November 2016, Vol. 243, No. 11

Features

Keystone State Earns New Respect as Energy’s Land of Opportunity

Listen closely and you can hear the early rumblings of another energy renaissance taking hold deep in the heart of … Pennsylvania. That’s right, Pennsylvania, where there’s growing resolve among businesses and local entities to band together in a bid to reclaim some of the region’s past luster as the nation’s first true energy hub.

This time around, though, the state that is the birthplace of the oil industry in the 1850s is not relying on “black gold” but rather natural gas – lots of it – compliments of the Marcellus and Utica shales, to provide the source of energy and, hopefully, the motivation that will attract new business.

As a local shopkeeper put it just after I arrived in historic Bedford Springs, located in the south-central foothills of the Allegheny Mountains, “We’ve been thought of as that part of Pennsylvania you fly over between Philadelphia and Pittsburgh. There’s a lot going on here people need to know about.”

From the perspective of those involved with Core PA, an initiative to create and retain jobs in the central 53 counties of the state, the people that need to know most are investors, particularly foreign investors, ready to move their manufacturing operations to the area.

As part of that effort, Core PA hosted seven energy journalists – mostly from foreign trade press – in addition to myself for a four-day tour promoting the region. This is where 25,000 gas wells have been drilled since 2007, en route to becoming the second-largest natural gas producer in the U.S. It’s a supply, as locals quickly point out, that’s cutting energy costs.

“We’ve found that by hosting international journalists able to see and hear firsthand from these companies it makes for a much stronger message to prospective foreign investors: Pennsylvania is a great place to do business,” said Noelle Long, regional representative of Core PA. “We’re certainly ready to welcome more businesses.”

At a kickoff luncheon at the stately Bedford Springs Hotel – as was the case at most of our other stops – the main topic was Shell’s just-announced decision to build a multibillion-dollar petrochemical complex on the site of a former zinc smelter in Beaver County, to the northwest of Bedford.

While the project promised to create 6,000 construction-related jobs and 600 permanent jobs when completed in the next decade, it was the plastics manufacturing industry and related businesses that were seen as opening the door for a new generation of small-family operations, as well as large, multinational corporations to the region.

“The core region of Pennsylvania has a tremendous manufacturing story to tell – that of innovation, quality and diversity,” Long said.

As an example of that manufacturing story, we first toured Center Rock, a construction equipment firm founded in 1998 involved in mining and quarry equipment. It gained international attention in 2010 when its technology helped rescue 33 Chilean miners trapped 2,000 feet underground after a mine collapse.

Specializing in the air-drilling tools and products at its two manufacturing plants in nearby Berlin, Center Rock has worked with the Somerset County Economic Development Council, which facilitates low-interest financing programs and helps with site assessment and project coordination.

Starting out in the oil and gas industry, the company said it commands over 50% of that market share within the tri-state area of Pennsylvania, Ohio and West Virginia, but as with the rest of the country, drilling-related activity has slowed for them. President Dave Pietrzkowski said by being “small and nimble” Center Rock has “responded well to market requirements.” He sees the “overall developmentally friendly climate of the state” and abundance of inexpensive natural gas as an ongoing attraction for new businesses.

“The Marcellus play offers the lowest production costs for natural gas and is therefore a winning opportunity,” he added. “Generally speaking, the workforce pool in this part of PA is second to none. People here have a noteworthy work ethic and are of strong character.”

He cited Southern Allegheny Planning and Development Commission (SAP&DC) as long having been a valued partner of Center Rock, specifically in using the International Export Assistance Program to enhance the company’s global footprint. “We work with them for trade shows and have them research potential selling partners globally. The staff is extremely accommodating,” Pietrzkowski said.

Successes aside, Steve Howsare, executive director of SAP&DC, which provides technical and financial assistance to small- and medium-sized businesses in the Alleghenies, sees the need for more long-term infrastructure to deliver natural gas. “It would be nice to take full advantage of it [natural gas] locally, but it’s not really available,” he said.

Next, it was on to Johnstown, site of the famous flood, for dinner and background on the local business communities of Cambria and Somerset counties from Linda Thomson of the Johnstown Area Regional Industries (JARI). Though drilling had slowed some momentum, she said many of her members use natural gas as a feedstock, which has contributed to a certain amount of resurgence, as has an increase in military production at local facilities.

On another bright note, she pointed to the 1,040-MW gas-fired power plant being built by Maryland-based Competitive Power Ventures (CPV). The $1 billion investment, planned for what was once the site of an 87-acre salvage yard in Cambria County, will be the largest regional gas project.

The location is a mile south of Texas Eastern Pipeline, which will supply the combined-cycle plant with natural gas. CPV plans to start construction in early 2017 with completion expected in late 2019. Meanwhile, 20 miles away, Greensburg, PA-based Keytex Energy hopes to build another gas-fired power plant on the 93-acre site where the State Correctional Institution in Cambria County closed in 2013.

“Our steel mills that house Johnstown Wire, Gautier Steel, JWF Industries and others are all using natural gas, too, but they have been doing so for some time,” Thomson said.

Fueling a Second Wave

Jeff Kotula, president of the Washington County Chamber of Commerce (WCCC), began Day 2 discussing prospects for a second wave of energy-related growth in the region. The chamber and other civic groups are seeking ways to fund better roads and industrial parks to the county, with much of the emphasis on planning 10-20 years out. When the shale revolution began, he said the region lacked the right skill sets, such as accountants and managers, to fill all the job openings.

“When the Marcellus emerged, we didn’t have a crystal ball. We didn’t see it coming,” he said. “Most of us are hoping to get in front of things this time.”

A big advantage for Washington County is being in Pennsylvania, which historically from a community and governmental standpoint has been friendly toward manufacturing and the energy industry. (In sharp contrast to neighboring New York.) Because of its familiarity with the two sectors – Range, Chesapeake and Noble maintain headquarters in the region – Kotula said local businesses and residents are more receptive to companies looking to relocate there.

“When any new industry comes, there are always questions: Will I lose employees? Are there health impacts?” he said. “We gave them real information: There will be lots of truck traffic, lots of water hauling and gas flaring at night.”

In the past decade, the Marcellus has provided an estimated $10 billion worth of development within 10 miles of the burgeoning 589-acre Southpointe business park south of Pittsburgh. But business leaders are acutely aware that without more pipelines, bottlenecks will continue to constrain growth.

“Many gas wells have been drilled, capped and are just sitting there,” Kotula said. “We don’t have infrastructure for it.”

In fact, says the state Department of Environmental Protection (DEP), about 65,000 gas wells were producing in Pennsylvania in 2007 but many have been capped.

Kurt Knaus of the PA Energy Infrastructure Alliance agreed, but still pointed optimistically to the reversal of the Mariner East Pipeline to carry natural gas liquids to Marcus Hook in Delaware County for both domestic distribution and export.

“Mariner is a very symbolic connection between the two ends of our state,” he said. “It’s been a lifeline for Eastern Pennsylvania and has given us a new market.”

One recent development that bodes well for the industry came from Gov. Tom Wolf’s Pipeline Infrastructure Task Force, which in February offered 184 suggestions to help the state build out its natural gas pipeline infrastructure. Among those: providing adequate staffing to review pipeline infrastructure in a timely manner and enhancing workforce development.

The DEP expects 30,000 more miles of pipelines to be built in the state to go along with 12,000 miles already in existence.

Oil, Gas and Others

Next it was back to Johnstown to tour the Environmental Tank & Container plant, which produces bullet tanks for customers including EQT, Range Resources, Chevron and MarkWest. The company started in energy in 2011, building frack tanks in north-central Pennsylvania, when the DEP finalized regulations limiting the amount of dissolved solids that can be disposed in waterways.

“The need for frack tanks was so great that the first order was placed before the first tank was even built,” said Scott Hartnett, director of Business Development. “We developed ways to stack tanks and have less of a footprint. If you have a better mousetrap, the industry will respond.”

Over the past three years, their product line has expanded to include flowback tanks, mud tanks, API tanks, legal load tanks, aboveground impoundments and pressure vessels. With drilling subsided, the company is relying on defense contracts and orders from other industries.

An hour east in Martinsburg – home of Curry Supply, a family-owned provider of service and vacuum trucks – the drilling lull is worrisome, but news of Shell’s decision on the petrochemical complex offers a bit of a silver lining. The company, which has been in business since 1932 and employs about 400, has bids involving the Shell plant that could result in the order of 100 pieces of equipment, said Sales Manager Jeff Shaw.

“There is a super abundance of natural gas which means stability for new companies,” Shaw said. “There is also the proximity to population centers.”

Curry has witnessed a falloff in energy-related work in the last year but Marketing Director Tom Catalano said some of the bigger players are drilling again. In addition to the low-price environment, he cites the lack of pipelines for the slowdown. “If you want to attract business because you have natural gas, you need the infrastructure to deliver it or it doesn’t make sense,” he said.

On Day 3 in Brookville, we encountered a rather unusual type of merchant who converted some of his equipment to natural gas and couldn’t be happier. David Black and his wife, Jennifer, operate the Blackbird Distillery, notably located at 91 Blackout Alley. It is the only legitimate maker of moonshine prepared “the primitive way” in Pennsylvania. He doesn’t mind taking advantage of modern conveniences.

“Due to the intense nature of the distilling process, the company was burning through propane rapidly, and we were concerned about maintaining our supply,” he said of his previous heat-source concerns. “There were times we worried about losing a batch because we were running out of propane.”

The distillery made the switch to natural gas in June 2015 when National Fuel Gas Co. ran a 150-foot line to the property. The change has resulted in a 50% cost savings, not to mention “added peace of mind.”

That evening at Tara Country Inn, inspired from a design standpoint by the movie, “Gone with the Wind,” John Elliott, president of North Pier Energy, explained how his company is developing a small-scale LNG-processing and distribution facility near an existing pipeline.

The company expects to deliver LNG to the Great Lakes region soon, then move into places isolated from pipes such as New Hampshire and Boston, which he pointed out imports LNG. He said customers will include local companies operating trucks and heavy equipment, helping to reduce emissions and be more competitive.

Elliott sees North Pier as “creating the next generation of fuel for America” and understands Pennsylvania pipeline is one of the endeavor’s key components. The company will use gathering pipe belonging to operator EmKey Gathering, which operates 350 miles of pipelines and six compressor stations in the northwestern part of the state and southwestern New York.

“As a domestic interstate customer, there is much less permitting,” Elliott said. “You cut two to four years off your schedule.”

Investor Friendly

With a clientele skewed heavily toward oil and gas, Calgary, Alberta-based Noise Solutions opened the doors to its 55,000-square-foot Sharon facility two years ago. Its chief attraction was proximity to the Marcellus and the growing market for muffling compressors.

“Sometimes the demand for that is regulatory, sometimes it’s a part of a good neighbor policy on the part of the company,” said company President Scott MacDonald during a plant tour on Day 4. In simple terms, he described the process as building a wall around the compressor, but with temperature control and other factors at play, there’s obviously more to it than that.

Generally, MacDonald said, blocking the noise entails lowering the sound to the decibel level prior to the compressor station or other oil and gas equipment being put in place. For example, back to 50 decibels (dB) from 120 dB.

Noise Solutions’ assortment of custom equipment spans from acoustic buildings, walls, enclosures and ventilation to a variety of engine exhaust and cooler fan silencers. The company has moved somewhat away from oil and gas to industrial work due to the slowdown.

“Customer demographics told us the equipment would be here,” he said of the new factory. “Also, there is easy shipping to Canada and our company needed a ‘Made in the USA’ stamp.”

The move to Pennsylvania was also enhanced by tax incentives through Mercer County agency Penn Northwest Development Corp. Noise Solutions also expects to see considerable opportunities resulting from the cracker project.

Educating the Workforce

The Shell cracker project, like many of the Marcellus-related career opportunities, feeds directly into the mission of Penn State Behrend Linden Pointe, in Hermitage, and its $30 million Research and Economic Development Center.

Opening in 2006 and housing the Black School of Business and the School of Engineering, the Center has worked well for those “comfortable with the black and white of engineering and the shades of gray of business,” Russell Warley, director of the School of Engineering, told us. The school holds career fairs every fall and spring with 160 companies interviewing at each. Chemical engineers should be especially in demand once the cracker is online, and the university offers a special concentration in plastics.

FMC Technologies Measurement Solutions, an Erie-based manufacturer of precision metering products for the oil and gas industry, partners with the campus and has invested $500,000. It employs 24 interns at a time in the FMC design center in Erie with students working remotely for the company’s Subsea Division in Houston.

“Companies like that are creating a talent pipeline for themselves,” Warley said, “though it is unusual for this to occur with undergraduates.”

Next we visited New Castle company Flowline, which was bought in 2011 by Canada-based Ezeflow Group in order to expand its servicing capabilities in key industry segments. Since the acquisition, $5 million has been invested in the new plant. With pipeline work involving carbon steel as its primary sales driver, Ezeflow can manufacture ½-inch to 60-inch pipe fittings and is the only North American fitting company that claims worldwide clientele.

“Today our busiest sector is midstream,” said Marty Capoferri, Ezeflow vice president, though not at the New Castle plant which specializes in long radius elbows. Now he’s hoping to get an EQT pipe contract in West Virginia for the Mountain Valley Pipeline (MVP) project, a proposed natural gas pipeline system that spans about 300 miles from northwestern West Virginia to southern Virginia.

“When the market is good and the price of oil is right, we do really well here, even with cheap foreign competition,” Capoferri said.

Like others met on the tour, he expects central Pennsylvania will get a lot of business due to the Shell cracker and its proximity to Marcellus natural gas. He agrees that the state and local business environment is friendly and said the company has benefited from low-interest state loans and exporting grants. The factory, which operates on a mix of electricity and natural gas, employs 90 workers, down from a peak of 124.

“All in all, I think being here has us in a good position here for the next 20 years,” Capoferri concluded.