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Haynesville Shale an Economic Boon to Louisiana

Advocate Business Staff
The Advocate
October 17, 2010

The Haynesville Shale in northwest Louisiana is among a group of natural gas-rich fields in the United States that are generating an abundance of energy and keeping natural gas prices low.

According to an economic impact report released in May, the Haynesville activity created $5.7 billion in new household earnings last year for Louisiana residents, an amount nearly large enough to halt the state’s slide in personal income.

Louisiana’s personal income fell by almost $1.2 billion, or 0.7 percent, in 2009. Without the Haynesville Shale, personal income would have fallen by 4.3 percent, according to the study by retired LSU economist Loren Scott. The study was done for the Louisiana Oil and Gas Association.

Highlights of the study include:

--Seven firms extracting natural gas from the shale generated approximately $10.6 billion in new business sales within the state. The firms account for 70 percent of the wells drilled in 2009. Production activity increased state and local tax collections by at least $912.3 million.

--The firms helped generate 57,637 new jobs in Louisiana.

Looking forward, the study says that from 2010 to 2014, companies operating in the shale will spend nearly $25.8 billion in drilling expenditures and $57.5 million in estimated lease payments and will allocate approximately $672 million in royalty payments.

Over the same five-year period, activity in the shale will generate $61 billion in new business sales and $15.6 billion in new household earnings, the report says. Local governments will get $844 million, and the state will get $195 million in severance taxes.

Don Briggs, president of the Louisiana Oil and Gas Association, said after the study was released that it shows the tremendous economic benefits of natural gas production in northwest Louisiana, but he expressed concern that stricter regulations could put a damper on activity in the shale.

The Environmental Protection Agency, at the Obama administration’s direction, may regulate hydraulic fracturing, Briggs said. Eighty percent of the wells drilled in the U.S. use the process to increase production, and each state has regulations. In hydraulic fracturing, energy companies force water mixed with chemicals and small particles into the shale, enlarging cracks, which are held open by the particles and allow trapped gas to escape.

Environmentalists and critics of the process say it can use millions of gallons of water for each well and can lead to chemical leaks, overburdened water reservoirs and polluted water, and it can create health hazards.

Scott had said his study did not address the impact of more stringent hydraulic fracturing regulations. But basic economic theory says that any time the cost increases, the economic activity decreases, Scott said. The study forecasts fewer wells being drilled in the Haynesville Shale in the coming years because of the spread between oil and natural gas prices.

Independent energy firms prefer wells that produce both because those wells are more profitable, Scott said. Other formations, such as the Eagleford Shale in south Texas and the Marcellus Shale in Pennsylvania, are producing a mixture of oil and gas.

If regulatory agencies enact “really onerous” fracturing rules, the shift in activity to other shales might speed up, Scott said previously.