Ohio Valley Lures Manufacturers With Rock-Bottom Natural Gas PricesJuly 26, 2016
A group of business leaders in a small corner of Ohio and West Virginia are laying down a big claim: They have the cheapest natural gas in the industrialized world.
This part of Appalachia has become the country’s driver of gas production as improved drilling techniques have cracked gas-rich shale formations. The Ohio Valley from Pittsburgh to Cairo, Ill., has a long industrial heritage, with chemical companies, and oil and gas producers, that have been operating there for decades. A group of them in Marietta, Ohio, and Parkersburg, W.Va. – with a combined population of about 50,000 — aim to tout their low gas prices and industrial heft to energy-hungry businesses from Brazil to Thailand.
Many businesses in those towns and nearby in Pennsylvania buy gas from a hub called Dominion South Point that has become among the cheapest in the country along with a few others above Pennsylvania’s Marcellus Shale. Tuesday’s price there averaged $1.6398 a million British thermal units, a 28% discount to the national benchmark.
That discount has been even larger at some points in recent years as Dominion South has sometimes traded below $1/mmBtu, and not above $2 since March 2015, according to IntercontinentalExchange Inc. Marietta is about only 100 miles from Pennsylvania, so close to the hub it costs just another 40 cents/mmBtu to pipe in the gas, said Wally Kandel, who manages a Solvay polymers plant there.
“We’re back at the center of energy production in the United States, and even the world,” said Jerry James, chief executive at Artex Oil Co., an independent producer based in Marietta. “We’ve got everything that a manufacturer needs.”
Their numbers are more of a rough estimate than gospel. Consumers pay a wide variety of transport costs and tariffs depending on their connections to regional hubs, which themselves have highly volatile prices.
But roughly they are correct, said Amber McCullagh, an analyst at energy consultant Wood Mackenzie in Houston. In North America only parts of Western Canada have similarly low prices, she said. Prices in Europe, Japan and Korea traded around $5/mmBtu earlier this week, just to import liquefied gas; consumers have to pay more to gasify it and ship it in from port, according to S&P Global Platts, a price-reporting agency.
The Ohio Valley businessmen are trying to persuade other manufacturers to build there to take advantage of cheap energy. The shale boom is already bringing big investments into the region.
Royal Dutch Shell PLC said Tuesday it would start building a multibillion-dollar petrochemical plant near Pittsburgh, about 150 miles northeast of Marietta. Shell’s plant will make plastic materials from ethane, another gas coming in waves from shale wells. Ethane has become so cheap during the U.S. drilling boom that U.S. producers are exporting it for the first time.
Shell’s Pennsylvania plant could create 6,000 construction jobs and 600 permanent jobs, “and change the shape of Pennsylvania’s economy,” Pennsylvania Gov. Tom Wolf said.
Analysts expect gas prices to stay relatively cheap in Pennsylvania, Ohio and West Virginia. Many producers can grow output at prices around $2/mmBtu, and some wells are profitable even with prices around $1, according to Wood Mackenzie. They’re growth so far has outpaced new pipelines, keeping supply bottlenecked.
“A region that’s going to need continued (pipeline) development is going to be prone to price collapses,” Ms. McCullagh said. “The Pittsburgh area extending into Ohio is certainly the best place to be in North America” for gas buyers.