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Natural Gas Boom Boosting Regional Economies

John K. Borchardt (November 2011)
Hydraulic fracturing ("fracking") and horizontal wells now make it possible to economically produce natural gas from low permeability shale rock, greatly increasing natural gas supplies while reducing prices. These shale rock formations are found primarily in Louisiana, New York, North Dakota, Pennsylvania, Texas, and West Virginia. Their development is helping many "downstream" businesses grow and create jobs.

Economic Impact
For example, estimates of Pennsylvania job creation due to increased shale gas production since 2009 range from 44,000 to 72,000. In Bradford County, Pa., the 2009 unemployment rate of 10 percent has been halved because of Marcellus Shale gas development. New York's economically depressed Southern Tier is also benefiting from gas field development in nearby Pennsylvania. Case in point: RB Robinson Contracting, Inc., a family construction business in Candor, N.Y., had eight full-time employees in 2009. Today, it provides full- and part-time work for 120 people.

Ohio's steel industry has also felt the economic impact of the revival of shale production. More than 400 workers in Youngstown are constructing a new $650 million steel mill for Vallourec & Mannesmann Holdings, Inc. It will annually produce a half million tons of seamless steel well tubing used in drilling and "fracking" natural gas wells. U.S. Steel is spending $95 million to expand and upgrade its tubular steel mill in Lorain, Ohio, and Timkin is spending $50 million on a similar project at its Canton mill.

And production of oil from shale rock formations has enabled North Dakota to more than double its oil production in the last three years. Forecasts indicate the state will rank second only to Texas in oil production soon. North Dakota also had the highest income and job growth over the last decade, according to the U.S. Chamber of Commerce.

U.S. Competitiveness

What's more, thanks to cheap natural gas, U.S. ethylene plants can now compete with cheaper foreign competition. Ethylene is used to manufacture plastics products ranging from carpeting and tires to diapers and food packaging. For example, Royal Dutch Shell is studying sites for a new ethylene plant in Appalachia; LyondellBasell Industries plans to increase ethylene output at one or both of its Texas plants in Channelview and LaPorte; and Williams Companies will spend up to $400 million to expand its Geismar, La., plant.

Construction and other industries/businesses are also benefiting from shale gas development. The Marcellus Shale gas industry spends over $50 million annually on scientific and technical services and administrative, legal, and business services. Other companies benefiting include oilfield service companies, tank construction firms, welding and machine shops, hotels and motels, restaurants, and retail. Additionally, increased gas supplies from the Marcellus Shale have reduced electric power costs to industrial customers from around 6 cents per kilowatt hour to less than 4 cents, enabling N.Y. manufacturers to lower operating costs and compete more effectively with foreign and out-of-state firms.

Pros & Cons
Production of shale gas is controversial in some areas because of concerns over the hydraulic fracturing process. Fracking involves injecting water and chemicals underground to generate microscopic cracks in the rock releasing natural gas. Critics say fracking risks contaminating ground water and water supplies. On the other hand, natural gas produces less carbon dioxide, the main greenhouse gas causing global warming, than coal when used in electric power plants. Cheaper natural gas makes it more feasible to substitute natural gas for coal and may also promote its use in industrial plants and vehicles, replacing gasoline and diesel fuel made from imported oil.
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