Hope You Saved The Money

I was recently reading a very good series on West Virginia over at Al Jazeera.  It’s the thing that you used to see from our media, but no longer.  It’s a rather disturbing picture of what happens when an area is almost totally dependent on one industry, and one that is an “extractive industry:”  Coal.   The reports focus on one county, McDowell,  which in the past was one of the major producers of coal.  Today?  Well, it’s not a very nice place.  But there’s some lessons in there as well.

What struck me in reading through the first in the series was this paragraph:

Devoid of a vibrant middle class, rural Appalachia continues to bear the scars of generations of chronic poverty, largely due to an enormous educational deficit, according to Mil Duncan, policy fellow at the University of New Hampshire’s Carsey Institute. Duncan, who wrote “Worlds Apart: Why Poverty Persists in Rural America,” has found similarities between plantation communities in the Mississippi Delta and coal regions of Appalachia, where coal companies were historically fearful that education would lead to unionization and civil rights organizing.

“They didn’t invest in education of workers and citizens as many other places did,” Duncan said.

It’s a legacy that has complicated the way forward for the region as coal jobs have contracted and become more skilled due to mechanization.

Not only are the available jobs declining, there are no future jobs in coal mining for the young.  It wouldn’t matter if all regulations were revoked, and various incentives were put into place to increase production.  That’s due to another kicker:  Even with mountaintop removal, there’s only 20 to 30 years of coal left in West Virginia at current rates of production.  Before you hit retirement age if you are under the age of 30, and when a child born today is entering the job market, coal will no longer be an economic factor in West Virgina.  It’ll be gone, along with all the jobs.  What will be left?  A lot of holes in the ground, a lot of toxic waste, and anyone who remains will have to either leave, or figure out what they’re going to scrape by on.  McDowell County is a harbinger of their future, even if we allowed “King Coal” free reign.

It’s understandable why the state and so many living there are clinging to it, because in their minds “it’s all we’ve got.”  What they’re experiencing something that has gone on in many areas of this country over the course of its history.  Mines and oil/gas wells play out, industries move elsewhere or become obsolete, and with their loss the formerly steady economy disappears.   It’s not a function of regulations, or “government oversight,” despite what the Right would have you believe.  Into that environment comes a sense of desperation, which leads to listening when something else “promises” to bring jobs and a booming economy to the area.

In this case, the fracking debate, particularly relating the the Marcellus Shale.  It’s been promoted as a major economic boon to depressed areas, that will bring jobs, money, and a new vibrant economy.   Whether or not fracking can be done safely and in an environmentally responsible manner is a separate debate from what I’m going to talk about here.  The reality is that “the jobs” won’t really be to locals for the most part.  That’s because drillers are mobile, and it’s a specialty that moves around a lot in this country to where the action is.  Once the well is drilled, there’s not a lot of “permanent jobs” left behind it.  The other thing that never gets mentioned?  It’s a short-term economic bonus.  It turns out that gas wells have a limited life span.

Lots of property owners who signed a lease in one of the natural gas shale plays such as the Marcellus, Barnett, Haynesville, Fayetteville, Bakken, Utica and Eagle Ford are now receiving monthly or quarterly royalty payments. Many of these people were pleasantly surprised with the size of their first royalty check — but then shocked to see the size of subsequent checks fall rapidly.

There was nothing wrong with their well. Sharp declines are normal.

It turns out that most of these fracked wells have a production lifespan that, in the best cases, potentially 20 years, but almost all the money will come from the first year’s production.  By Year 5, people who are receiving royalties are only going to be getting about 10% of that, assuming a constant price for gas.  That may be news to property owners, but what about the other benefits?  After all, look at all the jobs and stuff in North Dakota!

The oil boom has given those who own mineral rights large incomes from lease bonuses and royalties. The boom has reduced unemployment and given the state of North Dakota a billion-dollar budget surplus. North Dakota, which ranked 38th in per capita gross domestic product (GDP) in 2001, rose steadily with the Bakken boom, and now has per capita GDP 29% above the national average.

Good thing, right?  Not quite.

What we have now is the complete industrialization of western North Dakota. To expect a county of 20,000 people to overnight absorb another 20,000 people is ludicrous,” says Dan Kalil, chairman of the Williams County Commission. I met Kalil in Williston, N.D., at the very eye of this hydrocarbon hurricane.

“They’re consuming all of our resources,” he says. “They’re consuming all of our people looking for jobs. All the employee base is used up. Our roads system is being used up. All our water is being used up. All our sewage systems are being used up. [They’re] overwhelmed. All of our leadership time as local public officials is consumed with this.”

One might note that the economic “boom” is due to large number of  people migrating in to work the fields during their development, and with that the attendant stress on infrastructure, meaning … more money needed to build them. That goes along with increased spending on other services, as well as problems created for the existing economy.

As I said earlier, this has been an experience many areas have seen in the past, and in particular, the West.  There are many “ghost towns” out there, where a “boom” caused an influx of people – and jobs – only for the town to be abandoned once whatever resource brought the people there in the first place ran out.  That’s the future for of these “plays,” and the “booms.”  They’re generally short-lived, on the order of 15-20 years, and they require a constant stream of new wells in order to maintain production. Once they’re over, the drilling rig workers leave for the next job, as do many of the rest who came to take advantage of the boom, leaving behind an empty town, lots of holes in the ground, and if the area is lucky, a return to “what was before.”  If they’re not, they’re left with a ruined landscape which no one wants to live in.

That’s the future for these areas. Yes, the energy companies will talk up the jobs, the money, the economic benefits, along with implying that the oil and gas will remain here in the US.  To economically depressed areas, it sounds like a godsend, a way to once again restart their economies, stop the population outflow, and return to the “good old days.”  Then the realization that it’s a short-term solution, and often brings with it more problems than it solved.   Does this mean that areas shouldn’t allow mining or drilling?  Not necessarily.  But they should realize that it’s not the great solution to their economic problems they have been led to believe.   Properly supervised, regulated,  with careful planning and investments in other areas of their economy, as Norway has done, it can act as a “venture capital” for an actual long-term economy.  If it doesn’t happen?  Well, I hope you saved some of the money.  That windfall is going to have to last you a very long time.




Filed under Business, Politics

6 responses to “Hope You Saved The Money

  1. When you hear the pretty lady in trousers working for the API front, EnergyTomorrow.org tell you have enough gas and oil reserves here in America to power millions of homes and businesses, don’t believe it. Much of what there is simply too costly to extract and what is easier to get at will last a lot shorter time than the 100 years the industry is touting. According to more objective sources, there may only be about 5-7 years natural gas in shale rock.

    What most people don’t seem to be aware of is one of the items you touched on Norbrook which is the use of water that it takes to drill a single well, roughly 1 million gallons. In areas here in Texas where the Barnett and Eagle Ford shale sources are, the drought in this region has a lot of topical water supplies and underground aquifers are drying up too, making that water resource far more valuable than oil, gas and coal combined

    • The figures are based on “projected reserves” in the Marcellus shale, and current gas usage in this country. What the “pro” people rather gloss over is that oil – and natural gas if the proposed LNP plants are built – function in a world market. It goes where the price is highest, not “stays right here.” The idea that if we have more oil & gas wells here, it means lower prices, is a falsehood.

  2. aquagranny911

    Mining has never been a substantive industry. It is boom to bust business. All you have to do is look at the ghost towns and played out copper mines of AZ to see that. Copper was king here for awhile, not long, but the damages done to some of the land will be with us forever.

    • Exactly, and it holds for any extractive industry. Once you start extracting, a clock starts ticking. That’s the time until it runs out. There’s a couple of ghost towns in this area, one of which was rather famous in its day as a mining/resort community. Today, it’s just some foundations, and you have to hike in to it.

      What I object to the most is that the “selling point” for it to begin with is that it’s painted as a major economic boom, one which will create a renaissance in depressed areas. They’d rather not talk about the reality, which is that it’ll be short-lived, most of the jobs won’t be to locals, and they’d rather not clean up after themselves. 😦