Boom city keeps optimism as gas drilling slows

By Andrew Maykuth
The Philadelphia Inquirer

WILLIAMSPORT, Pa. (AP) — The Marcellus Shale industry, which arrived in this northern Pennsylvania city five years ago and turned Williamsport into the seventh-fastest-growing area in the nation, appears to have lost some momentum.

Economic activity in this city affectionately known as “Billtown” has subsided noticeably in the last year as the pace of drilling natural gas wells slowed in response to low gas prices.

Statewide, exploration companies drilled 30 percent fewer wells in 2012 and are on course to drill even fewer this year. About half as many drilling rigs are operating in Pennsylvania now as in early 2012, when the rigs began moving to more lucrative oil-producing regions.

In Lycoming County, motels and restaurants are not so crowded these days – hotel-tax revenue was off last year by 13 percent after doubling the previous three years. Fewer out-of-state pickup trucks swarm the fuel pumps at the Sheetz stations.

But local civic and business leaders insist the shale-gas industry has not gone bust. They say that it has merely taken a breather, and that all signs point to a long-term boost for this region.

“We’ve said all along there’s going to be ebbs and flows to this,” said Williamsport Mayor Gabriel J. Campana, an unabashed gas-industry booster. “There’s a real optimism here.”

“I think the hype is what changed,” said Davie Jane Gilmour, president of the Pennsylvania College of Technology. The school has trained 3,400 students as welders, rig hands, commercial truck drivers, and office workers to serve the industry. She said demand for trained workers was still growing.

Texas: Booming oil towns prepare for inevitable bust

Indeed, in the Marcellus Energy Park in nearby Muncy, at the intersection of Marcellus and Energy Drives, bulldozers recently prepared the foundation for an expansion of the field office of FMC Technologies Inc., one of many national oil-field service companies that have located operations here to support drilling across Pennsylvania’s northern tier.

“The slowdown’s over,” said Daniel A. Klingerman, the developer whose 350-acre industrial park includes several service companies that maintain fleets of the huge engines and pumps used in the hydraulic fracturing process. “We’re twice as busy now as we were a year ago.”

Klingerman’s company, the Liberty Group, is a construction juggernaut. It is building a new motel along I-180, a $35 million expansion of the regional medical center, and a new $10 million YMCA center.

Klingerman also plans a civic arena downtown and a 160-foot-tall office building overlooking the West Branch Susquehanna River. All he needs is an energy company as anchor tenant.

Companies such as Anadarko Petroleum Corp., which has about 100 employees in a 30,000-square-foot downtown office, and Halliburton Co., which employs 500 people at its Williamsport field office, say most of their workforces now are local hires. Both companies say they have not shed staff during the downturn.

The new companies have become integrated into the community, contributing money and time to nonprofits. “At this point, everybody’s fitting in, like all our other legacy industries,” said Lycoming County Commissioner Jeff Wheeland.

Not everyone is a believer. The pullback has reignited a debate about whether the Marcellus development is all it’s cracked up to be. Critics point to the rapid decline of production from individual gas wells as evidence that the resource is finite.

“We were promised a 40-year industry,” said Ralph Kisberg, a founder of the Responsible Drilling Alliance, a Williamsport activist group. “It’s going to become a 10-year industry because of the decline of the wells.”

The Keystone Research Center and Pennsylvania Budget and Policy Center released a report last week that contends the Marcellus development has had little economic impact outside the drilling region.

The report also said the slowdown “raises questions about the stability and permanence of even the small number of jobs that have been created.”

Despite the slowdown in drilling, production across the Marcellus continues to grow impressively as a backlog of previously drilled wells comes on line. At current production levels of 13 billion cubic feet per day, the Marcellus produces enough natural gas in 70 days to supply Pennsylvania’s annual demand. Two years ago, Pennsylvania needed to import gas from the Gulf Coast to meet its needs.

Shale’s economic impact is likely to be debated fiercely in next year’s election. Gov. Corbett says the Marcellus development now supports more than 200,000 jobs in Pennsylvania, and can fuel new energy-intensive manufacturing and chemical production for generations to come.

“The opponents of drilling have really become what I would call economic-change deniers,” Corbett said Nov. 14 at an industry conference in Pittsburgh.

Economist: Exports will have moderate effect on US natural gas price

Williamsport is no stranger to economic boom and bust. The city grew tremendously during a 19th-century timber bonanza, whose barons bestowed the city with a legacy of Victorian mansions. Williamsport was said to have more millionaires per capita in the late 1800s than any other place in America, a claim still asserted in tourist literature.

But lumber also brought devastating environmental consequences – floods in 1889 and 1894 were attributed to runoff from the unregulated deforestation. Timber cutting, along with pollution from later coal mining, left many people here with a bad taste for the risks that come with extraction industries.

“Pennsylvania’s gotten screwed twice, so you’d think we would learn,” said Robert H. Larson, a Lycoming College professor and coauthor of a 1984 history of Williamsport.

When the shale industry arrived, Lycoming County leaders greeted it with open arms.

Williamsport was struggling to cope with a decline in manufacturing. As with many rust-belt cities, Williamsport’s population declined – it has lost a third of its residents since 1950, when 45,000 people lived here.

In 1980, Billtown landed on the front page of the Wall Street Journal for all the wrong reasons: “Feeling the Sting: Recession Bears Down on Williamsport, Pa., Despite Its Diversity.”

Local officials say the arrival of the shale industry accelerated a revival of Williamsport’s tired downtown. The city had already acquired and demolished crumbling waterfront blocks. A suburban-style Wegmans grocery opened downtown in the late ’90s. Several modern chain motels were already in place.

The shale boom brought an onslaught of landmen, engineers, seismic surveyors, and fracking crews. Developers quickly built restaurants, lofts, executive apartments. Three new downtown motels have gone up since 2008. A Kohl’s department store, already in the works before the shale boom, opened next to the Wegmans in 2011.

“Before the shale, we had residents downtown, but mostly rundown apartments with low-income residents,” said Jonathan Williamson, the director of Lycoming College’s Center for the Study of Community and the Economy.

“If you’re visiting here from a larger place, you’re not going to notice it as big-city vibrancy,” he said. “But the level of activity you see on the streets is significantly more than it was five to 10 years ago.”

Williamson, also a member of the city council, said a shortage of rental housing also appears to be easing. He was a coauthor of a 2012 report on how the shale boom had driven up rents, forcing some low-income tenants out of their homes. A combination of a new supply of rental units, along with the slowdown, has relaxed rents, but they are still higher than they were pre-shale.

Officials broke ground this month on a 72-unit Memorial Homes Development, a $19.3 million project that includes 40 low-income apartments and 32 market-rate townhouses. That project, as well as a second housing development aimed at seniors, is subsidized by money from the county’s share of the state impact fee imposed on Marcellus Shale drillers.

Some local companies that have experienced the euphoric growth of the gas industry are now looking to diversify.

NuWeld Inc., a family-owned business founded in 1996 to repair steel dumpsters, expanded from 60 mostly unionized pipefitters to 290 employees in response to the gas industry’s demand for wellhead components. On one day in 2011, the company hired 35 new employees.

The gas industry accounted for 90 percent of the company’s $36 million in revenue last year, said Michael Caseman, the company’s chief financial officer.

With the downturn, NuWeld has cut its workforce to fewer than 180. Two years ago, it moved into a reclaimed quarter-mile-long factory when unsolicited orders flooded in. Now it has hired salespeople to drum up new business.

“We’d like to expand in other areas and not have all our eggs in one basket,” Caseman said.


Also on FuelFix:

Balancing act needed to win with hydraulic fracturing