Oct 29, 2015 6 min read

Natural gas production in the Appalachian Basin, which has grown exponentially over the past several years, is building new user markets near its sources as well as globally, industry experts said Thursday.

On the second day of the Penn State Natural Gas Utilization Conference in Southpointe, the emphasis was on markets near and far at a time when the industry has cut back on production while it builds out pipeline infrastructure to reach new users.

Despite the current production cutback, the outlook for gas use in the U.S. power generation and manufacturing sectors is positive, according to Robert McCutcheon, who follows industrial products in the United States for the Pittsburgh office of PricewaterhouseCoopers.

McCutcheon noted PWC’s study found the abundance of cheap, domestically produced natural gas has had a positive impact for the manufacturing sector in terms of cost savings and job creation over the past several years, a trend he said should hold true well into the future.

According to PWC, the use of natural gas is projected to save manufacturers $22 billion annually and create about 1 million jobs in the U.S. by 2030.

While PWC studied use in eight different manufacturing areas, McCutcheon said three areas – chemicals, metals and heavy equipment manufacturers – are expected to be the biggest benefactors of the cheap gas trend going forward, since they are some of the biggest users of the fuel.

When it surveyed purchasing managers in manufacturing, PWC found that the group was evenly split among those who said cost savings would be the driving factor behind using or switching to gas, while the other half saw additional revenue opportunities with new products and services as a result of cheap gas.

McCutcheon, who was part of a panel discussing U.S. industrial and commercial opportunities, noted that PWC’s 2030 projections could be altered by economic conditions and the effectiveness of advancement of science, math and technology education initiatives that would ensure a well-trained workforce.

That caveat was echoed by Gideon Gradman, managing director of Integrated Energy Advisors, which works with companies in determining new or expanded manufacturing opportunities.

While acknowledging the “tremendous supply and a large number of opportunities to bring new product opportunities to the Appalachian Basin,” Gradman was also realistic about the time frame.

“It takes longer to build a cracker plant than it does to drill a well,” Gradman said in explaining the lag time between producing gas and finding markets for it.

Jeff Logan, president of the Pennsylvania Chemical Industry Council, said downstream chemical production is poised to benefit the tri-state region, but said STEM training, the creation of tax-free zones to encourage investment and a rapid buildout of pipeline infrastructure will all be needed to boost chemical manufacturing here.

Perhaps the best analogy of the day for viewing Pennsylvania’s attempts to find uses for its abundant gas output came from Tony Ventello, executive director of Progress Authority. The organization, a combination of an industrial development authority and an industrial development corporation, does contract work for the commissioners of Susquehanna and Bradford counties. Ventello said natural gas industrial development needs to follow the path of two of the state’s legacy industries.

“We need to treat gas like we do our timber and dairy industries, where we had to make furniture and cheese” from the abundant commodities, he said.

Ventello’s group has been following that tack in its market area. The group is helping to connect gas usage for a medical records department of a health network’s data storage project as well as switching a powdered metals company’s supply of gas from the Gulf Coast to locally produced Marcellus gas.

The biggest use for natural gas is in power generation, where the fuel is quickly replacing coal.

Bob Beard, chief executive officer of UGI Utilities, the state’s largest gas utility pipeline system with more than 12,000 miles of pipeline and 670,000 customers in 45 counties in eastern and central Pennsylvania, described how his company found a creative way of opening new markets for natural gas usage.

UGI’s “Growth Extension Tariff, or “Get Gas” initiative, has drawn national attention for its strategy of connecting the dots among residential and industrial customers who want natural gas, but individually couldn’t afford the cost of bringing a branch from a trunk line to their home or factory.

According to Beard, UGI calculates the cost to pipe an entire area, looks at the distribution of potential customers and does “boots on the ground” marketing to areas that are good prospects for supplying gas.

More than 90 percent of the gas UGI provides is sourced from the Marcellus.

While acknowledging that producers probably wouldn’t agree with him, Beard said, “This is a very good time to be in the natural gas business in Pennsylvania. While the market isn’t as robust as it was a year ago, it’s a real industry” in Pennsylvania.

But as output from the Marcellus and Utica shales becomes known around the world, Tom Murphy, director of Penn State’s Marcellus Center for Outreach and Research, said producers need to pay close attention with what’s happening with shale gas development in other parts of the globe.

He listed other “hot spots” for shale gas development including British Columbia, Argentina, the United Kingdom and Lithuania.

Then there is Russia, which has made a commitment to pipe its vast natural gas supplies into China and northern Asia, but will need large infusions of capital, which it currently can’t access because of sanctions placed on it by Western countries.

Chris Kopczynski, a senior research analyst with Wood Mackenzie, noted that Mexico is becoming a potentially big customer for some U.S.-produced shale gas, mainly from the Permian Basin and Eagle Ford plays in Texas and New Mexico.

While Mexico has an indigenous supply of gas from offshore wells, Kopczynski said, the country’s domestic output won’t be enough for its future demand, given its improving economy.

“Right now, Mexico can’t supply enough gas to meet is demand going forward,” he said.