Marcellus Shale Propels Pennsylvania’s Economy
28 Nov, 2012
By David Hodes
The ability to extract natural gas efficiently from the Marcellus Shale that runs under 60 percent of the state of Pennsylvania has created great new opportunities for the state that C. Alan Walker, secretary of the Pennsylvania Department of Community and Economic Development calls a “game changer.” “It is very interesting that what our strength was in the past that fueled the industrial revolution was inexpensive energy,” he says. “And maybe what fuels the second industrial revolution in this state, if not the whole country, is the Marcellus development.”
The Marcellus Shale is an organic-rich black shale that was deposited in an oxygen-deficient marine environment under much of the state about 390 million years ago. Long known to be a source rock for many conventional oil and gas reservoirs in the Appalachian Basin, it is now being explored as an unconventional reservoir. New horizontal mining techniques employing a significantly greater amount of water than traditional mining operations can now aid in the recovery of gas more efficiently
To get the ball rolling, Gov. Tom Corbett created a Pennsylvania Resource Manufacturing Tax Credit (PRM) to develop the petro chemical industry. Beginning in 2017, any manufacturer purchasing natural gas containing ethane as a petrochemical feedstock at a facility within the state could be eligible for a tax credit equal to five cents per gallon of ethane purchased and used in manufacturing ethylene.
The credit is granted only if the company makes a capital investment of at least $1 billion and creates the equivalent of at least 2,500 full-time jobs while constructing the manufacturing facility. “It’s an incredible tool for us,” Walker says. “It ensures that the natural resources will be kept here in Pennsylvania as opposed to putting it into a pipeline and moving it somewhere else.”
The governor’s first initiative, Walker says, was to create the Marcellus Shale Advisory Commission, which was a strategic road map for what to do with the shale development in the state and essentially taking the first step toward developing a comprehensive and strategic plan for responsible natural gas drilling in Pennsylvania.
The unanimously-adopted report contains 96 policy recommendations that include tougher regulations for drilling, doubling fines for violations, creating jobs in related industries and promoting the use of natural gas vehicles.
Walker was a member of the committee. “The commission decides how we are going to tax the industry, how we are going to regulate the industry,” Walker says. “It laid out ground rules. I thought it worked extremely well and took a lot of the uncertainty out of it for the investors. It was a really big part of moving the industry forward here in the state,” he says.
Industries and Innovations
Energy development is the talk of the town no matter where you go in the state. Dewitt Peart, executive vice president of the southwestern 10-county Pittsburgh Regional Alliance, says that they have seen a dramatic increase in the upstream sites for energy development, such as the extraction of the gas out of the ground and the supply chain for that activity.
A Dow Chemical plant has been proposed for the region, joining other Dow businesses in the state such as the Advanced Materials Division in Philadelphia employing 500. “They have not made their final investment decision yet, but we expect that to come,” Peart says. “And what that is doing is opening up opportunities for additional downstream interest. Our project pipeline is starting to get those types of projects because we will have ethylene available at very cost effective rates.”
Energy production is still a high priority in Philadelphia after a few years of refineries either closing or transforming into other related operations such as jet fuel production. For example, Sunoco in Philadelphia, the oldest refinery on the East Coast, was scheduled to be closed in August. But in September, the Carlyle Group finalized an agreement of sale to form Philadelphia Energy Solutions (PES), a venture that will enable the Philadelphia refinery to continue operating.
This joint venture between labor, business and all levels of government will save 850 jobs, create 100 to 200 new, permanent jobs, thousands of construction jobs and secure the region’s fuel supply by continuing the daily flow of 10 million gallons of various fuels.
Tom Morr, president and CEO of Select Greater Philadelphia, says that PES has some fairly ambitious plans in the works. “It’s not just to keep the refinery operating as a refinery but making it a center of energy for processing and distribution of gas and gas products from the Marcellus shale development,” he says.
In the Pocono Mountains region in the northeast part of the state, now recovering from a decline in home building, retail development has come on strong based on a surge in population growth from families who are deciding to live and work in the area instead of commuting to jobs in New Jersey or New York.
One of the most significant businesses in this mostly tourist area is the Sanofi Pasteur U.S. headquarters, the largest flu vaccine facility in the world, which employs 2,600. According to Chuck Leonard, executive director for the Poconos Mountain Economic Development Corp., the company grew and continued to expand when everyone was afraid of the flu pandemic. “The government paid them to generate a variety of various vaccines and store them for a rainy day,” he says. “So we are working with them to make sure they continue to expand and we want to try to retain every bit of that company.”
Talent and Education
There are literally hundreds of institutions of higher learning in the state, from two year community and technical colleges to master’s and doctorate level universities to seminaries. In addition to the highly regarded Bryn Mawr College in Montgomery County and Villanova University in Delaware County, there is Carnegie Mellon University in Pittsburgh. This private research university features the 10-school Carnegie Institute of Technology which “tends to be a magnet for companies,” Peart says. Google, Apple and other information technology companies have major research and development facilities connected with the university, he says.
Of the 101 learning institutions in the Philadelphia region, 34 of them are research and development institutions, according to Morr. They collectively spend about $1.4 billion annually on research and development, in part because of the concentration of pharmaceutical companies such as Pfizer Inc. in Collegeville. “We have all the skills you need to commercialize a bio science or biopharmaceutical discovery and get it through the regulatory process, get the reimbursement agreements done and the sale and marketing done,” Morr says.
Pennsylvania has the fifth largest highway system in the country and seven major airports, including Philadelphia International and Pittsburgh International. The port of Philadelphia is the second largest inland port in the country, and it is expanding to allow deeper draft ships in the Delaware River channel.
After years of planning and preparation, the project to deepen the Delaware River’s main channel from 40 feet to 45 feet got underway in early 2010. The plan will include $16.9 million that will be exclusively reserved for the deepening project. This will allow the Army Corps to deepen two additional sections of the project, totaling about 15 miles.
In the Fayette County area, where the Fay-Penn Economic Development Council already manages one of the largest business parks in the county, they are developing a new business park. Michael Jordan, executive director of the Fay-Penn Economic Development Council, describes it as a “major undertaking,” where Fay-Penn has already purchased additional property that includes existing industrial buildings they are looking to revitalize. “Then in the long term we have other acreage that we purchased for some future activities and future development more along residential development to address a shortage of housing here,” Jordan says.
Life in Pennsylvania can be relatively tranquil away from the two major cities.
In the Poconos, a vacation destination for years, Leonard says that they have seen a dramatic uptick in the last two years with increasing interest in locating some large recreation facilities there, that started with the indoor water park at the Grey Wolf Lodge. “We are now working on another property, Kalahari Resorts, and we are in the process of getting them permitted,” he says. “That could create 1,200 jobs if they go forward with all three phases of development.”
With developments like these in tourism dependent areas, and all the activity in energy, the future looks bright for Pennsylvania.
What’s more, the governor is a great believer in job creation and creating an environment where the private sector can survive, Walker says. “We have not had a tax increase since he took over two years ago even though he faced over $4 billion deficit his first year,” Walker says. “So he really has tightened the belt and sent a very good message to the business community that ‘Look, I am not going to put this on your back. I am going to do everything I can to create a favorable business climate, a favorable tax climate and a favorable jobs climate.”
Illustration by Victor Habbick at Free Digital Photos.net