Thursday 2 February 2012

Dissecting Tamboran's PR Figures

The company awarded the exploratory license for West Fermanagh and North Leitrim, Tamboran Resources plc recently initiated a press campaign highlighting the massive job creation and economic value of its proposals for the local economy.

No-one can deny that Fermanagh and Leitrim are suffering a severe crisis in terms of unemployment - the queues lining around the side of the Clinton Centre in Enniskillen over the last three days for jobs at the new hospital are incontrovertible evidence for this. In fact this blog has consistently highlighted this as a massive issue locally but what is being proposed is nothing less than a cruel con-job perpetrated on local communities in their moment of need.

The Tamboran figures estimate that net direct additional employment will be 600 full-time equivalents by 2025 and that this would create 2,400 further jobs (indirect employment). This would be significant as a local economic boost if it were true so as someone who regularly produces economic impact assessments I have subjected this to a rigorous analysis.

Tamboran's Employment Multiplier

A type-I employment multiplier is defined as the ratio of direct plus indirect jobs created to the number of direct jobs created. Like all multipliers it works on the basis of a long-term expansion in economic demand so is not applicable to short-term or temporary job creation or stimuli.

Tamboran's employment multiplier is (600 + 2,400)/600 which is 5.0; now that might appear a very rounded figure to anyone with much experience in forecasting but much more importantly it looks very large.

So where did it come from? Such figures are produced by some countries (largely depending on whether they have sufficiently strong schools of quantitative economists) on the basis of tables called Leontief tables after a famous Russian-American economist who invented them using ideas coming from Keynes' General Theory and perhaps insights gained from his training in the more materialist economics prevalent in the early Soviet Union.


Well, sadly, no such figures are available for Northern Ireland. Back in 2008 estimates were produced (as opposed to using more rigorous input-output analysis) by the Economic Research Institute of NI but these were not employment but economic output multipliers and they were only statistical estimates.

Economic multipliers were last produced in the Republic of Ireland in 2002 (rigorously) but these did not include employment multipliers and given the passage of time and significant changes to fundamental economic structure they are no longer at all reliable.

So Tamboran's figures appear to come from another source. The most probable source which might be used to obtain some comparison would be the Type I (indirect) employment multiplier produced by the Scottish Executive (2007). Now this is 2.04 for the Gas and Extractive industries. This is significantly lower than the Tamboran figure of 5.0. Furthermore, that is a national economic multiplier as opposed to one for a region, specifically a region like Fermanagh and Leitrim and, as such, is likely to be significantly higher.

Why the Scottish Multiplier has to be bigger than Ours

A multiplier attempts to capture the net impact of demand circulating in the economy. If suddenly 600 people are waged today they will go out and spend that money in the local economy and that spend over time will result in local traders employing more staff to meet increased demand. Then those extra staff employed will then spend a proportion of their wages in the local economy and over time some of that will create further job creation. Now the numbers obviously get less and less each time but the initial 600 jobs could create another 300 or another 900 jobs in this way and that's indirect job creation.

It is possible to model the way money moves through the economy and use that to estimate the knock-on effects. Complex mathematics is then needed to produce those sums and they are called the employment multiplier. In the same way instead of considering the number of jobs created at each stage you could consider the net additional turnover (economic demand) and that gives you the economic multiplier.

So what affects the multiplier? Well, the first thing that affects is the industry - if an industry is highly labour intensive it tends to have a higher economic multiplier as more people are employed for every additional £1 million in demand. The effect of this on the employment multiplier tends to operate the other way as every extra job in a labour-intensive industry is associated with larger economic demand and that tends to stimulate the economic differently.

The second factor is the nature of the local economy. In some economies money is spent in higher proportions in multinationals - if that is the case then much of the benefit is immediately lost to overseas imports and even shareholder's profits elsewhere in the world. This is called leakage of demand. A small, open economy with a weak productive base (one that imports alot of the products its society consumes) has a high leakage rate and that lowers the multiplier significantly.

This second factor is very prevalent in Fermanagh - we are a classical peripheral economy and we have a weak productive base. Additional employment or economic demand in Fermanagh does not produce much knock-on growth. In fact, in the current economic circumstances, given the slack demand in the private sector, it is likely that any additional demand would be mopped up with very little extra job creation. It may only safeguard jobs rather than create them or workers may get full-time as opposed to part-time jobs.

Tamboran's Lie Exposed
Richard Moorman - Tamboran CEO
So applying the Scottish employment multiplier to Fermanagh or Leitrim's economy is likely to result in a considerable over-estimate of net job creation. But let's do it anyhow to get an estimate - well if Tamboran create 600 direct jobs then a ratio of 2.04 means that this would create 624 indirect jobs. That is a whole lot lower than the Tamboran estimate and as we have just seen the reality is that it will be a whole lot lower still.

But even this is based on what appears to a lie.

Tamboran say that 600 full-time and long-term jobs will be created if this proceeds. I fail to see how that could be true.

Most jobs created in this industry are associated with building the pads and then with the actual fracking process itself. Once a well is fracked it continues to release methane over many months until it has to be refracked. Once a well has been fracked the only thing that requires employment is watching that the flow continues from all the wells in the field (one person could almost do this with the appropriate equipment) and with security. 600 full time jobs? It doesn't sound realistic.

So the direct jobs created sounds like a massive over-estimate. But there's even worse. The construction phase and development of 150 4-acre pads in this region will destroy the local tourism industry. The threat of benzene-infused waste water escaping into the local water courses will probably kill off any growth in agriculture and organic food and drink production in this area will just disappear as a result. Who wants to drink beer brewed in a place where the water is potentially contaminated by fracking waste-water? Fishing in Lough Melvin and Lough MacNean are potentially finished not to mention the impact of the water demand associated with each of these wells (6 to 8 million gallons of water per well and there could be up to 16 each pad). The environmental impact on agriculture and tourism will be devastating.

These happen to be the only industries in West Fermanagh and North Leitrim so even if Tamboran does create 600 full-time jobs for 25 years it will be at the cost of hundreds of jobs lost in tourism and in agriculture.

Applying the multiplier to the benefit without factoring in what economists call the opportunity cost is shoddy economics. The reality is that in net terms it is far from clear that this will result in any gain at all in terms of employment.

No Surprise

Of course this is just the latest Tamboran lie. At the first Tamboran Community Consultation event (held in Enniskillen about 14 miles from the directly affected area) - the company's CEO told people that there was no possibility of radioactivity coming up with waste-water as it was only found in Granite. Besides him sat senior representatives of the Geological Survey of Northern Ireland and not a word was said. Later campaigners discovered that Shale was the primary source of such nuclear atoms.

What is perhaps more telling is that the Belfast-based media uncritically adopted and endorsed the spin put out by Tamboran. The DUP Minister will no doubt repeat ad nauseum the job creation potential associated with this opportunity. Sinn Féin's Phil Flanagan was couched in his opposition - choosing to focus on the lack of gas connections in Fermanagh and the lack of benefit to local consumers. Over the border, Michael Colreavy (in opposition but also of Sinn Féin) was direct in his opposition and highlighted the risks to agriculture, tourism and health.

Local campaigners have built a strong cross-community campaign despite attempts by those on both sides to sectarianise and play party-politics with this issue. If this goes ahead it will be due to the connivance of all political parties in Stormont - three of whom have sufficient authority to stop this in its tracks: the DUP (Minister Foster), Sinn Féin (Minister O'Neill - who controls the Forest Service) and the SDLP's Minister for Environment, Alex Attwood. As yet, only Attwood has indicated that he is aware of this capability but it remains to be seen if he will do anything on the issue.

An Alternative to Fracking

What's needed is Government to stop Tamboran and the other fracking companies. Fermanagh and North Leitrim have huge potential for energy generation but it isn't in Shale Gas but in wind power. Government could create far more jobs investing in the production and installation of wind turbines throughout this region. With increased efficiency the visual impact would not be as great and to protect our environment it is something that we would be willing to put up with.

Government could have an even greater impact if they invested in training those unemployed workers forced to stand for hours for the chance of a job in Enniskillen to go out and improve insulation in houses throughout the region. Schools like Devenish College in Enniskillen are sitting with buildings not fit for their young students.

We could redevelop publicly-owned railways right across the West of Ireland and linking us to the East. This time we could power them on renewable electricity sources, reducing our dependence on imported oil and cleaning our environment at the same time. We could invest in young people to develop opportunities in tidal, wave and offshore wind energy and we could invest in the empty shells of factories in Belfast to diversify workers from ship-building to turbine building (very similar in technical terms).

None of these ideas are rocket science but instead our politicians can only allow the market to decide even when it makes no sense and even when local communities are implacably opposed to the environmental, economic and health threats posed.

Building a cross-border anti-fracking campaign is one way to begin to question the priorities of the profiteers and to begin asking how can we build an alternative. I believe that a democratised and planned economy is the only option open to humanity if we are to resolve the pressing problems facing us.

2 comments:

  1. Majella McCarron3 February 2012 at 04:06

    This is an excellent article.

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  2. Yes, let's cover the countryside with big wind turbines that only work (at best) for 25% of the time, and when not working let us turn to power stations burning russian gas, middle east oil and south african coal. We don't even mind paying the extra costs in subsidising these windmills.

    ReplyDelete