When a report makes oil and gas companies—and the politicians they help elect—this mad, you know the author is on to something. Researcher Sean O’Leary, with the Ohio River Valley Institute, joins us to talk about his new report, which found that the local economic benefit of fracking to communities in the Ohio, Pennsylvania, West Virginia gas corridor was slim to none.
Sean O’Leary: If you live in the region, you only have to walk through the downtowns to see what I’m saying, whether it’s, you know, Steubenville, Ohio, Boléro, Ohio, Wheeling, West Virginia, Waynesburg, Pennsylvania, all of those downtowns are hollowed out shells of what they once were.
Amy Westervelt: Hey there, this is Drilled, I’m Amy Westervelt, and that was Shaun OLeary from the Ohio River Valley Institute.
O’Leary is a native West Virginian who’s watched firsthand what first coal and then gas did to his community. He doesn’t live in West Virginia anymore. And that has become a topic of criticism from people who did not appreciate some of his recent work. Last month, O’Leary and the organization he works for released a report that really made the oil and gas guys mad. It takes on a simple question did the fracking boom actually deliver all those economic benefits? We’ve heard the industry talk so much about. The report specifically looks at the region O’Leary has dubbed “Frackalachia”, encompassing parts of the Ohio River Valley in Ohio, Pennsylvania and West Virginia. As you might recall, from every election cycle in the last decade, whenever people start talking about the environmental impacts of fracking or the potential of a fracking ban, the industry has the same response.
Fox News: The amount of jobs that are created by this technology cannot be overstated. The United States Chamber of Commerce, for instance, tells me doing away with this one technology would lead to the loss of nearly 19 million jobs here in the United States.
API promo video: The U.S. is now the leading producer in the world of natural gas and of oil, and that has powered benefits in our economy.
Local Ohio news: Tens of thousands of jobs paying an average salary of fifty thousand dollars. That’s what the Ohio Shale Coalition says is coming to Ohio.
Amy Westervelt: But O’Leary and his colleagues analyzed economic data from before, during and after the fracking boom in the Ohio River Valley and found something else.
Sean O’Leary: Measures of local economic prosperity, starting with jobs, also personal income and finally population were underwhelming to the point of being non-existent.
Amy Westervelt: O’Leary joins me to explain the report, the research behind it and what it means for the region and for other oil and gas regions. That conversation coming up right after this quick break.
Amy Westervelt: I’d love to have you just kind of give people a little bit of the lay of the land, what is this report that you just wrote and what were the key findings from it?
Sean O’Leary: Yeah, the report was an analysis of the economic impacts of the natural gas fracking boom in Appalachia on particularly the counties in the region, the 22 counties in the region from which over 90 percent of the gas is being produced. Because there have as anyone who’s paid attention, for instance, in the in the recent presidential campaign knows a number of claims about a huge number of jobs associated with fracking. And so we went in specifically for the purpose to see, in fact, how many jobs has fracking created and what other economic benefits as fracking helped produce in those counties. And what the report discovered, what we found was that despite an immense increase in economic output as measured by GDP, which was roughly three times the rate of growth in the American economy as a whole, despite that immense spike in productivity, the measures of local economic prosperity, starting with jobs, also personal income and finally population were underwhelming to the point of being non-existent. And so the conclusion the report came to was that there’s virtually no correlation between economic growth as driven by the natural gas industry and actual prosperity, positive economic outcomes on the ground. And yes, that has stirred up quite a bit of controversy in the region.
Amy Westervelt: That’s super interesting.
The big sell for fracking forever has been this idea that the jobs it creates outweighs the impacts that it might have on the environment or on water or on on communities and things like that. So what are you hearing from especially the people who have been pushing that idea of kind of oil and gas executives and politicians in some states?
Sean O’Leary: Well, when they’re not calling me names, basically the reaction so far have been pretty fervent. A couple of congressmen have issued press releases and others basically attempting to refute the findings of the study. The problem is that none of them yet have actually contested any of the quantitative findings in the study. Instead, what they’ve done is point to other statistics in an effort to basically offset what the study found. And so, for instance, there are probably the three statistics that they point to most often are that the unemployment rate in much of the region that we’ve been talking about has declined significantly in the last decade. They also point to the level of investment that the fracking industry has made in the region, the billions of dollars of investment. And finally they point to what they say is the total number of jobs provided in the states of Ohio, Pennsylvania and West Virginia, both those who both jobs that are directly attributable to the industry and also indirect and induced jobs, which they say in those states number in the hundreds of thousands. That, however, has been, even before our report, a subject of considerable contention in the area for quite some time. The problem with the statistics that they cite, in addition to the preexisting dispute about the total number of jobs, is that the unemployment rate figures that they cite and also the investment dollar figures that they cite are immensely misleading. In a sense, you really shouldn’t have needed this report to understand that there is no huge boom in jobs or economic revival going on in northeastern Pennsylvania or in the greater Ohio Valley, because all you have to do is walk through the downtowns and you see it. The downtowns there are greatly reduced from what they were certainly at the time that I was growing up years ago. And it’s it’s really sad to see for those of us who are from the area and who have hopes that the area can be…can prosper again, and I despair that so many policymakers and leaders in the area are continuing to go down the line of pursuing the petrochemical industry and fossil fuel industries as a means to get there.
Amy Westervelt: Yeah, I wanted to ask you about the petrochemical buildout.
I saw that released today about the fact that one of the major companies looking at building an ethane cracker in this region is is delaying once again and talking about needing to make it make sense economically. But I feel like you’re also seeing this repeat right, of the same kind of overblown jobs numbers thing when I it seems to me that they often include temporary jobs and that and not and are misleading about how many permanent jobs any of these things create.
Sean O’Leary: Well, and that’s why I mean, one of the points that I’m making is that the report I said in an interview that there’s not much math going on here, which is a statement for which I’ve since been dinged by those who don’t approve of the report.
Amy Westervelt: I like to say the math ain’t mathin’.
Sean O’Leary: Yeah, but the point that I was trying to make was that the the report that we issued is not the product of an inferential model. We aren’t predicting, you know, we aren’t using statistical techniques to predict what has happened or may happen. We literally just went to the numbers as reported to the quarterly census of Employment and Wages. These are the numbers. And for that reason, it makes the report pretty difficult to criticize because there aren’t any assumptions being made. There aren’t any inferences being made. It’s simply reporting the facts. Now, the question, the challenge for the industry is, OK, well, how do we how do we counter that? And so, for instance, they have been saying they’ve pointed to the unemployment rate in particular, which has in fact, gone down. And in pointing to the unemployment rate, they usually start with the year 2010, which is a couple of years after the fracking boom started in the region, at least in most parts of the region. But it also happens to be the bottom of the Great Recession in terms of employment and the unemployment rate in the US nationally. And so that puts them somewhat at an advantage with that number. But there’s an a more insidious thing that they’re doing and citing that number, which is that there are two ways that you can make your unemployment rate go down. There’s the good way, and that is you can add more jobs to your economy. But there’s also a bad way. And that is you can reduce the denominator. You can get rid of workers. You can lose workers from your economy even faster than you lose jobs. In which case, your unemployment rate will go down as well, and that the latter is what has happened in this region, and so they do have a declining unemployment rate. It’s not because they’ve added jobs, it’s because they’ve lost workers.
Amy Westervelt: What does that mean when you say they’ve lost workers?
Sean O’Leary People have moved out of the region or dropped out of the labor pool when the unemployment rate you know, when we hear that the unemployment rate on a monthly basis announced from the Bureau of Labor Statistics, the unemployment rate is literally the number of people who are in the job market and without a job divided by the total number of people in the job market. What do the people who are excluded from that are people who are not looking for jobs, and that’s why occasionally you’ll hear reports about the workforce shrinking or declining. And in this case, we’re talking about an area in which the workforce has shrunk even faster than the number of jobs has. So it’s really a case of addition by subtraction, what kind of positive attention have you got? Well, positive attention and there has been quite a lot because. I don’t know that it comes through to folks who live outside the region, but it would be difficult to exaggerate just how ambivalent people in the region are about fracking and frankly, how opposed to it many of them are.
And from that sector, we’re getting a lot of people who are basically responding with, thank God I knew it and I’m glad someone is finally saying it, because as I said before, if you live in the region, you only have to walk through the downtowns to see what I’m saying, whether it’s, you know, Steubenville, Ohio, Valero, Ohio, Wheeling, West Virginia, Waynesburg, Pennsylvania. All of those downtowns are hollowed out shells of what they once were.
And people know that. And so for them, they at least feel validated by this because there is another hope out there and the hope is that, you know, policy makers, political leaders in the area will hopefully begin to recognize that the fossil fuel industry is a pretty lousy foundation upon which to try to build economic growth and prosperity and that this area above, perhaps all areas in the country, desperately needs to turn its attention to the energy transition and to the opportunities that are offered by the transition, which are considerable.
Amy Westervelt: Yeah.
Could you talk about that a little bit about, you know, maybe some sectors that are potential job creators that get a lot less attention for for being so?
Sean O’Leary: It might help to understand a little bit about why all the money spent to pump all of the gas and all of the revenue that’s been generated from the sale of that gas, why so little of that money has actually hit the ground locally and the local economies? Because then we can contrast that with energy transition related opportunities and understand, I think, a little better about why there, in fact, are better and more promising and also cleaner opportunities to get out there.
Amy Westervelt: Mm hmm. Yeah.
Sean O’Leary: Yeah. Because, you know, the real mystery is, I mean, first we have to kind of step back and say, well, wait, you know, did the gas get pumped? Right. I mean, 10 years ago, there were economic impact studies from the American Petroleum Institute and others saying that this is going to create and I’m not exaggerating when I say this, this is going to create in the states of Ohio, Pennsylvania and West Virginia, somewhere in the neighborhood of four hundred and fifty thousand new jobs.
I mean, that’s an immense number, and the irony is that the amount of natural gas that has been produced in the period in the ten years since those studies is actually even greater than the studies themselves assumed, which means that, if anything, the number of jobs and the level of economic activity should have been greater than were projected in those studies. And so the point is that the gas got produced, the money was invested, the industry came to Appalachia. It Drilled thousands and thousands of wells. It produced an immense amount of gas. That’s now almost 40 percent of all the natural gas produced in the United States. And that gas got sold. And so there’s a lot of money going on here, literally tens of billions of dollars.
And so the real question is, since the money happened, why didn’t it hit the ground, at least locally in these economies? Where did the money go?
And so we haven’t quantified this yet, but we know, having gone through at least what the leakage or potential leakage points are both from the front end of the process, when we’re talking about companies investing in the region, going through to the back end when the gas is actually pumped and sold. And so what we see on the front end when companies when an executive shows up in a county commissioner’s office and says, hey, I want to invest a billion dollars in your county, to which any rational county commissioner who has been through three decades of economic decline is probably going to respond with, gee, tell me how I can help you. And so what happens is that drilling rigs come in and crews start sinking wells throughout the area, and that is all money that is invested in the area in a sense. And in addition to that, processing plants get built and other forms of infrastructure get built. And that’s all characterized at least as investment in the area that adds to GDP. The problem with it is that much of the investment actually goes to suppliers and to service providers and to workers who are from outside the region.
And so, for instance, many of the crews that came into the region came up from the Gulf Coast and the southwest, where many drilling companies are located because there isn’t a heritage of fracking or drilling in the Northeast.
And so many of them brought in lots of workers from out of state and outside the region. Yeah, the second thing is that, of course, there are many you know, they need raw materials. They need equipment and parts to do. All of this stuff will again. Similarly, there is an entire ecosystem in the southwest, in states like Texas, Louisiana and Oklahoma of companies that provide support services to drilling. And so, again, they relied heavily on those services to come into the region and do the work that needed to be done. And you can make the same observation with respect to professional services, whether it’s, you know, finance, real estate, insurance. In other words, there’s a great deal on the front end that ostensibly was investment, quote unquote, in the region or in the county, which in fact was the acquisition of services from from sources that were far outside the county. And so that portion of the money would never have hit locally. But then even when you kick through to the back side of this, OK, we’ve sunk the well and we’re now producing gas and we’re going out and selling it in the marketplace. Well, you know, part of the promise of economic prosperity was based on the notion that there were going to be a lot of property owners in the region who were going to get quite wealthy as a result of royalties and lease payments from the companies for the gas that’s produced and that between, you know, that income on the back side and lots of new workers having jobs and money to spend locally, that it was going to create this immense surge in employment in the region. As those dollars filtered their way through the economy and the multiplier effect kicked in.
The problem was on the back side, on the revenue side, that, first of all, the price of gas that was anticipated back in 2009 and 2010, even after the fracking boom took place, was never expected to fall below about four and a half dollars per million BTUs. And I’m quoting now, by the way, from the Energy Information Administration. And at that time, the EIA expected that after kind of bottoming out at about 450 gas, would prices by the end of the decade or now essentially would generally return to anywhere between about six and seven and a half dollars per million BTUs? Well, the problem, of course, is that that’s not what happened. The price of gas dropped to at times below two dollars and have never recovered consistently to more than the upper 2s, sometimes hitting three dollars, which is where we are about right now. In other words, the assumption of revenue coming in from the sale of gas was basically at least twice what the actual revenue figures were. So you kind of cut that big nut, that big economic input of energy into the economy by half right off the top. But then another a bunch of other factors kick in. The first is that a lot of property, it turns out, on which wells are sunk isn’t actually owned by local people.
In many cases, it’s owned by companies, corporations that may have a significant local presence or not. And sometimes the property is owned by individuals from who live outside the region. And so much of that money does not enter the local economy. And then on top of that, you also run into another interesting issue, which is that for those people who do live in the region and who do own the property and who do receive royalties, many of them don’t spend a lot of that money. And so starting with the fact that the price of gas is only about half or less than what it was originally expected to be. And then you look at the. As other leakage points, it’s frankly quite likely that the actual amount of money entering local economies was only about 10 to perhaps 20 percent of what it was anticipated to be when the economic impact studies were done. There’s almost no downstream effect as a result of this economically. And that’s important because the other thing we know is that the number of jobs that the industry was expected to create directly never got as large as it was supposed to. And moreover, many of the jobs that were created were taken by out-of-state workers. And so when you put all of those factors together, what you come up with is a scenario in which, yes, it is actually understandable. There’s not really a mystery about how literally tens of billions of dollars seems to have just evaporated from the economy. There actually are rational explanations for how it could have happened.
There are profound structural reasons why this particular extractive industry and for that matter other extractive industries, are really lousy platforms for economic revival and job creation. And it starts, frankly, with the fact that even when you look at Bureau of Labor Statistics numbers, when you look specifically at the mining sector generally, which includes oil and natural gas extraction, it’s only about twenty two cents of every dollar in GDP that it creates that is actually allocated to labor, to wages and salaries. And that’s a remarkably low figure compared to other industries like construction, for instance, that number is seventy five percent most other industries or somewhere in the 40 to 60 percent range. And so if you had to pick an industry upon which, you know, to try to build a job rich economy, this would be one of the worst ones that you could pick even right out the gate. And then on top of that, you add in all of those other factors that I just went through. And so that’s the reason why we say there are other, better, more sustainable choices out there. Because when you look at many of the trends, the energy transition industries that are out there, which include not just renewable energy like wind and solar power, but also and very importantly for this region, energy efficiency.
We’re talking about industries that not only have are much more labor intensive and less capital intensive, but we’re also talking about businesses that in which the suppliers are local. I mean, literally, if you if you talk about, OK, we’re going to do a great energy efficiency project, we’re going to go in and retrofit thousands of houses or buildings in the region. And in this particular region, there are many, many thousands of older buildings and houses that can benefit from retrofitting.
One of the beauties of energy efficiency is that these are shovel ready projects. You can go in and start insulating and replacing lighting and appliances tomorrow. It doesn’t require a lot of planning. It doesn’t require a lot of stuff that we hear about when we’re talking about how do we invest stimulus dollars. We’ll find shovel ready projects. Energy efficiency is shovel ready all the time. The second thing is that energy efficiency and for that matter, distributed solar and other things. These are services that are provided by predominantly local suppliers. We have local insulators. We have local home remodeling firms. We have local firms that do windows and door replacements. And so one of the other beneficial effects of pursuing the transition economy in energy is that more of the dollars that are spent actually stay in the community. As opposed to dollars that are spent on, you know, paying your electric bill, which probably goes to some faraway utility, and so there really is you know, there’s kind of a triple benefit here.
Amy Westervelt: What do you think about the I’ve heard this floated a few times, this idea that you could employ people capping and remediating wells, especially as more and more of the kind of early fracking companies go bankrupt or just decide that these wells are not worth keeping productive anymore?
Sean O’Leary: We actually are looking at what the employment opportunity would be based upon the number of abandoned and orphaned wells in the region to pursue that. And by the way, we’re also, again, talking about an area that is historically a coal producing region and the is of a coal mine remediation opportunity. Right. As well. So, yes, it is potentially a great generator of jobs in the region. And one of the things that’s most appealing about it is it’s the kind these are the kinds of jobs for which people who currently work in the fossil fuel industry and who might otherwise and who might be vulnerable to losing their current jobs and livelihood as we transition to renewable resources of energy. These would very likely be opportunities for them to take on a new form of employment. And they could be paid as well for doing that. And frankly, given the number of wells as there are out there, these are jobs that very likely would continue for years.
Amy Westervelt: Yeah
Sean O’Leary: That’s one of the most appealing things of this, because, you know, we’re talking about a region and I mean, I’m a native West Virginian. I was born in nineteen fifty six. West Virginia’s population in nineteen fifty six was bigger than than it is now. Zero population growth in the last 60 years, and that’s because. For lack of opportunity, for lack of economic opportunity, many people move away. And so jobs have always been an issue in West Virginia, and one of the things that makes the energy transition so exciting, especially to someone like me who cares deeply about, you know, my home and my people, is that it does offer opportunity for revival in the region.
Amy Westervelt: I did a story recently around like kind of around the jobs thing across the fossil fuel industry in general and the fact that. I feel like almost I don’t know, almost every story I read about fossil fuel jobs, people neglect to mention that the industry was shedding jobs like crazy because of automation over the last year.
Do so. I wonder what you’ve seen on that front. What impact that has all had?
Sean O’Leary: OK, this is where the West Virginian and me is going to come out because, you know, my my town, you know, I lived on top of a coal mine. My town is dying.
And up until recently, it was dying, not because coal wasn’t being produced, it was exactly what you just talked about, Amy, it was automation. Back when I was born in West Virginia, the coal industry employed directly about a hundred and forty thousand people, which is a remarkable number because the state only has one point eight million residents. I mean, you’re talking about an immensely pervasive industry there. And the amount of coal that was being produced at that time stayed more or less constant until the beginning of this last decade. And it’s just been really in the last eight years that coal production has started to significantly decline in the United States, but what happened during that time is and I’m not exaggerating, is that in the coal industry, 90 percent of the jobs were lost in West Virginia. We went from one hundred forty thousand workers down to about fifteen thousand workers before the volume of coal being produced actually started to go into decline. And that effect was entirely attributable to automation, to the advent of strip mining in a large way to mountaintop removal and other forms of mining that are less labor intensive than underground mining, which was West Virginia’s heritage. And so the devastation, economic devastation has been happening for a long, long time in this region. And, you know, even when you talk about and that’s one of the reasons, by the way, that when I going back to what I said before about natural gas production being such a labor intensive business or rather a capital intensive business, the flip side of that is it’s not very labor intensive. It actually doesn’t provide much in the way of jobs. The ones it does provide, yeah, they’re well paying, absolutely true, but it doesn’t help, it doesn’t provide many of them. And moreover, and this is another issue we frankly should talk about is that because of what economists call the externalities associated with fossil fuel businesses, local pollution, you know, a variety of issues, it appears. And again, this is also hinted at, at least in the results that we found, it appears that natural gas may in some respects actually discourage other forms of economic development.
Amy Westervelt: There’s this weird tendency, I think sometimes for people to talk about environmental impacts as things that don’t also impact the economy.
Sean O’Leary: One of the things that we’re least good at in economics is in incorporating these these effects that we’re calling externalities. There are only externalities in the sense that neither the buyer nor the seller pays for them, but somebody does. And one of our great weaknesses is that we don’t do a great job of incorporating those externalities into our economic modeling, into the economic impact studies. And so if you go back again and you look at the American Petroleum Institute studies from 10 years ago where the American Chemistry Council studies on petrochemicals, now, you won’t see any recognition of any externalities associated with that. They’re simply not taken into account.
And even when they are, frankly, usually what people do is plug in some number like, you know, fifty dollars per tonne of carbon as a social cost of carbon factor, which is better than nothing. But even that does not get at the issues that you just talked about, the noise pollution, the water pollution, the local particulate air pollution, that that does not get covered in that fifty dollar per tonne of carbon social cost of carbon factor. And in fact, it it really does seem as though whether you’re talking about coal mining or also natural gas drilling, there is at least prima fascia reason to believe that they could have depressive effects on other forms of economic development.