If Energy Investment Bankers Have Doubts, So Should We

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More doubt is being cast on the Marcellus Shale Coalition's recent economic impact study. This time, by the energy investment banking firm Parks Paton Hoepfl Brown.

In a recent article published by the online oil and gas publication Rig Zone, G. Allen Brooks, the firm's managing director, points out a number of issues in the report that seem to exaggerate the economic promise of the Marcellus Shale.

  • Only a small portion of the Barnett Shale in Texas is responsible for much of the gas production there, and intial data from the Marcellus Shale are no different. Production in Pennsylvania is significantly centered in only five counties, but the industry report assumes that much of the Marcellus Shale is equally productive.
  • Price assumptions in the Marcellus Shale reports increase from report to report, making the take more valuable.
  • Daily production assumptions are an issue, too. (Unlike other gas-producing states, Pennsylvania does not collect and publish production data on a monthly basis, so it is hard to get a real picture of what is occurring.) The various versions of the Marcellus Shale Coalition report show 2020 daily production totals ticking upwards — from 3.5 BCF (billion cubic feet) in the initial 2009 report to a whopping 17.5 BCF in the 2011 version.

    Mr. Brooks questions the reasoning for this increase. This assumption makes a big difference, as the more gas you produce, the more money and jobs that are generated.

    "It is interesting that consulting firm, Rystad Energy, forecasts Marcellus production in 2020 of only 7.9 BCF per day or 45% of what the professors' project," Mr. Brooks wrote. "The correctness of each forecast will have a profound effect on natural gas markets and prices, producer profits and the economy of Pennsylvania."

If the energy investment bankers have their doubts about the industry report, we should too. But some policymakers are taking the report's findings as gospel. They should take a minute to read Mr. Brooks' article.

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