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 1 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-drilling2 Pittsburgh Municipal Code §618.01, accessed December 7, 2013 http://fracking.weebly.com/uploads/9/4/8/2/9482774/pittsburgh-ordinance.pdf3 “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_13/207895 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.post-gazette.com/neighborhoods-city/2012/09/11/PUC-says-Pittsburgh-s-ban-on-natural-gas-extraction-conflicts-with-state-law/stories/201209110196#ixzz26CWnyggO

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

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

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-after-effects.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-by-spurned-gas-frackers.html

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

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

9 “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.htm11 “Annual Energy Outlook, 2013,” Energy Information Agency, accessed November 10, 2013, http://www.eia.gov/forecasts/aeo/pdf/0383(2013).pdf12 “U.S. Natural Gas Wellhead Price,” accessed November 5, 2013, http://www.eia.gov/dnav/ng/hist/n9190us3A.htm13 http://texas.construction.com/texas_construction_projects/2011/0418_changingmarkets.asp

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)..

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

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

14 http://www.halliburton.com/public/solutions/contents/shale/related_docs/H063771.pdf15 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.

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-united-states/

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

16 “Shale Gas Background Note,” accessed December 1, 2013, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/48332/5057-background-note-on-shale-gas-and-hydraulic-fractur.pdf

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,

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

17 Passey et al., “From Oil-Prone Source Rock to Gas-Producing Shale Reservoir – Geologic and Petrophysical Characterization of Unconventional Shale-Gas Reservoirs.”18 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).

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

within the shale basin range from 141 tcf to upwards of 339 tcf.25 At current rates, this is about 6-

13 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

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.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_External_Data29 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_Perry.pdf

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

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

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-gas-production-numbers-surge/31 “Marcellus Shale gas growing faster than expected,” Associated Press, October 22, 2013, accessed December 7, 2013, http://online.wsj.com/article/AP2e119ea41fcd43248a082bc6e6ad4e24.html32 Lynn Helms, “Horizontal Drilling,” DMR Newsletter 35, no. 1 (2008), http://www.landownerassociation.ca/rsrcs/Horizontal.pdf.33 Ibid.34 Ibid. at 3

wells produce between 2.5 and 7 times more natural gas than a comparable vertical well.35 This

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

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.36 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.

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

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

41 J. Daniel Arthur et al., “Evaluating the Environmental Implications of Hydraulic Fracturing in Shale Gas Reservoirs” (ALL Consulting, 2008).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-not-complete-disclosure-of-fracking-chemicals-1.106064743 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

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.html47 Tarr, Devastation and Renewal.

Figure 5: Pittsburgh at 8:38 am: Corner of Liberty and Forbes Ave 1940 vs. 2013.

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.

48 “Pittsburgh, the ‘smoky city’,” accessed December 9, 2013, http://www.popularpittsburgh.com/pittsburgh-info/pittsburgh-history/darkhistory.aspx49 “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=166250 “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.html51 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

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.

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

and report the emissions of 187 Hazardous Air Pollutants (HAP) as well as the emissions of the

52 “Group Against Smog and Pollution,” accessed December 9, 2013, http://gasp-pgh.org/projects/coal/cheswick-power-plant/

Figure 6: The Cheswick Power Station

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)

Cheswick Power Plant

Total Allegheny County Point Source Emissions

% of Total Allegheny County Emissions

CO 265 5051 5%NOx 2721 8846 31%PM10 248 1223 20%PM2.5 195 855 23%

S02 30087 37068 81%VOC 9 1530 1%C02 2,571,085 - -

CO2eq 2,585,258 - 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

per metric ton. 56 The Cheswick Power Plant heat input in 2009 was 27,647,162 MMBtu and the

53 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.pdf54 “2012 Greenhouse Gas Emissions from Large Facilities,” Environmental Protection Agency, accessed November 28, 20 13, ghgdata.epa.gov55 Brian Reinhart et al., “A Case Study on Coal to Natural Gas Fuel Switch,” Black and Veatch.56 “Glossary: Coal,” accessed November 28, 2013, http://www.eia.gov/tools/glossary/?id=coal

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

Cheswick Power Plant

Argonne National Lab Coal Boiler US AVG

Argonne National Lab NGCC US AVG

CO 0.211 0.217 0.062NOx 2.169 3.228 0.139PM10 0.198 0.470 0.002PM2.5 0.155 0.394 0.002

S02 23.988 10.443 0.004VOC 0.007 0.026 0.004C02 2050 2072 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.

Emissions from 2,765,084 MWh of Production (Metric tons)

57 “eGRID,” Environmental Protection Agency, accessed November 28, 2013, http://www.epa.gov/cleanenergy/energy-resources/egrid/index.html

Pollutant Cheswick Power PlantArgonne NGCC US

AVGEmissions Reduction % Change

CO 265 77 187 71%NOx 2721 174 2547 94%PM10 248 2 246 99%PM2.5 195 2 192 99%

S02 30087 6 30081 100%VOC 9 5 5 49%C02 2571085 1130090 1440995 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

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.

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/how-natural-gas-works.html

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 of the state.64 While this is due largely to Pittsburgh’s fracing ban, the lack of previous 59 “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-electricity-natural-gas.html60 “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.pdf61 “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.html62 “Gas-fired combined-cycle power plant,” accessed December 9, 2013, http://www.axpo.com/axpo/ch/en/axpo-erleben/kraftwerke/gas-kombikraftwerk.html63 “Natural Gas Combined-Cycle Plant,” National Energy Technology Laboratory64 “Pennsylvania Counties with Active Wells,” accessed December 9, 2013, http://stateimpact.npr.org/pennsylvania/drilling/counties/

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,

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

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 2.67 Ibid. at 7.

Bcf/mi2.68

68 Roger Manny, “Range Resources Corporation,” November 12, 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 40-

130 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

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

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): 57–78.71 Manny, “Range Resources Corporation.”72 Ibid. at 14.

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).

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)

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

73 “Pittsburgh Fact Sheet,” accessed December 9, 2013, http://www.city.pittsburgh.pa.us/cp/html/pittsburgh_fact_sheet.html74 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.html76 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).

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 setback-

compliant 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

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

79 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.81 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-drilling-program.(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-operating-standard-in-the-marcellus-shale.(High estimate)82 Marcellus Drilling News, “EQT Analyst Presentation for Marcellus Shale Drilling Program.”

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.)

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.

83 Caralyn Green, “State board protects city's Hays Woods from strip mining,” POPCity, accessed December 9, 2013, http://www.popcitymedia.com/devnews/hayswoods0527.aspx

Figure 8: Pittsburgh Vacant Property Conforming to State Drilling Setback Regulations

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

horizontally-drilled, 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

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

84 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-gas-producer-through-2030/.85 Ibid.

plant solely on Pittsburgh-produced gas alone throughout its 30-year useful life.

0.00

20,000,000.00

40,000,000.00

60,000,000.00

80,000,000.00

100,000,000.00

120,000,000.00

0

50

100

150

200

250

Figure 9: Results of 30-Year Well Build-Out Analysis

Legacy Gas ProductionNew Gas ProductionNGCC Plant Gas Consump-tionTotal Wells Drilled

Years (1 = 2016)

Nat

ural

Gas

Pro

duct

ion,

MM

cf

Tot

al W

ells

Dri

lled

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

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

86 Available online at http://ir.eqt.com/event/presentation/marcellus-decline-curves-data-may-201387 Ziets, “20 Bcf Per Well.”

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 30-

year 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

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

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

88 “Rocky Mountain Institute,” Accessed Nov 30, 2013. http://www.rmi.org/RFGraph-health_effects_from_US_power_plant_emissions89 “US EPA About Air-Toxics” Accessed Dec 8, 2013 http://www.epa.gov/ttn/atw/allabout.html90 H. Scott Matthews and Lester B. Lave, “Applications of Environmental Valuation for Determining Externality Costs” Environmental Science & Technology 34 (2000): 1390-1395.

to EPA valuations, also included in the table below.

Total Allegheny County Abatement Benefits In 2013 Dollars Pollutan

tEmissions Reduction Min Median Mean Max EPA

CO 187 $311 $161,689 $161,689 $326,488 $168,426NOx 2547 $930,097 $4,481,376 $11,837,596 $40,163,273 $4,476,402

PM10 246 $303,452 $894,384 $1,373,518 $5,174,649 $900,191PM2.5 192 $303,452 $894,384 $1,373,518 $5,174,649 $900,191

S02 30081 $38,449,796 $89,882,639 $99,869,599 $234,693,558 $89,882,639VOC 5 $1,224 $10,707 $12,236 $33,650 $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

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

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

91 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

92 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 Development. 13 Nov. 2013.

93 Ibid. 94 Hardy.

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

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

95 “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-library-tax.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=298 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

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

99 Hardy.

While Pennsylvania does not impose a severance tax, which is an extraction tax of the resource, it

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.

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

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

collection.102

100 “PA Impact Fee,” accessed October 20, 2013, http://www.puc.state.pa.us/filing_resources/issues_laws_regulations/act_13_impact_fee_.aspx101 “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-Marcellus-Fee-Comes-Up-Short-6-18-2013.pdf102 “Tax Treatment of Natural Gas,” accessed December 9, 2013, http://extension.psu.edu/natural-resources/natural-gas/publications/tax-treatment-of-natural-gas

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

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 Nashville-

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

based 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.

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

105 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/2013-07-16/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#axzz2mDVWn678107 “Hotel Occupancy Tax,” accessed October 20 2013, http://www.alleghenycounty.us/treasurer/hotel.aspx108 Ibid.

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

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

109 “PA State Tax Compendium,” accessed November 29, 2013, http://www.portal.state.pa.us/portal/server.pt/community/reports_and_statistics/17303/tax_compendium/602434110 Hardy at 6.

111 Ibid at 7. 112 “Marcellus Shale” Allegheny Institute for Public Policy. 2013, accessed October 20, 2013, http://www.alleghenyinstitute.org/issues/local- economy/marcellus-shale-2/

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

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

113 Pittsburgh Municipal Code §618.01

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

biodegrade volatile organic compounds (VOCs) before they reach groundwater.118 Air sparging

requires significant capital expenditures. In 2004, an EPA report on hydrocarbon cleanup

114 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).118 Tom Simpkin and Mark Strong, “Application of Air Sparging Using Irectionally Drilled Wells for Petroleum Hydrocarbon Remediation” (CH2MHill, October 31, 2012).

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

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

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.php122 “Newark, East (Barnett Shale) Well Count,” accessed December 9, 2013, http://www.rrc.state.tx.us/barnettshale/barnettshalewellcount_1993-2013.pdf123 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.

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

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

126 Dutzik. T et Ridlington. E. (2012) The Costs of Fracking,127 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:10.1890/110053.130 Mantell, “Produced Water Reuse and Recycling Challenges and Opportunities Across Major Shale Plays.”

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

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 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/oil-gas/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 Shale134 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.

statewide air emissions due to unconventional drilling.136 Results of that study on a per-well basis

are presented below.

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

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

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

Marcellus Shale Air Emissions, PA DEP Inventory 2011Pollutant Total Emissions (short tons) Per Well (1,794 wells completed)NOx 16,542 9.22PM10 577 0.32PM2.5 505 0.28CO 6,852 3.82SO2 122 0.07VOC 2,820 1.57

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 cost-

benefit 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

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

137 Megan Collins, “A struggle with toxics in the Barnett Shale,” Earthworks Action, accessed December 2, 2013, http://www.earthworksaction.org/voices/detail/dish_texas138 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/clusters140 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.21166.141 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.

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

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 143 “Overview of Greenhouse Gases,” accessed December 9, 2013, http://epa.gov/climatechange/ghgemissions/gases/ch4.html144 “Composition of Natural Gas and LNG,” accessed December 9, 2013, http://www.beg.utexas.edu/energyecon/lng/LNG_introduction_07.php145 Francis O’Sullivan and Sergey Paltsev, “Shale Gas Production: Potential versus Actual Greenhouse Gas Emissions,” Environmental Research Letters 7, no. 4 (2012): 044030..146 Wagner C. (2013) 2012 county of Allegheny Pennsylvania.147 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,

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.

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

2011), http://www.stcplanning.org/usr/Program_Areas/Energy/Naturalgas_Resources/STC_RumbachMarcellusTourismFinal.pdf.148Shelley Martin, “NETL Statement on Reported Fracking Study,” accessed December 9, 2013, http://www.netl.doe.gov/publications/press/2013/StudyStatement.pdf

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.)

Year

Benefits to City

Health Benefits City Revenue Increases Total Benefits $Reduction Total $ Impact Fee Sales Tax Earned Income Tax Revenue Total

2016 $12,071,687 $585,157 $56,942 $513,308 $1,155,406 $13,227,0932017 $24,143,374 $884,238 $44,000 $396,647 $1,324,885 $25,468,2592018 $24,143,374 $1,282,271 $51,765 $466,644 $1,800,680 $25,944,0532019 $24,143,374 $1,736,136 $50,040 $451,089 $2,237,265 $26,380,6382020 $24,143,374 $2,438,665 $55,216 $497,753 $2,991,635 $27,135,0082021 $24,143,374 $3,374,960 $50,902 $458,866 $3,884,728 $28,028,1022022 $24,143,374 $3,550,631 $53,491 $482,199 $4,086,320 $28,229,6942023 $24,143,374 $3,703,488 $39,363 $354,844 $4,097,695 $28,241,0682024 $24,143,374 $3,858,677 $40,657 $366,510 $4,265,844 $28,409,2182025 $24,143,374 $4,003,182 $40,053 $361,066 $4,404,301 $28,547,6742026 $24,143,374 $4,128,775 $37,983 $342,400 $4,509,157 $28,652,5312027 $24,143,374 $4,252,164 $37,983 $342,400 $4,632,547 $28,775,9202028 $24,143,374 $4,372,685 $37,983 $342,400 $4,753,067 $28,896,4412029 $24,143,374 $4,489,755 $37,983 $342,400 $4,870,138 $29,013,5112030 $24,143,374 $4,602,873 $37,983 $342,400 $4,983,255 $29,126,6292031 $24,143,374 $4,711,608 $37,983 $342,400 $5,091,991 $29,235,3642032 $24,143,374 $4,518,097 $37,983 $342,400 $4,898,480 $29,041,8532033 $24,143,374 $4,339,855 $18,991 $171,200 $4,530,046 $28,673,4192034 $24,143,374 $4,175,142 $18,991 $171,200 $4,365,333 $28,508,7072035 $24,143,374 $4,022,475 $18,991 $171,200 $4,212,666 $28,356,0402036 $24,143,374 $3,880,579 $18,991 $171,200 $4,070,770 $28,214,1432037 $24,143,374 $3,748,352 $18,991 $171,200 $3,938,544 $28,081,9172038 $24,143,374 $3,624,840 $18,991 $171,200 $3,815,031 $27,958,4052039 $24,143,374 $3,509,208 $18,991 $171,200 $3,699,399 $27,842,7732040 $24,143,374 $3,400,725 $18,991 $171,200 $3,590,916 $27,734,2902041 $24,143,374 $3,298,748 $18,991 $171,200 $3,488,939 $27,632,3132042 $24,143,374 $3,202,709 $18,991 $171,200 $3,392,900 $27,536,2742043 $24,143,374 $3,112,104 $18,991 $171,200 $3,302,295 $27,445,6692044 $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 $8,971,323 $112,746,550 $824,976,069 Figure 11: Cost-Benefit Analysis Table 1 – Benefits

Year Costs to City Net Present Value

CalculationsEnvironmental Damages

Total Costs $

Net Benefit (Cost)

NPV of Benefit (Cost)

Produced Water Recycling

Blowout Expected Cost

Total Emissions Costs

2016 $3,033,105 $36,720 $1,651,086 $4,720,911 $8,506,182 $6,943,5782017 $2,014,965 $55,080 $985,821 $3,055,866 $22,412,393 $17,098,3072018 $2,080,685 $73,440 $985,821 $3,139,946 $22,804,107 $16,259,0132019 $2,128,849 $85,680 $657,214 $2,871,743 $23,508,896 $15,664,9702020 $2,113,589 $97,920 $657,214 $2,868,722 $24,266,286 $15,111,8232021 $2,066,873 $104,040 $328,607 $2,499,520 $25,528,582 $14,857,8672022 $1,917,073 $110,160 $328,607 $2,355,840 $25,873,854 $14,073,6622023 $1,805,102 $113,220 $164,303 $2,082,625 $26,158,443 $13,297,6262024 $1,654,778 $116,280 $164,303 $1,935,361 $26,473,857 $12,577,5392025 $1,545,168 $118,116 $98,582 $1,761,866 $26,785,808 $11,893,2192026 $1,415,254 $118,116 $0 $1,533,370 $27,119,160 $11,253,4872027 $1,267,294 $118,116 $0 $1,385,410 $27,390,510 $10,622,5122028 $1,158,111 $118,116 $0 $1,276,227 $27,620,214 $10,010,8362029 $1,071,481 $118,116 $0 $1,189,597 $27,823,914 $9,424,9222030 $1,000,054 $118,116 $0 $1,118,170 $28,008,459 $8,866,7612031 $939,577 $118,116 $0 $1,057,693 $28,177,671 $8,336,7562032 $886,915 $118,116 $0 $1,005,031 $28,036,822 $7,752,4152033 $839,980 $118,116 $0 $958,096 $27,715,323 $7,162,1662034 $797,361 $118,116 $0 $915,477 $27,593,230 $6,664,1262035 $758,092 $118,116 $0 $876,208 $27,479,831 $6,202,5602036 $721,487 $118,116 $0 $839,603 $27,374,541 $5,774,5742037 $687,093 $118,116 $0 $805,209 $27,276,708 $5,377,5112038 $654,590 $118,116 $0 $772,706 $27,185,699 $5,008,9432039 $623,757 $118,116 $0 $741,873 $27,100,899 $4,666,6532040 $594,431 $118,116 $0 $712,547 $27,021,742 $4,348,6192041 $566,493 $118,116 $0 $684,609 $26,947,704 $4,052,9942042 $539,868 $118,116 $0 $657,984 $26,878,290 $3,778,0882043 $514,494 $118,116 $0 $632,610 $26,813,059 $3,522,3542044 $490,313 $118,116 $0 $608,429 $26,751,620 $3,284,3772045 $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

$266,951,116

Figure 12: Cost-Benefit Analysis Table 2 – Costs and Net Present Value Calculations

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

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.

Sensitivity Analysis: Yearly Benefits and Net Present Value to Per-Ton Emissions BenefitMinimum Median Mean Maximum EPA

Yearly $ Benefits $10,018,145 $24,143,373 $28,752,374 $71,750,737

$24,147,153.18

$119,753,80 $266,951,11 $315,024,78 $763,514,40

Range of $ Values for Per-Ton Emissions Reductions from Electric Power Generation

PollutantNumber of

Studies Minimum Median Mean MaximumEPA Study

ValueCO 2 $1.66 $863.20 $863.20 $1,743.00 $899.17NOx 9 $365.20 $1,759.60 $4,648.00 $15,770.00 $1,757.65SO2 10 $1,278.20 $2,988.00 $3,320.00 $7,802.00 $2,988.00PM 12 $1,577.00 $4,648.00 $7,138.00 $26,892.00 $4,678.18VOC 5 $265.60 $2,324.00 $2,656.00 $7,304.00 $2,351.67

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.