Looking Under the Hood 4.7* - A Study of Underground Natural Gas Storage Impacts in Indiana

Innovations in natural gas extraction and seasonal fluctuations in demand has contributed to above normal reserves and has increased the use of underground natural gas storage. Perceived risk by the market and subsequent property value diminution most likely stem from concerns over groundwater contamination.

Jellicoe and Delgado (2015)[1] conducted hedonic research in which they analyzed the impact of perceived risk from underground natural gas storage on residential property values in sixteen Indiana counties. The transactional dataset spanned from 2004 to 2017 and included 1,512 arms-length sale observations from Cass, Clark, Daviess, Decatur, Greene, Harrison, Huntington, Lawrence, Monroe, Pike, Posey, Pulaski, Randolph, Spencer, Vermillion, and White counties. The locational data on underground natural gas storage facilities were collected from the Indiana Geological Survey’s petroleum database management system and the Indiana Department of Natural Resources. The authors note that the reasoning for the counties selected was due to the presence of at least one underground natural gas storage facility within 3.2 kilometers.

The authors find that properties located within one kilometer from an underground natural gas storage facility experience 10% diminution in value. For each additional underground natural gas storage or observation well, an additional 0.43% to 2.64% diminution was observed.  The authors conclude that diminution impacts are uniform across rural, urban, and different sized lots. The final observation was that perceived risk and subsequent diminution most likely stems from concerns over groundwater contamination.   

* Real estate pricing research provides evidence that properties potentially exposed to perceived or actual health risks through groundwater, soil, and air may experience price impacts. Looking Under the Hood reviews publications that illustrate the theoretical, methodological, and data challenges faced by scholars and practitioners studying contamination and its impact on property values. 

[1] Jellicoe, Michaela, and Michael S. Delgado. “Quantifying the Effects of Underground Natural Gas Storage on Nearby Residents.” Agricultural and Resource Economics Review 44, no. 2 (2015): 59–82.