If natural gas is having a moment, then Pennsylvania is leading the shale-based “natural gas revolution,” and Marcellus Shale—deep-in-the-Earth rock containing trapped gas millions of years old—is the headliner.
Between 2007 and 2016, total U.S. gas production increased by 32 percent, driven primarily by Pennsylvania’s almost 2,800 percent increase. With this supply surge, gas costs plummeted, both nationally and even more so in the state. Many have applauded this shale-based natural gas boom, from groups representing manufacturing interests to local chambers of commerce and infrastructure developers.
But for all those in the cheerleader camp, there are others who say that the environmental costs of natural gas outweigh its benefits, that extraction releases pollutants like hydrogen sulfide and smog-forming chemicals, and stresses or contaminates water supply. A new report from Penn’s Kleinman Center for Energy Policy looks at how this energy source has impacted consumer prices in the Keystone State since its heightened popularity.
The Penn Current Express spoke with Christina Simeone, the Kleinman Center’s director of policy and external affairs and the report’s author, about the contentious nature of shale gas, its effect on Pennsylvania consumers, and where the commonwealth goes from here.
Because it is a fossil fuel and there are environmental impacts associated with its extraction and use, natural gas has always been controversial. What are some other reasons for the debate?
Some people think shale gas is gold from heaven; others think it’s the devil. Being at a place like the Kleinman Center, we can be neutral in the conversation, and that’s what this report aims to do. Focusing on prices, it discusses some of the positives regarding shale: It’s saving people money, not just on natural gas bills but also on electronic power bills. On the other hand, regional discounts might not stick around forever because gas producers are motivated to move gas to higher priced markets. There’s significant interest in building pipelines to move Pennsylvania gas out of the state, which most expect will increase prices.
What did your analysis of the Pennsylvania shale gas data reveal?
In 2007, Pennsylvania contributed less than 1 percent of U.S. gas production and consumed four times more than it produced. A decade later, Pennsylvania supplied 16 percent of the domestic gas supply, and in 2016, the state only used about 25 percent of what it produced. This is unprecedented growth, and now Pennsylvania is second only to Texas in this realm. This has been a truly disruptive event. In addition, we learned that residential gas consumers saw a 40 percent decrease in retail gas costs compared to 2007, but still pay more than the national average.
Why do you think these findings are true, and how do they relate to the ‘Pennsylvania discount’?
First let me explain the discount. Gas in Pennsylvania trades at prices cheaper than the national average because we produce so much but we don’t have pipelines to move it. That’s where this discount comes in—the local supply is higher than the local demand—which is great for consumers. Companies that produce gas would love higher prices because if the unit-production price stays the same but the unit-sales price goes up, they will make more money. Increasing pipeline capacity to move Pennsylvania gas to other states, or even internationally, is expected to increase prices here and decrease prices on the other end of the pipeline. By how much and when are less certain.
The report doesn’t examine costs and benefits related to environment impacts, job creation, or economic development. So, what’s next?
There are many unanswered questions, like how long the Pennsylvania gas discount will last, or how the gas industry can evolve to better meet the needs of the power industry. The Kleinman Center seeks to identify contemporary energy-policy issues that exist and try to attract Penn’s incredible academic resources to help answer some of them.