Key Points
- Northern Appalachia has, for a decade and a half, premised its economic development strategies on a strategic triad of natural gas, petrochemicals, and most recently hydrogen.
- Natural gas expansion has proven itself incapable of delivering on promises of jobs and economic prosperity. Meanwhile petrochemicals and hydrogen don’t seem capable of getting off the ground.
- Continued reliance on these industries augurs a future of economic stagnation combined with environmental degradation and continued loss of jobs and population.
The Appalachian natural gas boom gave rise to a dazzling vision of industrial and economic prosperity. It was christened “The Shale Crescent” by supporters like Toby Rice, CEO of EQT, the nation’s second largest natural gas producer, who adopted the name “@shalennial” as his X handle.
We were told that the Shale Crescent economy would spin off downstream growth in petrochemicals and a new hydrogen economy. This strategic triad would be an economic game-changer that would bring hundreds of thousands of jobs and new prosperity to a region that has suffered mightily since the collapse of the steel industry forty years ago.
So, how is the Shale Crescent economy’s strategic triad and the communities that depend on it doing? Not well following a brutal four weeks.
Projects were lopped from the Appalachian Clean Hydrogen Hub (ARCH2) like dead limbs from a diseased tree. The Shell Petrochemical Complex in Beaver County, Pennsylvania, the lone vestige of the grandiose vision of an Appalachian petrochemical cluster, may be going up for sale. And the most recent data from the federal government’s Bureau of Economic Analysis and Bureau of Labor Statistics show that, although the natural gas industry seems to be enjoying growth in prices and demand, the associated expansion still isn’t translating into job growth and prosperity for the region.
In fact, we are witnessing what can fairly be described as an economic calamity. And it could get worse as policymakers continue to labor under the delusion that growth in natural gas and its downstream industries produces prosperity and economic development. Seventeen years after the start of the Appalachian natural gas boom, every key measure of prosperity says otherwise. The number of jobs in the region is smaller now than it was before the gas boom began, the decline in population is even larger, particularly among working-age adults, and income growth lags that of the nation by more than 30%. Compared to the rest of America the major gas-producing counties of Appalachia are getting poorer as their residents become older, and fewer in number. And the last four weeks have illustrated many of the reasons why.
The Appalachian Regional Hydrogen Hub Continues to Collapse
Since the US Department of Energy announced in the fall of 2023 that the Appalachian Regional Clean Hydrogen Hub (ARCH2) would receive up to $925 million in federal grants, all the hub has done is shrink, losing six projects and as many development partners along the way. The latest defection is particularly striking.
CNX Energy, one of the largest and most financially stable of the remaining ARCH2 developers, announced that it has “paused” development of a sustainable aviation fuel project at Pittsburgh Airport. This came after the company disappeared from the ARCH2 website following the issuance of a statement that said the Treasury Department’s newly issued rules for hydrogen tax credits “. . . are overly restrictive across a range of feedstocks and do not currently appear to create sufficient economic incentives for the Company to expand its CMM capture operations for hydrogen end use.”
“CMM” stands for “coal mine methane”, which is a feedstock that CNX planned to use for its sustainable aviation fuel project, and “45V” refers to the tax credit that CNX hoped would pay it as much as $3 for every kilogram of hydrogen it produced while making aviation fuel. But the final rule was structured in a way that limits the subsidy’s value for hydrogen derived from methane to 75 cents per kilogram or less.
A month after issuing its statement and seeing its share value plunge by almost a quarter, CNX took down the website it had set up for the SAF project and the company disappeared from ARCH2’s website where it lists participating developers. This is the second CNX/ARCH2 project to fall all into limbo if not vanish altogether. CNX had previously withdrawn from a project which would have used coal mine methane to produce ammonia at a plant in southern West Virginia. When that project was first announced, CNX claimed that it would be the largest ammonia-producing facility in North America.
ARCH2’s timbers shivered again when Plug Power, which is responsible for three ARCH2 projects, implemented massive layoffs. Motley Fool called Plug Power’s business model, which is highly dependent on federal subsidies, “unsustainable.” That puts the company at considerable risk under a Trump administration that seems to place little value on the “green” hydrogen Plug Power provides.
Meanwhile, another ARCH2 developer, KeyState Energy, which was involved in CNX’s sustainable aviation fuel project, also lost a key partner: Nikola, a hydrogen truck manufacturer. KeyState prominently features Nikola, a potential customer for the “blue” hydrogen KeyState plans to produce. However, two weeks ago, Nikola declared bankruptcy and put its assets up for auction.
Is the Shale Crescent’s Greatest Economic Prize Up for Sale?
The petrochemical leg of the Shale Crescent strategic triad also took a blow this past month when it was reported that Shell is considering selling its massive Beaver County, Pennsylvania petrochemical complex that has been in operation for only a little over a year. If the facility is sold into the current market, it will almost certainly be at a major loss as global polyethylene capacity is growing much faster than demand and plant capacity factors are at an all-time low.
The sale, should it take place, will be a sad footnote to what is already a disappointing tale of unfulfilled expectations. From the moment Shell announced that it would build an ethane cracker in Appalachia, the project became the subject of an intense bidding war between the states of Pennsylvania, West Virginia, and Ohio. Pennsylvania ultimately won, when it ponied up a state subsidy totaling $1.6 billion, the largest such incentive ever offered by the commonwealth.
The investment has backfired for Pennsylvania and Beaver County. After a brief surge in construction-related employment related to the cracker, Beaver County has experienced severe economic setbacks:
A 13.3% loss of jobs
A 2.7% loss of population
A 4% loss in the number of businesses
These results are worse than those in any of the Pennsylvania counties contiguous to Beaver County and leave the county with fewer jobs, workers, and businesses than at any time in this century.
Absolute Losses of Jobs and Population in Appalachia’s Natural Gas Counties
Sadly, the kind of economic devastation experienced in Beaver County, PA is typical of the 30 Appalachian counties in Ohio, Pennsylvania, and West Virginia that produce 95% of the region’s gas.
The following image, titled “Table 14,” is taken from a 2010 economic impact study that was commissioned by the American Petroleum Institute and widely cited by proponents of natural gas development as reason for economic optimism and state assistance. The chart includes a “High Development” scenario in which natural gas production in the year 2020 would reach 18,212 million cubic feet per day in Pennsylvania and West Virginia.
From the 2010 report for the American Petroleum Institute on the economic impact of Marellus shale development:
In fact, in 2023 Pennsylvania and West Virginia production nearly reached 30,000 million cubic feet, over 50% more than the API “High Development” scenario.
Even at the lower volume contained in the report, Pennsylvania and West Virginia were expected to add a combined 255,000 jobs. And yet, in reality, the number of jobs in the major gas-producing counties barely budged.
Preliminary figures for an upcoming report ORVI report, titled “Frackalachia: 2025 Update”, show that, despite immense growth in gross domestic product (GDP), the 30 Ohio, Pennsylvania, and West Virginia counties that produce 95% of Appalachian natural gas saw jobs decline by 1% even as they grew 14% nationally. Population in these counties shrunk by 3% even though it grew 10% nationally. The labor force shrunk by 6% while it grew 8% nationally. And incomes in the region grew 30% slower than they did nationally.
In a place that was already struggling economically before the fracking boom, it is fair to question whether the boom is responsible for the horrible jobs, population, and income figures or whether it has merely failed to remedy them. However, at the very least, we know from another ORVI study that similarly constituted counties, which did not participate heavily in the natural gas boom, experienced economic outcomes that were equal to or better than the outcomes in the natural gas counties. In other words, natural gas development may not have significantly worsened the economic trajectory of affected counties, but neither has it done anything to improve the trajectories. And, given that the industry’s growth is nearly 50% greater than was expected, after seventeen years of no measurable economic benefit, it’s reasonable to conclude that natural gas expansion is structurally incapable of delivering jobs, income, and population growth however great it is.
A Fraught Future Due to Increasing Dependence on Natural Gas
Finally and perhaps most worryingly, the region’s economic future is clouded by the fact that its economy is poised to grow even more dependent on natural gas and its downstream industries. That dependence has been exacerbated in recent weeks by the Federal Energy Regulatory Committee, which just gave PJM, the organization that manages the region’s electric grid, permission to prioritize the construction of 50 new gas-fired power plants in order to meet expected increases in demand as a result of data center development and transportation electrification. At the same time, the Trump administration has thrown open the gates for development of new liquified natural gas (LNG) export terminals, a goal long sought by the industry as a whole and particularly by Toby Rice, CEO of Appalachia-based EQT, the nation’s second largest natural gas producer.
A world of rising demand, rising production, higher prices, and fewer regulatory barriers should be Nirvana for the gas industry. But this scenario is riven with internal contradictions that will be damaging both to the industry and to Appalachia.
First, increased demand for gas-fired power means increased demand for gas-fired power plants. And, as one would expect, that translates into higher production cost from the manufacturers of gas turbines whose production capacity is beyond maxed out. As a consequence, costs to build new gas-fired plants have risen from a little more than $1,000/kw to more than $2,000/kw. Meanwhile, the price of natural gas has also doubled in the past year and the Energy Information Administration expects that it will rise another 10-20% by the end of 2026.
These combined increases in capital expenditures and operating expenditures make gas-fired electricity much more expensive and much less economic than it is right now. And, if on top of that you add the cost of carbon capture and sequestration technologies, which many Republicans and some Democrats in congress would like to fund with tax credits, we’re facing a future of increased electric rates and increased tax expenditures that are likely to result in us having to pay twice as much as we do today for gas-fired power. And, given that natural gas is the source of 60% of the power we currently use, the overall cost impact will be profound.
At the same time, growing lead-times for the construction of gas-fired power plants will make it difficult for gas to meet all of the need for additional generation, or at least to meet it affordably. Renewable energy, improving storage technologies, improving energy efficiency and advanced grid management technologies offer cleaner alternatives that were already price-competitive with natural gas before natural gas prices started rising and the cost to build new gas plants doubled. New nuclear may also become price-competitive with more expensive natural gas to get a piece of the pie. Still, despite its deteriorating economics and its harmful impacts both on climates and local communities, reliance on natural gas is likely to grow.
Conclusion: Will We Detach or Go Down with the Ship?
The industrial triad of natural gas, petrochemicals, and hydrogen upon which the region has premised many of its economic development strategies is fatally flawed and subject not just to adverse external forces, but also contradictory internal forces such as the inherent conflict between the gas industry’s need for rising natural gas prices and the depressing effect rising prices will have on industry expansion as utility bills rise and end-use customers look for better alternatives.
Unless the region starts diversifying its energy economy, it risks falling victim to a kind of energy stagflation in which prices and even GDP may rise, but in which nearly every measure of economic prosperity, including jobs, income, population, and labor force continue to decline.