New Albany Shale Could Create Jobs, Economic Growth in Illinois

New Albany Shale Could Create Jobs, Economic Growth in Illinois

The New Albany shale play could add jobs and economic growth to the southern Illinois economy – but only if environmental protestors don't succeed in banning hydraulic fracturing statewide.

A minimum of approximately 1,000 jobs would be created or supported each year through exploration of the play, which is in its infancy. However, more than 47,000 jobs per year, or more than $9.5 billion of economic impact, could be created or supported if the study's highest scenario is realized, according to the study conducted by Dr. David G. Loomis, professor of economics at Illinois State University.

Loomis conducted the study for the Illinois Chamber of Commerce Foundation in response to environmental groups' push for a moratorium on hydraulic fracturing as the Illinois General Assembly seeks to create regulations governing fracking.

The foundation decided it wanted to put some numbers down for the industry's economic impact if the play becomes productive, Tom Wolf, executive director for the foundation's energy council, told Rigzone.

The foundation shied away from a study focused on oil because of uncertainty surrounding the amount of oil in the New Albany shale play.

Some companies are looking at the play for its oil potential, Wolfe noted anecdotally. The state has produced oil from conventional resources since 1905.

While the play might not turn out to be productive, particularly with current natural gas prices, crafting a regulatory model on hydraulic fracturing will create a roadmap for the industry so oil and gas companies know where to go.

Wolfe said the foundation is fine with regulating hydraulic fracturing, but wants to see it done in a way that does not stifle economy activity.

"Illinois is in no position to turn its back on the play's potential and the jobs and tax revenues it would generate," Wolf commented.

New tax revenue sources are needed as the state continues to grapple with financial challenges, including underfunded state worker pension funds.

A report by the Illinois State Financial Task Force, "Just the Facts: A Primer on Illinois Pensions", noted that Illinois' five state pension plans are not sustainable, with an aggregate unfunded pension liability of $83 billion in fiscal year (FY) 2011. The growth of the unfunded pension liability of the plans from $20 billion in FY 1996 to $83 billion is partly due to the "Great Recession", but also inadequate state funding, lower than expected returns on pension fund assets and changes in actuarial assumptions played a role.
To address underfunding, state contributions to the pension plans have grown dramatically from FY 2008 to FY 2013.

The task force was formed in 2006 by the Civic Committee of The Commercial Club of Chicago in an effort to reform the state's pension, retiree health care programs and last spring proposed substantial cuts in other areas of Illinois' budget.

In FY 2008, pension contributions used six percent of general funds revenue; in FY 2013, they will consume 15 percent, even after the recent tax increase.

"The growth in general funds pension contributions from 2008 to 2013 represents $3.5 billion that could have gone to other critical state programs," according to the report.

The $3.5 billion is larger than the entire general funds appropriation to the Department of Human Services in Illinois Gov. Pat Quinn's proposed FY 2013 budget, and more than half of the general funds appropriation to the state Board of Education.

"Those extra resources could have ameliorated the deep Medicaid cuts currently under consideration, or funded increases in General State Aid to Illinois' public schools, or paid the bills owed to financially-strapped social service agencies," according to the task force report.

Job creation has also been a priority for the state after it suffered consecutive monthly declines in employment in 2008 and 2009. Illinois added over 167,000 private sector jobs since January 2010, when job growth returned.

The state's unemployment rate declined from 9.7 percent in December 2011 to 8.7 percent in December 2012, but the December 2012 percentage was still higher than the U.S. national unemployment rate of 7.8 percent, according to a Jan. 17 press statement from the Illinois Department of Employment Security (IDES).

The bill that would regulate hydraulic fracturing is under negotiations. Senate Bill 3280, which would include a requirement for companies to disclose the chemicals they use in hydraulic fracturing fluids, has been the subject of intense and serious negotiations among legislators, oil and gas industry representatives and their allies and environmental groups, Wolf commented.

Wolf said he hopes to have a bill in place at the end of the assembly's five-month session in May that will hit a sweet spot – one in which the environment is protected and provides the industry the certainty it needs to be successful.

New Albany Resource Estimates, Illinois Drilling Activity

The New Albany play is estimated to hold shale gas resources off 11 trillion cubic feet (Tcf), and is the fourth largest play of the U.S. Northeast region, according to a 2011 estimate by the U.S. Energy Information Administration (EIA).

The New Albany shale play formation covers 60,000 square miles across Illinois, Indiana and Kentucky and lies at a depth ranging from 600 feet to 5,000 feet. The play may hold oil resources as well, but it is too early to give an estimate of its size or economic impact, said Loomis.

Approximately 155,000 oil, gas and injection wells have been drilled in Illinois since exploration first began in 1853, according to the Illinois Department of Natural Resources website. The state's oil production peaked between 1955 and 1963 with average yearly production of 80 million barrels. Currently, Illinois' yearly production is approximately 10 to 12 million barrels per year.

Most oil production occurs in the southern portion of the state in the Illinois Basin, a geological structure that also covers western Kentucky and western Indiana, according to the Illinois Department of Natural Resources. The majority of wells in the state are stripper wells with a daily production of 1.5 barrels per day.

Study Examines Total Impact of Direct, Indirect and Induced Employment Impact

In the study, Loomis examined the total impact on direct, indirect and induced impact on employment under three different scenarios:

New Albany Shale Could Create Jobs, Economic Growth in Illinois

Loomis noted that the high scenario is similar to historical employment impacts of shale gas in Arkansas, Pennsylvania, Louisiana and Texas' Eagle Ford play. He points out that several national studies of the economic impact of shale gas, including the October 2012 report by IHS Global Insight, which reported the total number of direct jobs generated by shale gas activity stood at 187,360 in 2012 and would rise to 436,773 jobs by 2035.

"In summary, the number of jobs coming from shale gas plays is large and is expected to get much larger in the coming years," said Loomis. "Many earlier studies have updated their estimates which proved to be too low in the early years."

Besides oil and gas drilling, the sectors with the largest employment impacts in the low, medium and high scenarios in order of impact are:

  • Food services
  • Private hospitals
  • Real estate establishments
  • Wholesale trade businesses
  • Health practitioners
  • Architects and engineers

The local labor impacts under the three local content assumptions, which include wages and benefits, is estimated to range from $53.8 million to $484.6 million.

No exploratory drilling had taken place in the New Albany play in Illinois as of third quarter 2012.

"Much more will be known about the potential for future drilling after the first test sites are completed and analyzed," according to the report.

New Albany, N.Y. Marcellus, Monterey All Have Huge Production Potential

Breitling Oil & Gas CEO Chris Faulkner told Rigzone that the company has accumulated 10,000 acres in the New Albany shale play, where the company will start shooting seismic soon, with plans to drill later this year or in 2014. Faulkner said that the New Albany play offers a mix of oil and associated natural gas, similar to the Bakken shale play.

In southern Illinois, Faulkner is seeing local residents battling over whether to allow hydraulic fracturing of shale. Opponents of shale fracking include NIMBYs (Not In My Back Yard) as well as farmers who may not need the money. But their neighbors whose farms are not doing as well may want shale exploration and production on their land.

The New Albany Shale play in Illinois, along with the Marcellus shale play in New York and the Monterey play in California, are the three areas in the United States with huge oil and gas production potential, Breitling commented.

But these same three areas also share another characteristic: the existence of a tremendous amount of anti-fracking activity. The move by many states to update their oil and gas regulations to account for new technology as well as how to manage fluid disposal and water treatment presents an Achilles heel for environmentalists.

"It's black or white with environmentalists. They don't want fracking, whether there's regulations or not," commented Faulkner, who said he found the opposition troubling due to the huge economic opportunity for jobs and state and federal tax revenues associated with these plays.

"The trouble with environmentalists is they are against every form of energy – wind power because it kills birds, solar because of they don't want the chemicals used in manufacturing photovoltaic components, nuclear because of a possible meltdown, and coal because it is dirty."

Faulkner believes New York will set some standards for hydraulic fracturing regulations that only Illinois and California will adopt. While a moratorium on hydraulic fracturing might be implemented around New York's watershed and other regulations be put in place, he doesn't see the state banning the practice altogether.

He also doesn't see the U.S. federal government overstepping the states' authority in regulating fracking on private or state owned lands, even though federal guidelines are being crafted by the U.S. Environmental Protection Agency.

Groups Seek to Impose Hydraulic Fracturing Ban in Illinois

Concerns over hydraulic fracturing that have sprung up in other parts of the country –including heavy traffic on roads and concerns over fracking's impact on local water supplies – also have cropped up in Illinois. Southern Illinoisans Against Fracturing Our Environment (SAFE) launched a website earlier this year with the intent of banning hydraulic fracturing in southern Illinois.

The Carbondale, Illinois-based group in a Jan. 15 letter to Illinois county officials asked how local government units in the state would decide to address hydraulic fracturing as oil and gas companies lease mineral rights across Southern Illinois to explore the New Albany Shale. SAFE urged county officials to sign a letter supporting a moratorium on high-volume horizontal hydraulic fracturing in the state "until it can be shown that this practice will be done without harming the health, future economic viability, environment, or quality of life of residents of Illinois."

"Currently, in Springfield, politicians are working without public oversight on a bill to 'regulate' fracking in Illinois," SAFE commented in the letter. "Regulation has proven meaningless in other states in regard to providing public and environmental safety."

SAFE noted that governments cannot regulate the amount of water used in fracking and its impact on drinking water supplies.

"Secondly, the state does not have the money, the manpower, nor a system in place to monitor, regulate and enforce an industry that is so dangerous and complicated."

Another group, Food & Water Watch, has been seeking to impose moratoriums on high-volume horizontal hydraulic fracturing in U.S. states, including Illinois. The national group participated in local campaigns in Anna and Carbondale to bank hydraulic fracturing.

The national group has also been targeting 2016 presidential hopefuls Gov. Mario Cuomo of New York, New Jersey Governor Chris Christie, Governor Martin O'Malley of Maryland, and Colorado Gov. John Hickenlooper in their efforts to ban fracking, saying any moves by the four governors to support hydraulic fracturing "will come back to haunt them in 2016".

The Sierra Club and Natural Resources Defense Council are also among groups seeking to ban hydraulic fracturing in Illinois and around the country.

Late last year, Alto Pass became the first Illinois municipality to specifically ban hydraulic fracturing within city limits. The town of Carlyle, Illinois, in January 2012 banned all drilling or operations of oil and gas wells within its city limits, including hydraulic fracturing. Other Illinois cities and counties have also passed or called for bans on hydraulic fracturing.

While environmentalists have successfully pushed counties that have not traditionally had oil and gas development to pass moratorium, they want to go a step further and see a statewide moratorium passed.

"In fact, they even say they want a ban in their mission. So you know they're not pushing a moratorium to 'allow more time to study,'" said Taylor Smith, policy analyst with The Heartland Institute, in an email to Rigzone.

"I think the controversy over hydraulic fracturing, and the fact that it can now be done horizontally and at high-volume does play a role in the opposition," said Smith.

"But I think a bigger reason is the overall expansion that will happen if regulations are finalized and signed into law, thus lifting the de facto moratorium in place, since no company will invest or drill if they don't know what the rules will be. The move would allow oil and gas development to take place in both areas that haven't traditionally had development, and areas that have had it, but now possibly to a greater degree," Smith commented.

Between 30,000 and 50,000 wells have been hydraulically fractured in Illinois since the 1950s, the Interstate Oil & Gas Compact Commission (IOGCC) reported on its website. None of these wells caused any harm to groundwater, IOGCC added.


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