Fossil Fuel Boom Is One of Several Trends Leading Ohio River Cities Back To Economic Relevance

Gas drilling, fossil fuel boom, upper Ohio River, rust belt
Gas drilling, fossil fuel boom, upper Ohio River, rust belt
After decades of job loss, income erosion, and industrial obsolescence, the cities and states of the Ohio River valley are leading an economic revival. Here the river flows near New Martinsville, West Virginia. Photo/Heather Rousseau

Thomas Jefferson once said, “The Ohio is the most beautiful river on earth. Its current gentle, waters clear, and bosom smooth and unbroken by rocks and rapids, a single instance only excepted.”

Downriver from Louisville, Kentucky, where the 1,000-mile long Ohio River reaches its widest points, and the mirroring waters slip by miles of unbroken hardwood forests, it’s possible to witness some of the very same beauty that inspired Jefferson.

The Ohio is much in my mind of late. A year ago I spent time in Wellsville, Ohio, south of Pittsburgh, where a West Coast developer proposed a multi-billion dollar industrial plant to convert coal to liquid fuels. Last summer, I spent weeks in Owensboro, Kentucky to report on the mid-sized river city’s authentic work to understand and react surprisingly well to the new market trends of the 21st century. I visited Louisville, one of the largest Ohio River cities, where Mayor Greg Fisher is leading a downtown reconstruction program, and the city just joined with Bruce Katz and the Brookings Institution’s peerless metropolitan research and planning group to foster a new economic strategy for the city and the region.

Change in total number of manufacturing jobs in metropolitan areas, 1954-2002. Maroon=greater than 58% loss Red=43%-56% loss  Pink=31%-43.2% loss Yellow=8.7%-29.1% loss United States average: 8.65% loss.

Last month I was in Sardis, Ohio and New Martinsville, West Virginia to report on the massing industrialization by the energy industry to drill the drill the deep shales on the Ohio side of the river for oil and gas. The Pennsylvania side has been a heavy drilling zone for four years, which is one of the reasons that the February unemployment rate in the Pittsburgh metropolitan region was 6.7 percent. That’s nearly two percentage points below the national average.

Cincinnati is redeveloping its historic Over-the-Rhine neighborhood, fostering the development of state of the art marketing and communications enterprises, and is building a streetcar line.

What a change in direction. For two decades at the end of the 20th century, the cities and states of the upper Ohio River were the pitted and marked buckle of the nation’s rust belt. The map at right illustrates the obsolescence and job loss that separated Cleveland, Pittsburgh, Wheeling and the smaller cities along the upper Ohio from the rest of the nation. Downstream, Cincinnati and Louisville also slipped into a generation or more of disinvestment and downtown decay.

That is no longer the case in Pittsburgh, now a showcase of research and innovation; Louisville, with its beautiful historic neighborhoods and great downtown university that make it one of the sweetest places to live in the country, or Cincinnati, a laboratory of social innovation. Further downriver, the soaring commodity markets for farm products are elevating the moods of Indiana and Illinois river cities. Even the wrecked river towns of Ohio and West Virginia, where steel and chemical plants fell victim to globalization, are finding themselves engulfed by an energy boom that is bringing $billions in new investment in energy processing, production, and transport infrastructure.

The Ohio River has few equals as a metaphor for the nation’s condition or spirit. During days of settlement it was the water highway, used by millions of Americans, to migrate into the Midwest and West. During slavery, it was the last physical barrier that brave men and women crossed to freedom. In the mid-20th century, it generated the energy, made the steel, built the cars, and supported the metropolitan regions that supported America’s drive-through economy of suburban convenience. Its cleanup in the 1980s and 1990s heralded the new era of environmental economics, especially those factors associated with metropolitan redevelopment. And its industrial decay was a foreshadowing of the immense transition and costs of keeping pace with the rest of the world, particularly Asia.

History, as viewed by most Americans, is one or two straight story lines in which a central character working with a select group of leaders makes the right choices and everything is closed so neatly. In reality, history is more like a slow-moving weather system in which people and institutions are often blown about like leaves in a storm. The revival of the Ohio River Valley today tells us something important about the people and river communities finding new paths to well-being, and about the country. Perhaps we are doing more as a nation than we give ourselves credit for, and certainly that appears to be the case in this pummeled American river valley, to understand the influence of  events and the need to establish a more dynamic foundation for making and acting on big ideas.

— Keith Schneider

Kentucky BioProcessing, a high-tech producer of plant-based pharmaceuticals, in Owensboro, Kentucky. Photo/Craig Schneider, Power Creative

North Dakota Oil Boom Like Air Ambulance Flying In Storm

North Dakota drilling rig

The day after Christmas, Scott Terrell, a painter and carpenter from Coeur d’Alene, Idaho turned 58. Never has he felt the weight and wear of his years so acutely. Last August Terrell joined the army of oilfield mercenaries that are rapidly converting great stretches of North Dakota, Montana, South Dakota and Wyoming into the most productive fossil fuel development zone in U.S. history. He quickly landed a job driving a Volvo haul truck on a heavy equipment construction crew that builds the flat-as-a-table, laser-graded oil drilling pads. There is plenty of work. Last year in North Dakota alone, drilling companies punched 2,000 new wells into ground. Terrell (pictured below and who took the shot above) spends 14 hours a day behind the wheel, breathing dust in North Dakota’s hot summers, and pulling up his collar against the fierce wind and cold of the Dakota winter.scott-terrell, North Dakota oil boom

The pace is relentless and dangerous. The drilling crews on nearby pads are probing portions  of the oil-bearing Bakken shale formation saturated with hydrogen sulfide, a lethal gas. North Dakota state health and environmental agencies have documented over 1,000 spills of oil, chemicals, and other compounds, nearly five times as many accidents as in 2004. Traffic fatalities doubled from 2010 to 2011 and injuries connected with the movement of heavy oilfield equipment climbed 40 percent in a year in western North Dakota. An explosion and fire on a drilling platform in September killed two young workers and badly burned two others.

There is nothing, in short, to hold Terrell to this work other than the wages — $7,000 a month for his three-week-on, one week-off schedule.

“It’s chaos,” Terrell told me in December. “When I leave, it’s as if I’ve never been here. When I return, it’s as if I’ve never left. It’s sort of unreal when you’re away from it all. And the return just sucks you back into the whirlwind. Just got to strap it on and ride it out as best you can.”

To some considerable extent, Terrell’s astute summation of his disruptive but necessary career in North Dakota reflects the essential economic contest of our time. In weighing the utility of immediate and generous oilfield income against the longer term risks to his health and emotional equilibrium, Terrell chose the money. Northern Idaho’s reluctant economy doesn’t generate as much demand as it once did for carpenters and painters.

While it is new to Terrell and to most of the other 45,000 men who’ve arrived from across the nation to work there now, the Dakota oil field represents something that was once familiar and secure in America. It is a place that provides men with ample opportunities to work for a living wage, the risks be damned.

That central notion, elevated to both national and global perspectives, is what we confront in this era of economic tumult and transition. During the past month, in two weeks of field reporting in the Dakotas and the Pacific Northwest, and in online research and interviews, the full dimensions of the immense riches and the equally dire hazards of the North Dakota oil boom became much clearer. To wit:

1. The energy surge in North Dakota is being duplicated in scale and intensity in almost a dozen other states – South Dakota, Montana, Wyoming, Utah, Colorado, Kansas, Texas, Ohio, Pennsylvania, California, and Alaska.  New  York, meanwhile, is about to lift its moratorium on fracking and relaunch development of the gas-rich Marcellus shale.

2. The national oil and gas surge has generated roughly 600,000 new jobs since 2005, new employment in high-paying work that came while the nation was losing 2.5 million jobs during the same period, according to EMSI, a labor market research group in Moscow, Idaho.

3. The number one American export in 2011 was refined petroleum products. The U.S. exported 1 billion barrels of gasoline, diesel, and aviation fuel worth $88 billion. The last time the country exported more fuel than it imported fuel was 1949, when the U.S. also was the only functioning industrial nation on Earth.

4. Low natural gas prices, generated by a convergence of new technology unlocking vast new supplies, and domestic politics that shielded the developers from government oversight, is prompting big shifts in industrial planning. New steel plants are opening in Ohio, along with new manufacturing plants for water hauling truck trailers, oil drilling equipment, and chemical factories. Utilities are installing new gas-fueled turbines to generate electricity. Pipeline construction is accelerating. Pricewaterhousecoopers produced a report last month that predicted low natural gas prices would generate 1 million new manufacturing jobs over the next decade or so.

5. The U.S. is in the third straight year of increasing oil production, the first time that has happened since the 1970s. Oil imports, which peaked at 455.6 million barrels in August, 2006, fell to 340.8 million barrels in October, 2011, a 25 percent reduction.

6. Shale oil reserves, like those in North Dakota, look to be immense. The estimates of recoverable reserves in the Bakken formation underlying North Dakota have grown to 22 billion barrels, more than 5 times higher than a federal estimate made in 2008. Similarly huge shale oil reserves are under development in Ohio, Texas, Oklahoma, the northern Great Plains, and Colorado. And the horizontal drilling and fracking technology that is unlocking oil from shales miles beneath the surface also is being deployed to tap the country’s existing conventional fields to produce more oil.

6. North Dakota, which had been losing population for decades, is now the fifth fastest growing state, according to a U.S. Census Bureau report in December.

So, very clearly, new U.S. oil and gas production is producing a surge of jobs, investment, and wealth in the American economy.  But Jeremy Rifkin, a Wharton-trained economist and author of the Third Industrial Revolution (Palgrave MacMillan 2011) says the oil and gas boom also is inordinately dangerous because it is  “the last gasp of the old industrial revolution.”

“The oil companies and related industries are trying to resurrect the energy sources of an era that is sunsetting,” he said. “The costs are immense for the economy, the environment, and for this society and others around the world. We’re at the endgame of the second industrial revolution. And while there are jobs connected to it, the price of energy is high and the real time impacts of industrial induced climate change on agriculture are being felt around the world. The question is what we do about it? And it doesn’t look good for the U.S. ”

European nations led by Germany, Rifkin said, are converting their energy production infrastructure to renewable technologies. China, Circle of Blue noted in its Choke Point: China report last year, is aggressively developing hydro, solar, wind, and nuclear options and taking command of the global alternative energy sector. The U.S., meanwhile, is abandoning the federal commitment to public investments in non-fossil fuel energy sources, and state incentives, led by renewable energy mandates on utilities in 33 states, could be in trouble.

Bottom line: the oil and gas boom has produced a reprieve that is likely to last at least a generation. It looks to have taken the urgency of planning for peak oil shortages off the table in the U.S., and globally. Large shale gas and oil reserves are under development in Africa and Asia. High prices have made it practical to develop the deep ocean reserves now being discovered and tapped in Angola, the U.S. Gulf, Alaska, Russia, and Venezuela.

But the issue we need to address is can the nation and the world endure another generation of fossil-fueled economic development? Energy industry executives say of course we can. Global climate change is not a threat, they argue, and they’ve successfully convinced their allies in Congress and state legislatures to govern without regard to the warming atmosphere.

Much of the rest of the world, though, understands the risks of a warming planet. Still, few nations are responding with genuinely effective domestic programs that promote low carbon alternatives. As we learned in Choke Point: U.S. and Choke Point: China, the aggressiveness with which industrial nations are pursuing carbon-based fuels – coal, oil, gas – and the reluctance to develop low-carbon alternatives is stressing food production, water supplies, and governments all over the world.

My sense is that the national and international fossil fuel development surge is like a global helicopter ambulance flying in a jarring storm. While capable of lifting the economy out of harm’s way, the aircraft also is in ever-present danger of crashing.

— Keith Schneider

Is American Energy Exploration and Production Breaking the Great Recession?

North Dakota Bakken drill-rig1WILLISTON, ND — The Saturday morning earlier this month that Scott Terrell and I had breakfast at Gramma Sharon’s Family Restaurant, every seat was taken by roughnecks and drivers fueling up before heading out to work this state’s giant oil patch. The line of customers waiting to pay their bills was so long I did something I rarely do on reporting trips. I left cash on the table and utterly violated the ethos expressed on the hand lettered sign next to the cash register.

It said in plaintive neat cursive: “Please be patient. We are short staffed every day.”

Since the collapse of Lehman Brothers in 2008 the national background music of America’s hard recession has been the persistent lament of earnest adults unable to find work where they live. Largely missed was another soundtrack of energy-related job growth and economic activity. It steadily built into such a rumbling crescendo that the bang-bang-bang of hammer on steel is finally being heard in every corner of the country.

There’s more work in the oil fields of the northern Great Plains, Texas, Pennsylvania, Ohio, California, Colorado, Kansas, Utah, and Wyoming than there are people to do it. And almost all of it pays really well.

Scott Terrell, who turns 58 the day after Christmas, heard it. Terrell is a carpenter and painter from Coeur d’Alene, Idaho. He solved a nagging problem of underemployment in his craft in Idaho by heading across Montana and washing up on the shores of North Dakota’s riotous oil and gas boom, which has generated 45,000 new jobs. He very quickly gained work with a friend’s company driving a heavy Volvo haul truck involved in earth moving activities. He makes $20 an hour working 70 to 84 hours a week. That’s $1,600 or $1,700 a week, good money in a down economy in Idaho.

Like almost everyone you talk to, it’s not the adventure, the calling, the national moment that has attracted men here. It’s the money. “Work those many hours. I tell you I’m worn out,” Terrell said. “It’s just chaotic, every day. It’s cold. It can be dangerous. I’m away from my wife. It’s a whole different outlook from what anybody is used to.”

The surge of jobs and oil also is completely altering the economic and demographic geography of North Dakota. There are 59,000 more jobs in the state than there were before the boom. The U.S. Census reported today that North Dakota’s population surged to almost 684,000, more than at any time since the 1930s. The agency also reported that North Dakota, once described by native born journalist Eric Sevareid as a “blank spot on the nation’s mind,” is now the fifth fastest growing state in the nation. From 2000 to 2010 it ranked 37th.

The other four fastest growing states – Texas, Utah, Alaska, and Colorado — also are experiencing big energy production booms and associated job growth.

The torrent of oil-related money, nearly $20 billion annually now in this state alone, is the leading edge of an estimated $100 billion-plus annual capital investment nationally by the energy, pipeline, refining, chemicals, transportation, and related services sectors that economists say appears to be leading the country out of the recession.

Today I interviewed Mark Perry, an economics professor at the University of Michigan in Flint, a resident scholar at the American Enterprise Institute, and one of the few economists who’s viewing the oil boom from a national perspective. I asked him whether the oil and gas surge in North Dakota and a dozen more states can account for at least a portion of the drop announced today in unemployment claims, and the rise in leading economic indicators. Perry said that seemed like the case.

He then pointed out a December 15 report by PricewaterhouseCoopers on the influence of the shale gas sector on American manufacturing.

That study reports that 17 major American manufacturers told the Securities and Exchange Commission this year that natural gas abundance is dramatically changing their strategic outlook. Low prices for natural gas are expected to “spark a U.S. manufacturing renaissance over the next few years,” said the PWC study, “boosting revenue and driving job creation.” The firm estimates the shale gas boom alone “could lead to approximately 1 million more manufacturing jobs by 2025.”

That renaissance looks to be in nearly full swing already. In Ohio, where the Utica Shale is starting to yield big finds of oil and gas, Vallourec, the big French pipe maker, is building a $707 million manufacturing facility in Youngstown, Ohio that has begun to employ a staff that is expected to grow to 450 workers. Mac Trailer in Kent Ohio is opening a facility to manufacture tanker trailers to haul liquids involved in hydrofracturing in the Ohio and Pennsylvania gas fields. It will eventually employ 250 workers.

Republic steel is opening a new furnace in Lorain, Ohio to manufacture steel pipe. US Steel is spending $95 million to expand one of its Ohio plants to meet demand from the gas and oil fields of the mid-Atlantic. Big chemical manufacturers are building new gas-to-liquids processing and chemical manufacturing plants in Louisiana and Texas. Truck and heavy equipment manufacturers, led by Illinois-based Caterpillar, are reporting big surges in demand for their rigs.

Here in North Dakota, Tesoro is expanding its refinery west of Bismarck and this year added 40 new workers to its staff. The regional utility is preparing to build a new gas-fired electrical generating station. Pipeline construction is occurring at a frantic pace. Burlington Northern is buying new tanker cars to haul oil to refineries in Washington State, Oklahoma, and Texas.

To gain perspective on just how powerful the energy rush is in North Dakota, just stand for a few minutes at any place alongside U.S. route 85 north or south of Williston. Semis hauling heavy equipment, pipe, water, fuel, oil, rigging, and any number of other loads roll past, an unyielding train of oil field gear and supplies and products. And in the spaces where there aren’t semis, there are pickups hauling men back and forth to the drill sites.

Five years ago, say townies, U.S. 85 in early December was as quiet as a dance floor on Tuesday morning. The resident population grew older, more bent, and steadily less numerous. Western North Dakota’s small towns were receding like shallow lakes in the desert.

Now people are predicting with perfectly straight faces that Williston, where less than 13,000 people lived at the turn of the 21st century, and now is estimated at somewhere around 20,000, could reach 50,000 in the next decade or so, maybe 100,000 — just like Midland, Texas.

— Keith Schneider

North Dakota oil field double-flares

Oil Production Soars, Prices Fall, Water Contest Grows

copenhagen-globe-11The Department of Energy earlier this  month reported that crude oil production in the United States climbed to 5.88 million barrels per day, the most since 1998. Meanwhile the share of oil demand taken up by imports is declining. After nearly three decades of steadily falling domestic production, the U.S. is now in the midst of an oil boom that is in its third straight year, with no sign of abating.

Last night on the way home from Grand Rapids I paid $3.16 a gallon for regular gas. I can’t recall the last time gas was so close to the $3.00 mark in Michigan. A number of factors account for the moderating price of gas, not the least of which is lower demand and increasing supply in the United States.

Big Texas and North Dakota Oil Plays
The latter is closely related to the deep shale oil drilling booms now underway in North Dakota, soon to be the second largest oil production state, which is on track to supply 150 million barrels of oil this year, nearly 40 percent more than in 2010. The other big new oil play is the Eagle Ford Shale in east Texas, where deep shale oil development has helped push that state’s daily production to 1.4 million barrels per day, up from 1.1 million barrels per day last year.

The U.S. once produced an average of 9.84 million barrels per day. That was back in 1970, when we were using 11.1 million barrels per day. The ample domestic supply and its low price fueled the drive through economy, the spread out life of cars and convenience, that is now in a state of accelerating collapse.

Still, this new oil boom, and its related boom in natural gas production, is providing a period of reprieve for the principles of choice and mobility that motivate what’s left of our national spirit. Domestic oil production could well climb to near the 1970s levels, reducing imports, limiting our interference in oil-exporting regions of the world that hate us, holding prices in check, and adding to domestic stability. It is providing hundreds of thousands of new jobs, and making a handful of companies and their executives and owners even richer than they are.

The big question for the United States is twofold. One, can we summon the will to limit the environmental damage the drilling is causing across the country? Two, can we break through the rhetorical impediments — no new taxes, regulations are killing jobs, government doesn’t work, etc  — to require developers to pay state and federal fees on every new barrel of oil and thousand cubic feet of natural gas produced?

A 15 percent state and federal fee just on the new oil production alone would generate $10 billion annually, enough to resolve the deficits in new energy producing states like New York, Ohio, and Pennsylvania. A similar tax on new natural gas development would generate $20 billion annually, by my calculation. That would be enough to make substantial investments in science, research, education, infrastructure, transit, and clean energy to put the U.S. in contention globally to at least compete in the new markets of the 21st century. Moreover, as oil and gas production increased, as it now seems likely to do over the next generation, so would revenues to invest in public projects.

My sense is the environmental community has an opportunity to lead on this one. Along with demanding accountability and transparency to limit damage to land and water, environmentalists also have the chance to move beyond their own institutional inertia. They should call for a public return on natural resources to reposition the country to leverage the wealth from new energy development to speed the new era of efficiency, low carbon energy generation, innovation and job growth. Use the power of organizing to move the country to a new thought. Otherwise the same old thinking will prevail with a few getting filthier rich as they damage the land, water, and what remains of our national purpose.

— Keith Schneider

Owensboro’s Downtown Development Plan in New York Times

Downriver from Owensboro, KY, the Ohio River unfolds almost a mile wide. Photo/Keith Schneider
Downriver from Owensboro, KY, the Ohio River unfolds almost a mile wide. Photo/Keith Schneider

The New York Times today published my article on Owensboro’s downtown development plan, much of it financed by a local tax increase enacted in 2009. Though the public spending has spurred new development and thousands of jobs in the last two years — Owensboro has generated 2,400 jobs in 2010 and 2011, more than any other Kentucky metro area — just two of the seven elected leaders who voted for it are still in office.

Nearly 40 of those new jobs are at Kentucky BioProcessing, a biotech production company in Owensboro. More details on the company are here.

Like other places in the United States, Owensboro is in the distressing grip of the politics of austerity and disinvestment, though that may be weakening. During the reporting for this article Mayor Ron Payne told me he is considering entering the race for a second term. The 65-year-old moderate Republican is credited with leading the work to spur downtown construction projects currently valued at almost $180 million.

owensboro Kentucky BioProcessing

The reporting and details of the Times article are based on the six months of research and interviews I did for Citistates, which prepared a lengthy three-part report — What’s Done, What’s Next: A Civic Pact — that suggested a new development strategy for the Ohio River city of 57,000. When I first got to Owensboro in May I was told by a number of people that if Payne ran again he would lose. The sense was that he’d stiff armed the city commission and local leaders into embracing the tax increase against the public will. In other words, Americans want real leaders but when they actually elect a real leader they often can’t wait to get rid of him.

The new assessment of Payne is that he’s likely to win if he runs again. He will announce by the end of January 2012.

I also learned today from Rodney Berry, the president of the Public Life Foundation of Owensboro, that six community meetings are planned to review the Civic Pact study, its 12 recommendations, and “to identify individuals and groups that may be interested in being involved in implementation.” The foundation contracted with Citistates to conduct the study.

— Keith Schneider