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Report estimates benefits, costs of N.C. energy exploration
Story Date: 4/16/2013
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Source: NCSU COLLEGE OF AG & LIFE SCIENCES, 4/15/13
Drilling for oil and gas off the North Carolina coast and for natural
gas inland could generate millions of dollars in economic activity and
create thousands of jobs. That same energy exploration and recovery
could cause millions of dollars in damage to coastal communities and
reduce property values inland.
Those are the conclusions of a report by a North Carolina State
University economist that attempts to look at both the benefits and
costs of developing North Carolina’s energy resources.
The report, titled “The Economic Potential from Developing North
Carolina’s On-shore and Off-Shore Energy Resources,” was written by
Dr. Mike Walden, William Neal Reynolds Professor of Agricultural and
Resource Economics. The full report is available online at
http://www.ag-econ.ncsu.edu/faculty/walden/publications/drillingnc.pdf.
Walden said he decided to write the report as a research project that
would take an objective look at the benefits and costs of developing
North Carolina’s energy resources. He added that he did not receive
funding from any outside sources to produce the report.
North Carolina is thought to have significant oil and gas reserves off
the coast that could be tapped with offshore wells, while areas of the
state are thought to contain natural gas reserves that could be
recovered using a drilling technology called hydraullic fracturing, or
fracking.
Walden developed his costs and benefits estimates after examining
federal government estimates of the amount of oil and gas off the
state’s coast and natural gas beneath North Carolina’s soil along with
reports on environmental damage from off-shore drilling and fracking.
He also looked at oil and gas price forecasts from national and
international sources.
Off-Shore Drilling
Walden’s conclusion is that over a seven-year build up period,
off-shore drilling would generate $181 million in income annually, of
which $11 million would be public revenues. In addition, 1,122 jobs
would be created.
After the seven-year build up period, off-shore drilling would
generate $1.9 billion in income annually, of which $116 million would
be public revenue. This income and revenue generation would occur over
a 30-year-period, during which 16,910 jobs would be created.
However, Walden shows, these estimates are highly sensitive to
projections of the quantities of oil and gas off-shore as well as
future prices of those resources. Changes in projected quantities and
prices significantly change the economic impact to North Carolina.
Also, the estimated economic impacts should be put in context to the
$440 billion of economic production generated annually in North
Carolina.
The downside to off-shore drilling is potential environmental damage
from oil spills. In estimating oil spill damage, Walden looked at “
the spillage rate during the period 1964-2010 for U.S. outer
continental shelf platform and pipeline operations.”
Using this information, he put the potential average annual cost of
environmental damage at $83 million, primarily to the fishing and
tourism economy in coastal counties. Walden points out that the size
of the Deepwater Horizon oil spill in the Gulf of Mexico in 2010
increased the historic average of oil spill damage.
On-Shore Exploration
Walden used average estimates for natural gas supply and prices to
estimate that natural gas exploration and extraction inland would
generate $80 million annually in income, including $4.9 million in
public revenue, and create 496 jobs as infrastructure and facilities
were developed. Once wells were drilled and gas was being produced,
Walden estimates that natural gas production would generate $158
million in annual revenue, including $9.6 million in new annual public
revenue, and create 1,406 jobs over a 20-year period.
Again, Walden cautions that the economic impacts change as the assumed
quantity and/or price of the energy resource changes.
The costs of natural gas exploration are more difficult to estimate
because hydraulic fracturing, which involves injecting a solution of
water and chemicals underground to fracture rock formations containing
natural gas, is a relatively new technology and does not have the
history of off-shore drilling. Nevertheless, Walden used reports on
natural gas exploration in Pennsylvania, where hydraulic fracturing is
widespread, to estimate possible environmental damage that “could
reduce property values in the affected counties by between $636
million and $4.7 billion.”
Walden focused on North Carolina’s Deep River basin for natural gas
exploration. This area, which includes parts of Anson, Chatham,
Durham, Granville, Lee, Montgomery, Moore and Wake counties, is
thought to have the greatest potential for natural gas exploration. Of
these counties, Walden writes that Chatham, Lee and Moore have
attracted most of the attention for drilling.
“There are both potential ‘upsides’ and potential ‘downsides’ to
energy resource development in North Carolina, and neither the ‘ups’
nor the ‘downs’ should be ignored,” Walden writes. “Benefit estimates
should be continually refined as updated price and quantity
information becomes available. Potential cost information should also
be reviewed with the goal of narrowing the range of estimates. Plans,
procedures and contingencies for both reducing potential costs as well
as addressing costs when they occur should be developed and debated.”
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