On the Marcellus, an “Inflection” Point for New York

Will NYS leverage the potential of the Marcellus Shale into jobs and revenue during tough economic times? Or will it continue to hide behind the “Marcellus Maginot Line”?

Everyone’s heard of the famous Mason-Dixon line that separates the commonwealth of Pennsylvania from the state of Maryland (and Delaware too, incidentally). But what do you call the thing that separates the Northern Tier of Pennsylvania from the Southern Tier of New York? Ask any cartographer, and she’ll tell you it’s known as the “42nd parallel,” the same latitudinal line that extends west to set the boundary between Oregon and California as well.

Now ask that question of the 8,000 people in Broome Co., N.Y. who currently find themselves unemployed during one of the most difficult economic periods in recent history. Ask the 4,100 in Steuben Co who are without work. Or the 3,300 in Chemung Co. Or the 2,000 in Chenango. Ask what the northern border between New York and Pennsylvania symbolizes to them — and a good many will tell you it’s a brick wall keeping the jobs and revenue being generated in Pennsylvania’s portion of the Marcellus from crossing the border and getting into the hands of folks who need those things just as much in New York.

Want to know how badly the region’s economy can use a good shot in the arm right now? We’ll leave it to New York’s State Department of Labor to apply the proper perspective on what continues to be a very difficult time for residents in the Southern Tier who actually make stuff for a living:

Manufacturing accounted for about 65% of the [Southern Tier’s] job losses in 2009.  Last year, total factory jobs dropped to 40,800, an all-time low.  From 1990 to 2009, manufacturing jobs in the region fell by 26,000 (-39%). … Manufacturers continue to shed jobs. Lockheed Martin laid off over 1,000 highly paid workers in Owego (Tioga County, N.Y.).

days thanks to the “Marcellus Multiplier” — a phenomenon that has spurred a revival up and down the natural gas supply chain thanks to $1.90 in direct economic output being generated for every $1 invested in the state by Marcellus producers.

But here’s a question: What should we call the wall that denies thousands of New York residents access to those same opportunities? It certainly deserves a name. “Marcellus Meridian” immediately comes to mind, but alas, meridians are lines of longitude — not latitude. “Tropic of Cancel”? Let’s not take this thing too far, huh? How about the “Marcellus Maginot Line” – a 250-mile barrier set up to defend the Southern Tier from an influx of jobs, revenue and energy security? Unfortunately, unlike the real Maginot Line, you can’t just cut through northern New Jersey to outflank it — this one actually works. Just take a look at recent proceedings up in Broome Co., N.Y. for proof of that:

Broome County has decided to pass on a deal to lease thousands of acres of land to … Inflection Energy. The announcement was made Tuesday afternoon, less than 24 hours after a public hearing on the issue. … Broome County Executive Barbara Fiala says she met with the legislature and found out that only four of 15 people were planning to vote in favor of the plan. Inflection Energy had given the county until Thursday to decide whether or not it would lease 5,600 acres of land in exchange for about $15 million.

Actually, the case of Inflection Energy and its months-long conversation with officials in Broome Co. over leasing opportunities in the Marcellus represents an interesting example of how one state’s failure to decide can be another’s opportunity for action.

In a proposal sent to officials earlier this year, Inflection Energy offered to pay Broome Co. more than $15 million for the leasing rights to 5,600 acres of county-owned land – non-refundable money it was prepared to send without any guarantee that the de facto statewide moratorium would be lifted, and without any assurances from its geologists that the acreage it was considering actually contained natural gas. How much is $15 million? Five percent of the entire county budget, for starters – and nearly $10 million more than the total budget shortfall currently facing local residents.

But that deal’s still not sweet enough for you, is it? Fair enough. How about a 20 percent royalty stake guaranteed by the company — regardless of how low natural gas prices may dip in the future? How about a three-year option that would translate into a doubling of lease payments at the end of the initial five-year lease window? Worried about sensitive acreage? How about a responsible development plan furnished by the company that would ensure the vast majority of land up for consideration never actually sees a drill bit?

That, in effect, was the offer county officials had in-hand and under advisement at the end of last month. Unfortunately, they said no. And exactly who ended up benefiting from that decision? Certainly not the state of New York, currently living under the strain of a $9 billion gap in the state budget. Certainly not Broome and its county seat of Binghamton, where one study compiled last year predicted responsible Marcellus development could create more than 15,000 high-wage jobs. Nope. But you know who made out just fine? Pennsylvania did – with Inflection Energy just this week announcing its plans to expand its operations there, and open up a brand new office in Pittsburgh to boot. This from Inflection’s press release:

Energy. The opening of the Pittsburgh office signals Inflection’s intentions to become more active in northern Pennsylvania, given that shale gas development has been placed on hold in New York State.  Although we have substantial land holdings in New York, the de facto moratorium on the issuance of permits, as well as the negative messages coming from the New York State Legislature, have led us in this direction.

Walk around the halls in Albany long enough, and more than one “expert” will tell you that just as soon as New York lifts its backdoor ban on the Marcellus, all will be well, swell and forgotten – with companies from far and wide making the move to the Empire State overnight, bringing with them billions of dollars in capital currently being spent on projects in Pennsylvania, West Virginia and even Texas. That, and jobs. Lots and lots of jobs.

And who knows? Maybe they’re right. But whereas it’s easy to transport people and money from place to place, it’s a lot harder to relocate infrastructure. A lot harder to move the bricks-and-mortar service and training facilities currently preparing workers in Pennsylvania to deliver on the promise of the Marcellus for New York – should it ever decide it wants it. A lot harder to convert a permanent job in one state into a permanent one in another. Especially when those states share a border.

We know, New York: You’re worried that all these high-wage, family-supporting Marcellus jobs will be snapped up by carpetbaggers from Texas and Oklahoma. Worry no more. The longer the delay continues, the greater the likelihood these jobs will be claimed by a different group of foreign labor altogether. They’re called Pennsylvanians.