Private Sector: Energy-burgh

Pittsburgh led the charge in coal, oil, nuclear, and its continuing energy focus could save it

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Long ago, the availability of local energy resources was a key factor in the growth and decline of regions. By the late 1990s, almost a decade of cheap oil had left the energy industry a quiet sideshow of the economy. When the price of oil dropped to below $11 a barrel in 1998, few considered energy availability and cost in as a factor in the economic competitiveness of regions.

Daniel Marsula, Post-Gazette
Click illustration for larger version.

That complacency would begin to change with the California energy crisis in 2000. By 2004 pundits were warning about the impact oil at $40 per barrel would have on the national economy. With oil now hovering above $60 per barrel, few discount the importance of energy in the economy any longer.

From coal to fuel cells, Western Pennsylvania has shaped the history of energy technology and production in America. Energy may again shape the region's economy.

From the early 19th century, it was coal that made Western Pennsylvania the center of energy production for a growing nation. Then came oil. For several decades following the success of the nearby Drake Oil Well in 1859, Pittsburgh was the nexus of the country's commercial oil industry until eclipsed by the Texas tsunami of oil at Spindletop in 1900. King Coal would eventually be vanquished as a jobs generator by the ever increasing productivity of mines, the rapid rise of natural gas for heating and the conversion of coal powered steam locomotives to diesel fueled turbines; but it was the local coal supply that gave the region the competitive advantage to build the steel industry, which was concentrated here.

Even oil's legacy on Pittsburgh should not be overlooked. It was the oil money that came into the region that helped build the foundations of Pittsburgh as a major corporate headquarters. The Pittsburgh Oil Exchange was once the nation's center for energy trading. The Pittsburgh Oil Exchange would beget the Pittsburgh Stock exchange, which finally closed its doors in only 1974, but left a legacy that helped define the region as a financial center.

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In the 20th century, Pittsburgh would claim the lead in emerging energy technologies as well. In particular, the commercial nuclear power industry came online here when the Westinghouse-built, Duquesne Light-managed Shippingport reactor began producing energy in 1959.

Pittsburgh would seem to have excised its energy industry. Growth in nuclear power was arrested by the crisis at Three Mile Island in 1979. Gulf Oil would relocate its remaining headquarters staff from Pittsburgh in the mid-1980s. Even Quaker State Oil would depart Western Pennsylvania in 1995. Yet energy is not gone from the region -- far from it.

Wide fluctuations in energy prices can have significant impacts on local industries. At the peak of the California energy crisis, many energy intensive manufacturing companies found it more profitable to shut down completely and sell electricity futures they had previously bought as a hedge against future rate increases.

One of the most productive sectors of the Pittsburgh economy is the energy intensive, and thus equally energy sensitive, chemical industry. In a market ever more deregulated, electricity supply and costs will take on an increased importance across the country. As a major exporter of electricity, Pennsylvania is poised to take advantage of the changes taking place in the national electricity market.

It is not just in traditional energy sectors that the region maintains a presence. The wind farms of Somerset County are considered the largest such energy producers east of the Mississippi. The expanding green building movement has a pole here in Pittsburgh, and the Department of Energy's National Energy Technology Laboratory in South Park is a center for research into energy production technologies.

One of the most overlooked sectors of the regional economy is the local nuclear industry. More than 1,400 nuclear engineers work in the Pittsburgh region, making it the nation's center of talent in the industry. Westinghouse's research and development program has long been a major source of attraction for high-technology workers into the region, and keeping them here for their careers. With no industry growth in decades, the work force in the nuclear power industry is one that was hired almost entirely a career-span ago. It will likely retire en masse before too long. As they retire, the replacement of those workers will likely force the recruiting of a new generation of high-tech workers.

Siemens, which bought Westinghouse's power generation business unit, continues its efforts to develop a commercially viable stationary fuel cell here. If they succeed, they will bring the expansion of fuel-cell technology into a broad range of distributed applications throughout the economy's infrastructure. Siemens is here because of the long legacy of Westinghouse and the core of skilled engineering talent that has been developed here. Despite strong efforts to lure fuel-cell investment elsewhere, the skilled talent built by Westinghouse, and fostered by Siemens, has kept them in Pittsburgh. That talent will continue to benefit the region in the future.

Commercial nuclear power could be a major economic driver for the region in coming decades. Westinghouse is one of a short list of firms that can supply a growing international demand, especially from an expanding China, for new power generation reactors. Add to that the anticipated application for new reactors in the United States in coming years, and the potential for growth is real.

Even the prospects for coal are rising as several coal gasification plants begin operation at several sites in the country. Coal prices, along with those for oil and natural gas, have reached record levels over the last year. If coal gasification technologies expand in the marketplace, demand for coal could expand significantly. Many alternative energy sources, including coal gasification are encouraged by the Pennsylvania Alternative Energy Bill, which was passed last year. The bill will require a total of 18 percent of Pennsylvania's electricity to be generated by alternative energy sources by 2020. One estimate is that the bill will spur Pennsylvania to become a significant exporter of alternative energy in coming decades.

Could it be that energy prices are just another commodity bubble waiting to burst? A growing China and economic expansion at home could cause an indefinite tightness in energy markets. Despite inflated gasoline prices, in the week leading up to the July 4 weekend, the nation's demand for gasoline reached an all-time high. Even if consumer behavior is slow to change, high energy prices will eventually force industries to make the kind of efficiency enhancing investments that were not justified when energy was cheap. As industries adapt, individual industries and regions will face new prospects for growth.

The region's people, industries and history are deeply interconnected. It was the abundant coal of Western Pennsylvania that gave the region a clear advantage as a place to produce steel. The strength of the local manufacturing industries following World War II had increased demand for electricity, which produced growing profits for Duquesne Light Co. That profit allowed Duquesne Light to win the contract for the first commercial nuclear power plant and have it built here. Nuclear technology would be harnessed by Westinghouse to spin off a host of technologies and to attract technical talent and investment into the Pittsburgh region. Break any link in that chain and the options facing the region would be far different than what they are now.

Christopher Briem, of Bloomfield, is a regional economist at the University Center for Social and Urban Research, University of Pittsburgh.


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