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Deep Wells, Deep Pockets, and Deep Impact: Part 2


What Can a Community Do?

An extensive body of literature has examined the impact of natural resource extraction on communities from many angles: sociologically, economically, environmentally, and politically. Impacts vary among regions, each managing its economic development in its own way. That said, the literature suggests next steps that are applicable to most regions. For one, communities need to consider the industry’s likely long- and short-run impacts.

Natural Gas Extraction

In the short run. Joe Campbell, a research associate at the Ohio State University Extension, recently examined how communities in Jefferson County, Ohio, are coping with short-run growth in shale drilling as the early flurry of leasing slows and drilling begins. There, it has been important to identify the key players who will be affected by the growth and to convene regular meetings among them. Players include elected officials, business leaders, citizens, and community groups.

Other lessons learned are the importance of understanding that the oil and gas industry moves quickly and is dependent on global prices, not necessarily on local concerns. However, it is still important to engage regularly with industry representatives, ideally with a united community voice, to understand their plans and cultivate a relationship that may help the community in the future.

In the long run. Planning for the long run is more difficult. A community’s resources tend to be stretched during the boom, leaving little time to plan for the future. The unpredictable length of the boom also introduces uncertainty about how far ahead the community needs to plan.

Communities would benefit from thinking about how they can retain wealth from the natural resource boom and to prepare for life after the drilling and extraction ends. One approach is for communities to develop ways to diversify their economies so that the oil and gas industry’s departure does not lead to a mass exodus of population and capital, leaving communities with expanded and underutilized infrastructure to maintain.

Natural Gas Extraction

Another idea that has already had some success is to develop programs to teach residents the skills they will need for relatively high-paying jobs in the oil and gas industry. One regional program that facilitates this effort is ShaleNET, which was developed at Westmoreland County Community College in southwest Pennsylvania using a $5 million grant from the US Department of Labor.

ShaleNET consulted with the industry’s major employers to develop a curriculum that fits their hiring needs. This highly regarded program has since expanded to include four community colleges in three states (Ohio, Pennsylvania, and Texas). According to its website, ShaleNET has trained more than 5,000 participants, 3,400 of whom have found employment. Given the uncertainty about the lifespan and labor requirements of the shale boom, entities like ShaleNET must be nimble enough to adjust their programs to meet the industry’s needs.

Another approach is to establish a future fund, at the state level, that will tax the industry according to the volume of gas and oil extracted, setting the proceeds aside for economic development, environmental remediation, and re-energizing a community’s economy after the boom ends. An example is North Dakota’s Legacy Fund, which, as of April 2014, had a balance of nearly $2 billion. This fund will continue to accumulate until June 2017, when state lawmakers will decide how to utilize it. Currently, Ohio is considering changes to the structure of its oil and gas taxes, which would set aside a small percentage to create a legacy fund for use after 2025.

Lastly, a region may capitalize on existing industries’ ability to take advantage of the proximity and range of chemical components that can be extracted and used in the chemical and plastics manufacturing industries. Several of the region’s metropolitan areas (see figure 3) have above-average employment in those industries, and expanding them may help to retain more wealth in the region. It is still too early to tell how much these industries in the region will benefit. Infrastructure to transport gas is still being constructed, and decisions about processing facilities are still being made. However, Ohio’s economic development agency is working with a local university to better understand how the shale gas boom can leverage the region’s expertise in plastics and chemical manufacturing.

Over the next year, the Cleveland Fed will host roundtables in communities across southeastern Ohio and southwestern Pennsylvania, where the oil and gas industry has been most active. Our purpose is to begin a conversation among key stakeholders that will continue as the impact of the oil and gas industry matures.

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