Appalachian Economy Sees Few Gains From Natural Gas Development, Report Says

Natural gas production in the Appalachian region of the United States has failed to produce promised increases in jobs and income since the fracking boom began there in the late 2000s, with economic stagnation likely to persist now that output of the fuel has passed its peak, according to a report issued on Tuesday.

The study from the Ohio River Valley Institute, a nonprofit research group, found that gas-producing areas of Pennsylvania, Ohio and West Virginia lost more than 10,000 jobs from 2008 to 2021 and that their personal income growth trailed that of the three states and the U.S. as a whole. Their population dropped by more than 46,000 during the period.

Even though gross domestic product of the 22-county region surged at four times the rate of the states overall from 2008 to 2019,  little of that new wealth helped local economies because natural gas investment is mostly made in capital, not labor, and because many of the industry’s workers came from distant areas like Texas or Oklahoma where oil and gas skills were more readily available, the report said.

“GDP, which is often cited as a principal barometer of economic health, failed to produce commensurate gains in local measures of prosperity and well-being, including job, income and population growth,” it said.

The American Petroleum Institute of Pennsylvania, a trade group for oil and gas producers, rejected the report as “flawed” and argued that the industry has brought strong economic benefits to the state.

“Few places in the U.S. are as critical to producing reliable, affordable natural gas as Pennsylvania and the Appalachia region,” said Stephanie Catarino Wissman, executive director of API-PA. “Pennsylvania is the second-leading producer of natural gas, behind only Texas, generating good-paying jobs and hundreds of millions of dollars annually for state and local economies.”

She said an analysis by the consulting firm PwC found the oil and gas sector generated some 93,000 direct jobs to Pennsylvania in 2021, and contributed $75 billion to the economy, or 8.9 percent of the total.

In the future, the region is expected to see more economic stagnation because its natural gas production likely peaked in 2022, according to this year’s Annual Energy Outlook from the U.S. Energy Information Administration. 

The agency predicted that 2022’s peak annual natural gas production from the Utica and Marcellus Shales that underlie Appalachia won’t be equaled again until 2045, and that the region’s share of U.S. national gas production will fall to 37.2 percent by 2050 from 41.9 percent last year, as increasing output from fields in the U.S. southwest and Gulf Coast takes a greater market share.

Worldwide, demand for natural gas is falling, said John Hanger, a former secretary of Pennsylvania’s Department of Environmental Protection, during a video call with reporters to release the report. Global demand dropped 1.2 percent in 2022 as more countries saw the fuel as “too risky” for their economies because of its unstable price, and as they increasingly switched to renewables to curb climate change, said Hanger, who served as a panelist on the institute’s call for reporters. 

“In 2022, the world writ large started to deploy renewable energy and other non-fossil fuels including the electrification of buildings, to wean itself off natural gas,” Hanger said. “The golden age of gas is over.”

The negative outlook for natural gas extends to proposals for building a petrochemical “hub” in the region, which was promoted by industry and some state and local government leaders as a way to use abundant nearby gas reserves. So far, only one of five proposed plastics plants, operated by Shell in Beaver County, Pennsylvania, has been built, the study said. The plant, which began operating at full capacity in November, agreed to pay the state of Pennsylvania $10 million in penalties in May after emitting more air pollutants in its first months of operation than its state permits allow. 

The 22-county region, dubbed “Frackalachia” by the report’s authors, has become the victim of false promises by gas-industry boosters and some state officials that the natural gas boom would bring new riches to local economies, they concluded.  

“This report, its predecessors and struggling downtowns in Frackalachia, provide overwhelming evidence that the predictions weren’t only wrong, they were the products of deeply flawed and biased analyses,” said the report, written by Sean O’Leary, the institute’s senior researcher. It predicted that plans for a petrochemical buildout, as well as a potential storage hub for natural gas liquids, will also fail to deliver on promises of prosperity.

All but one of the 22 Appalachian gas counties reported gains in real gross domestic product from 2008 to 2021, according to the federal Bureau of Economic Analysis. They were led by Doddridge County, West Virginia, whose economy grew by almost 700 percent, while Susquehanna County, Pennsylvania, grew by 286 percent, and Sullivan County, Pennsylvania, by 97 percent.

But data for the same period show that 17 of the counties lost jobs. In Pennsylvania, where eight of the counties are located, only Washington and Bradford Counties gained jobs, while Susquehanna, Tioga, Lycoming, Greene, Wyoming and Sullivan counties all lost jobs. By contrast, the number of jobs increased by 3.8 percent for the three-state region overall, according to the report, titled “Frackalachia Update: Peak Natural Gas and the Economic Implications for Appalachia.”

Across the region, the number of jobs dropped by 2.1 percent between 2008 and 2021, contrasting with a national increase of 6.5 percent. Over the same period, income growth trailed the nation by 16 percent, while the region’s population dropped by more than 46,000, or 4 percent, in contrast to gains nationally and for the three-state region as a whole.

In response to the Ohio River Valley Institute’s report, the Marcellus Shale Coalition, a trade group for the Pennsylvania natural gas industry, reissued a statement it had released after the institute’s first report on the industry’s economic impact in 2021.

“We understand that some activist organizations and their allies across the country seek to advance a narrative aimed at marginalizing and undercutting these tens of thousands of family-sustaining jobs as well as the natural gas industry’s community benefits,” said the coalition’s president, David Callahan.

He said the industry is “without question” helping the economies of places like Lycoming and Washington Counties in Pennsylvania, two of the counties covered by the report. 

In advocating an economic path forward for the Appalachian region, the institute urged policymakers to consider the example of Centralia in Washington state, a former coal-mining community whose economic challenges once mirrored those of the Appalachian region.

The Centralia economy was already struggling because of declining mining and lumber sectors and was expected to fall further because of the planned closure of a coal-fired power plant in 2025.

But, using $55 million from TransAlta, owner of the mine and power plant, a local board created a weatherization fund to support energy-efficiency upgrades, another fund to promote clean-energy generation and a third fund to support workers and businesses with their energy transition, all starting in 2016. The funds also support transportation electrification, triggering economic multipliers such as local suppliers and contractors. 

The result, according to the report, has been job growth that’s twice the national average, wages that have grown 50 percent faster than the U.S. as a whole and local population that has risen at above the national rate since the reforms were introduced.

“It’s the kind of economic growth of which county commissioners and economic development professionals in Frackalachia dream, and in many cases expected to arrive courtesy of the natural gas boom,” the report said.

The Centralia “model” has the potential to be replicated in struggling Appalachian oil and gas communities and will be the focus of a new quantitative study by Ohio State University, due to be released in coming weeks, O’Leary said.

In the Appalachian region, the report called on policymakers to support investments in renewable energy that creates jobs and helps to curb climate change. Those innovations might include a hydrogen “hub,” for which Pennsylvania is competing for federal infrastructure dollars, but whose critics say would contribute to greenhouse gases if fossil fuels are used to make the hydrogen.

“If policymakers are realistic about these things, they will recognize the need for a more effective and sustainable approach to economic development, regardless of whether the natural gas industry stagnates or continues to grow, regardless of whether the hydrogen hub is realized, and regardless of whether some small amount of petrochemical development manages to find a foothold,” the report said.