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With the State of the Union speech behind him, President Obama today is heading to a U.S. Steel Corp. plant near Pittsburgh, where he’ll also stand on top of the region’s sprawling natural gas formation.
From U.S. Steel’s Irvin Plant, rolled steel is shipped to the nation’s expanding auto manufacturers. In and around Pittsburgh at the epicenter of a dramatic industrial collapse three decades ago, the president’s visit comes as Democrats and Republicans heading into congressional midterm elections try to capitalize on the region’s economic resurgence.
High-efficiency steel produced in the region — with the help of relatively cheap natural gas — will go toward making better cars that burn less oil, the president noted.
“Today in America,” Obama said in the televised message, “an autoworker fine-tuned some of the best, most fuel-efficient cars in the world and did his part to help America wean itself off foreign oil.”
Last night, Obama’s State of the Union speech built on the White House’s expanding narrative around U.S. oil, gas and renewable energy production: Producing more gas and renewables is displacing coal at power plants and slashing air emissions, and domestic oil drilling is cutting oil imports and boosting U.S. energy security.
Further, Obama said, the huge amount of gas being pulled from the ground is helping to turn around a U.S. manufacturing sector that had been declining for decades.
“Businesses plan to invest almost $100 billion in new factories that use natural gas,” Obama said. “I’ll cut red tape to help states get those factories built.”
Obama handed oil and gas producers credit for driving economic growth. “Even so,” said the team of analysts at ClearView Energy Partners, “President Obama appeared to give more job-related plaudits to end-use sectors — manufacturers, power generation and transportation — than the oil and gas upstream itself.”
Middle-class squeeze
As Obama embarks on a two-day series of factory tours in Pittsburgh and Milwaukee, the realities of sustained industrial growth driven by cheap energy appear more complicated. Energy and steel are tied to the vagaries of shifting global markets and commodity prices, and stagnant wages and slow job growth have kept at bay prospects for rapid growth across the country.
In Ohio, west of Obama’s landing pad in Pittsburgh, executives at AK Steel Holding, a competitor with U.S. Steel, talked yesterday about the impact of rising natural gas prices and global competition.
“A $1 movement in gas is worth about $40 million to us,” said CEO James Wainscott in a call with equity analysts.
But chemical and steel makers and other industrial plants that fled the Rust Belt, Texas and southern Louisiana as energy prices went up a decade ago and overseas competition got tough are slowly returning. Jobs are re-emerging.
“The squeezing of the middle class puts a serious damper on consumption,” said Jay Apt, a business professor and energy expert at Carnegie Mellon University in Pittsburgh. “If the pendulum swings back, so the middle class starts to feel gains from GDP growth, we’ll see [more] onshoring of manufacturing.”
The political debate around exporting U.S. crude oil and natural gas is also heating up, and it ties in with political concerns about rising energy prices.
Despite the growing noise in Washington, D.C., around energy exports, the president made no mention of the issue last night. He also steered clear of the contentious Keystone XL pipeline project to bring oil from Canada’s oil sands to the Midwest and ultimately the U.S. Gulf Coast for refining.
U.S. oil producers that want to be able to get higher global prices are pressing Congress and the White House to lift a decades-old ban on shipping U.S. crude oil to Europe and Asia. The policy discussion around oil is against a backdrop of nearly 7 billion cubic feet per day of already approved liquefied natural gas export projects, rising U.S. gasoline exports and growing coal exports.
Obama’s Marcellus boon
Obama’s visit to Pennsylvania today comes as the state’s Republican governor, Tom Corbett, gears up for a tough re-election campaign in 2014. Corbett’s poll numbers have been down for much of the past year, as he has struggled to close deals on high-profile industrial projects, including Royal Dutch Shell PLC’s proposed petrochemical plant north of Pittsburgh.
Production in the region’s Marcellus Shale gas formation continues to be a bright spot, and Obama’s likely to mention it, given the benefits cheaper gas has had for steel makers.
In a report yesterday, analysts at Barclays Equity Research called the region’s onshore drilling “a bright spot in the U.S. land market in 2013.”
Even as rig counts in the Marcellus have declined since their peak in late 2011, companies are drilling more single well pads and boosting production. Antero Resources Corp., a Denver-based driller, “increased its budget three times over the course of the year,” the analysts noted, adding that Cabot Oil & Gas Corp. rolled out a plan that projects a 35 percent increase in wells drilled in the Marcellus in 2014.
Next door, in the Utica oil and gas formation underlying Ohio, producers are still scooping up energy-rich acreage. They’re searching for the sweet spots in a lucrative gas liquids play.
“We think the Utica could emerge as one of the fastest growing basin[s] in the U.S. next year,” Barclays said.
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