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Is the Declining Price of Natural Gas Slowing the Marcellus Boom in the Pittsburgh Area?

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A rising tide of natural gas production across the country in recent years has produced what appears to be an imbalance of supply and demand that has caused the price of natural gas to plunge.

The average monthly price of natural gas in 2008 was $8.90 per Mcf. It fell to $4.08 in 2011 and by the end of January it had fallen even further to $2.71 per Mcf. In January some drilling companies announced that they were holding off on drilling new wells as a result of the price decline. In mid-March that price has fallen even further to $2.30 per Mcf. The speculation is that the Marcellus drillers will cut back even further.

And in the Pittsburgh area we may be seeing some of the fallout from this reduced activity in the payroll employment numbers which were just released for January. For the Pittsburgh metropolitan statistical area (MSA) the number of employees on payrolls in the mining and logging sector had risen every month rather steadily throughout 2011 before plateauing at 9,000 from November 2011 through January 2012. But the real impact may be on some of the sectors that had been buoyed by the Marcellus gas boom, specifically the manufacturing industry and the leisure and hospitality industry. Throughout most of 2011 the manufacturing sector had seen year-over-year growth. Beginning in November 2011 the sector experienced its first year-over-year-decline since July 2010. Both December 2011 and January 2012 had year-over-year declines. The leisure and hospitality sector also posted a year-over-year decline in January 2012, their first since May 2010. Is this a signal that the boom is beginning to subside?

While it is certainly too soon to draw any hard conclusions, one thing is certain: the Marcellus Shale boom has had a positive impact on the Pittsburgh region’s economy. If the falling price of gas causes these firms to cut back, it too will be felt in the economy-not just in Pittsburgh, but across the state.

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