Despite its rise as a major natural gas producer, Pennsylvania reaps less financial benefit from energy extraction than other states.
In recent weeks, former president Donald Trump has accused Vice President Kamala Harris of wanting to enact a nationwide ban on hydraulic fracturing, known commonly as fracking. Although she endorsed this idea in 2019 when running in the Democratic presidential primary, Harris now states unequivocally that she would not ban fracking if elected president.
Let’s set aside for the moment the fact that presidents can’t ban fracking. Doing so would take an act of Congress, followed by a presidential signature. And if you think Congress is likely to pass a fracking ban anytime in the foreseeable future, I’d love to hear you make your case—but consider me a skeptic.
Regardless of these practicalities, fracking is back on the national political radar. When asked about it during the presidential debate in Philadelphia, Harris responded, “Let's talk about fracking, because we’re here in Pennsylvania.” Why Pennsylvania? The answer is simple: the deployment of horizontal drilling and fracking in the Marcellus Shale in Pennsylvania (and elsewhere) has transformed the landscape of natural gas markets in the United States (and, indeed, the world). Over roughly the past 20 years, Pennsylvania has risen from a bit player to a juggernaut in natural gas production, trailing only Texas (Figure 1).
Figure 1. Natural gas production in leading US states
Data source: US Energy Information Administration: the “marketed production” data series is shown here.
Because Pennsylvania is a hotly contested swing state, both presidential candidates are eager to lure its voters. And because Pennsylvania now is the second-largest producer of natural gas, both candidates clearly believe that voters in the state favor continued growth in the natural gas industry. Although reliable polling shows that the state’s residents are evenly split on whether shale gas development offers more benefits than downsides, 86 percent believe that the industry is important to the state’s economy. But it’s worth asking: How important is fracking, really, to Pennsylvania’s economy?
The answer might surprise you. Despite its enormous growth, the oil and gas industry contributed just 1.3 percent of Pennsylvania’s GDP in 2023 and accounted for just 0.1 percent of wages and benefits for workers in 2022 (the most recent available year). Compared with other major oil- and gas-producing states, Pennsylvania is at the bottom of the list for both GDP and worker compensation. To be sure, these numbers have grown in Pennsylvania since the onset of the shale revolution, but remain small (Figures 2 and 3), and are roughly in line with the national average.
Figure 2. Share of GDP from oil and gas extraction
Data source: US Bureau of Economic Analysis
Figure 3. Share of employee compensation from oil and gas extraction
Data source: US Bureau of Economic Analysis. The most recent available year is 2022.
What’s Going On Here?
A couple of things. First, Pennsylvania is a large and economically diverse state. Philadelphia is the sixth-largest city in the nation by population, and other cities such as Pittsburgh, Allentown, and Harrisburg thrive on information technology, healthcare, financial services, and other economic sectors. By contrast, most natural gas production in Pennsylvania occurs in rural communities such as Bradford, Greene, Susquehanna, and Washington Counties. In those places, the industry plays a larger role in the local economy, but statewide, other sectors dwarf the oil and gas industry.
Second, most of the largest operators in Pennsylvania are headquartered in other states. Of the five largest natural gas producers in Pennsylvania (EQT, Chesapeake Energy, Coterra Energy, Range Resources, and Southwestern Energy), just one (EQT) is based in the state. As a result, the lion’s share of profits and many of the best-paying corporate positions wind up in Houston, Fort Worth, or Oklahoma City.
Third, natural gas prices in Pennsylvania have been depressed by at least two factors. First, a lack of pipeline infrastructure has made it difficult for operators to access markets in the Northeast and elsewhere, putting downward pressure on the prices received by Marcellus producers. Second, booming oil production in the Permian Basin has brought with it a wave of associated natural gas, pushing prices down for natural gas across the United States. This price change has outsized effects in the Marcellus, where “dry” gas (i.e., methane) dominates, and relatively few wells produce substantial quantities of higher-value liquids.
Thinking More Broadly
Crucially, oil and gas development has important economic effects that aren’t captured by statistics on employment or GDP. For example, landowners who lease their land to companies often earn large “bonus” payments upon signing, followed by a stream of royalties that fluctuate based on the price of natural gas. One paper estimates that, in 2014 alone, local landowners earned more than $2 billion in royalty payments in the Marcellus region. The Pennsylvania government also receives tens of millions of dollars in royalties per year from state-owned land that it has leased for production.
However, Pennsylvania lacks one channel through which communities typically benefit from oil and gas development: local property taxes. In most states that produce oil and gas, local governments apply ad valorem property-tax rates to the value of the oil and gas resources, along with the equipment used to produce those resources (e.g., drilling rigs). In some places, these taxes account for large shares of local budgets and are the leading funder of schools, roads, public safety, and other essential services.
In Pennsylvania, by contrast, the state levies an “impact fee” on each well, which then is disbursed to counties and municipalities, with no funds flowing to schools. Although the impact fee has produced between $150 million and $280 million per year for local governments where production occurs, Pennsylvania is well below its peers when considering the proportion of revenue that flows to the local level.
The Takeaways
The shale revolution has upended domestic and global energy markets. It has bestowed the United States with new geopolitical leverage, boosted the national economy by cutting energy prices, and even helped reduce carbon dioxide emissions by displacing coal in the power sector. It has provided major economic benefits to regional economies—particularly in parts of Texas, Oklahoma, New Mexico, and North Dakota—where it has not only boosted employment and economic output, but also provided windfalls for state and local governments.
But has the natural gas industry become a linchpin of Pennsylvania’s economy? Clearly it has not.
As voters consider the future of fracking in Pennsylvania this November, it’s worth keeping at least two things in mind. First, presidents can’t ban fracking. And second, Pennsylvania’s dramatic growth in natural gas production has had many impacts, both environmental and economic. But, unlike for some other states (e.g., New Mexico and North Dakota), the shale revolution has not transformed Pennsylvania into a state that is deeply dependent on oil and gas production for employment, economic output, nor government revenues.
