Pennsylvania has been undergoing a major economic shift over the past decade because of the unconventional Appalachian shale plays. Though the state was the birthplace of the U.S. oil and gas industry just before the start of the Civil War, production from the region fell throughout much of the past century until the shale revolution took hold and unlocked one of—if not the largest— natural gas plays in the world.

Appalachian shale development has helped create new jobs and provided economic advantages in the commonwealth, including its largest city—Philadelphia. However, the city has lagged behind other parts of the U.S. in job growth.

Ironically, manufacturing was one of the city’s industries that experienced the largest declines even in the midst of the shale gale that helped grow this sector nationally. According to a 2015 report from the Pew Charitable Trusts, there was a 34% employment decline in the manufacturing sector between 2004 and 2014.

Job losses

Energy jobs had also been leaving the Philadelphia region during this time with Sunoco Logistics Partners LP’s 2011 closure of the Marcus Hook oil refinery the highlight of this exit. However, shortly after ceasing operations at the refinery, the company announced it would reopen and spend $2.5 billion to convert the facility to handle NGL production from the Marcellus and Utica shales.

The company has been developing the Marcus Hook Industrial Complex into a premier NGL hub with the capability to receive volumes via marine, pipeline, truck and rail and store up to 3 million barrels of NGL in an underground cavern. The hub is also home to the Mariner East and West pipeline projects that provide multiple transportation and export options for liquids produced in the Appalachian Basin.

Mariner East transports NGL production from the Marcellus and Utica via pipeline to Marcus Hook and other destinations in eastern Pennsylvania. Mariner West allows for the transportation of ethane to Michigan and Ontario in Canada.

It’s unclear what impact the recently announced agreement by Sunoco Logistics to acquire Energy Transfer Partners LP will have on Philadelphia— Sunoco’s home town. Elvira Scotto, an analyst at RBC Capital Markets LLC, said Sunoco’s acquisition creates a simpler structure for the MLPs that will improve cost of capital, which should allow the combination to complete its various projects with improved economics.

European exports

The Marcus Hook complex also ncludes an ethane and propane export terminal, which provides Marcellus and Utica producers with access to foreign markets. INEOS, the European petrochemical giant, began exports of propane and ethane to its petrochemical plants in northern Europe earlier this year using special, newly built tankers designed to handle liquefied ethane.

It is hoped that the repurposing of Marcus Hook is a first step to creating an energy hub in the greater Philadelphia area. Another important move came with the reopening of the Trainer refinery by Monroe Energy LLC, a unit of Delta Air Lines. The plant, which first began operation in the late 1800s, was closed by Phillips 66 Co. in 2011. Delta—a major jet fuel customer—purchased the plant and restarted operations in late 2012.

“Presently, incremental Marcellus production is transported by interstate pipelines to the Gulf Coast in severe price competition with regional gas. However, if a new and substantial market for natural gas and NGL could be developed, the rate of monetization of the reserves could bring an amazing influx of economic activity to Pennsylvania, New Jersey and Delaware,” the Greater Philadelphia Energy Action Team (GPEAT) said in a recent report titled, “A Pipeline for Growth: Fueling Economic Revitalization with Marcellus and Utica Shale Gas.”

GPEAT is a group of more than 80 business, public sector, labor and academic leaders assembled by the Greater Philadelphia Chamber of Commerce, the CEO Council of Growth and Select Greater Philadelphia.

According to the report, Philadelphia is uniquely positioned to serve as an East Coast hub because of its proximity to producing fields and major consuming regions, as well as to East Coast refining capacity. Additionally, the city has access to multi-modal forms of transportation including highway, deepwater access o North Atlantic sea lanes, a worldclass airport, excellent rail infrastructure and pipelines. One market that Philadelphia is unlikely to touch in the coming years is LNG exports due to its high population density and competition >from other regions with newly constructed LNG terminals.

While LNG exports from the region are unlikely, at least in the near term, LNG can still play a significant part in the development of a Philadelphia energy hub. There are already two LNG facilities in the region used by the Philadelphia Gas Works and PECO utilities to provide peak-shaving services in winter. These facilities, along with newer, small- to midsized facilities, can be used to provide fuel to truck and bus fleets as well as marine transport. Such facilities can be built in modular scalable units at relatively low cost and provide market flexibility.

The report also encouraged the states to expand funding to the U.S. Department of Energy’s Clean Cities Program and their natural gas vehicle grant programs to speed up the conversion of fleets to natural gas vehicles.

Downstream markets

One of the largest barriers to the development of such a Philadelphia hub is the need for additional downstream market demand. This will require a further build-out of new infrastructure, including natural gas pipelines. The report said that the current siting process for new pipelines can impede investment in manufacturing facilities.

“There needs to be a focus on attracting energy-intensive manufacturing industries like chemical, petrochemical and energy-intensive manufacturing to develop the downstream demand. If state governments can focus their efforts on building a demand center in the tristate region, then the upstream markets in the Marcellus-Utica regions could increase output, midstream build-out could be accelerated, and downstream energy-intensive manufacturing companies could locate in the tristate area and stimulate the economy,” the report said.

In fact, some companies that previously relocated their operations overseas may return to the area as more petrochemical producers review the possibility of re-shoring operations in the U.S. to take advantage of low cost gas and< liquids production.

In order to make Philadelphia an attractive investment for manufacturing facilities, GPEAT said that pipeline development should be encouraged by both speeding up the siting processes in place and incentivizing the development of major, high-capacity pipelines to the region, as well as storage and distribution from the area.

If some of these efforts are realized, Philadelphia could play an important role in U.S. energy markets for decades, even if its hub were only a fraction of the size of hubs along the Gulf Coast.

Comments