Shale gas production and labor market trends in the U.S. Marcellus–Utica region over the last decade

The maturation of unconventional technologies in the United States for resource development has led to a renaissance in domestic oil and natural gas (O&G) production. Improved O&G resource development requires supporting infrastructure and utilization options, such as power generation, ethane crackers, and polyolefin plants, which spur additional employment within a region. The advent of unconventional O&G production in the United States in recent years, made possible by improvements in horizontal drilling and hydraulic fracturing technologies,¹ increased total dry natural gas production from 19.3 trillion cubic feet (Tft³) in 2007 to 26.5 Tft³ in 2016, an overall increase of 7.2 Tft³.² During the same period, U.S. shale gas production increased by 14.5 Tft³, from 1.3 Tft³ to 15.8 Tft³.³ A larger increase in shale gas production than in total dry natural gas production implies that without the advent of shale gas production, overall U.S. natural gas production would have declined during the last decade.

Much of the growth in U.S. natural gas production has occurred in the Marcellus and Utica shale plays in Ohio, Pennsylvania, and West Virginia (also known as the Marcellus–Utica region), with shale gas accounting for most of the increase. This article analyzes trends in shale gas production and labor market data in Ohio, Pennsylvania, and West Virginia, the three states with active Marcellus and Utica production and drilling over the last decade. Production data are analyzed at both the county and state level, whereas labor market data are primarily analyzed at the state level, examining metrics such as employment, number of establishments, and wages. This article addresses a number of key questions regarding the Marcellus–Utica region, such as What proportion of natural gas production does shale gas production represent? The article also examines questions concerning recent trends, such as How much has shale gas production grown over the last decade? and How has growth in shale gas industry labor metrics compared with growth in other industries? A comparison between salaries in shale industries and other industries is also made. Another area examined includes the correlation between trends in labor market metrics with shale gas production and short-term trends that departed from overall decade-long trends.

Data and terminology

The analysis in this article uses available 2007–16 annual data at the county, state, and national levels, with most analysis occurring at the state level. At the state and county levels, Ohio, Pennsylvania, and West Virginia shale gas production data for 2016 were sourced from the Pennsylvania Department of Environmental Protection (DEP),⁴ the Ohio Department of Natural Resources,⁵ and the West Virginia DEP.⁶ U.S. Energy Information Administration (EIA) shale gas and natural gas production data at the state and national level were used in the analysis for 2007–16, with the exception of Ohio, Pennsylvania, and West Virginia 2016 shale gas production data, which are sourced from the respective state agencies noted in the previous sentence.

State-level and county-level data on employment, number of establishments, total wages, and average annual pay (i.e., wages) in the Marcellus–Utica region were taken from the U.S. Bureau of Labor Statistics (BLS) Quarterly Census of Employment and Wages database.⁷ The U.S. Bureau of Economic Analysis (BEA) implicit gross domestic product (GDP) price deflator (annual) is used to convert total wage and average annual pay data to real 2016 dollars.⁸

The annual spot price data of Henry Hub natural gas are sourced from EIA.⁹ Annual spot prices of Dominion South, however, are calculated based on S&P Global Market Intelligence monthly data and converted from dollars per million British thermal units to dollars per thousand cubic feet (kft³) with the use of an EIA conversion factor.¹⁰ The annual average natural gas spot price of Dominion South is calculated by averaging the monthly price over the year. Annual natural gas spot prices of Henry Hub and Dominion South are converted to real 2016 dollars with the use of the BEA Implicit GDP Annual Price deflator.¹¹

Unless otherwise stated, all dollar figures in this article are in real 2016 dollars. State-level GDP data are sourced from the BEA Regional Economic Accounts.¹² Occupational statistics come from the BLS Occupational Employment Statistics program.¹³ The current article refers to shale gas-related industries as “shale industry” or “shale industries” throughout and defines the shale industry using the following North American Industry Classification System (NAICS) codes:¹⁴

·         O&G extraction (NAICS 211)

·         Drilling O&G wells (NAICS 213111)

·         Support activities for O&G operations (NAICS 213112)

·         O&G pipeline construction (NAICS 23712)

·         Pipeline transportation of natural gas (NAICS 4862)

“All industries” or “all industry” includes every industry in a region’s economy, regardless of whether it is a shale industry. One study lists 30 ancillary shale gas industries (e.g., petrochemical manufacturing). However, ancillary shale gas industries are not examined in this article.¹⁵ The term “establishment” is defined as the “physical location of a certain economic activity” (e.g., a mine or office).¹⁶ A private company may consist of more than one establishment.

Production

The recent growth in shale gas production in the Marcellus–Utica region is portrayed in figure 1. In 2007, shale gas production was 0.001 Tft³ in Pennsylvania, with West Virginia production beginning in 2009 and Ohio production beginning in 2012 (0.014 Tft³). Pennsylvania (4.6 Tft³) overtook Texas (4.4 Tft³) as the leading state in U.S. shale gas production in 2015. By 2016, Pennsylvania shale gas production had grown to 5.10 Tft³, compared with 1.21 Tft³ in West Virginia and 1.39 Tft³ in Ohio. Figure 2 depicts the top 10 states in overall 2016 natural gas production and provides a breakout of total gas production into shale gas production and all other production. In 2016, shale gas production accounted for over 90 percent of natural gas production for each of the three states in the Marcellus–Utica region.

The value of 7.69 Tft³ of total shale gas production in Ohio, Pennsylvania, and West Virginia in 2016 is estimated at $12 billion based on the Dominion South natural gas spot price average of $1.56 per thousand cubic feet (kft³). (See figure 3.) This $12 billion compares with the combined GDP of $1.424 trillion (current dollars) of these three states in 2016. This result suggests that the direct value of shale gas production was about 0.84 percent the size of the overall economy of these states. One should note that prices could substantially vary within a region, depending on contract terms and the market in which the gas is sold. The Dominion South price has recently been lower than the national benchmark (Henry Hub) spot price; in 2016, the Henry Hub spot price averaged $2.61/kft³ (figure 3).¹⁷

Both the Marcellus and Utica plays are major contributors to shale gas production. For instance, according to EIA, total monthly November 2016 natural gas production was 0.55 Tft³ in the Marcellus region and 0.12 Tft³ in the Utica region.¹⁸

As figure 4 shows, 2016 shale gas production varies widely by county within the Marcellus–Utica region. Of the 210 counties in the three states, 124 did not produce shale gas in 2016. Of the 86 shale gas-producing counties, 20 produced over 100,000 million cubic feet (Mft³) (or 0.1 Tft³). The four largest producing counties were all in Pennsylvania, with each producing over 500,000 Mft³ (or 0.5 Tft³) of shale gas.