Philadelphia is relatively close to the huge Marcellus Shale gas deposits and it has a port. Based on this, many business and political leaders here are now backing a plan to build the city’s economic future on fossil fuel-linked manufacturing, with a LNG (liquefied natural gas) producing facility as the plan’s flagship.
It’s a quirky notion for all sorts of environmental reasons, including the city’s past. Philadelphia was the site of America’s largest protests during the first Earth Day in 1970 by virtue of being one of the most polluted cities in the country because so many fossil fuel-linked manufacturing businesses operated here.
The local environment has improved dramatically since then as the number of these businesses has declined. But the city’s air quality is still far from pristine. The American Lung Association’s “State of the Air 2014” report ranked Philadelphia 16th worst in the nation in terms of ozone pollution and 11th worst when it came to year-round particle pollution.
Pennsylvania’s Marcellus Shale fracking boom, the hoped for source of supply of natural gas for the city’s energy hub plan, has generated its own pollution worries. Sulfur dioxide emissions at the state’s natural gas production sites jumped 57% between 2012 and 2013 as more wells came on line. This, in addition to much publicized pictures of drinking water catching fire coming out of taps in areas with producing wells, have generated a great many environmental concerns.
Why city leaders would wish to base the city’s economic future on the kind of pollution spewing businesses it has spent decades outgrowing for environmental reasons is therefore rather curious. Indeed, it seems rather like remarrying a former husband you divorced years earlier for wife beating.
While the environmental arguments against this energy hub plan are strong, the economic arguments supporting it, when closely examined, are remarkably weak. Consider its supposed job creating potential.
Manufacturing was once the main job creator in Philadelphia. Today, as the city has moved to a more twenty-first century jobs orientation built around med/ed (health care and education), professional and business services, and leisure and hospitality, of the city’s total 915,500 non-farm employment in 2014, according to the Bureau of Labor Statistics, just 38,500 were manufacturing jobs. Manufacturing is in fact no longer the labor intensive activity it was in the early 20th century. It’s a capital intensive one. The proposed LNG manufacturing facility in Philadelphia, requiring an estimated $2.5 billion to construct, would create just 120 full-time jobs, an astonishingly poor cost-per-job ratio. As for the economic prospects of this LNG producing facility itself, it should be properly viewed through the traditional boom and bust lens of the oil and gas industry. This is an industry currently suffering a bust when it comes to low prices for domestic supplies of gas because of excess production. In some other parts of the world, however, like Japan and India, demand for natural gas today far outstrips supplies and prices are much higher.
Getting natural gas to these profitable markets requires it be liquefied for shipping purposes. Hence, the plausible seeming boom prospects for a LNG producing facility in Philadelphia. It could be made here with Marcellus Shale gas. There’s a port here. It could be shipped abroad from here. The city prospers.
So runs the rationale. Except ...
There’s great uncertainty that a LNG producing facility could even be built here. To make it worthwhile you would need a terminal for shipping, which requires federal DOE approval. Such a terminal in Cove Point, Md., is already more advanced in terms of planning, and it’s very unlikely the DOE would approve two terminals in the same mid-Atlantic region. No gas exporting terminal in Philadelphia, and the math for a LNG producer doesn’t compute.
It doesn’t compute from a timing perspective either. The huge current demand for LNG in some parts of the world will be more than met by some of the dozens of other new LNG producing facilities being constructed around the world (some 60 are now in various stages of construction, some expected to be producing soon). The first new entrants in this field will sew up the market with 20-year contracts. Latecomers will get the dregs or nothing at all.
Even with toned down regulatory standards, a Philly-based LNG producer would be among the last entering this competition. What the city would end up with when it is finally built is a very expensive stranded asset — a polluting facility that no longer has a reason to exist.
Taking a charitable view of local Philadelphia business and government leaders who support a fossil fuel-based energy hub in the city to animate its future economy, they are simply a few years behind the energy curve. Ten years ago, even just five, natural gas could be seen as a perfect intermediary energy resource, a cleaner replacement for coal until renewables like solar and wind energy became very widely available and cost effective.
That renewable future has already arrived, however, and growing so rapidly, so obviously, in so many ways, in so many places, its reality is impossible to ignore. Betting Philadelphia’s economic future on a modernized version of its fossil fuel-based economic past is thus not only poor planning. It’s just plain silly.
Michael Silverstein is former senior editor with Bloomberg Financial News and its Markets magazine. See www.wallstreetpoet.com.
From The Progressive Populist, July 1-15, 2015
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