Friday, October 07, 2011

The more things change - energy edition

Some have asked whether I agree with the story earlier in the week on the size of the energy industry in the region.  I have not read it in detail, but without getting into any specific numbers sure I do.  Energy has long been a huge part of the regional economy.  One can argue energy is what we really always were good at.  Without the coal, there would have been no steel and so forth and so on.  But it goes far beyond that if you connect the dots as I wrote years ago in Energy Burgh

The funny thing is that when I wrote that I really had folks Downtown laugh at me.  It was the past was the message, not the future.  For much a decade, other than some interest in 'clean coal', energy was not a focus of development. It was all talk of 'high tech' (pick your definition), biotech in particular, 'advanced' manufacuring (I'm not sure there is anything other than 'advanced' manufacturing still surviving these days) and until the bankruptcies of USAirways, air transportation. Remember when air transportation was going to 'replace steel' which was as stilly a concept then as it is now. Talk of energy was 'quaint' as literally put to me.  That general apathy was the main reason I felt compelled to write that piece.

The irony is that if you go back and look at the date of the oped.. 2005.  That must have been awfully close to the time some meeting somewhere was going on starting with "you know, we can get natural gas out of the shale in Pennsylvania".  Funny how disruptive things work.  Just wait until the 'greater' Pittsburgh geothermal industry kicks in which will likely all center on fracking as well and found with Google's help. Nothing happens on it's own. It's all interconnected.

I didn't notice that there is recent news on the WV geothermal front. Involving Pittsburgh even.  It all gives the term "Fracking Water" a whole new life.

One thing I mentioned in that article which didn't plan out was the whole fuel cell project that did not pan out.  At the time it was the biggest thing on the horizon.  The fuel cells Siemens was working on were to be powered by natural gas for the most part. Even in failure, the fuel cell story is a lot more important than it may ever seem.  Pittsburgh beat out intense competition for the fuel cell investment from locations in Florida, but more intense competition from Ross Perot who was pushing for the site to go to Texas and clearly put more money on the table at the time. Yet sheer money didn't win in that decision which says a lot.  In the end the market could not quite support what they were trying to do and they could not quite get their manufacturing costs low enough to make the product, mostly intermediate sized stationary fuel cells, viable.  In some counterfactual world, if the decline in natural gas prices had come a bit earlier, maybe we could have added a growing fuel cell industry to the region as well.  Think what the regional 'energy story' would have been.  Alas.

The site that was to be the fuel cell manufacuting operation? Taken over by US Steel for research.  Again, the more things change......

So is the local energy industry all or even mostly shale gas. Clearly no.  Is the increase in jobs or output reported in the story all shale related.  Probably not either. Check out the story on the gubenatorial election in WV decided this week.  In it is this quote:
But the rising price of coal has boosted the state's economy, giving it a lower unemployment rate than the nation at large and allowing Mr. Tomblin to boast of a state budget surplus in contrast to the fiscal straits of some of its neighbors.
So when you really push out beyond the MSA, and certainly into the 32 counties some focus on these days, coal is still the presence defining the economy, especially when you are talking sheer number of jobs.


Anonymous BrianTH said...

Coal may still be the papa bear at the moment, but unlike natural gas it is under serious threat from emissions-related concerns (to the point people are now arguing that many uses of coal are actually a net negative for the economy, and that is before factoring in CO2). Accordingly, figuring out how to switch not just local financial capital but local human capital from coal to natural gas is likely a worthy endeavor.

Incidentally, I'd suggest the petrochemical angle--which I still find to be interestingly underdiscussed--may well replace fuel cells and then some.

Friday, October 07, 2011 9:59:00 AM  
Anonymous The Wiz said...

Chris; since you were close to fuel cell industry, what do you think the chances of a revival in fuel cell research now that nat gas is so cheap and looks to stay that way. I had been following Plug Power, another fuel cell company, hoping it would come about.

Imagine a fuel cell on every block running the entire block and also supplying heat and hot water. And no ugly powerlines or poles anywhere. Such distributed power generation would a game changer.

Friday, October 07, 2011 5:30:00 PM  
Blogger C. Briem said...

Optimistically that idea of Wiz's would be several decades in the future at the earliest. By which time virtually all of the Marcellus gas will be gone. Maybe we should cease all drilling now to keep the Pennsylvania shale gas as kind of a strategic reserve for when demand and prices do actually go up? Wiz?

Does not seem to make any sense developing so much so fast as prices keep dropping? Can any one really explain that. Energy markets can prove to be irrational, but this seems worse than most examples.

If an Alberta clipper does not roll in soon, with the heat wave over the next few days in much of the US you have to wonder what spot gas prices will be by the end of next week even. Long term price projections are dropping.

Someone should calculate the difference in royalty payments to be collected by Pennsylvania residents at various gas price levels.

Saturday, October 08, 2011 7:51:00 AM  
Anonymous The Wiz said...

Hey boss, Sorry for reporting in late but I was riding my mountain bike all over Venango Co all day. Hope everyone shut off the boob tube and got outside.

Are you saying that fuel cells are decades away? I thought they were ready for prime time years ago...or was that just corporate spin? Seems I saw that they were very near competitive until natgas prices soared.

As for the mad rush..that is typical of the industry. The oil boom/bust cycle is famous. Or infamous, I'm not sure which.

Right now, companies are in a mad rush to tie up as much land as possible. And they have to drill before all those leases that they paid billions for expire. Thus they will overproduce for some time.

And it gets even worse when new areas like the Utica show up. Now they have several million more acres to lease and drill to HBP, thus more price pressure.

And due to public stock rules, there is added incentive to lease and hold acreage. When a publicly traded company states they have XXX acres under lease, they will value that acreage anywhere from $20,000/acre to $30,000/acre, which causes a big bump in company valuation which causes a big bump in stock prices which causes big bonuses for the big kahunas.

Sunday, October 09, 2011 10:32:00 PM  
Blogger C. Briem said...

Thus they will overproduce for some time.

Such rational policies we have encouraging near term exhaustion of such vital resources.

How low do you expect natural gas prices to go? You do realize this will also cause all sorts of flucations in corporate books. You only get to count recoverable assets I thought.. or at least that is the way it used to be. So as price drops, some assets become unrecoverable at market prices. You have to wonder abotut Chesapeakes investor presentations saying they are valued at 'zero' becuase their book is supposedly higher than market cap or soemthing like that. Does market know something their accountants do not?

Anyway... u should give the 2nd shift the right to post comments.

Monday, October 10, 2011 9:38:00 AM  
Anonymous The Wiz said...

Really curious about the fuel cells. Plug Power said they had demo models in the field. I was monitoring them to see if I could use them in a housing development, before the housing market collapsed. Thought it would be a great marketing tool generating free publicity to have a couple of fuel cells supplying electricity, heat, and hot water without any power lines.

Monday, October 10, 2011 2:36:00 PM  
Blogger C. Briem said...

"Plug Power"?? Looks like a place that had all of $2-3 million in revenues a quarter. So a smaller scale operation than say a single Marcellus well give or take? Not sure how that is going to revolutionize the world anytime soon. Way down the road who knows?

Must be better examples than that. Situation is worse than I thought if that is the cutting edge of fuel cell world these days.

Monday, October 10, 2011 2:46:00 PM  

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