Will The Fracking Boom Ever Translate Into Jobs And Income For Appalachia’s Residents?

The U.S. fracking boom has delivered record amounts of shale gas — fuel used not just for electric generation but also as a feedstock for the manufacturing sector. But despite that explosive growth, the Appalachian region has failed to realize corresponding economic benefits. What gives?

On Wednesday, the Ohio River Valley Institute readily acknowledged that the oil and gas industry has produced an abundance of oil, natural gas and natural gas liquids that are comprised of ethane, methane and propane — the elements that go into finished products. The region, in fact, now accounts for 30% of the nation’s natural gas production. But the growth in both jobs and incomes never followed.

That is because much of the wealth creation has gone to those who often live outside those local areas and who then reinvest their profits elsewhere. And the conference also disputed the notion that the creation of one energy job leads to several others, noting that the “multiplier effect” in Appalachia’s shale gas area and is virtually one-for-one. The Ohio River Valley represents Ohio, Pennsylvania and West Virginia. 

“Petrochemical prices are volatile,” Kathy Hipple, a finance professor at Bard College, told the audience. “These are decisions that big cracker plants have to make and it takes years to build one. Companies have to make decisions about what demand will look like 10 years hence. Oil and gas globally has been distressed — about 10 or 12 years in decline. There has been no business case for fracking.” 

The Bureau of Economic Analysis says that while the gross domestic product in the fracking counties of the three Ohio Valley states grew by 96%, jobs in those fracking counties only expanded by 1.7%, all between 2008 and 2019. The Ohio River Valley Institute says that 90% of the wealth created from fracking comes from the sale of shale gas and only about 10% of that money stays local. 

Cracking the code

All this begs the question about which players within the oil and gas industry will make it. While the larger oil companies such as Chevron Corp.
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and ExxonMobil Corp.
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have distinct advantages — they can fund development by essentially writing a check and avoiding the capital markets — the smaller ones may be seeking revenue streams from natural gas liquids. 

That is, the ethane, propane and methane are captured and then resold to manufacturers, allowing producers to get more bang for their drilling buck. Those natural gas liquids serve as the foundation for nearly all consumer products. And if producers can get a premium for them, the endeavors may eventually make economic sense. The U.S. Energy Information Administration says that natural gas liquid production will grow by 32% between 2018 and 2050.

Indeed, the Ohio River Valley heavily markets to oil and natural gas development — especially as a competitor to the Gulf Coast area. IHS Markit
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said that Ohio, Pennsylvania and West Virginia hold a significant advantage over the Gulf Coast. That is because their supplies are closer to where the shale gas would be consumed, and because of abundant freshwater supplies — a region that holds an estimated 141 trillion cubic feet of recoverable natural gas.

But right now, the only cracker plant located in the area — the multi-billion investment that splits apart the natural gas liquids — is in Pennsylvania. It is about 80% completed and it is owned by Shell Oil Co., a division of Royal Dutch Shell. The plant will use low-cost ethane from shale gas producers in the Marcellus and Utica basins to produce plastics. 

As for West Virginia, it is trying to lure an ethane storage and distribution hub that would harness petrochemicals to serve the nation’s manufacturing base. In a state with 800,000 total jobs, economic developers say that the hub would create 100,000 more positions — something that the Ohio River Valley Institute says is inflated. The think tank also says that unless new cracker plants are built, it does not justify the need for an underground ethane storage facility.

At the same time, there has been an impressive infrastructure buildout along the Gulf Coast. “The gas in the Marcellus Shale region (Ohio, WV and Pennsylvania) has a higher percentage of ethane,” says Anne Keller, a former Wood MacKenzie oil and petrochemical analyst, who spoke at the event. “With this much ethane, they would not be able to put all into pipelines. Moreover, the Gulf region is a flat swamp while the Ohio River is a valley next to a river while the labor laws are different.” 

She adds that the Gulf Coast area sells its raw materials to China and that such development was never predicated on domestic demand. Furthermore, the ethane stored along the Gulf Coast is typically in above-ground tanks while the fuel has access to an existing — and an extensive — pipeline network.

After the pandemic

Could the need for natural gas liquids resume once the world gets its arms wrapped around the pandemic? The panelists all concurred that the answer is not likely given that the demand for “virgin plastics” has sunk. Countries everywhere are trying to use recycled plastics and to prevent the trashing of the oceans. And without that demand, the need for big crackers and storage hubs goes away.  

But state and local governments have built economic strategies on burgeoning oil and gas sectors. Do they need to rethink their plans? John Hanger, an energy consultant and the former secretary of environmental protection in Pennsylvania, says that hopes are fading — that the number of infrastructure projects that have been canceled far exceeds the one Shell cracker plant that is now under construction. Policymakers need to focus on the facts, he says, and not on “motivational thinking.” 

“The fracking boom did not translate into jobs and income,” he says. “But you have BP, Total SE and Equinor moving into cleantech and making investments in electric charging networks, offshore wind, solar energy and battery storage. This is not the Sierra Club that is moving into cleantech. To double down on this petrochemical vision is not even being done in the oil and gas industry.”

It may collectively be known as the “resource curse” — the inability of a region that is blessed with an asset to escape that dependence. But successful leaderships requires this transformation: while the Ohio River Valley sits atop a lot of shale gas, the wealth from developing that resource has yet to spread community-wide. Local policymakers are thus in a quandary and left to wonder if the prosperity will ever come to fruition.