By Christopher Briem, on February 16th, 2012
I was told my blog here needs more white space. I am not sure this post will be an improvement, but here are some random hits from numbers talked about over the last week and a half.
So if I were Allegheny County and I were doing my due diligence defending itself in almost any appeal of a commercial property valuation I would start with this chart which is awfully clear. Since I am pretty sure real estate is a very fixed-cost investment… a roughly 25% decline in vacancy rate has to have a much bigger percentage gain on net profits for almost every office rental in the county. It is a remarkably positive trend no matter.
One of my first posts here some years ago mentioned the likely displacement of local bingo hall revenue that will result from the then notional casino. Those stories have begun. Trib: Alle-Kiski area bingo halls feel burned.
Speaking of casinos… the Cleveland casino is now slated to open May 14th. When there will also be a casino in Lawrence County I just don’t track enough to know.
So you might read this story on the latest from the Pittsburgh pension fund and think things are good: Pittsburgh’s pension fund shows some recovery. Of course if you do the division the numbers work out to the pension fund being up by just under 3%. See the problem? Consider it was a great quarter for the markets and the Dow was up over 12% over the same period. So if my math is right and if you presume this trend continues unabated the pension fund will be fully funded in just over 4 years. That’s great. Of course it also would mean that the Dow would be hitting 70,000 or so at the same time. Hmmm….
Did you know the Pirates are setting attendance records? and h/t to Otis White for pointing out what may be required reading here from MinnPost.com on what some are computing as the “Psychic Benefit” of professional sports. Double Yoi$
obligatory mention of Marcellus Shale.. and following up on the post last week of how the government once tested atomic bombs for fracturing shale for natural gas extraction. I see that the upcoming big shale conference is at the Greenbrier. What is the Greenbrier known for? It was the fallback captial if the US congress needed to evacuate Washington and continue operations even in the event of nuclear war. Dots?
On Marcellus is an insightful article from the Towanda Daily Review about how Chesapeake recently sent a letter out explaining they are going to be taking out of royalty payments the costs of getting the gas to market.. and what will really hit the bottom line for some folks is that that they are going to do so retroactively going back more than a year. So when you couple the retroactive amount with the record low price of gas to begin with.. I am thinking some folks are not going to have any royalty payments for some time?? and you gotta love the company’s only non-comment on their letter to land-owners… it says their letter is “self-explanatory”. That PR consultant deserves a bonus.
But hey, Chesapeake has some big cash issues.. I guess it is only fair to pass some of those troubles on to the landowners. Moving on……
In a new analysis the Pittsburgh region gets an ‘A’ for the degree of white-Latino residential segregation here. Sort of..
I’m just connecting dots in my head.. but Port Authority transit cuts imminent.. Downtown office vacancy low and declining… big retail like Macy’s Downsizing. It all comes together for me in this story out of Cleveland.
and last, but not least… h/t to Bram for pointing out the WashPo’s coverage on the state of cupcakism in the US. Remember it was not long ago that we were so desparate for some ’sign’ of change in Pittsburgh that we obsessed on the metaphor of what the cupcake craze’s arrival in Pittsburgh meant. and yes, it was an obsession.
last last… and the best local economic news I read is that someone is at least thinking of saving HEMAP.
By Christopher Briem, on January 24th, 2012
My inner energy futures trader is mesmerized by what is happening in the natural gas markets of late. If you do not wake up at night wondering if natural gas will flip from contango to backwardation then I will make it simple.. the price of natural gas is plummeting faster than anyone predicted.
A little over 3 years ago, right around when a lot of folks were signing a lot of their Marcellus Shale leases, the benchmark price for natural gas peaked at over $14 per million British thermal units. The benchmark is for the gas at the Henry Hub pricing point. As of Friday that price had dropped to around $2.34. So for now a decline of 80+% from it’s recent peak, but nobody seems to know where the trend ends. Some describe it as a 10 year low in natural gas prices, but that is in nominal prices. Adjusted for inflation I wonder what prices would be described as? I only know what I read, and it seems to me that industry folks, or at least the traders, are beginning to contemplate a near term future where there isn’t enough storage capacity to hold the gas being produced. Then what?
Remember the glow of steel mills along the rivers? There may be a new glow forming across the Pennsylvania countryside.
But it means more than the potential artificial twilight that may be on the horizon. Most landowners signed leases with upfront hand money as a bonus to entice signing development rights to one of the drillers out there, but also with guarantees of royalties against future production usually around 12.5% as per state law setting the minimum royalty payments, though many may have negotiated higher shares.
But not all minimums are a minimum. Some may remember that the drillers won a court case against landowners that the royalty payment was only due on the price NET of a cost to get gas to market. How much that isI do not know, but if there are any folks out there in receipt of royalities it would be of interest (at least to me). The only number in the record I see is from this old blog post which says Range Resources is deducting 72 cents or 80 cents, mer MMBtu, for dry and wet gas respectively.
So just for sake of argument, assume the selling price for gas is the benchmark price. Yes, some may be getting more, but hold the thought and lets assume a dry gas example for moment. If you net out 80 cents from the peak and current prices it works out to $13.28 back in 2008 and $1.62 on Friday, it then works out to a royalty decline of over 88%.
Seems to me there are some latent stories out there of individual landowners seeing their royalty checks dropping precipitously? Though I have no idea what the time lag is between production and check which may have a lot to do with it. The biggest drops in gas prices have been very recent, and certainly to recent to have been reflected in checks yet.
The bigger question is just where the stability returns to the market. Are current price levels enough. Some industry folks say clearly yes and that profit can be made even as low as $2.50, likely because of the other ‘wet’ products in the gas here. But we are not even at that level right now.
By Christopher Briem, on December 23rd, 2011
Let me make some introductions. Data meet news, news meet data.
I just caught this headline.. but the Patriot News had article over the weekend: Marcellus Shale industry brings ‘tsunami of jobs’ to Pa.. which really was more of an anecdotal story focused on a woman getting a job in the drilling industry here in Pennsylvania.
Yet below is what the state’s own data days about women working in Pennsylvania in these industries. I’ve seen virtually no news that really looks into just how one sided this looks. Given the coverage like above, you might think it was a tsunami of jobs for women. Maybe someone wants to go the next step and work out similar gender breakdowns for new hiring in the same industries in say Texas and Oklahoma and see how Pennsylvania compares.
New Hires by Gender in Mining, Quarrying, Oil and Gas Extraction Industries
Pennsylvania, 1st Half of 2010
Source: LEHD, which is a collaboration of state labor agencies and BLS.
By Christopher Briem, on December 1st, 2011
First off,though it has nothing to do with what I started writing except that it talked about Bradford County and the international attention Pennsylvania shale gas development is getting. BBC looks at the whole Marcellus thing: How fracking affects a community in Pennsylvania
What really got me going was a far less read piece that also looked at some Marcellus impacts. A publication called Area Development has this: Natural Gas Boom Boosting Regional Economies. Iin passing they have a neat little factoid also about Bradford County. It says with clear implication that it is all Marcellus related
“In Bradford County, Pa., the 2009 unemployment rate of 10 percent has been halved because of Marcellus Shale gas development. ”
Half? I was like.. really? I had to go check. So here is the unemployment rate in Bradford County back a few years:
 So it is true that Bradford county had one month, one, where the local unemployment rate hit 9.9%. Problem is that the current unemployment rate is 6.4%, so half is quite a stretch. Skipping that the 9.9% was just one month and that the average unemployment rate in 2009 was 8.3% you really are getting further away from justifying that half claim. The kindest I could is that there was one month in April of 2011 that the county’s unemployment rate was 5.1%. So really cherry picking two specific months I’ve highlighted there with the two recent extremes in the unemployment rate might get you to justifying that half comment. But it raises a bigger question then does it not? Bradford County, the heart of Marcellus, has seen its unemployment rate go up a lot this year? Further, what is the best baseline to really judge the impact on the local labor force up there? One month in 2009, or all of 2009, or some earlier year. The average unemployment rate for 2008 was 5.3%. So yes, the current unemployment rate in Bradford county is up from what was the end of the recession technically. How about 2007? 4.7%. So now go back and think about that half claim. Methinks it all may be a bit more complicated than that.
By Christopher Briem, on October 5th, 2011
While shale development is even more in the news than normal…. Here is something worth reading carefully.
One of the biggest players in the whole shale gas play to date has been Chesapeake Energy. Everyone should read Chesapeake’s October investor presentation. I spent just enough time on Wall Street to not really take investor presentations all that seriously, or at the very least discount the hyperbole, but lots of info in there and some pretty clear foreshadowing of their intentions.
Read page 23 and page 24 first. Then go back and read page 20 on where the oil play is. Once again: go west.
Also, it seems the big hope is all about future auto use of natural gas as what will support natural gas prices out into the future. On that the USAToday has a piece on one of the few commerical vehicles you can buy that run on Natural Gas. See: Honda prices new tragically ignored natural-gas Civic. It was for a long time the only natural gas vehicle for retail sale in the US. I don’t know if that is still true at the moment. I was just curious and looked up the official Honda web site for the car. I plugged in some local zips to find a dealer who would either sell or even service a NG vehicle, and it wouldn’t give me one in Pennsylvania at all. The USAToday article says Honda has just now increased its retail availability for these NG cars to 38 states. Is Pennsylvania one of them?
By Christopher Briem, on October 4th, 2011
In Pennsylvania, the 5 counties with the largest number of permitted Marcellus Shale pads are Bradford, Tioga, Lycoming, Washington and Susquehanna respectively.
Washington County is by far the largest county among the group. It is also part of a larger metro area. So set Washington aside just for a moment and think about the other 4 which are the core of Marcellus Shale development in Pennsylvania to date.. especially in the NE and north central parts of the state.
I just added up the employment counts for those 4 counties over the last 5 years and in aggregate this is what you get for the time series:
I must have made a mistake.
By Christopher Briem, on October 3rd, 2011
So I’ve been thinking of this story on the data showing Washington County, PA as one of the biggest job growth stories in the US over a recent 12 month period. NPR’s Stateimpact and Jim R. caught it, then the Trib followed up on the factoid that popped up of Washington counting ranking 3rd in percentage of job growth in the nation.
A good story? Sure. Related to Marcellus Shale. Yup. But still not quite the story it seems for at least two reasons. Using the exact same data source as the stories are talking about, here is the monthly trend in Washington County employment going back a few years. You can see the big jump in the last year that resulted in the headlines. Yet part of that connects to the really sizable and successive drops in the immediate years before. I thought we were a few years into the Marcellus bump? I don’t recall any stories on those big drops. Looks like there was a long term growth trend that pretty much stopped in recent years and the very recent gains may be seen as some catching up. Those who like to infer causality a bit too quickly might even say the arresting of growth in the county seems to coincide with the arrival of Marcellus-related employment. Of course there was this little recession along the way.
 But there is something else. Despite the claims that the data showed Washington County to have one of the biggest gains in employment among all counties in the US…. it is a bit narrower than that. The actual data in question only ranks the 323 largest counties in the US. When you rank US counties by employment, you get that Washington County and Butler County, the very same two stories mentioned in the local coverage for their rapid job growth of late, are literally tied for 311th. So they are very barely making the cut to even be included in this data at all. Since the metric being talked about is percentage growth it makes a big difference when you realize we are comparing some very small counties (80K employment each in those two counties) with some very large counties (Los Angeles at the top has over 3 million workers). Consider that if you added every worker in Washington County to Los Angeles it would not generate the percentage growth there that is being reported for Washington County here.
Actually.. I just realized. Washington County gained 4K or so workers over the year per this data. If it had not gained that much employment it would still be down at 75-76K workers. 75,100 is the current cutoff for inclusion in this data. So they really are barely making it on to the list.
Finally.. Where are all the other counties being impacted by shale gas development in Pennsylvania? No mention of them in this data or related headlines. Consider that virtually none of the Marcellus impacted counties in PA are large enough to even come close to being on the list of the top 300 or so counties in the US. The only other one I see in the list is Luzerne County which is at the crossroads of a lot of Marcellus development. Did it have big job growth in the data? +1%, or less than that of Philadelphia County if you want a benchmark for a region minimally impacted by shale gas employment.
Wait, I see Lackawanna County there in the data. That is deep into Marcellus activity. What was their job growth over the same period? 0.4%…. decline! Some folks missed that. Sure isn’t mentioned in the Marcellus Shale Coalition’s PR on this data. Funny that.
Given all the talk, let alone the zero unemployment rates…. How can there possibly be an employment decline of any kind in the heart of Marcellus Land in Northeast PA? Hmmmmmmmm. That would be my longest hmm yet.
By Christopher Briem, on September 30th, 2011
Marcellus hagiography is getting way out of hand. Here is an oped in New York that quotes a US Congressperson from Pennsylvania:
“Two of my counties have a zero percent unemployment. This has been very positive.”
Zero percent unemployment?! I don’t see it. I don’t care that someone actually out there said it… even if it was a congressperson. The news criteria of a quote makes a source does not trump simple verifiable factuality. There are no counties in Pennsylvania with zero unemployment rates. Nor any that close. By historical standards, most all PA counties have some pretty high unemployment rates these days. Yet someone thinks it’s zero in more than one whole county.
So this is what gets me. So let’s all agree the development of shale gas is a big economic deal. Does that mean it is responsible for everything. Here is another example. There was a pro-shale gas oped in Cleveland last week. See: Buckeye Oil Billions Will Unleash an Ohio Manufacturing Tech Boom
Again, it is a positive economic story for sure. Yet why does that piece not stick to the facts in abundance that could help make his case? In it is a quote about how Marcellus Shale development has impacted Pittsburgh:
“(Marcellus Shale) has already fueled a downtown construction boom in Pittsburgh.”
Really? Why do people say these things? Let’s go through it. In Pittsburgh the biggest Downtown construction of late has clearly been the new PNC Tower. The decision or at least the idea to build the tower clearly dates back to late 2005 at least and its construction decision appears to have been influenced by a sizable TIF offered by city/school district and county. Hold that TIF thought for a moment.
So if that was really a Marcellus Shale influenced decision back then, someone was really really prescient down there at PNC and on the 5th Floor.
If that construction is not what the author thinks is shale gas related, then it must be the score of highly subsidized (in one form or another) Downtown condominium developments that have been completed in recent years. Most of those date back to decisions in the mid to early 00’s or earlier. The connection to Marcellus Shale in them is what exactly?
Let’s see.. there were the two big bank operations centers built in town? Not really recent enough to be considered related to shale gas unless someone was really really looking into the future. Would have required help from the custom Delorean.
I know, he was thinking of almost completed tunnel construction and related. The $524 million in construction North Shore Connector and Downtown T station reconstruction is really a stealth way to get around the ban on drilling for shale gas in the City of Pittsburgh. Of course the decision to build the NSC dates back to decisions decades ago. Brilliant.
The Casino.. that must be it. The Casino built on the same spot as the once planned Riverboat Casino here in town and resulting directly from a state licensing process that all but required it to be built in the city. Don Barden was talking Marcellus Shale all the time. Again, there must be frac(k?)ing equipment buried under the poker tables.
The entirely public Grant Street Transportation Center was built not all that long ago? That would be a hard argument to connect to shale gas. Those workers coming in from Oklahoma and Texas were not getting here by Greyhound as best I can tell.
What am I missing? The New African American Center and it’s wing devoted to minorities working on Developing shale gas in the Pennsylvania T (the other T that is).
Look.. I don’t believe the guy made it up all by himself. The question is what did someone tell the author that lead him to believe Marcellus shale was causing, or did cause the boom in Downtown development? Sure seems that if you go through all of the above, the biggest factor in any recent boom in Downtown construction has been a lot of public money and subsidies or related public incentives. Funny that isn’t mentioned, but there is a story for someone to dig into. If there is a Marcellus side story in what has happened Downtown over the last decade, it is a very very small small piece of the puzzle and pales in comparison to a lot of public investment…
Oh wait.. I forgot the Consol Arena. Named at the time for more of a coal company ironically… but built with public money through and through. Point Park construction? Duquesne construction?
By Christopher Briem, on September 22nd, 2011
Things that fascinate me. From the Legal Intelligencer on Marcellus Shale induced migration to Pittsburgh… of lawyers of course.
See: Marcellus Shale Attracts Laterals From Miles Around
Curious quote in there. I can’t quite figure why it is there:
“I don’t want to be a wannabe,” he said. “Somebody once said to me, ‘There are a lot of people with great ideas in cemeteries; they just never spoke to anybody about those ideas.’
Ok then… We’ve become the place to self-actualize. The New New Pittsburgh. I was born somewhere else.
By Christopher Briem, on September 6th, 2011
Wiz man… take a break. Grill a hot dog on that big NatGas grill or something. Give the 2nd shift the weekend off.
But if you insist on reading, the peanut gallery would be interested in your take on the WSJ’s: Obama Burns Gas Drillers on Ozone.
Always expect the unexpected eh? Don’t worry, I’m sure it will not abate the near term Marcellus (and Utica) rush, but it is the type of thing that will clearly have an impact on natural gas futures… which you would think would be capitalized into the value of the leases and eventually royalities.
Makes for some interesting politics in the Greater Appalachian Basin. When do gas politics outweigh coal politics?
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