Energy & Entrepreneurs

"Fracking" Testimony in New Jersey

by Raymond J. Keating

I had the opportunity to testify before the Assembly Environment and Solid Waste Committee in the New Jersey State Legislature on March 7 regarding legislation directed at domestic energy production in the U.S.

Of the two main pieces of legislation, one would place a moratorium in New Jersey on the process of hydraulic fracturing used in natural gas extraction, and the second would urge the neighboring states of Delaware, Pennsylvania and New York to do the same.

As explained by the Energy Information Administration: "Hydraulic fracturing (commonly called ‘fracking' or ‘hydrofracking') is a technique in which water, chemicals, and sand are pumped into the well to unlock the hydrocarbons trapped in shale formations by opening cracks (fractures) in the rock and allowing natural gas to flow from the shale into the well. When used in conjunction with horizontal drilling, hydraulic fracturing enables gas producers to extract shale gas at reasonable cost."

In testimony, I made the following key points:

New Jersey Must Improve Its Business Environment: New Jersey has a long way to go to repair various flawed policies and create a stronger environment for entrepreneurship, business and investment. SBE Council's 2010 "Small Business Survival Index" ranks the states according to their public policy climates for small business and entrepreneurship. Unfortunately, New Jersey ranked 50th - or second worst - among the 50 states and District of Columbia due to burdensome taxes, heavy regulations and high levels of government spending. With natural gas development, New Jersey's representatives have a chance to do better by fostering domestic energy expansion and new business growth in the Northeast.

The proposed legislation is bad for investment and works against the need for affordable, abundant energy. The proposed legislation could further damage the interests of the business community and undermine our region's ability to tap into the abundant natural gas resources of the Marcellus Shale. These proposed policies again would send the wrong signal to potential investors and ward off the capital necessary to rebuild our economy.

Tremendous Economic Potential in Natural Gas Development. If the region moves forward with responsible drilling, New Jersey and other neighboring states certainly will reap the benefits. In fact, a new study by FBR Capital Markets estimates that the total value economic value related to Marcellus resources will reach $250 billion in Pennsylvania alone, and support more than 200,000 jobs. The economic spillover right here in New Jersey will be positive, as the state's manufacturing and transportation sectors will play roles in any major ramp up in natural gas production.

Marcellus Shale Formation Will Help Meet U.S. Growing Energy Needs. This goes along with other estimates. In September, for example, The Wall Street Journal noted that the American Petroleum Institute pointed out, "with the help of fracturing, the Marcellus Shale formation, which extends from Ohio and West Virginia into southern New York, could produce as much as 18 billion cubic feet of natural gas a day and support as many as 280,000 jobs." The Associated Press has reported, "So vast is the wealth of natural gas locked into dense rock deep beneath Pennsylvania, New York, West Virginia and Ohio that some geologists estimate it's enough to supply the entire East Coast for 50 years."

Billions in New Tax Revenues to Government. In addition, a study from Natural Resources Economics, Inc. found that, over the next decade, nearly 300,000 jobs could be created and $6 billion in new tax revenues to local, state and federal governments by developing resources in the Marcellus formation.

A Solution to Budget Shortfalls and High Unemployment. Additional growth tied to domestic energy opportunities would help alleviate public concern over the state's big budget shortfall and high unemployment rate. Increased investment and job growth will boost standards of living across the state.

I concluded, "For the sake of New Jersey's small businesses and workers, I respectfully ask that this committee and the legislature carefully consider the negative impact these legislative proposals would have on job growth and investment in the region."

By the way, contrary to wild claims made by various activists at the committee hearing, a 2004 EPA report found: "In its review of incidents of drinking water well contamination believed to be associated with hydraulic fracturing, EPA found no confirmed cases that are linked to fracturing fluid injection into CBM wells or subsequent underground movement or fracturing fluids. Further, although thousands of CBM wells are fractured annually, EPA did not find confirmed evidence that drinking water wells have been contaminated by hydraulic fracturing fluid injection into CBM wells."

The reaction to my testimony from two members of the committee and the bills' sponsor were instructive. They spoke of the need to strike a balance between the economy and the environment. But it was clear by their confrontational statements that this was mere lip service. The economy, including the costs of energy, was of no serious concern. They were quick to challenge someone pointing to the need for domestic energy production, and the resulting economic growth and job creation, while those speaking against not only the process of hydraulic fracturing, but against fossil-fuels-based energy in general, were given free passes.

There seemed to be little interest - particularly among those speaking against hydraulic fracturing and fossil-fuels in general - for a sober assessment of the economic and environmental realities, which, again, support the idea that fracking is good for the economy and does not damage the environment.

Unfortunately, but predictably, both bills were passed out of committee. Let's hope that the full legislature says "no." Again, the last thing New Jersey needs is a more hostile business environment that will lead to less job formation, less investment and slow economic growth.

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.