Friday, July 09, 2010

Burgh Energy Report: Back To Boomtown

Coal or unconventional natural gas? I'm reading more discussion today about a shifting from one fuel to another for generating America's electricity. It's gearing up to be a colossal political battle that will force some of the coal states benefiting from the Marcellus Shale play to make some tough choices. In West Virginia, there is substantial resistance to alternative energy. That is, any alternative to coal.

Most people understand how coal means jobs. A strong case is yet to be made how unconventional gas could replace and perhaps exceed traditional energy employment in Northern Appalachia. There is plenty of pie-in-the-sky thinking such as megaregional innovation or the potential of cleantech. At this juncture, it is all a lot of talk.

“The biggest story to me is (the chemical companies) are still here when the heavy manufacturing base has moved away,” said Chris Briem, regional economist with the University of Pittsburgh’s Center for Social and Urban Research.

One reason the industry has been able to stay is a growing competitive advantage in energy costs.

“The biggest issue is, locally, and nationally, the chemical industry, in general, is a very energy heavy industry,” Briem said. “One of the bigger impacts of local natural gas supplies could have a big impact on keeping a chemical industry base here.”

There is still some chemical manufacturing in western Pennsylvania, but the majority of that aspect of the industry occurs in the Gulf Coast, where raw materials derived from the oil industry and easy shipping lanes are readily available.

As the Marcellus Shale industry picks up, which helps provide a source of cheap natural gas energy, local chemical companies can have a competitive advantage over China, said Michael McGarry, senior vice president of commodity chemicals for PPG.

That said, the Pittsburgh region is home to research and development, a key function of the industry.

“This is a fertile area to pick up Ph.D. scientists,” said McGarry, whose company tries to take advantage of the local talent.

Pittsburgh hosts a powerful combination of talent and cheap energy. But a lot more could be done to leverage these assets for job creation. Fact is, the economic geography of the Marcellus Play is opaque. The controversy mushrooming over the job projections isn't helping matters. Now would be a good time for the Allegheny Conference to move in and map out the benefits to the region. What's the political strategy?

I'm of the opinion that the wrong signals are being sent to the labor market. This is a remarkably uncertain time for the energy industry, which typically indicates a good opportunity to chart a course for economic development. A concerted push could win the day and let people know where the jobs will be in the near term. Otherwise, we'll continue to cling to what we know. Coal.

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