PITTSBURGH – Appalachia is gunning for the Gulf Coast.
A team of rivals from Pennsylvania, Ohio and West Virginia recently announced that it would be redoubling its efforts to draw new oil and gas investment to a region once defined and later left behind by coal and steel.
The states' respective leaders, Democratic Gov. Tom Wolf and Republican Govs. John Kasich and Jim Justice, signed an agreement last month to renew the Tri-State Shale Coalition for another three years. The group, an ad hoc collective of government representatives and regional economic champions, is hoping to generate a level of investment that would transform the Appalachian Basin into a global energy hub on par with Texas and Louisiana.
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"We don't want to be competing with each other over state lines when the resource doesn't stay within state lines," says Denise Brinley, senior energy adviser for the Pennsylvania Department of Community and Economic Development. "That's what it will take to develop a true petrochemical hub."
The three states sit atop the Marcellus and Utica shales, formations of porous rock stretching from West Virginia to Canada that hold huge deposits of oil and natural gas, which in the past decade have been shaken loose through hydraulic fracturing – or fracking – and horizontal drilling.
The three states in 2016 accounted for roughly 29 percent of U.S. natural gas output – up from just 2 percent in 2008, and right behind Texas and Louisiana, which together made up 31 percent of the country's natural gas production in 2016, according to the Energy Information Administration. (The region lagged further behind the Gulf Coast in oil production, in which Texas is still king.)
Unlike the Gulf region, however, the vast majority of the gas that's extracted in Appalachia is exported: Only about a quarter of the gas produced in Pennsylvania, for example, was consumed within the state in 2016, according to EIA data. In Texas, by contrast, two-thirds of the gas extracted there remained in-state, and in Louisiana 92 percent stayed within state lines.
The Tri-State Shale Coalition hopes to change that.
Though the states continue to compete for investment, since 2015 the group has also helped arrange partnerships among the states' universities and energy companies, promoted technical training for jobs in the oil, gas and petrochemical sectors, lobbied for investments in roads, rail and other infrastructure, and hired an advertising firm to coordinate a joint marketing effort. The goal is to make the region as a whole more attractive for what's known as midstream and downstream investments.
These include gas storage hubs, but also industrial plants that convert natural gas into the ethylene, polyurethane and other substances that make plastics, as well as manufacturing facilities that rely on natural gas for energy.
"For economies of scale, to not be wasteful, to speed things up … a regional approach made a lot of sense," says Elizabeth McIntyre, director of the Tristate Energy and Advanced Manufacturing Consortium, which was launched in 2017 to boost the region's energy, petrochemical and manufacturing workforce. "There's competition among the teams in the NFL, but there's benefit to being part of that league." In this case, she says, "we are the league." She referred to the model as "coop-etition."
Royal Dutch Shell's decision in June 2016 to build a $6 billion ethane "cracker" in Beaver, Pennsylvania, about 30 miles northwest of Pittsburgh, represents the ultimate ideal: The plant, which converts ethane from natural gas into ethylene, a key ingredient for making plastics, adhesives and other synthetic products, is a multiyear project promising project promising some 6,000 construction jobs and about 600 permanent positions, according to Shell. Since the announcement, speculation has mounted that the region could see similar investments in two more cracker plants, including from PTT Global Chemical, which has been considering a $10 billion project in Ohio.
"Pennsylvania takes the first investment, then Ohio, then West Virginia," Brinley says. "Any state that gets this investment is a big win for the region."
Brinley says the Tri-State Shale Coalition lacks a formal budget, instead relying on donations from independent foundations and support from workers who hold roles in other agencies and organizations. She and David Ruppersberger, who leads the Pittsburgh Regional Alliance and is also involved with the Shale Coalition, declined to disclose how much the coalition has spent on marketing and other efforts.
"When we've needed funding, we have managed to find it as needs are identified for the types of work that are needed to do," she says.
Some level of conflict, outside of normal economic competition, might be inevitable. Pennsylvania, for example, attracted the Shell plant only after offering a tax break estimated to be worth about $1.6 billion over 25 years and a 15-year tax exemption. The states have also diverged on environmental policy, with Pennsylvania's Wolf seeking to increase the amount of money drillers must pay to extract oil and gas in the state.
The coalition's leaders, though, are sanguine about such conflicts, which they say will not interfere with the group's work to market the region as a whole.
"The downstream investments that we're looking at will occur because the resources are here and we have ethane in abundance," Brinley says. "So whether any individual state has taxes or fees to change the pace of the drilling, the pace of the drilling has really only been impacted by market conditions."