and 500’ from existing structures.78
In order to determine the amount of open space available for gas exploration within Pittsburgh
city limits, we used the city’s extensive collection of Geographical Information Systems (GIS)
Manny, “Range Resources Corporation.”
Ibid. at 14.
73
“Pittsburgh Fact Sheet,” accessed December 9, 2013,
http://www.city.pittsburgh.pa.us/cp/html/pittsburgh_fact_sheet.html
74
Mark Storzer, “Letter Regarding Horizontal Drilling and 2006 Reasonably Foreseeable Development
Scenario” (Bureau of Land Management, May 3, 2012).
75
http://www.shale-gas-information-platform.org/categories/operations/the-basics.html
76
Daniel Arthur and David Cornue, “Technologies Reduce Pad Size, Waste,” American Oil and Gas
Reporter 53, no. 8 (2010): 94–99.
77
Storzer, “Letter Regarding Horizontal Drilling and 2006 Reasonably Foreseeable Development
Scenario.” 11 at 2.
78
Nathan Richardson et al., The State of State Shale Gas Regulation (Resources for the Future, June 2013).
71
72
data available at http://pittsburghpa.gov/dcp/gis/. Pittsburgh has extensive vacant property; over
27,000 individual parcels totaling over 4,500 acres or about 12.8% of all land within city limits.
GIS data layers containing these vacant parcels were screened to remove any parcel below the
minimum size for a well pad during the initial drilling phase (3 acres). Parcels were then modified
to conform to the wellbore setback regulations enforced by the state for existing buildings and
waterways. The results show a relatively small number of properties, which could host setbackcompliant drilling operations. 211 different properties meet both the minimum size requirements
for a gas well pad and contain space within their lot lines sufficiently set back from nearby
buildings or water sources to place the well bores themselves. Given the nature of horizontal
drilling Due to significant clustering, especially in the southwest portion of the city, means that
only 30 potential 640-acre drainage units could be accessed from the conforming properties,
representing 54% of the city’s area. Even given this limited scope of drilling, the high
productivity of horizontal wells means that significant volumes of gas are recoverable from
beneath Pittsburgh.
In their investor reports, exploration companies operating in Pennsylvania disclose productivity
information about their wells, including monthly (and sometimes daily) gas production,
horizontal wellbore length, and “estimated ultimate recovery” (EUR), the companies assessment
of the total production of any single well over the course of its 40-50 year life. Production from
gas and oil wells declines according to well-understood asymptotic curves.79 Fitting the first few
weeks of any particular well’s production to the appropriate decline curve allows an estimate of
total gas production.80 These disclosures show that wells in southwest Pennsylvania have an EUR
Troy Cook, “Calculation of Estimated Ultimate Recovery for Wells in Continuous-Type Oil and Gas
Accumulations of the Uinta-Piceance Province,” International Journal of Coal Geology 56, no. 1–2
(November 2003): 39–44, doi:10.1016/S0166-5162(03)00074-0.
80
Ibid.
79
of between 2 Bcf and 3.5 Bcf per 1,000’ of horizontal extent.81 Extrapolating out to a 5,000’ well
(the local industry target) and an 8-well, 640-acre drainage unit yields estimates of 10-17.5
Bcf/well and 80-140 Bcf per drainage unit.82
Figure 8: Pittsburgh Vacant Property Conforming to State Drilling Setback
Regulations
Full exploitation of the 30 drainage units accessible from the vacant properties identified above
would allow for recovery of 2.4 trillion cubic feet (Tcf) and 4.2 Tcf of gas from the city. (Even
this represents only approximately 20% of the total GIP estimated beneath the city, according to
the estimates described above.)
Marcellus Drilling News, “EQT Analyst Presentation for Marcellus Shale Drilling Program,” 14:04:37
UTC, http://www.slideshare.net/MarcellusDN/eqt-analyst-presentation-for-marcellus-shale-drillingprogram.
(low estimate); Richard Ziets, “20 Bcf Per Well: New Operating Standard In The Marcellus Shale?,”
accessed December 6, 2013, http://seekingalpha.com/article/1777122-20-bcf-per-well-new-operatingstandard-in-the-marcellus-shale.(High estimate)
82
Marcellus Drilling News, “EQT Analyst Presentation for Marcellus Shale Drilling Program.”
81
Finally, this analysis represents a relatively conservative estimate of available open space; the
analysis includes only currently vacant properties within the city, but a number of other sites exist
which could host gas exploration operations. Chiefly, there is the Hays Woods, a 635-acre,
undeveloped tract of land, which has already been the focus of previous resource exploration
activities.83 Other areas include the city’s significant ownership of undeveloped land, or the
significant backlog of developed but unused property, such as foreclosures or brownfields.
Well Build-Out Analysis
As discussed above, a natural gas power plant replacing the production of the Cheswick Power
Station (2,765,084 MWh annually) would consume approximately 18.6 Bcf/year of natural gas or
a total of 558 Bcf of gas over the plant’s estimated 30-year lifetime. Through the experience of oil
and gas companies in the region, and their EUR estimates for other Pennsylvania drilling projects
suggests that there is more than sufficient gas accessible from identified vacant parcels to meet
such demand, we conducted a build-out analysis, using production models from horizontallydrilled, Pennsylvania natural gas wells to project year-on-year natural gas production and
consumption.
A summary of that analysis is presented in Fig 9. The analysis shows that 193 wells would need
to be drilled over a 30-year time frame to support the requirements of a new Cheswick Power
Station sized natural gas power plant. All of the wells in our model are drilled in the first ten
years after Pittsburgh permits drilling, with a significant decline in the number of new wells
drilled in each year. Given the expense of leasing and the nature of shale gas plays, leases are
purchased and wells are drilled very quickly after a new area is opened to drilling, following a
Caralyn Green, “State board protects city's Hays Woods from strip mining,” POPCity, accessed
December 9, 2013, http://www.popcitymedia.com/devnews/hayswoods0527.aspx
83
sigmoid curve. Evidence of such a pattern can be seen in the Barnett shale of Texas.84 Because
shale gas wells still produce for a significant amount of time, large amounts of gas can be
recovered even after this initial burst of activity.85 We sought to create a model that allowed for a
burst of initial drilling activity, but still produced enough gas to allow for operation of our NGCC
plant solely on Pittsburgh-produced gas alone throughout its 30-year useful life.
250
100.00
200
80.00
150
60.00
100
40.00
Total Wells Drilled
Natural Gas Production, MMcf
120.00
50
20.00
0.00
Legacy Gas
Production
New Gas
Production
NGCC Plant
Gas
Consumption
0
1
3
5
7
9 11 13 15 17 19 21 23 25 27 29
Years (1 = 2016)
Figure 9: Results of 30-Year Well Build-Out Analysis
To create this model, we used well productivity data as of May 2013 provided by the mining
company EQT.86 We used EQT’s data because it was the most granular, providing monthly
production estimates, as well information about the average EQT well. However, EQT’s
production estimates are actually at the low end for the industry; these data project 9.8 Bcf of gas
will be produced over a single horizontal well’s 60-year lifetime, while other companies are
Collin Eaton, “Declining Barnett Shale Could Remain Strong Natural Gas Producer,” Fuel Fix, accessed
December 8, 2013, http://fuelfix.com/blog/2013/09/24/barnett-shale-could-remain-strong-natural-gasproducer-through-2030/.
85
Ibid.
86
Available online at http://ir.eqt.com/event/presentation/marcellus-decline-curves-data-may-2013
84
projecting EUR as high as 14-17.5 Bcf.87 Therefore, our analysis yields a conservative estimate of
necessary wells; technological and productivity gains could necessitate even fewer required wells
to meet the demands of a newly constructed power plant.
Cost Benefit Analysis: Introduction
Our cost-benefit analysis is centered around the hypothetical NGCC power plant replacing the
Cheswick Power Station. Given that, the analysis begins in the year 2016 (allowing for the
approximately 30 month permitting and construction time necessary for an NGCC plant).
Hydraulic fracturing and natural gas extraction begins on January 1, 2016, and the NGCC plant
begins producing electricity June 1, 2016. Our analysis has a 30-year horizon, reflecting the 30year useful life of an NGCC plant. Following our discussions in class on discount rates, we use a
7% discount rate for the entire span of the cost-benefit analysis.
The costs and benefits analyzed here fall into three broad categories: first, there are the benefits
produced by a reduction in air pollutants that occurs as a result of the switch from coal-fired to
natural gas-fired generation. Second, there are benefits to the city that come from extra fees paid
and extra taxes collected as a result of certain kinds of core natural gas exploration and drilling
jobs relocating to Pittsburgh from other states. Finally, there are a series of costs that stem from
additional pollution created by the wells themselves, and the expenses necessary to avoid surface
and groundwater contamination from wells.
Because our analysis is focused on a relatively narrow group, we do not consider a number of
additional costs and benefits. Some benefits, such as royalty revenues and the taxes on those
revenues are quite significant but are discounted because they flow either to individual citizens
rather than the community as a whole, or because they flow to the county or state government
87
Ziets, “20 Bcf Per Well.”
without a clear pathway for their return to Pittsburgh itself. Other issues are excluded because
their effects are poorly studied or unclear.
Finally, the friction created by transaction costs in a complex system is also discounted. These
transaction costs could cause delays in the implementation of drilling or power plant construction,
and include the process of securing natural gas leases and NIMBY or social justice concerns with
locating the new power plant or high concentrations of gas wells.
Emissions Reductions Benefits
The pollutants listed in the Cheswick Power Plant inventory are widely accepted as the cause for
adverse human health impacts such as cancer, chronic bronchitis, asthma attacks, heart attacks,
and premature deaths. Additionally, these emissions cause harm to the environment with regard
to acid rain and smog, and the economy in the form of hospital admissions and lost workdays8889.
In order to assess the social benefits associated with the decrease in emissions from the
replacement of Cheswick Power Plant’s coal boiler, valuations for emissions abatement were
88
“Rocky Mountain Institute,” Accessed Nov 30, 2013. http://www.rmi.org/RFGraphhealth_effects_from_US_power_plant_emissions
89
“US EPA About Air-Toxics” Accessed Dec 8, 2013 http://www.epa.gov/ttn/atw/allabout.html
produced based on estimates from 42 different valuation studies compiled by Matthews and
Lave90. The value of avoided damage per metric ton for each pollutant were adjusted for inflation
and outlined in the table below. The median values were selected for this study, which are similar
to EPA valuations, also included in the table below.
Pollutant
CO
NOx
PM10
PM2.5
S02
VOC
Total Allegheny County Abatement Benefits In 2013 Dollars
Emissions
Reduction
Min
Median
Mean
Max
187
$311
$161,689
$161,689
$326,488
2547
$930,097
$4,481,376 $11,837,596
$40,163,273
246
$303,452
$894,384
$1,373,518
$5,174,649
192
$303,452
$894,384
$1,373,518
$5,174,649
30081 $38,449,796 $89,882,639 $99,869,599 $234,693,558
5
$1,224
$10,707
$12,236
$33,650
EPA
$168,426
$4,476,402
$900,191
$900,191
$89,882,639
$10,834
These data serve as the basis for our cost benefit analysis, which includes the pollutants listed
below. Additionally, the same valuation for PM10 was applied to PM2.5 due to the lack of
valuation studies for PM2.5. This is likely a conservative estimate due to the fact that PM2.5 is
thought to be more harmful than PM10 and travels deeper into respiratory pathways. Pollution
from the Cheswick Power Station is assumed to apply equally to all 1.2 million residents of
Allegheny County. Pittsburgh’s population represents 25% of Allegheny County. This analysis
attributes 25% of the social benefits of abatement to residents of the City of Pittsburgh. C02
valuation is outside the scope of this study due to the non-acute nature of emissions.
Economic Benefits and Revenue Enhancements to the City of Pittsburgh
Pittsburgh also stands to reap direct financial benefit from allowing shale gas exploration within
its borders. The state of Pennsylvania has a comprehensive regulation and taxation system for the
extraction of shale gas, and some portion of that money flows down to each municipality which is
90
H. Scott Matthews and Lester B. Lave, “Applications of Environmental Valuation for Determining Externality Costs” Environmental
Science & Technology 34 (2000): 1390-1395.
impacted by well drilling. Also, each producing well leads to changes in economic activity and
wage earning, both of which taxed in various ways by the city. The prospective source of revenue
through taxes is seen at the local level through personal income tax revenue of those employed by
the Marcellus Shale industry, and through increased sales revenue due to those employed by the
Marcellus Shale industry. The increase in Marcellus activity in Pittsburgh would potentially
increase such revenue.
The following is a break down of potential impacts from Marcellus activity for Pittsburgh through
taxes and growing economic activity. At the local level sources of revenue include: 1) income tax
from employment or wage increases, 2) sales tax as Allegheny County adds an additional 1%
sales tax that remains within the county 25% of which is distributed to all municipalities, and 3)
property tax.
Earned Income Tax
The City of Pittsburgh collects a tax on the income of its residents, as well as workers from out of
state known as the “Earned Income Tax.” There is evidence that Marcellus shale drilled leads to
increased local incomes, and increased local tax collection. As established by the Manhattan
Institute, between 2007 - 2011 per-capita income rose by 19% in Pennsylvania counties with
more than 200 wells, by 14% in counties with between 20 and 200 wells, and by 12% in counties
with fewer than 20 wells. In counties with no fracing, income saw increases of only 8%.91 The
Center for Economic and Community Development at Penn State University also discovered
average increases in wages in counties with the most Marcellus activity between 2008 and 2010.92
Andrew Gray and Diana Furchtgott-Roth. “The Economic Effects of Hydrofracturing on Local
Economies: Comparison of New York and Pennsylvania,” The Manhattan Institute, May 1 2013,
accessed November 29, 2013, http://www.manhattan-institute.org/pdf/gpr_1.pdf
91
Kirsten Hardy and Timothy W. Kelsey, “Marcellus Shale and Local Economic Activity: What
the 2012 Pennsylvania State Tax Data Say,” Penn State Center for Economic and Community
92
Wage increases in counties with significant shale gas activity were over seven times greater than
the average increases seen in counties without Marcellus activity.93 Allegheny County, with
limited Marcellus shale gas activity, saw taxable compensation income increase merely 0.4%. 94
The City of Pittsburgh Personal Income Tax is levied at the rate of 1% for both residents of and
those working in Pittsburgh, meaning even if these industry workers are from out of state their
income is still taxed.95 While shale gas drilling may not lead to the creation of new jobs within
Pittsburgh, it will lead to the transfer of jobs from outside of Pittsburgh (and in the case of “core”
jobs, such as drilling rig engineers, from outside the state) into the city. Therefore the city should
enjoy increases in tax collections, as taxes that would have been paid to other jurisdictions are
paid to Pittsburgh instead. According to the Pennsylvania Department of Labor and Industry, the
average wage for core jobs in the Marcellus industry is $83,300. The average wage for all other
industry in Pennsylvania is $48,50096.
We developed an estimate of the number of jobs “transferred” to Pittsburgh (and therefore
creating new tax revenue for the city) using the Pennsylvania Department of Labor and Industry
census of individuals employed by Marcellus Shale related industries. That document shows that
28,155 people were employed statewide in “core industry” jobs – jobs related directly to the
exploration and drilling of new wells.97 We converted that number to a per-well average using the
total number of wells drilled since 2005 (7,323), and including estimates of the total number of
Development. 13 Nov. 2013.
93
94
Ibid.
Hardy.
“Tax Rates by Type,” accessed November 29, 2013,
http://www.city.pittsburgh.pa.us/finance/assets/forms/2012/12-tax-rate-by-tax-type-with-librarytax.pdf
96
“Marcellus Shale Regional (WIA) Reports,” accessed November 29, 2013,
http://www.portal.state.pa.us/portal/server.pt?open=514&objID=1222103&mode=2
97
Marcellus Shale Regional (WIA) Reports,” accessed November 29, 2013,
http://www.portal.state.pa.us/portal/server.pt?open=514&objID=1222103&mode=2
95
wells being drilled this year (1,214). 98 Tax revenues flowing to the city were broken down by
estimating the total local level collections based on the wage levels of state and local taxes
according to the Institute on Taxation & Economic Policy (ITEP) published January 2013.
Sales Tax
Pittsburgh will also collect additional revenues as sales tax collections increase within the city.
Once again, data collected by The Center for Economic and Community Development shows that
Marcellus gas activity is correlated to increases in sales tax collection. Counties with 150 or more
Marcellus wells drilled between 2007-2012 had an average increase of 26.9% in sales tax
collection while counties with no Marcellus activity had an average decrease of 12.6%. Those
counties with less than 150 wells experienced decreases but at a lower rate than counties with no
Marcellus activity, such that those with 10-149 wells saw a decrease of 2% and those with 1-9
wells saw a decrease of 4.5%.99
Sales tax is levied at a rate of 6% by the state. Allegheny County is unique as it can implement a
1% additional sales tax to generate local revenue, 25% of which is distributed among each
municipality. Once again, we use ITEP estimates to determine the true share of a shale gas
worker’s income that will be spent on local sales taxes. ITEP estimates that at the appropriate
salary levels 2.9% will be the total sales tax collection for both state and local sales taxes. The
2.9% differs from 7% (6% state tax plus 1% local tax) because this estimate reflects spending on
items subject to sales tax. This number is further reduced to reflect the portion of the collection
returning to the city.
Impact Fee
Marcellus Shale Oil and Gas Reports,” accessed November 29, 2013,
http://www.depweb.state.pa.us/portal/server.pt/community/oil_and_gas_reports/20297
99
Hardy.
98
While Pennsylvania does not impose a severance tax, which is an extraction tax of the resource, it
Figure 10: Tiered structure of PA Impact Fees
Source: http://www.puc.state.pa.us/filing_resources/issues_laws_regulations/
act_13_impact_fee_.aspx
does impose an impact fee, a per-well charge for shale gas wells throughout the state. The impact
fee legislation was signed into law on February 14, 2012. The fee is imposed on producers
depending on a complex, declining formula which correlates both to the age of the well and the
wellhead price of natural gas.
$202 million was collected statewide in impact fees in 2012 and was distributed to counties, local
jurisdictions and state agencies according a complex formula. The law gives an earmark – i.e. the
first revenue collected – of $25.5 million to state environmental and energy regulators. From what
remains, 60% goes to counties and municipalities. Of the 60% that goes to counties and
municipalities, distributions are further broken up such that 36% goes to counties with wells, 37%
goes to municipalities with wells, and 27% to municipalities in counties with wells. The 27% is
broken down to: 50% goes to municipalities that host, are contiguous with or are within 5 linear
miles of municipalities with wells and the other 50% to all municipalities within the county.
When determining the share that each county municipality receives, a formula is used which
relates the number of wells in each county and municipality, as well as the population and road
mileage of each municipality. 100
We developed a model to project impact fee receipts by Pittsburgh. That model was based on
projections developed by the Pennsylvania Budget and Policy Center. Their report projects
impact fee receipts out to 2019, and we extended their projections through the end of our analysis
period in 2045, making assumptions about declines in revenue due to the increase in the average
age of the Marcellus well population.101 Our model also includes assumptions about the
relationship between Pittsburgh’s population and the population of Allegheny County and the
road miles contained within the city, which allowed us to develop a workable model. See the
Appendix for a detailed breakdown of the impact fee formula. Our model projects only nominal
revenues from impact fees to the City of Pittsburgh. Because of increased drilling in Pittsburgh,
Allegheny County and Pittsburgh will have an increased participation in the impact fee.
Property Taxes
A third important source of local revenue is property taxes. However, we have excluded property
taxes from our cost benefit analysis because the effect of shale gas drilling on property
assessments (the basis of property taxation) is unclear for a number of reasons. Foremost,
Pennsylvania, unlike other states, does not subject oil & gas minerals (subsurface property) to
property taxes. Under current law, mineral interests have no impact on real estate tax
“PA Impact Fee,” accessed October 20, 2013,
http://www.puc.state.pa.us/filing_resources/issues_laws_regulations/act_13_impact_fee_.aspx
101
“Pa.’s Marcellus Impact Fee Comes Up Short,” Pennsylvnia Budget and Policy Center¸ June
18, 2013, accessed December 9, 2013, http://pennbpc.org/sites/pennbpc.org/files/PA-MarcellusFee-Comes-Up-Short-6-18-2013.pdf
100
collection.102
It seems intuitive that individuals who own property which is leased to a gas company would
have higher property tax assessments. However, data in Pennsylvania and elsewhere is unclear on
that point. A 2012 study by Duke University economists and the research organizations
Resources for the Future found property values of properties near fracing wells may decline. In
looking at Washington County neighboring Pittsburgh the study found that the source of drinking
water was an important factor in determining whether property values increase or decrease. The
study found that properties that use local groundwater had a 24% property value loss if located
within a mile and a quarter of a shale gas well. However, property with piped in water saw close
to 11% increases in property values.103 Other data surveys which examine property tax collections
across the state found mixed results on whether property tax collections increase or
decrease.104Therefore, for the purposes of this analysis and using data available, valuation of
property was excluded as the variety of factors impacting property valuation cannot be
established on currently available data.
Other Taxes and Revenue Streams
Hotel Occupancy Tax
“Tax Treatment of Natural Gas,” accessed December 9, 2013, http://extension.psu.edu/naturalresources/natural-gas/publications/tax-treatment-of-natural-gas
103
Sean Cockherham, “Fracking can hurt property values of nearby homes with wells, study
suggests,” McClatchy DC, 6 November 2012.
104
Charles Costanzo and Timothy W. Kelsey, “Marcellus Shale and Local Collection of State
Taxes: What the 2011 Pennsylvania Tax Data Say,” Center For Economic And Community
Development, accessed December 9, 2013,
http://www.marcellus.psu.edu/resources/PDFs/MSTax2012.pdf; Timothy W. Kelsey, Riley
Adams, and Scott Milchak, “Real Property Tax Base, Market Values, And Marcellus Shale: 2007
To 2009,” Center For Economic And Community Development, accessed December 9, 2013,
http://www.marcellus.psu.edu/resources/PDFs/taxbase.pdf
102
Hotel Occupancy Taxes are paid to local jurisdictions, and there is some evidence that Marcellus
shale activity may correlate to higher hotel occupancy, as temporary workers enter the
municipality and stay in hotels for short-term lodging. Smith Travel Research Inc., a Nashvillebased hotel-consulting group found that Washington County’s (a neighboring county to the
Pittsburgh area) hotel occupancy rates “increased from the mid-50% level to the low 70% range
between 2007 and 2013.”105 Interestingly, as a result of a law in PA in 2000, this tax is often used
for tourism promotion and other capital investments in public venues. For example in nearby
Washington County, which levies a 3% hotel occupancy tax, in 2010 generated $1.1 million—
and this greatly benefited the Washington County Tourism Promotion Agency. In Fayette County
the tax generate $858,147, which benefited nonprofits in the area that serve tourists.106 While
Allegheny County only levies a 1% tax in addition to the 6% tax levied by the state, this tax can
provide similar benefits to the county. These funds in Allegheny County support the David L.
Lawrence Convention Center, the Pittsburgh Convention & Visitor's Bureau, Inc., the Sport's &
Exhibition Authority, and the Convention & Visitor's Bureau of Greater Monroeville.107 The
Revenues from 2012 totaled $29,169,603.54.108 These funds have perceivably increased as a
result of the correlation to Marcellus shale activity. However, we do not include them in our
analysis because it is not currently possible to quantify the effect that Marcellus shale activities
may have on increasing tax collections.
Anya Litvak, “For oil and gas workers, Pa. hotels learning the drill,” Pittsburgh Post-Gazette,
July 16 2013 accessed October 20, 2013 http://articles.philly.com/2013-0716/business/40592238_1_oil-and-gas-workers-marcellus-shale-hotel-business
106
Jeremy Boren, “Shale industry's hotel stays feed rural tourism,”. TribLive, November 29 2011,
accessed October 20, 2013 http://triblive.com/x/pittsburghtrib/s_769467.html#axzz2mDVWn678
107
“Hotel Occupancy Tax,” accessed October 20 2013,
http://www.alleghenycounty.us/treasurer/hotel.aspx
108
Ibid.
105
The expansion of drilling in Pittsburgh would potentially further contribute to higher numbers in
hotel room usage and terms of stay and would benefit afore mentioned entities that the funds
support. However, as substantial data to quantify the impacts in Pittsburgh were beyond the
extent of this research. Only potential correlations and contributions can be assessed for this
analysis.
Royalties
Probably the most significant cash flows, both to individuals and governments, due to Marcellus
shale activities come from leasing and royalty payments. To begin with, it is necessary to note
that royalties and leasing are exempt under Pennsylvania law from local earned income taxes, and
remains exclusively taxable by the state through personal income taxes levied at a rate of 3.07
percent.109 Therefore, these payments are not included on our cost benefit analysis. This
discussion is included only to highlight another significant cash flow which could have beneficial
effects on the Pittsburgh economy or on state programs which benefit the city.
A study done by The Center for Economic and Community Development at Penn State
University found that between 2007-2010 counties with 90 or more Marcellus wells witnessed an
increase in the number of returns reporting royalty income by 64.8 percent, and taxable income
on average increased 460.8 percent.110 While counties without any Marcellus wells experienced
some growth, this growth was less than in the counties with Marcellus wells at a 7.3 percent
increase in returns and 15 percent increase in total taxable income.111 In 2010 royalty income
reported on tax returns increased by 119 percent in counties with Marcellus Shale drilling
activity, which is significantly greater than the 61 percent increase (pre-Marcellus drilling) in
“PA State Tax Compendium,” accessed November 29, 2013,
http://www.portal.state.pa.us/portal/server.pt/community/reports_and_statistics/17303/tax_compe
ndium/602434
110
Hardy at 6.
109
111
Ibid at 7.
2006.112 While the City of Pittsburgh cannot tax these royalties, that does not exclude the City
from the benefits of these royalties. Under the assumption that all of these royalties go to owners
in Pittsburgh, the City would witness an increase of spendable cash flow that would otherwise not
exist.
Cost-Benefit Analysis: Quantifiable and Unquantifiable Costs of Fracing
Though fracing and natural gas power will likely bring a number of economic and social benefits
to the City of Pittsburgh, they are not without potential costs to the city as well. In the language of
the 2010 fracing ban, the Pittsburgh City Council declared that allowing fracing within the city
was “allowing the deposition of toxins into the air, soil, water, environment, and the bodies of
residents within our City.” 113 However, this unequivocal statement hides significant scientific
uncertainty over the potential risks from fracing. A significant amount of anecdotal data has been
produced through news stories, documentaries and other media, which purports to expose the
damages caused by fracing. But, fracing in the Marcellus shale is so new that there is limited
scientific study of its effects and almost no data of the quality necessary to make concrete
judgments about fracing’s environmental and societal costs. Even so, there are clear areas where
observers of fracing have raised concerns about the practice’s environmental and health effects,
and emerging data on the potential costs. This section addresses those costs, focusing on potential
damage to the environment and public heath, and the effects on Pittsburgh.
Groundwater Contamination
Fracing requires the high-pressure injection of significant amounts of water, sand and other
chemicals into each wellbore, and the practice brings with it the potential for spills, blowouts and
well failures that contaminate ground and surface water supplies. Even after the fracing of a well
“Marcellus Shale” Allegheny Institute for Public Policy. 2013, accessed October 20, 2013,
http://www.alleghenyinstitute.org/issues/local- economy/marcellus-shale-2/
112
113
Pittsburgh Municipal Code §618.01
is completed, the potential exists for methane to migrate out of the wellbore and contaminate
groundwater. While the likelihood and damage potential of any of these occurrences is highly
debated, any of them have the potential to impose costs upon the city of Pittsburgh and its
residents.
Groundwater contamination stemming from fracing happens in one of two ways. Fracing fluid
may migrate from the well to groundwater, either by escaping through fractures from the shale
layer containing the horizontal wellbore and migrating through the stratigraphic column (the
vertical “stack” of rock layers) to rock containing groundwater, or by escaping through the
vertical portion of the wellbore as it passes directly through the groundwater zone.114 Because, as
noted above, fracing fluid can contain a number of different chemicals, the potential for this
contamination is extremely worrisome. However, the frequency of such contamination is hotly
debated. In the Pittsburgh area, 5,000’-6,000’ of rock separate the Marcellus shale from
groundwater, including thousands of feet of impermeable shales, making vertical movement
through natural fractures very unlikely.115 The other potential for groundwater contamination is a
“subsurface blowout,” where high pressure within the wellbore fractures the cement casing
surrounding the well, allowing fracing fluids to escape through the well bore into subsurface rock
formations, including those potentially containing groundwater.116 The potential costs of such a
blowout could be extremely high. After one blowout in a well in Colorado, a highly expensive
remediation technique called “air sparging” was required to clean contaminated groundwater.117
Air sparging involves injecting air into contaminated ground water, allowing aerobic bacteria to
Arthur, Bohm, and Layne, “Hydraulic Fracturing Considerations for Natural Gas Wells of the Marcellus
Shale.”
115
Ibid.
116
Michael D. Holloway and Oliver Rudd, Fracking: The Operations and Environmental Consequences of
Hydraulic Fracturing (John Wiley & Sons, 2013).
117
Tony Dutzik, Elizabeth Ridlington, and John Rumpler, The Costs of Fracking: The Price Tag of Dirty
Drilling’s Environmental Damage (Environment North Carolina Research & Policy Center, 2012).
114
biodegrade volatile organic compounds (VOCs) before they reach groundwater.118 Air sparging
requires significant capital expenditures. In 2004, an EPA report on hydrocarbon cleanup
indicated that the technique would cost between $150,000 and $350,000 per acre.119 More recent
estimates put the number at $170,000 per acre.120 Removing other contaminants from
groundwater is rarely attempted, and costs are poorly understood, but likely on a similar order of
magnitude with sparging. However, what data exists on subsurface blowouts indicates that they
are extremely infrequent. For example, the Texas State oil and gas regulator reports only a single
blowout of a hydrofractured well in the Barnett shale between 2011-2013.121 During that time,
2,446 wells were successfully drilled in the Barnett shale.122 Studies of well blowouts in shale
plays have not been completed, but studies of blowouts in oil fields undergoing steam injection (a
somewhat similar high-pressure fluid injection process) indicate that blowouts occur in only
0.048% of cases.123
The second source of groundwater contamination, and maybe the most visible, comes from
methane contamination of well water. This contamination occurs according to similar processes
as the fracing fluid contamination discussed above and results in high levels of dissolved methane
being detected in wells close to gas wells.124 While dissolved methane in drinking water is not
recognized as a health hazard, it poses a risk of explosion.125 Such explosive potential has been
Tom Simpkin and Mark Strong, “Application of Air Sparging Using Irectionally Drilled Wells for
Petroleum Hydrocarbon Remediation” (CH2MHill, October 31, 2012).
119
“Technologies for Treating MtBE and Other Fuel Oxygenates” (U.S. Environmental Protection Agency,
May 2004).
120
Simpkin and Strong, “Application of Air Sparging Using Irectionally Drilled Wells for Petroleum
Hydrocarbon Remediation.”
121
“ Blowouts and Well Control Problems,” accessed December 9, 2013
http://www.rrc.state.tx.us/data/drilling/blowouts/allblowouts11-15.php
122
“Newark, East (Barnett Shale) Well Count,” accessed December 9, 2013,
http://www.rrc.state.tx.us/barnettshale/barnettshalewellcount_1993-2013.pdf
123
Preston D. Jordan, “Well Blowout Rates and Consequences in California Oil and Gas District 4 from
1991 to 2005: Implications for Geological Storage of Carbon Dioxide,” Lawrence Berkeley National
Laboratory (August 5, 2008), http://escholarship.org/uc/item/2t05f9kc.
124
Osborn et al., “Methane Contamination of Drinking Water Accompanying Gas-Well Drilling and
Hydraulic Fracturing.”
125
Ibid.
118
extensively documented in news reports and documentaries opposing fracing. Remediation of
such contamination is addressed by removing it from water at the point of use, at high cost. For
example, in Dimock, Pennsylvania, Cabot Oil & Gas reported having spent $109,000 on systems
to remove methane from well water for 14 local households.126 However, Pittsburgh has a
municipal water system, which draws the majority of its water from the Allegheny and
Monongahela Rivers, rather than groundwater wells.127 This means that methane infiltration is not
necessarily a concern for the city.
Surface Water Contamination and Fracing Water Recycling Costs
Fracing and drilling require tremendous quantities of water. According to Chesapeake Energy in
2011, Marcellus shale wells required 85,000 gallons of water for drilling and an additional 5.5
million gallons for fracturing, totaling of 5.6 million gallons.128 Importantly, a significant fraction
of this water returns to the surface, flowing back through the borehole and necessitating action to
prevent surface spills
The water that returns to the surface is known in the oil and gas industry as “produced water,”
and is made up of water injected during the fracture stimulation process, as well as naturally
occurring deep groundwater or brines containing elevated levels of metals and radioactive
nuclides.129 Produced water is typically produced for the lifespan of a well; in southwest
Pennsylvania produced water quantities are quite low, with only about 200 gallons produced per
126
Dutzik. T et Ridlington. E. (2012) The Costs of Fracking,
Pennsylvania American Water Company-Pittsburgh, Source Water Assessment Public Summary
(Pennsylvania American Water Company-Pittsburgh, May 2002),
http://www.elibrary.dep.state.pa.us/dsweb/Get/Document-59370/Pittsburgh%20RS5020039001.pdf.
128
Matthew Mantell, “Produced Water Reuse and Recycling Challenges and Opportunities Across Major
Shale Plays,” March 30, 2011, http://www2.epa.gov/sites/production/files/documents/09_Mantell__Reuse_508.pdf.
129
Sally Entrekin et al., “Rapid Expansion of Natural Gas Development Poses a Threat to Surface Waters,”
Frontiers in Ecology and the Environment 9, no. 9 (October 6, 2011): 503–511, doi:10.1890/110053.
127
MMcf of gas extracted.130 For the 9.8 Bcf EUR wells modeled here, this means a discharge of
196,000 gallons/well. This produced water is traditionally dealt with in two ways. First, it can be
discharged to publicly owned municipal wastewater treatment plants where it undergoes
traditional wastewater treatment.131 Otherwise, certain produced waters can be recycled and used
in other gas wells. There are two types of produced water from hydrofractured wells: water with
lower amounts of total dissolved solids (TDS) (<30,000 ppm), which may be feasible for
treatment to reuse for fracing and drilling, and water with higher amounts of TDS which must be
treated or disposed of. Produced water flowing from the Marcellus shale, generally falls into this
first type with lower TDS (around 16,000 ppm), meaning that nearly 100% of produced water can
be reused.132 The cost of water recycling is $0.125 per gallon, or approximately $24,500 per
well.133
Air Pollution Costs
Another potential source of fracing costs comes from emissions of a variety of pollutants that
may contribute to regional air pollution problems. While the decrease in air emissions produced
during electricity generation (due to the switch from coal to natural gas) provides one of the
major benefits in our cost-benefit analysis, emissions from wells contain some of the same
chemicals as power plant emissions and cannot be discounted. The public health costs of this
pollution are quantifiable and can be included in our analysis. There are two main sources of
Mantell, “Produced Water Reuse and Recycling Challenges and Opportunities Across Major Shale
Plays.”
131
Kelvin B. Gregory, Radisav D. Vidic, and David A. Dzombak, “Water Management Challenges
Associated with the Production of Shale Gas by Hydraulic Fracturing,” Elements 7, no. 3 (June 1, 2011):
181–186, doi:10.2113/gselements.7.3.181.
132
Matthew Bruff, Ned Godshall, and Karen Evans, An Integrated Water Treatment Technology Solution
for Sustainable Water Resource Management in the Marcellus Shale, Final Scientific/Technical Report
(Altela, Inc., July 30, 2011), http://www.netl.doe.gov/technologies/oilgas/publications/ENVreports/fe0000833-final-report.pdf.
133
Bruff M. et al. (2011) An integrated water treatment technology solution for sustainable water resource
management in the Marcellus Shale
130
pollution from gas wells: NOx and VOCs (volatile organic compounds).134 These emissions
contribute to the formation of ozone smog, which can have significant health effects.135 To date,
the Pennsylvania Department of Environmental Protection has released limited inventories for
statewide air emissions due to unconventional drilling.136 Results of that study on a per-well basis
are presented below.
Marcellus Shale Air Emissions, PA DEP Inventory 2011
Pollutant Total Emissions (short tons)
Per Well (1,794 wells completed)
NOx
16,542
9.22
PM10
577
0.32
PM2.5
505
0.28
CO
6,852
3.82
SO2
122
0.07
VOC
2,820
1.57
These data were used to calculate the social costs due to criteria pollutant emissions that occur
during the fracing process.
Unquantifiable but Potentially Significant Costs
We were able to describe and quantify the costs above with sufficient precision in order to
include them in our cost-benefit analysis. However, the relatively recent rise of hydrofractured
Marcellus shale drilling (and hydrofractured shale drilling overall) means that there are relatively
few peer-reviewed studies on the effects of fracing. For long-term health effects, or relatively rare
occurrences (like the blowouts described above), longitudinal studies or surveys with significant
Lisa M. McKenzie et al., “Human Health Risk Assessment of Air Emissions from Development of
Unconventional Natural Gas Resources,” Science of The Total Environment 424 (May 2012): 79–87,
doi:10.1016/j.scitotenv.2012.02.018.
135
María Victoria Toro, Lázaro V Cremades, and Josep Calbó, “Relationship between VOC and NOx
Emissions and Chemical Production of Tropospheric Ozone in the Aburrá Valley (Colombia),”
Chemosphere 65, no. 5 (October 2006): 881–888, doi:10.1016/j.chemosphere.2006.03.013.
136
“Air Emissions Inventory for the Natural Gas Industry,” Pennsylvania Department of Environmental
Protection, accessed December 5, 2013,
http://files.dep.state.pa.us/Air/AirQuality/AQPortalFiles/Natural_Gas_Inventory_Fact_Sheet_02-11-13.pdf
134
sample sizes have not been conducted. This leaves us with a number of other potential costs due
to the fracing and drilling process, which cannot currently be estimated with any precision.
Other Health Problems: Cancer, Silicosis
As noted above, fracing uses a number of different substances, which if they escape into the
environment, have the potential to affect the health of workers, nearby residents and even people
living far away. Anecdotal evidence links fracing to a variety of negative health effects such as
eye irritation, headache and nausea.137 Again, there is little reputable scientific evidence backing
such claims, and very little high quality scientific studies of any kind which examines these
issues. Another potential health problem due to fracing is the possible increase in the incidence of
cancer. The most comprehensive study of fracing chemicals identified a number of potential
carcinogens found in fracing fluid including Benzene, Acrylamide and Propylene Oxide.138
However, no longitudinal studies have been performed to assess increased cancer risks due to
fracing, and research regarding “cancer clusters” does not produce agreed upon conclusions.139
The discovery of increased cancer risk due to fracing would have a significant effect on a costbenefit analysis of fracing, as the National Institutes of Health estimate that cancer cases cost the
United States approximately $201.5 billion, or nearly $121,000 per new cancer case.140 While
there is some evidence that cancer incidence has risen by about 2 cases in 100,000 between 2005
Megan Collins, “A struggle with toxics in the Barnett Shale,” Earthworks Action, accessed December 2,
2013, http://www.earthworksaction.org/voices/detail/dish_texas
138
House Energy and Commerce Committee, Report on Chemicals Used in Hydraulic Fracturing, United
States House of Representatives, 111th Congress (2011).
139
“Cancer Clusters,” accessed December 2, 2013
http://www.cancer.gov/cancertopics/factsheet/Risk/clusters
140
Rebecca Siegel, Deepa Naishadham, and Ahmedin Jemal, “Cancer Statistics, 2013,” CA: A Cancer
Journal for Clinicians 63, no. 1 (2013): 11–30, doi:10.3322/caac.21166.
137
and 2008 in Pennsylvania counties where fracing was occurring, there is no evidence that
causation flows with such a correlation, and so cancer incidence is excluded from our analysis.141
Another potential fracing impact is the health impact on drilling workers. Fracing requires the use
of significant amounts of sand (the proppant) in fracing a well. Workers at fracing sites are
vulnerable to inhalation of sand, which may contribute to higher incidences of silicosis amongst
gas workers. A 2013 study found that silica concentrations at wells undergoing fracing exceed
permissible exposure limits by as much as 1000%.142 Again, while this suggests a potential health
impact from silica exposure, long-term studies on the health of gas well workers have not been
conducted to evaluate this potential threat. Therefore it is very hard to quantify any possible
increase in medical costs due to fracing and drilling.
Methane Emissions and Climate Costs
Methane is a significant contributor to climate change, with a climate forcing potential 21 times
as high as CO2.143 Methane is also the most common molecule found in natural gas.144 A
significant amount of research has been done on potential for methane to escape from natural gas
wells, especially during the “flowback” period when significant amounts of produced water
returns up the wellbore. Estimates of this “fugitive” methane range from 14.3 MMcf/well to 3.8%
of total well production (372 MMcf for our modeled wells).145 A broad range of potential social
costs for CO2eq could be calculated, allowing us to create a quantified amount of social costs
141
Jervings S. (2012). The Fracking Frenzy's Impact on Women. [ONLINE] Available at:
http://www.prwatch.org/news/2012/04/11204/fracking-frenzys-impact-womenn. [Last Accessed Nov.27,
2013].
142
Eric J. Esswein et al., “Occupational Exposures to Respirable Crystalline Silica During Hydraulic
Fracturing,” Journal of Occupational and Environmental Hygiene 10, no. 7 (2013): 347–356,
doi:10.1080/15459624.2013.788352.
143
“Overview of Greenhouse Gases,” accessed December 9, 2013,
http://epa.gov/climatechange/ghgemissions/gases/ch4.html
144
“Composition of Natural Gas and LNG,” accessed December 9, 2013,
http://www.beg.utexas.edu/energyecon/lng/LNG_introduction_07.php
145
Francis O’Sullivan and Sergey Paltsev, “Shale Gas Production: Potential versus Actual Greenhouse Gas
Emissions,” Environmental Research Letters 7, no. 4 (2012): 044030..
flowing from natural gas drilling; however, unlike emissions of NOx or VOCs from wells or
power plants which have strong local effects, damages climate change are global in scale.
Therefore we decided to exclude them from our analysis because they cannot be particularized to
Pittsburgh.
Other Potential Economic Impacts: Tourism
Tourism revenue in Allegheny County has increased significantly in recent years (9.6% from
2010 to 2011) to a record nominal level for the region – $5.1 billion.146 Some studies have
investigated whether impacts from fracing, particularly visual or noise impacts, might have
negative impacts on the tourism economies of affected regions.147 However, evidence of any
potential effect is limited, and overall, it is difficult to tell whether there will be a positive or
negative impact on tourism spending.
Just as drilling activity within the Marcellus shale is vastly expanding, research on that drilling’s
effects on human health, the environment, local governments and infrastructure, and local and
regional economies are also growing. The National Energy Technology Lab has already
announced that it will release a landmark study on groundwater contamination and hydraulic
fracturing within the next month, the first large-scale study of its kind for the Marcellus region.148
Further study will allow for better quantification of the costs – and benefits – of drilling, both to
the Pittsburgh area and the wider Marcellus region. Cost benefit analyses like the one presented
here will be able to achieve improved precisions as the nature and magnitude of potential costs
are better understood.
146
Wagner C. (2013) 2012 county of Allegheny Pennsylvania.
Andrew Rumbach, Natural Gas Drilling in the Marcellus Shale: Potential Impacts on the Tourism
Economy of the Southern Tier (Southern Tier Central Regional Planning and Development Board, April 14,
2011),
http://www.stcplanning.org/usr/Program_Areas/Energy/Naturalgas_Resources/STC_RumbachMarcellusTo
urismFinal.pdf.
148
Shelley Martin, “NETL Statement on Reported Fracking Study,” accessed December 9, 2013,
http://www.netl.doe.gov/publications/press/2013/StudyStatement.pdf
147
Cost Benefit Analysis Results
The results of our cost-benefit analysis are provided on the following pages. Benefits created by
the reduction in air pollutant emissions caused by the switch from a coal-fired power plant to a
NGCC power plant are $24.1/year ($12.0 million in the first year as the power plant comes online
June 1, 2016). Revenue benefits to the city are smaller, on the order of 1/10th to 1/6th the size of
the health benefits (revenues peak at $5 million in 2031, and average $3.75 million/year over the
analysis period). Total benefits therefore average $27.4 million/year over the analysis period,
peaking at $29.2 million in 2031.
Costs, as might be expected, largely track the scale of drilling activity, well completions and gas
production over the study period. Approximately 50% of our projected costs occur within the first
decade, when we project the entirety of our drilling activity and well completion. As gas
production falls in later years, costs also fall, to only $600,000 projected in 2046. Costs are
highest in 2016, the first year of our projection, at $4.75 million, and average only $1.5
million/year over the analysis period. Given the large size disparity of our benefits in comparison
to our costs, it is no surprise that the net value of our analysis is highly positive. Net benefits to
the city average $25.9 million/year over the analysis period. The present value of net benefits
over the course of the 30-year analysis period is $266.3 million or $869.67 for every current
resident of the city.
Interestingly, even if the reduction in health costs from switching to natural gas power are
excluded from the study, the net present value of the analysis remains positive, though the present
value falls to $15.1 million, a 94% drop. Also, the first four years of the analysis return negative
net values. In this scenario, natural gas drilling within the city costs approximately $7.25 million
between 2016 and 2019. Also, this scenario is far more vulnerable to our difficulties in
quantifying potential costs due to gas exploration within the city, as noted above. A 60% increase
in yearly costs (approximately $28 million over the entire study period) is enough to eliminate
any benefits. (In comparison, when health benefits are considered, a 1,200% increase in costs is
necessary to eliminate benefits.)
Benefits to City
Health Benefits
City Revenue Increases
Year Reduction Total $ Impact Fee
Sales Tax Earned Income Tax Revenue Total
Total
Benefits $
2016
$12,071,687
$585,157 $56,942
$513,308
$1,155,406
$13,227,093
2017
$24,143,374
$884,238 $44,000
$396,647
$1,324,885
$25,468,259
2018
$24,143,374
$1,282,271 $51,765
$466,644
$1,800,680
$25,944,053
2019
$24,143,374
$1,736,136 $50,040
$451,089
$2,237,265
$26,380,638
2020
$24,143,374
$2,438,665 $55,216
$497,753
$2,991,635
$27,135,008
2021
$24,143,374
$3,374,960 $50,902
$458,866
$3,884,728
$28,028,102
2022
$24,143,374
$3,550,631 $53,491
$482,199
$4,086,320
$28,229,694
2023
$24,143,374
$3,703,488 $39,363
$354,844
$4,097,695
$28,241,068
2024
$24,143,374
$3,858,677 $40,657
$366,510
$4,265,844
$28,409,218
2025
$24,143,374
$4,003,182 $40,053
$361,066
$4,404,301
$28,547,674
2026
$24,143,374
$4,128,775 $37,983
$342,400
$4,509,157
$28,652,531
2027
$24,143,374
$4,252,164 $37,983
$342,400
$4,632,547
$28,775,920
2028
$24,143,374
$4,372,685 $37,983
$342,400
$4,753,067
$28,896,441
2029
$24,143,374
$4,489,755 $37,983
$342,400
$4,870,138
$29,013,511
2030
$24,143,374
$4,602,873 $37,983
$342,400
$4,983,255
$29,126,629
2031
$24,143,374
$4,711,608 $37,983
$342,400
$5,091,991
$29,235,364
2032
$24,143,374
$4,518,097 $37,983
$342,400
$4,898,480
$29,041,853
2033
$24,143,374
$4,339,855 $18,991
$171,200
$4,530,046
$28,673,419
2034
$24,143,374
$4,175,142 $18,991
$171,200
$4,365,333
$28,508,707
2035
$24,143,374
$4,022,475 $18,991
$171,200
$4,212,666
$28,356,040
2036
$24,143,374
$3,880,579 $18,991
$171,200
$4,070,770
$28,214,143
2037
$24,143,374
$3,748,352 $18,991
$171,200
$3,938,544
$28,081,917
2038
$24,143,374
$3,624,840 $18,991
$171,200
$3,815,031
$27,958,405
2039
$24,143,374
$3,509,208 $18,991
$171,200
$3,699,399
$27,842,773
2040
$24,143,374
$3,400,725 $18,991
$171,200
$3,590,916
$27,734,290
2041
$24,143,374
$3,298,748 $18,991
$171,200
$3,488,939
$27,632,313
2042
$24,143,374
$3,202,709 $18,991
$171,200
$3,392,900
$27,536,274
2043
$24,143,374
$3,112,104 $18,991
$171,200
$3,302,295
$27,445,669
2044
$24,143,374
$3,026,484 $18,991
$171,200
$3,216,676
$27,360,049
2045
$24,143,374
$2,945,450 $18,991
$171,200
$3,135,641
$27,279,014
Totals
$712,229,519 $102,780,034 $995,193
Figure 11: Cost-Benefit Analysis Table 1 – Benefits
$8,971,323 $112,746,550 $824,976,069
Net Present Value
Calculations
Costs to City
Year
Produced
Water
Recycling
Environmental Damages
Total
Blowout
Emissions
Expected Cost Costs
Total Costs
$
Net Benefit
(Cost)
NPV of
Benefit (Cost)
2016
$3,033,105
$36,720
$1,651,086
$4,720,911
$8,506,182
$6,943,578
2017
$2,014,965
$55,080
$985,821
$3,055,866
$22,412,393
$17,098,307
2018
$2,080,685
$73,440
$985,821
$3,139,946
$22,804,107
$16,259,013
2019
$2,128,849
$85,680
$657,214
$2,871,743
$23,508,896
$15,664,970
2020
$2,113,589
$97,920
$657,214
$2,868,722
$24,266,286
$15,111,823
2021
$2,066,873
$104,040
$328,607
$2,499,520
$25,528,582
$14,857,867
2022
$1,917,073
$110,160
$328,607
$2,355,840
$25,873,854
$14,073,662
2023
$1,805,102
$113,220
$164,303
$2,082,625
$26,158,443
$13,297,626
2024
$1,654,778
$116,280
$164,303
$1,935,361
$26,473,857
$12,577,539
2025
$1,545,168
$118,116
$98,582
$1,761,866
$26,785,808
$11,893,219
2026
$1,415,254
$118,116
$0
$1,533,370
$27,119,160
$11,253,487
2027
$1,267,294
$118,116
$0
$1,385,410
$27,390,510
$10,622,512
2028
$1,158,111
$118,116
$0
$1,276,227
$27,620,214
$10,010,836
2029
$1,071,481
$118,116
$0
$1,189,597
$27,823,914
$9,424,922
2030
$1,000,054
$118,116
$0
$1,118,170
$28,008,459
$8,866,761
2031
$939,577
$118,116
$0
$1,057,693
$28,177,671
$8,336,756
2032
$886,915
$118,116
$0
$1,005,031
$28,036,822
$7,752,415
2033
$839,980
$118,116
$0
$958,096
$27,715,323
$7,162,166
2034
$797,361
$118,116
$0
$915,477
$27,593,230
$6,664,126
2035
$758,092
$118,116
$0
$876,208
$27,479,831
$6,202,560
2036
$721,487
$118,116
$0
$839,603
$27,374,541
$5,774,574
2037
$687,093
$118,116
$0
$805,209
$27,276,708
$5,377,511
2038
$654,590
$118,116
$0
$772,706
$27,185,699
$5,008,943
2039
$623,757
$118,116
$0
$741,873
$27,100,899
$4,666,653
2040
$594,431
$118,116
$0
$712,547
$27,021,742
$4,348,619
2041
$566,493
$118,116
$0
$684,609
$26,947,704
$4,052,994
2042
$539,868
$118,116
$0
$657,984
$26,878,290
$3,778,088
2043
$514,494
$118,116
$0
$632,610
$26,813,059
$3,522,354
2044
$490,313
$118,116
$0
$608,429
$26,751,620
$3,284,377
2045
$467,268
$118,116
$0
$585,384
$26,693,630
$3,062,857
Totals $36,354,103
$3,272,976
$6,021,558 $45,648,636 $779,327,433
Figure 12: Cost-Benefit Analysis Table 2 – Costs and Net Present Value Calculations
$266,951,116
Because the fuel-switching benefits so dominate our overall analysis, we performed a sensitivity
analysis, looking at the net present value of the analysis under the lowest value for per-ton
emissions reductions, the highest value, and the Environmental Protection Agency’s own
estimates. Below are two tables; the first shows the spread of per-ton values of emissions
reductions we found in our research, and the number of studies considered. The second shows the
sensitivity of per-year benefits from emissions reductions and present value of net benefits to
Range of $ Values for Per-Ton Emissions Reductions from Electric Power Generation
Pollutant
CO
NOx
SO2
PM
VOC
Number of
Studies
2
9
10
12
5
Minimum
$1.66
$365.20
$1,278.20
$1,577.00
$265.60
Median
$863.20
$1,759.60
$2,988.00
$4,648.00
$2,324.00
Mean
$863.20
$4,648.00
$3,320.00
$7,138.00
$2,656.00
Maximum
$1,743.00
$15,770.00
$7,802.00
$26,892.00
$7,304.00
EPA Study
Value
$899.17
$1,757.65
$2,988.00
$4,678.18
$2,351.67
Sensitivity Analysis: Yearly Benefits and Net Present Value to Per-Ton Emissions Benefit
Yearly $ Benefits
NPV
Minimum
Median
Mean
$10,018,145
$24,143,373
$28,752,374
Maximum
EPA
$71,750,737 $24,147,153.18
$119,753,802 $266,951,116 $315,024,787 $763,514,403
$266,990,540
these per-ton emissions reduction values for the entire study.
As the sensitivity analysis shows, the present value of benefits is sensitive to changes in the
benefit from switching to natural gas fuel in the Cheswick plant. However, net present benefit
falls much more slowly than the per-ton benefit numbers. For example, between the median and
minimum studies, per-ton emissions reduction benefits fell 78%. However, net present value falls
only 55%. And even in the minimum study case, net present value is still significant, amounting
to $391 per citizen of Pittsburgh.
Conclusion
As we noted above, anyone looking to analyze the benefits of shale gas extraction using hydraulic
fracturing will need to monitor emerging scholarship on the issue in order to refine their analysis.
However, based on the projections used here, we would strongly recommend that Pittsburgh
allow fracing within city limits and replace coal-fired generation like the Cheswick Power Station
with natural gas power.