Throughout the latter part of the past decade, most people in north central WV and southwestern PA had never heard of Marcellus or Utica. Fast forward ten years, Marcellus and Utica have become household names. How did it all happen? What changes in the energy field have we experienced in the past decade? Where are things heading in the future? What challenges must we overcome in order to maximize natural gas’s potential? This article drills down (pun intended) into Mid-Atlantic’s next energy powerhouse.
During the first wave of oil and gas energy expansion, which started in 2008 and began declining in 2013-2014, drillers were using key geological metrics to “explore” Marcellus and Utica shale plays. In the early years, positive results led to increased drilling activity. Other companies took notice. Before we knew it, north central WV and southwestern PA had a natural gas and oil boom occurring in its backyard. Heavy drilling activity led to many service providers flocking to the area to secure profitable service contracts. Service contract work includes all aspects of servicing a well, from start to finish, such as engineering, excavation, fracking, pressure control, water hauling, valve repair/monitoring, amongst many others. Thousands moved to the area. Many of the workers were brought in from out-of-state because, our local workforce did not have the experience and expertise these companies needed. Many of these workers stayed in local hotels/houses, ate at our restaurants/taverns and shopped in our malls and retail outlets. Some businesses experienced exponential growth during this period. As drilling activity continued to increase, OPEC nations flooded the global energy market. Saturation led to quickly declining commodity pricing. Once the commodity pricing dipped to a level close to or at “break even”, it no longer made economic sense for drillers to drill. Over a period of a couple years, drillers slowed or completely halted drilling plans. Why? Supply outpaced the market. Additionally, infrastructure, via pipelines, was not in place to efficiently transfer the gas to larger markets.
For 24-36 months thereafter, Marcellus and Utica activity slowed dramatically. Market saturation, which lead to depressed commodity pricing, were the primary culprits for the lull in drilling activity. Most O&G drillers capped their wells and halted production. The industry retracted and many companies went out of business or were absorbed. Major producers developed strategies to control growth and mitigate risk. Many out of state service providers, who had moved to the region to capitalize on lucrative contracts, struggled to justify having a location within the Marcellus and Utica. Many witnessed numerous businesses vacate in the middle of the night or file for bankruptcy protection against creditors. In turn, this tailspin left some landlords in precarious positions with a tough decision of whether to “throw good money at bad money” in the way of hiring a real estate attorney to file suit or simply move on by looking for another tenant. At Black Diamond Realty, we saw industrial real estate demand and office demand, albeit to a lesser extent, decrease dramatically.
What has changed? Has there been a resurgence? Many have considered natural gas the cleaner wave of the future. For decades, numerous challenges, which included regulatory, economic and intellectual constraints, existed making extraction and transmission difficult. The story is changing. North central WV and southwestern PA are in the midst of a second wave of oil and gas expansion. Unemployment rates are near record lows and wages are rising. Hotel occupancy and ADR are sharply on the rise. Restaurants are enjoying a resurgence in top line revenue. All of this is the trickle-down effect sparked by a growing energy industry.
There are three major economic drivers which are in various stages of planning, construction and implementation. The first demand driver is natural gas pipelines. Pipelines provide the infrastructure needed to deliver the natural gas to primary and secondary markets. Simply put, northern West Virginia and southwestern PA are collectively sitting on more natural gas than the 250-mile region could ever feasibly consume. Several, large-scale projects are in process which will forever change the landscape and natural gas economics.
The Atlantic Coast Pipeline (ACP) project, stretching 600 miles from Bridgeport, WV through Chesapeake, VA and ending in Robeson County, NC, is currently under construction. According to Atlantic Coast Pipeline, “The infrastructure project will generate $377 million a year in energy cost savings, $28 million a year in new local tax revenue, 17,240 new jobs in the construction industry and 2,200 new jobs in manufacturing and other new industries.” Another major pipeline is called the Mountain Valley Pipeline (MVP). The Mountain Valley Pipeline, stretching 303 miles from northwestern West Virginia to southern Virginia, will be up to 42” in diameter and will have a 50 foot easement (post-construction). There will be three compressor stations along the route which include locations in Wetzel, Braxton and Fayette Counties in WV. Both pipeline projects have faced several regulatory hurdles, including federal injunctions to halt construction, but many are optimistic the challenges will be overcome. Many other pipeline projects are in the planning, construction and implementation phases. ACP and MVP are just the tip of the iceberg. According to MarcellusDrilling.com, “There is more than $23 billion in planned pipeline investment to build more than 3,200 miles of pipelines – for the Marcellus/Utica region. If you add these 15 projects together (see chart), they will move another 17 billion cubic feet of Marcellus and Utica natural gas and 345,000 barrels of natural gas liquids (NGL) per day.” Marcellus Drilling has provided a chart showing pipeline projects in various phases of the planning and implementation process. See below.
The second demand driver is natural gas fired power plants. Coal provides about one third of the United States’ electricity. Tides are turning with an abundance of gas available within the Marcellus and Utica Shale plays. On November 1, 2018, Sara Welch of Shale Gas Reporter, wrote an outstanding article (View Article Here) which forecasts natural gas powered plant production. A few key takeaways can be found in the following statements, “Over the next several years, 26 combined-cycle gas-tubing power plant projects are planned for Pennsylvania, West Virginia and Ohio. Pennsylvania will house the most with 15 to be built, contributing 14,730 MW of capacity. Ohio will be home to eight projects that would add 7,695 MW of capacity. Lastly, West Virginia is slated for three gas-fired power projects that would add more than 2,000 MW of capacity.” Ms. Welch went on to translate how the electric power generation will translate into natural gas consumption: “The proposed power generation in the Appalachian Basin is expected to come on line by 2020, adding about 1.16 Bcf/d of gas demand.”
The third demand driver, which also poses the greatest downstream opportunity, is cracker plants. Why? Think chemistry. Cracker plants have sophisticated equipment in which the “cracker” takes ethane, a component of natural gas and breaks it down into ethylene. Extreme heat is used during the process to break apart the molecular bonds holding it together. Ethylene is the root chemical for plastics, resins, adhesives and synthetic products used in every aspect of modern life. Our society depends on this natural gas extraction process in order to enjoy many of the end products and daily conveniences, such as plastic containers, shirts, and plastic bags. Cracker plants and large industrial facilities are necessary to make this happen. One is already in the construction phase. According to MarcellusDrilling.com, “Shell Chemical Appalachia LLC broke ground in 2017 on the $6 billion complex in Monaca, PA, about 30 miles northwest of Pittsburgh. It is Shell’s first petrochemical plant built outside the Gulf Coast in decades.” Two additional cracker plants are in various planning stages. The two other potential cracker plant locations are Belmont County, OH and Wood County, WV.
To fully capitalize on the O&G boom and recognize significant downstream economic opportunities, this region needs to overcome three primary challenges. The challenges listed below can be overcome via collaboration and cooperation amongst various public and private sectors.
Black Diamond Realty continues to work to resolve some of the commercial real estate challenges. John Denver wrote a popular song, Country Roads, in which “mountain mama” is an internationally recognizable phrase. Our landscaping is picturesque. Our mountains are breathtaking. Both also create challenging topography. Moving dirt and expanding utilities requires significant capital which ultimately drives up land costs. Many Marcellus & Utica end-users (drillers, service providers) need large tracts of land for laydown yards, industrial buildings and eventually, as a downstream opportunity, manufacturing operations such as the plastics industry. Industrial land is typically on the lower end of the commercial real estate value spectrum. Industrial acreage in north central WV, on average, ranges in value from $75,000/acre to $225,000/acre. Our mountain-filled region provides us with natural beauty and scenic enjoyment, but it also creates a reality in which there are few opportunities to secure large tracts of land at reasonable pricing.
We would like to explore two cases that include many stakeholders, mixed with private investment, that resulted in positive outcomes for the community and business. Both assets are currently being marketed by Black Diamond Realty. Please spend a few minutes reviewing our detailed marketing flyer.
In 1910, Michael J. Owens opened Owens Bottle Works on a 40 acre site in Fairmont, WV. During its peak, Owens Illinois employed over 1,000 people and produced 180,000 bottles a day. The site was operational from 1919-1982. After closing its doors in the early 1980s, the site sat vacant for roughly 35 years. A local entrepreneur and developer, Tom Laurita, purchased the asset with the intent of revitalizing Fairmont’s east side. Mr. Laurita and his team, including Russell Bolyard, worked tirelessly and diligently with numerous federal, state, county and local agencies including WVDEP, City of Fairmont, amongst others. Over a two year period, a plan was formulated then implemented to remediate and convert the brownfield site into a thriving business park. Soil remediation, FEMA considerations and stream preservation were key factors in revitalizing this site. For their efforts, Merit Development received 2016 Brownfield West Virginia Environmental Impact Award. Today, infrastructure improvements are well underway and steel is rising from the once motionless dirt. Boasting 40 acres less than one mile from I-79, Exit 137, Speedway Business Park has three new tenants with a fourth building under roof. Explore this project via our detailed marketing flyer. Click HERE to view.
Source: Merit Development’s Development Conference Powerpoint slides.
Formerly 825 acres of farmland near the Monongahela River, today’s Morgantown Industrial Park started to take shape in December 1940. In November 1941, the property was dubbed “Morgantown Ordinance Works” with a purpose of supporting the United States war efforts in World War II. A plant was built to produce ammonia for army ammunition. At its peak, the plant had more than 1,400 employees and produced about 18,700 tons of ammonia monthly. Alcohol, hexamine and formaldehyde were also produced in the plant. Near the end of World War II, operations ceased. Morgantown Ordinance Works, owned by J.W. Ruby, took over the property and turned it into an industrial park.
Fast forward several decades, and local entrepreneurs, Kevin and Glenn Adrian, purchased the park under Enrout Properties LLC. They were attracted to the investment opportunity partially because of its tremendous access (truck, rail, river and barge) plus abundance of developable land. The Adrians worked with state, county and local officials to create a tax increment financing (TIF) district. According to Wikipedia, “TIF is a public financing method that is used as a subsidy for redevelopment, infrastructure and other community-improvement projects.” Establishing a TIF in the industrial park allowed the Adrians to invest significant capital into excavation, site stabilization and infrastructure with the purpose of creating large industrial pads which are rare in north central WV. In addition to TIF, the Adrians have worked with federal and state agencies to mitigate brownfield areas within the park.
Today, Morgantown Industrial Park boasts 20+ diverse businesses that offer a range of industrial services and products. On November 1, 2018, Dominion Post quantified the park’s success with the following TIF update: “Established in 2008 with a base amount of approximately $39 million, the district was last assessed at about $79 million.” The Adrians set out to further the legacy of 825 riverfront acres in Monongalia County. Statistics show they have been very successful in overcoming challenges and capitalizing on industrial demand growth. They are far from done. Dirt is currently being moved to create two 6+ acre sites and by mid-2019. The park will add over 30 acres of additional industrial sites including one site which will provide 20+ flat acres. It doesn’t stop there. Currently, the Adrian’s are working with the appropriate county and state organization looking to improve interstate access to the park which would provide over 100 acres of additional industrial sites. The Morgantown Industrial Park understands the potential downstream impact that the oil and gas boom could have on North Central WV. They plan to be ready with sites and infrastructure to support that growth. Explore this project via our detailed marketing flyer. Click HERE to view.
Source: http://www.uppermon.org/news/dominion%20post/DP-MIP-22Aug11.html, http://wajr.com/monongalia-county-commission-receives-good-news-on-tif-districts/
Coal will, most likely, always be a source of energy in the United States. It is virtually impossible to completely eliminate it as an energy source. However, coal’s days of being the “black diamond” of West Virginia, are fading. Marcellus and Utica have taken center stage.
Above Chart Source: www.eia.gov/outlooks/aeo/
Article By: David Lorenze