Friday, February 12, 2010

Burgh Energy Report: Natural Gas Infrastructure

The shale gas revolution has a demand problem. Who is going to use all that energy? Until that question is answered, the Marcellus Play boom is more fantasy (or nightmare) than reality. A harbinger of things to come:

Nova Chemicals Corp. could supply one of its Canadian plants with natural gas from Marcellus Shale deposits in Western Pennsylvania through a proposed pipeline venture.

Nova and Buckeye Partners said they had signed a memo of understanding to develop a pipeline to carry mixed natural gas liquids from Pittsburgh to Nova's plant in Corunna, Ontario.

Until this morning, I had no idea that the community of Corunna even existed. You can read more about the Nova plant here. Currently, the raw resource supply comes from Western Canada and feeds the industry in Sarnia-Lambton's Chemical Valley (north of Detroit/Windsor along the St. Clair River). Instead of using a domestic source, Nova will import natural gas from Pennsylvania.

In other words, the United States will be exporting natural gas to resource-rich Canada. This bizarre twist adds some to clarification to the following comment from Chris Briem about the limits of the Marcellus Shale boom:

How new production will affect our relative prices in natural gas is really the big story that could develop from all this development. If we can just achieve parity in natural as prices it will be an improvement in our competitive position. Natural Gas is not the easiest to distribute. I know just enough on the expanding seaborne distribution of natural gas to appreciate that. But even landward distribution across the nation isn't the easiest and location matters to pricing. If we do boost local supply it really should translate to lower local prices which would be good for a number of industries. We still have a number of energy intensive local industries.

Closer is better, a new geographic comparative advantage is emerging. The pipeline illustrates how a Great Lakes economic union might operate. Talent, industrial know-how and natural resources are coming together in dynamic fashion. And all of it is headquartered in Pittsburgh.

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