Monday, June 06, 2011

Pittsburgh Gets Cracking

According the Pittsburgh Business Times, Royal Dutch Shell wants in on cracking ethane from Marcellus Shale gas. That's another indicator of a looming petrochemical boom for SW Pennsylvania and West Virginia. Piling on more evidence, from today's Financial Times:

The experience in Asia has also given the once highly UK-centric company the confidence to pursue other markets – the US and Russia, in particular. It is targeting petrochemicals businesses, a sector in which it specialises, with the UK arm leading both the sales and marketing effort as well as the resulting production.

“It is very nice to see individuals that five or six years ago didn’t travel further than London, preparing to go to Pittsburgh tomorrow,” says Mr Staff. “The whole culture has changed.”

The juxtaposition of "petrochemicals businesses" and "Pittsburgh" isn't a mere coincidence. I'd bet that the main reason Halifax Fan is flying to the Burgh is the Marcellus Shale. It's an energy bonanza.

Moreover, for U.S. LNG exports to make economic sense, domestic gas price would need to stay low, with high enough international LNG prices, and if the LNG prices are still tied to crude oil (which could change depending on market development), then crude oil prices would have to remain elevated. That’s a lot of tricky variables clouding the seemingly rosy LNG export picture.

Some industry participant like Conoco Phillips is not completely sold on LNG exports either. Al Hirshberg, Conoco’s senior vice president of planning and strategy, said at a conference that he does not see the economic case for LNG export terminals being “overwhelming,” and that LNG exports will unlikely ever scale enough to have a big impact on the domestic US gas market. CitiGroup also expects the U.S. could become a swing player in the global LNG market since all planned LNG facilities in North America are going to be two-way.

That cloudy export picture is good news for the likes of Bayer. The petrochemical industry also needs the gas price to remain low. American LNG entering the global market would be a disaster. Increased demand domestically should help ward off that prospect. Hence the rush to get cracking in West Virginia.


Paul Wittibschlager said...

Is there anyway to stop this mess? (Marcellus Shale oil extraction) SW PA gets nothing out of this, other than some fleeting jobs.

Its not just an environmental problem, its an image problem.

BrianTH said...

So it is actually shale gas, not shale oil, although there are some liquids (aka NGLs) mixed in with the gas.

Anyway, it is possible for a locality to get a benefit out of resource extraction--just ask Norway. But that isn't automatically true, and so you need to adopt good policies to that end (and again, you could look to places like Norway for tips).

Paul Wittibschlager said...

Shale gas it is.

Pennsylvania is a beautiful state with wonderful natural resources. Just check out this map:

Should we check out the resource extraction industry record in WV and KY before embracing?

BrianTH said...

We absolutely should consider all the various resource extraction cases, and see what we can learn from them.

Scott said...

Additional domestic natural gas production should be restricted by law to domestic use until it can be distributed domestically as cheaply as it could be exported through LNG processes. What's the point of domestic exploration if we're going to export it from one side of the country and import it at another?

Paul Wittibschlager said...

We should but we won't (learn from past mistakes.) The question will come down to how much environmental degradation will Pennsylvanians tolerate for the jobs associated with fracking?

Pittsburgh is rated as the 7th most polluted city in the US. The Ohio river is the 3rd most polluted river in the US. These statistics reflect the mistakes of the past.