Thursday, June 10, 2010

Burgh Energy Report: Confused Blogger

I haven't given up on trying to noodle how Pittsburgh's energy portfolio might influence talent migration. But I am overwhelmed trying to learn about energy markets and the associated labor economics. Your guess is still as good as mine. Null Space is tracking such things and I recommend reading what Chris Briem has to say on the subject. Consume the following at your own risk.

I continue to encounter job creation hype as a result of the Marcellus Play. I've yet to see any compelling evidence about an energy employment boom in Western Pennsylvania. The local press is less skeptical:

The natural gas boom is expected to create 200,000 jobs in the region during the next 10 years, according to a Penn State study and reports from Consol Energy.

It has already created 40 within the last two years at the site in Green Tree, and another 100 will be created there within six months, according to Patrick Cozzens, president of Modern Transportation, a 23-year-old, Sewickley-based company that works out of the Rook terminal and hauls industrial materials to Fortune 500 companies across the country.

"We are currently looking for 20 more [truck] drivers," Mr. Cozzens said.

The anecdotes aren't bad news. There is a positive economic impact. Anyone question the 200,000 number? Anyone at all?

Properly taking stock of the Penn State report is beyond my expertise. I do note a great deal of uncertainty about the impact of shale gas:

BP's massive oil spill in the Gulf of Mexico should be a reminder of the risks that come with America's over-reliance on crude oil and the start of a shift toward making natural gas a bigger part of the nation's energy mix, the CEO of the nation's second-largest natural gas producer said Thursday.

"Hopefully, it will be the birthplace of a transition in our economy from an oil-centric economy to a gas-centric economy," just as the 1969 oil spill in Santa Barbara gave rise to the American environmental movement, said Aubrey McClendon, CEO of Oklahoma City-based Chesapeake Energy Corp.

But he acknowledged that while pro-natural gas legislation enjoyed strong backing in Congress before the Gulf disaster, "the whole landscape has changed with the BP deal."

The Penn State jobs projection doesn't consider political or geopolitical shifts. Given the impact of the BP disaster, I'd throw out the report. For every piece of promising news, there seems to be an equally compelling counternarrative:

Last week US company Cheniere Energy announced plans to build an LNG export terminal at Sabine Pass, on the Texas-Louisiana border. The company already operates an LNG import terminal there. It’s still early days; the company is talking to potential customers about contracts, but says it could be liquifying and exporting LNG by 2015.

So why the about-turn? Shale gas, naturally, is the obvious reason; US gas production has risen dramatically thanks to the Marcellus and Haynesville plays.

But does this mean a new era for US natural gas? Does net exporter status beckon? It’s not quite as clear-cut as that, yet.

Bottom line, everyone is hedging their bets and the risk of shale gas is considerable. I find all of it too fascinating for my own good. There are a bunch of game-changing factors in play right now. I think the result will be a boon for Pittsburgh, but I'm guessing like everyone else (including Penn State).


John Russell said...

Don't know if you saw the recentish Shell announcement: Royal Dutch Shell plc acquires new positions on US tight gas (a press release headline clearly not written by an American). I'm certainly not an economist, but if multinationals continue to come in and buy up plays, some people will make a lot of money but I wonder how much local labor would be hired and at what wage levels.

Jim Russell said...

I see the big energy interests as putting a few eggs in that basket. Best have a stake if this does turn out to be the next big thing. Also, I'm not sure how labor-intensive the play is. I've read that the Marcellus Play can be profitable at very low natural gas prices.

In the near term, I'd bet on nukes making the biggest impact on the job market.