Oil, natural gas surge makes Philadelphia the new energy hotspot

The Philadelphia Energy Solutions refinery in Philadelphia, Pennsylvania.
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The city best known for Rocky, cheese steaks and sharp-elbowed sports fans is developing a new reputation as a nexus of oil and gas transportation, which bodes well for its economy.

With little fanfare, Philadelphia is undergoing a revolution powered by the U.S. energy renaissance. Renewed investment and activity in the region's sprawling railway network and aging infrastructure is turning the City of Brotherly Love into a potential energy hub that some believe can rival Houston.

Energy experts cite two major factors working in Philly's favor: it's proximity to the booming Marcellus Shale, where 5,400 shale wells churned out nearly 2 trillion cubic feet of natural gas during the first six months of the year; and the city's bustling commercial railroad system, which has made it a transit point for oil being shipped from North Dakota's Bakken formation.

Along the Northeast corridor, "there are maybe six distribution pipeline proposals for natural gas," said Vincent Devito, a law partner at Boston-based Bowditch & Dewey. "A lot is intended for exports and the quickest and easiest way is through Philadelphia's infrastructure."

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Devito, a former Department of Energy official, said the city is already a draw for gas and energy related businesses "that like to be close to the pipeline for easy access," he said. "Philly is in a fortunate spot because they are part of the Northeast corridor, there's a lot of business and remarkable opportunities for business and economic development."

Most recently, Philadelphia's profile in the energy sector got a large boost from Sunoco Logistics Partners, a pipeline investment vehicle that announced it would construct a $2.5 billion pipeline from the Marcellus into Philly. The new pipeline will complement an existing gas artery that may hike the region's natural gas transport by fourfold.

With the U.S. experiencing an embarrassment of fossil fuel riches, Sunoco and other companies are channeling billions into pipeline investment across the country. As local rail companies like Monroe Energy negotiate for increased access to Bakken crude, Philadelphia is one of several regions that stands to benefit from the influx of oil and gas.

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"Philly has physical infrastructure, land and access to export markets, or you can transport [natural gas] to other markets in the U.S.," said Adam Karpf, a portfolio manager at Atlantic Trust, which has $24 billion in assets under management.

The new Houston?

Once it's up and running, Sunoco Limited's pipeline will funnel nearly 300,000 barrels per day of natural gas liquids (NGL) to Philadelphia's Marcus Hook Industrial Complex.

The city is not what most would normally consider an energy hub. Traditionally, oil and gas production has taken place in locations further south, like Houston and New Orleans.

However, the U.S. energy boom has upended many of those assumptions, transforming unlikely cities into hubs of fossil fuel production. Combined with a set of refineries that are being retrofitted for natgas purposes, Philadelphia could eventually rival energy powerhouses in Texas and Louisiana, some energy watchers say.

"Houston is not as close to the demand centers as Philadelphia is. The East Coast is an amazing engine of demand," said Michael Krancer, chair of the energy industry practice at Blank Rome law firm.

The city's 8.4 percent unemployment rate is well above the national average, and even above Pennsylvania's. Many of the cities and states that are ground zero for shale production have seen jobless rates plummet. For that reason, energy watchers are reasonably optimistic that Philly can see some of the same magic other oil and gas producing regions have experienced through the shale boom.

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Energy development in the region can help stem a brain drain of educated professionals out of the area, Krancer added.

"The potential is even greater than Houston," he said. "The parts of the state that are benefiting the most from this are the parts of the state that have been economically challenged for a generation or two."