Wednesday, May 18, 2016

How Fracking brought Abba back to Pittsburgh

What is the most important economic news you will not read elsewhere? For Pittsburgh that is. Check out the ship that might just save Pittsburgh:

The news is that the World's Largest Liquefied Ethylene Carrier is now under construction in China. Check out the impressive Navigator Aurora which now appears to be underway and scheduled to be delivered to its new owner in London later this month. Obscure news mentioned only here, on an obscure and barely read blog? Maybe.  Turns out it might be the single most important news impacting Pittsburgh into the future. The new ship is purpose-built to transport liquefied ethylene gas over the ocean. Ethylene is widely used across the chemical industry and is produced from natural gas, something the US is finding itself in greater and greater surplus.

All should know by now that natural gas prices have collapsed as a result of that growing surplus. Prices of natural gas produced in Pennsylvania has dropped even further below market prices elsewhere in the US.  With that price collapse the employment across Pennsylvania in all things shale has collapsed even further.  Personally I expect that by the time the fall comes, there will be little room left to store the natural gas being produced in the United States, and at least spot prices will enter a unpredictable twilight zone. So things look bad for all those predictions of any local, regional or statewide economic boom powered by shale gas development.

But there is one big hope for natural gas markets in the future.  Last month, the first export of natural gas left the east coast for European customers. Some believe that ever more exports could drive up demand for shale gas, and by backstopping market prices will refuel the shale boom once envisioned. Whether exports will ever be big enough to have the effect some want, and what greater US exports will mean to prices worldwide, is a topic for another day. But if there is any hope for that scenario, ships like the Navigator Aurora will be its catalyst.

Here is the real interesting point. The new ship is not going to be a new free-agent looking for clients in the growing worldwide market for ethane/ethylene. It is being bought under what I presume is a long term contract to bring natural gas solely from the US East Coast to a single ethylene cracker owned by the Borealis company in the Stenungsund, Sweden. I have to believe that the investment in the ship and plans for supplying the cracker plant in Stenuncsund would all not have gone forward if there were not some very long term contracts in place to supply what is probably Marcellus Shale-produced natural gas for export.  So yes, the land of Abba (that would be the Styx of Scandinavia for the record) is likely to be a bigger consumer of shale-gas than Pittsburgh (writ large) is for some years to come.

Yes, maybe, maybe, in a decade at a minimum, a similar ethylene cracker might start up in Beaver County, but for a long time there at least there will be fare more ethane being consumed in Sweeden than. The extensive agglomeration of chemical industries around Stenungsund may already be greater than what remains of what once once a far more extensive chemical industry cluster in Pittsburgh.  Even if the Beaver County plant proceeds at full steam, it will be decades before there Pittsburgh rebuilds anything like the cluster of chemical industries there. Will natural gas and ethane markets in a quarter century resemble anything like what they are today? I wonder.

But the ironic punch line of it all.  Even as shale-gas induced employment in Pennsylvania collapses, there are certainly jobs at shipyards in Shanghai, ship brokers in London, and blue collar workers across Scandinavia looking to benefit far more over the coming decade or longer from the shale boom around us. I read something about the world being flat and all.


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