SMC Business Council holds first shale gas event

Forum explores supply opportunities

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A company that rents dunk tanks, snow cone machines and table linens doesn't seem to have much to do with the Marcellus Shale natural gas boom.

But Michael Hall, owner of General Rental in Cranberry, showed up Wednesday at the SMC Business Council's first shale gas event to try to figure out ways that his party supply business can connect with natural gas companies hosting gatherings in the area.

"Shale Gas & Manufacturing: Find Your Link in the Supply Chain," which was aimed primarily at manufacturers, drew everybody from consultants to nonprofit employees and, of course, Mr. Hall, looking for tips on how to get in on the billions of dollars that the shale industry is expected to pump into Pennsylvania's economy.

One of the speakers looked to an African safari to explain how smaller companies could have a real advantage in the growing industry.

Andy Birol, owner of Downtown-based Birol Growth Consulting, said companies that chase after natural gas companies like Range Resources are cheetahs, running fast but often dying of starvation or thirst.

The real winners, he said, are those in the second and third levels of the supply chain -- or on the African savannah, the baboons who tear apart tourists' cars and snatch their meals.

More technically, most attendees at the SMC conference were what speakers called Tier 2 or 3 companies. While Tier 1 stormwater management businesses and heavy-equipment companies might work directly with natural gas producers, industries such as trucking, welding and manufacturing supply the suppliers.

"This is a long-range industry," said Jon Laughner, co-leader of Penn State University's Extension Marcellus Education Team, who spoke about the impact that Shell's proposed ethane cracker plant in Beaver County would have on manufacturers. "People have an idea that the game is over, but opportunities are opening up that are decades in length."

One of the biggest costs in the industry, for example, is the transportation of used water, which can cause significant damage to roads. Companies that specialize in road repair or that supply repair equipment can get in on the shale boom without ever dealing directly with a company like Range Resources.

Connie Palucka, managing director of the Downtown-based nonprofit economic development organization Catalyst Connection, advised repositioning services so that direct suppliers to the industry could easily see what was in it for them.

"You have to explain why what you do is better, cheaper and faster than what's coming from companies outside the region," Ms. Palucka said.

She advised companies to ensure that they met environmental, health and safety guidelines, as well as to advertise themselves as flexible and financially solvent.

It can be easier to get into the shale industry as a second or third company, Ms. Palucka argued, than as a producer or direct supplier. Many Tier 1 companies have exclusive contracts that create entry barriers, but relationships further down the chain are not as strong. "That's where you're going to get your foot in the door," she said.

One significant advantage of being lower on the supply chain, according to Mr. Birol, is that there is less risk involved. Third-tier companies do not deal directly with an industry that he calls "boom or bust." The potentially-risky impact of factors like fluctuations in gas prices or demand is blunted.

To use another analogy: "You don't want to be the person who lost money to the gold rush. You want to be the person supplying the pickax."

Or, as the case may be, the dunk tank.

businessnews - marcellusshale

Molly Hensley-Clancy: or 412-263-1410. First Published June 28, 2012 4:00 AM


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