Sunday, September 04, 2011

Marcellus Shale Risk And Reward

Shell Oil is set to double down on the Marcellus Shale play. Finally, all the hype about natural gas being a regional game-changer is about to come to fruition. The investment should put to rest any concern about the long-term viability of the energy economy as a major driver of growth in Southwestern PA:

Shell, which paid $4.7 billion last year for gas rights to about 650,000 acres in the Marcellus region, says it's considering building several specialized types of refineries at a complex. If it builds a cracker refinery, the company would thus be able to supply the plant partly with gas from its own wells, giving it more control over supply and costs.

Currently, most crackers in this country are located in Texas and Louisiana. Experts said it's striking that Shell and other companies are considering building new plants, instead of just expanding existing ones.

"This is very different than building a cracker on the Gulf Coast," said Geoffrey Styles, an energy consultant and former senior planner for Texaco with a [widely-read blog]. "If you're building a cracker in the Appalachians you have to be absolutely certain that the supply is there. It's a heck of an endorsement of the Marcellus resource."

Pennsylvania, Ohio, and West Virginia are jockeying to land the plant. Wherever it ends up, Pittsburgh will be at the center of this boom. The city's new found gravity is being tested. Caterpillar Global Mining is looking for an eastern regional headquarters. Pittsburgh is competing with Louisville for the site. I'd bet on Pittsburgh to win because of the Marcellus. I figure the benefits of agglomeration are already a huge factor in the decision.

The jobs associated with resource extraction are small potatoes. But the transformation of Pittsburgh into the next Calgary or Houston is in the pipeline. I still think that even the most optimistic civic boosters are underestimating the impact (in terms of economic growth and migration) of shale gas on Southwestern Pennsylvania.


Paul Wittibschlager said...

Marathon Oil has had a large oil refinery in Findlay, OH for many decades. In fact, Marathon Oil's headquarters were based there up until the 90s, they eventually moved to the energy capital of the world (Houston, TX.) The point is, the oil refinery has never been a huge impact on little old Findlay, sure it employs about 1600 but that's not really that big of a number.

The savior of Findlay is manufactured goods, auto parts, etc. Just like Pittsburgh.

The Midland Agrarian said...

Mr Rusell,
You have an interesting weblog. I am not sure how much I agree with but I like how it makes me think!

I understand what you are saying, but I think the real jobs spin off from the Marcellus Shale is that they use (and break) lots of traditional heavy manufactured durable goods while drilling and refining.

So the 1600 employee refinery you mention may be supporting another 3000-4000 jobs in machine tools, industrial welding, secondary metal processing etc. What I like about that is that it represents true value added economic activity, not just moving the damn deck chairs and calling it "growth".