Marcellus Shale Advisory Commission Releases Its Report

August 2011Newsletters In the Zone

On July 22, Pennsylvania Governor Tom Corbett’s Marcellus Shale Advisory Commission released its long-anticipated report (Shale Report), which was written in response to Executive Order 2011-01 calling for the formation of a Commission that would issue a report to the governor with recommendations to “develop a comprehensive, strategic proposal for the responsible and environmentally sound development of Marcellus Shale.” A copy of the Shale Report is available here.

A significant portion of the Shale Report deals specifically with proposals for new environmental regulations that would be imposed on natural gas drillers, including tougher civil and criminal penalties for violations. Other sections of the report concern new protections for public health, safety and natural resources.

I have tried to read through the Shale Report with an eye toward pulling out the findings and recommendations that would be of some interest to real estate developers and ancillary businesses who are not currently players in the Marcellus Shale industry. For those people, the most important thing to glean from the report is the fact that the Marcellus Shale is generating an enormous amount of new economic development activity in Pennsylvania. In that regard, the Shale Report finds the natural gas industry is “creating significant demands for housing, lodging, support business activity and transportation.” In other words, if you are in the real estate business in Pennsylvania, if you go west or north (since there is no Marcellus Shale gas in southeastern Pennsylvania), you may find new opportunities awaiting that you will not find in areas not experiencing the growth spurred by the exploration and development of the Marcellus Shale formation. I have met with local economic development agencies across the northern tier of Pennsylvania, and their message, as confirmed by the Shale Report, is that they desperately need new single family housing, apartment buildings, hotels, motels and warehouses to keep up with the growing demands of the Marcellus Shale industry.

Section 8.5.7 of the Shale Report specifically addresses the lack of affordable housing in north central Pennsylvania and how the growth of the Marcellus Shale industry has compounded the problem. The report states: “As the gas industry is expanding into communities, housing costs have risen to meet demand such that local residents can no longer afford housing.” It further finds that while there are some gas companies that have constructed “company man camps for workers,” many local residents, especially renters, have been forced to relocate “further away from their jobs and communities to find an affordable place to live.” For real estate companies that have previously built affordable housing or worked within federal and state programs designed to increase the availability of affordable housing, such as the Pennsylvania Housing Finance Agency or the federal Low Income Housing Tax Credit Program, building new homes or rental properties in the areas of Pennsylvania experiencing the Marcellus Shale boom could represent a significant new growth opportunity.

With regard to land use and planning, the Shale Report notes “the substantial growth of natural gas activity was not an activity that communities could have reasonably anticipated.” The report encourages communities that are potentially impacted by Marcellus Shale activities to modernize their comprehensive plans, zoning ordinances and subdivision and land development ordinances “to make certain that development is located where and at an intensity that meets both industry and community needs.” The report further directs municipalities to work with local government associations that have already developed model ordinances to address Marcellus Shale impacts. One such model ordinance developed by the Pennsylvania State Association of Township Supervisors can be found here. The expectation is that communities where Marcellus Shale drilling activities occur will likely continue to take legislative steps that try to minimize the potential for local impacts.

Real estate developers will also find it interesting that the report recommends the Commonwealth “identify strategic locations” to construct new “regional business parks” capable of tapping into existing infrastructure. The idea is that as Marcellus Shale-related enterprises grow, the Commonwealth would like to channel that growth in the direction of brownfield sites or other properties close enough to existing roads, water and sewer services to minimize the need for new infrastructure. In addition, the Shale Report envisions specialty businesses, such as ethylene processing plants and co-generation facilities, being sited near gas sites to take advantage of natural gas byproducts that can be beneficially used for commercial purposes.

Finally, for those of you just waiting to buy a natural gas-powered car but realize there are no places to fill up, you will be happy to know the Shale Report recommends Pennsylvania develop “Green Corridors” for natural gas-fueled vehicles, including Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG) fueling stations, located at least every 50 miles and within two miles of designated highways. For now, I would recommend holding off on that purchase, but do not be surprised when you start seeing CNG and LNG fueling stations popping up along the Pennsylvania Turnpike probably in the not too distant future.

For more information, please contact M. Joel Bolstein at 215.918.3555 or [email protected].