Shale boom foundation for WV's new manufacturing economy

The development of the Marcellus and Utica Shale formations has been a sea change for the natural gas industry nationally. In West Virginia, its effects have been dramatic, but in reality, only represent the beginning of much bigger developments to come. The shale boom is a transformational precursor to fundamental changes which, with proper leadership and community support, will drive West Virginia’s economy for the decades to come. It is, in very real terms, the foundation for West Virginia’s new manufacturing economy. This economy has the potential to lift the state out from under a cloud of mediocrity and self-doubt to perhaps the brightest future the state has ever known.

Christopher M. Matthews recently wrote an informative article for The Wall Street Journal titled, “Shale Boom’s Impact in One Word: Plastics.” In West Virginia, it is the underpinning for the expansion of petrochemical industry and for a host of other downstream manufacturing operations. Shale gas is rich with ethane, which is cracked into ethylene which is in turn made into polyethylene, the main feedstock for the plastic industry. This is just part of the equation. Other derivatives from shale gas include butane, propane, propylene, and chlorine. Couple this with the fuel value of clean burning methane, and one can begin to understand the opportunity for West Virginia’s resurgence of downstream manufacturing. The American Chemistry Council estimates the plastic industry will add $294 billion to the U.S. economy by 2025. Along with this comes 462,000 direct and indirect jobs. West Virginia has a chance to be a major player in this expansion. It has been estimated that the American chemical industry will increase its capacity by 50 percent by the end of the decade. U.S. exports are estimated to grow from $17 billion to $110 billion dollars within 10 years. This projected growth far exceeds any other industry in the country. This is West Virginia’s opportunity to join the 21st century as a major industrial player.

As with most transformational opportunities, time is of the essence. It is imperative that the state’s business leadership become fully engaged with local communities to help educate the all stakeholders about the size and scale of the opportunity. To date, much of the headwinds facing the natural gas industry have been focused on keeping the shale gas in the ground and speeding the development of carbon neutral fuel sources and green energy. The advocates for natural gas have staked their claim to the fact that, in the decades to come, natural gas is the bridge to the full utilization of renewable energy. This is just part of the story. The discussion should be recrafted by asking the question, “Is shale gas a bridge fuel, or a foundational feedstock?” In West Virginia’s case, it is most certainly a foundational feedstock because it is so much more than just a bridge to a carbon neutral future. It is about thousands of high paying long term manufacturing jobs and billions of dollars of private sector investment. It is the foundation for West Virginia’s rebirth of the manufacturing sector in the state’s economy. This is just as true for the country as a whole. Exporting LNG, plastics, fertilizers, solvents, adhesives and a host of other products offer the potential to recast the U.S. balance of trade, loosen the stranglehold of Russia on Central Europe through its control of the flow of oil and natural gas, and most importantly, making this country a recognized leader in quality manufacturing exporting its products to the world.

To take advantage of this monumental opportunity, much needs to be done, and done sooner rather than later. As can be seen from the growth projections for the chemical industry, the next five to 10 years is critical. If West Virginia is not careful, it will miss the opportunity to be an industry leader and could fall back once again by reacting to events imposed upon the state through the vagaries of the national and global economies. West Virginia must lead, and not follow, in this once in a generation opportunity. The natural gas industry and land and royalty owners must find a way to work out their differences in lease integration and related issues. The tax structure for industrial inventory and equipment must be brought into sync with the business tax structure regionally and nationally. Taxing real property is one thing. Taxing personal property is all together another. One could argue that this is the biggest single shortfall in West Virginia’s tax structure. If West Virginia can ride the crest of manufacturing expansion, business real property taxes will increase multiple fold. This does not count the severance taxes which increased gas production bring into the coffers. The Appalachian Storage Hub must be constructed for this provides the infrastructure upon which to build a manufacturing power house in the region. This system of interconnecting pipelines and below ground storage caverns will provide incoming industry the predictability and adaptability needed for a diverse source of feedstock necessary to spur the multibillion dollar investments which are on the horizon. Interstate pipelines connecting the regions shale gas to the national market hubs and end users is another piece of the puzzle.

Royal Dutch Shell’s proposed cracker plant and U S Methanol’s two proposed plants are just the tip of the iceberg. These developments along with what MarkWest and other companies are doing in north central West Virginia provide just a taste of what the future might bring if West Virginia gets its act together. This is not an “us versus them” issue. It is about everyone working together, trying to learn and internalize what these gigantic opportunities are all about, and then ultimately charging forward with an unwavering determination to solve the problems, whether they be public perceptions, land use and tax policies, or environmental issues. The shale boom is the foundation of West Virginia’s new manufacturing economy. Let’s make it all that it can be with shale gas being our foundational feedstock.

This article was authored by Brooks McCabe, former senator, current West Virginia Public Service Commissioner and special project consultant for The State Journal. Click here to read it on The State Journal's website.