Sunday, December 06, 2009

Digging for Tulips?

Most readers here will find these stories themselves of course, but make sure to note that Elwin in the PG has one of the longer media looks at the whole Marellus Shale story.  Don't miss the complementary piece by Mr. Migration (that's Toland not me ok) with some early looks at what it all may mean to oil worker migration into Pennsylvania.

One fun story that really relates.  (yeah, I'm an exciting guy at parties).  What is the link to Marcellus exploration and the labor force?  An awful lot.  Drilling of any kind is a specialized skill and even for Pennsylvania which has a long history in oil drilling it's not the largest workforce here or elsewhere.  A story I really do use whenever I teach the subject is about what happened in Northeast Pennsylvania some years ago.   People don't realize we are in a minor earthquake area.  There was minor quake along the PA-OH border in 1998 was not a public safety issue at all, but it dropped the water table in a big enough area to be an issue.   Not a big big problem, but a fair number of folks had to redrill their wells or sink them farther.  Problem was that there really were not enough well drillers.  For water or gas or oil or whatever, there just were not enough trained folks out there to meet the surge in demand.  So there were a brief flurry of stories of well drillers being brought out of retirement to help out and get people back their water.   At some point those retirees are not an available ready-source of labor supply and any new demand for workers will have to come from elsewhere.  That seems to be what is happening at least to a degree.

So read Toland's story on a few folks he has found here who have moved here as part of the Marcellus binge of late.  It is a story that has been playing out a bit elsewhere in the state. It gets to a really important point that almost everyone ignores (Jim R. excepted for sure) that if you don't talk about migration when talking about any workforce, worker development or human capital issue you are missing the most important issue by far...  at least when it comes to short and medium term impact on the labor supply. Education and training have unavoidably longer term impacts on labor supply and by the time you really figure out what you should be training people to do... the world changes.    But as I will go into in a second, the new oil workers are not a tsunami of people by any means. 

So back to the Marellus issue at hand.  While I am as intrigued as anyone on the potentials of Marcellus shale natural gas exploration and development across Pennsylvania, at this point I really have this tulip feeling about where it is all going. How goes the saying?  Even good stocks can be overpriced?  Even if it is as successful as some are projecting, there is this little issue that natural gas prices are collapsing, international supply and more importantly supply networks are expanding, which has this little impact on the supply curve and prices.  We are a long way from natural gas powered cars inducing a disruptive level of demand. That and our hills makes it difficult for there to be too much natural gas conversion of local autos, trucks and buses.  There is an issue with power in NatGas engines that makes them impractical for a lot of our topography.  I am kind of hoping the developments in NatGas prices induce new investment in a local fuel cell industry... but not too many folks talking about that yet. 

Don't get be wrong. It's just the scale of hype that is getting a bit carried away.  I myself wrote years ago, long before any of the energy price induced frenzy on the cluster potential of Energy Burgh and before that on the new potential of our coal economy back when all anyone here really would talk about here was bio-this or robo-that.   I noticed the Schlumberger Thumper Truck tooling though PA a couple years ago and commented here on its significance.  Going way farther back, one of the first things I wrote for a newsletter we put out is all on local Natural Gas prices and a bit on how they impact the region.  It is fascinating re-reading that in that there was no discussion at all of Marellus Shale or anything new in the local production of NatGas.. I did note that natural gas prices were higher here for most uses than elsewhere in the US.  This is the graphic I used in 2002, so probably reflecting the system a decade ago for the most part.  But note which way the arrows all flowed and imagine what would change if we really boosted local production.

How new production will affect our relative prices in natural gas is really the big story that could develop from all this development. If we can just achieve parity in natural as prices it will be an improvement in our competitive position.  Natural Gas is not the easiest to distribute.  I know just enough on the expanding seaborne distribution of natural gas to appreciate that.  But even landward distribution across the nation isn't the easiest and location matters to pricing.  If we do boost local supply it really should translate to lower local prices which would be good for a number of industries.  We still have a number of energy intensive local industries.

So again.  Back to the tulips.   Economics really does matter and the low low prices of natural gas are beginning to have an impacton this development. Natgas explaration and expansion is going on across the globe.   Some Marcellus developments have already at least been put on hiatus I hear more will be going the same way if prices remain where they are right now which are multi year lows.  There has been palpable workforce issues across the state when it comes to migration, but one thing to keep in mind is that in the big picture is that overall mining employment in the state is up a bit, but not quite a surge.  A couple reasons for that.  Some of these exploration workers are probably not really Pennsylvania workers technially.  Many folks up from Texas or wherever are showing up as workers elsewhere. I am not sure our development has reached the point where the exploration has translated to permanent local jobs in huge numbers.  And even if there are new Marcellus related jobs... King Coal is hurting here as coal prices for Northern Appalachian coal have plummeted .  
But at the end of the day...  the Dutch could never use those Tulips to heat their homes.   The Dutch actually use LPG to run a lot of their cars these days.


Anonymous Anonymous said...

You might want to look into some of the tax incentives and loopholes given to the gas industry in the Energy Policy Act of 2005. They might be the carrot that is driving all of this exploration into "unconventional gas", irrespective of the price of the commodity. From my understanding of the incentives, they are time limited, so the rush is on-- not so much for the gas, but for using the "gifts" from the government before they expire.

Monday, December 07, 2009 2:27:00 PM  
Blogger EdHeath said...

Interesting post. One thought on natural gas vehicles, you indicate they have problems with hills. Perhaps either a turbine or a hybrid co-engine might be the answer for that problem. I would assume any hybrids produced new these days would be a plug in hybrid, further extending the range and power of a natural gas hybrid. Someone tell GM to work on the next generation Volt, powered by natural gas.

Tuesday, December 08, 2009 1:11:00 PM  
Anonymous johnnyg said...

As a car junkie, I must dispute your claim that NGV vehicles can't handle hills. The 2009 Honda GX NGV--the only commercially produced natural gas vehicle you and I can buy at a dealership--has 113 horsepower and 109 lb-ft of torque, compared to 140 hp and 128 lb-ft for a similar displacement gasoline-powered Civic. Granted, that is a drop-off. But, that is more horsepower and torque that my current 2000 Honda Civic (110 hp and 103 lb-ft from a 1.6L engine). I have no problem keeping up with traffic even on the highest Laurel Highland passes, or for that matter driving through Colorado a couple of years ago. Mated to a proper transmission, NGV vehicles would be fine on our hills.

Tuesday, December 08, 2009 10:52:00 PM  
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