Pennsylvania has been undergoing a major economic shift over the past decade because of the Marcellus Shale. Though the state was the birthplace of the U.S. oil and gas industry, production out of the region fell throughout much of the past century until the shale revolution took hold and unlocked one of the largest natural gas plays in the world, if not the largest.

The development of this play has helped create new jobs and provided economic advantages in the commonwealth, including its largest city—Philadelphia. However, the city has lagged behind other parts of the U.S. in terms of job growth.

Ironically, manufacturing was one of the industries that experienced the largest declines in the city even in the midst of the shale gale that helped grow this sector nationally. According to a 2015 report from the Pews Trust, there was a 34% employment decline in the sector in the city between 2004 and 2014.

Energy jobs had also been leaving the Philadelphia region, with the 2011 closure of the Marcus Hook oil refinery by Sunoco Logistics Partners LP highlighting this exodus. However, shortly after ceasing operations at the refinery, the company announced it would reopen and spend $2.5 billion to convert the facility to handle NGL production from the Marcellus and Utica shales.

The company has been developing the Marcus Hook Industrial Complex into a premier NGL hub with the capability to receive volumes via marine, pipeline, truck and rail, and store up to 3 million barrels of NGL in underground caverns. The hub is also home to the Mariner East and Mariner West projects, to provide multiple transportation and export options for liquids produced in the Appalachian Basin.

Mariner East will transport NGL production from the Marcellus and Utica via pipeline to Marcus Hook and other destinations in eastern Pennsylvania; Mariner West allows for the transportation of ethane to Michigan and Canada. The Marcus Hook complex also includes an ethane and propane export terminal, which provides Marcellus and Utica producers with access to foreign markets.

Leaders in the region hope that the repurposing of Marcus Hook is a first step toward creating an energy hub in the greater Philadelphia area. “Presently, incremental Marcellus production is transported by interstate pipelines to the Gulf Coast in severe price competition with regional Gulf gas supplies, forcing a downward price/value spiral for Marcellus gas. However, if a new and substantial market for natural gas and NGL could be developed, the rate of monetization of the reserves could bring an amazing influx of economic activity to Pennsylvania, New Jersey and Delaware,” the Greater Philadelphia Energy Action Team said in a new report it published titled, “A Pipeline for Growth: Fueling Economic Revitalization with Marcellus and Utica Shale Gas.”

The Greater Philadelphia Energy Action Team (GPEAT) is a group of more than 80 business, public sector, labor and academic leaders assembled by the Greater Philadelphia Chamber of Commerce, the CEO Council of Growth and Select Greater Philadelphia.

The report touts Philadelphia as uniquely positioned to serve as an East Coast hub because of its close proximity to producing fields and the major consuming regions in the country, as well to the East Coast refining capacity. Additionally, the city has access to multimodal forms of transportation including highway, deep-water access to North Atlantic sea lanes, a world-class airport, excellent rail infrastructure and pipelines. One market that Philadelphia is unlikely to touch in the coming years is LNG exports due to high population density and competition from other regions with newly constructed LNG terminals.

While LNG exports from the region are unlikely, at least in the near-term, LNG can still play a significant part in the development of a Philadelphia energy hub. There are already two LNG facilities in the region used by the Philadelphia Gas Works and PECO utilities to provide peak-shaving services in winter. These facilities, along with newer small to mid-sized facilities, can be used to provide fuel to truck and bus fleets as well as marine transport. Such facilities can be built in modular scalable units at relatively low cost and provide market flexibility.

The report also encouraged the states to expand funding to the U.S. Department of Energy’s Clean Cities Program and their natural gas vehicle grant programs to speed up the conversion of fleets to natural gas vehicles.

Downstream Markets Needed

One of the largest barriers to the development of such a hub is the need for additional downstream market demand. This will require a further buildout of new infrastructure, including natural gas pipelines. The report said that the current siting process for new pipelines can act as an impediment to investment in manufacturing facilities.

“There needs to be a focus on attracting energy-intensive manufacturing industries like chemical, petrochemical and energy-intensive manufacturing to develop the downstream demand. If state governments can focus their efforts on building a demand center in the tristate region, then the upstream markets in the Marcellus-Utica regions could increase output, midstream buildout could be accelerated, and downstream energy-intensive manufacturing companies could locate in the tri-state area and stimulate the economy,” the report said.

In fact, some of these companies that would locate in the region could be those that previously relocated their operations overseas as more petrochemical producers are reviewing the possibility of re-shoring operations in the U.S. to take advantage of low-cost gas and liquids production.

In order to make Philadelphia an attractive investment for manufacturing facilities, GPEAT said that pipeline development should be encouraged by both speeding up the siting processes in place and incenting the development of major, high capacity pipelines to the region, as well as storage and distribution from the area. If some of these efforts are realized, Philadelphia could play an important role in U.S. energy markets for decades even if its hub were only a fraction of the size of hubs along the Gulf Coast.

Frank Nieto can be reached at fnieto@hartenergy.com.