Industry Market Trends

Will a Shale Gas Boom in Ohio Revive the State's Manufacturing Fortunes?

Nov 07, 2012

Ohio had been the focus of much attention in the past few months primarily because it was a pivotal swing state in the presidential election that ended last night with President Barack Obama winning both the key battleground and reelection. Now that the race is over, attention is expected to ramp up on the potential natural gas boom in the state, thanks to shale gas exploration, which could produce a dramatic change in Ohio manufacturing, adding desperately needed jobs.

The Ohio House of Representatives' 21st Century Manufacturing Task Force recently held a hearing at a DuPont facility in Circleville, Ohio, in which the CEO of the American Chemistry Council, Cal Dooley, spoke excitedly about shale gas and its opportunities. "Ohio can serve as a model for states planning to reduce energy costs and create a competitive advantage for local manufacturers by expanding natural gas production," Dooley said. "Ohio is uniquely positioned to capitalize on shale gas development that will kick-start its economy, rejuvenate the industrial base and create thousands of jobs."

The are several reasons why Ohio could see a shale gas boom and why the task force was created by state representative Kirk Schuring last year.

Utica shale gas, shown here, could spark a natural gas boom and Ohio manufacturing, producing jobs that have eroded over the past 12 years.

First, Ohio has vast shale gas resources, and it has 43,000 people employed in the chemical industry, which obviously has a vested interest in manufacturing. According to an article by the Akron Beacon-Journal, an American Chemistry Council study found that a new petrochemical plant in Ohio would generate $7.5 billion in chemical industry output in the state, $1 billion in wages, and 17,000 jobs.

Additionally, Ohio has become a favorite of Chesapeake Energy Corp., a major energy player, which has already drilled 134 Utica shale wells in the state. The CEO of Chesapeake Energy, Aubrey McClendon, has said that he's "thrilled" with the progress the company has made in the state. And oil and wet-gas liquids found with natural gas in Ohio are especially lucrative to drillers.

But how will the abundance of natural gas affect chemical companies operating in the state, and will a boom affect prices?

In speaking to Nick La Magna, the sales and marketing director at Royal Chemical, based in Twinsburg, Ohio, he says chemical companies would not be affected that much.

"I think, really, there are only a few (companies) whom a gas boom would affect," La Magna says. "The reality is, though, that the natural gas boom could affect prices by making the U.S. more competitive on a global basis. We're competing with countries all over the world, and with more natural gas resources, we have a much better chance of keeping those manufacturing jobs closer to home."

Royal Chemical, a privately owned custom chemical blender and toll and contract manufacturer, will be affected more by new ethylene crackers being built, La Magna notes. Prices for ethylene, a commodity raw material that is used in plastics, paints, glues and thousands of other items, have soared in the past two years, leading to the building of new plants that are raising capacity.

"The major companies like Shell are building them, and that could definitely lead to jobs," La Magna says. "It's far more profitable to use natural gas than crude oil (to produce ethylene). But I think what you'll see is that (the natural gas boom) may put more money in a company's pockets, but it won't make a big difference in the way they operate."

But others are a bit more bullish on shale gas having positive economic effects in the state, such as a workforce needed to produce the pipeline to transport the gas from wells. Eric Planey, vice president of international business attraction for the Youngstown/Warren Regional Chamber, whose job is to boost investment in the state by companies outside Ohio and the U.S., is quick to point out the work being done by V & M Star.

The company, North America's leading producer of seamless oil country tubular goods, line and standard pipe, coupling stock and mechanical tube, in the past year has announced two major projects in Ohio. Later this year, it will begin operating a new $650-million, 1-million-square-foot steel tubular products mill in Youngstown, creating 350 advanced manufacturing jobs. V & M Star's sister company, VAM USA LLC, a manufacturer of premium pipe connections, announced that it will locate a 200,000-square-foot finishing plant in Youngstown at a cost of $57 million; the project will create 100 jobs.

"The supply chain for natural gas drilling in and of itself is bringing so many jobs in," Planey says, adding that the V & M Star plant has generated 1,500 construction jobs, as well. V & M Star declined comment when reached to discuss the two new manufacturing plants.

Planey is hoping that a rich natural gas supply will incentivize businesses to move to Ohio. "We're trying to find companies to move here for the low cost of natural gas, but really, the overall cost of doing business is low, too. We're fighting with Indiana, Illinois and Michigan because they're all trying to be very competitive and attractive to businesses, so yes, we do have natural gas availability, but we also need to make ourselves as business-friendly as possible, because just having natural gas alone won't bring them here."

Planey says he has talked to chemical companies about whether natural gas will bring down their costs but has not heard any definitive analysis yet. Still, he is extremely confident of the state's prospects due to the timing of the gas boom with the reshoring trend. He expects many of the manufacturing jobs that left Ohio (and the U.S.) will be coming back because labor costs going up elsewhere in the world.

"If you look at the offshore jobs that went away 30 years ago, they left because the cost of labor was so cheap in those other places," Planey says. "Now, the cost of labor is going up, and the cost of shipping has been going up, suddenly it's becoming a better idea for companies to reduce shipping costs by keeping products and jobs here."

It will likely be awhile before we know whether shale gas is the "magic bullet" for Ohio industry. But the fact that companies like V & M Star and others are there building and ramping up is a good sign for both the state and U.S. manufacturing.