The coal industry continues to decline. Natural gas isn’t bringing the prosperity it promised. And now the pandemic has wrecked the state’s economy.
By Ken Ward Jr., ProPublica
One year ago West Virginia Gov. Jim Justice promised business leaders that the state’s economy was on the verge of a boom. Continued growth in natural gas production was going to spark an industrial renaissance, bringing construction of a giant collection of spinoff factories. Speaking to the West Virginia Chamber of Commerce’s annual meeting, held as usual at the billionaire governor’s own luxury resort, The Greenbrier, Justice painted quite a picture of the land of plenty to come.
Processing plants, chemical manufacturing facilities and a whole host of “downstream” operations would soon start popping up. These developments would bring in $36 billion in capital investment and allow the state to create one hundred thousand new jobs from the decade-old boom in natural gas drilling, the governor said. “Today, we’re on the launch pad to take off,” Justice said in August 2019.
Since then it’s been hard to find a lot of evidence of progress toward the future Justice described, or much proof that the governor’s promises weren’t more of the same economic fairy tales West Virginians have heard for generations.
As coal, long the state’s most powerful industry, has continued its decline, West Virginia leaders have over the last few years pointed to natural gas as the state’s economic savior. They especially touted a future where natural gas from the huge Marcellus shale formation is not only drilled for and produced, but is burned at new in-state power plants and, especially, is processed and used locally as feedstock to revitalize a regional chemical industry.
But projects touted as keys to that future have stalled or been dropped altogether: Plans dating back to 2013 for an ethane cracker plant in Wood County were canned; a promised Chinese investment of more than $80 billion in natural gas industry projects, announced in 2017, hasn’t materialized; and efforts to land a massive underground storage facility for natural gas byproducts ran into congressional opposition.
And now, as the COVID-19 crisis worsens in West Virginia and around the country the state faces a grim reality. Natural gas prices have plummeted casting doubts on that industry’s near-term future. And the pandemic has wrecked what was already a weak economy further exposing what critics say is the folly of West Virginia leaders, thinking that they can mine and drill their way to prosperity.
In some ways, the worst of the COVID-19 impacts on the state economy may have passed. West Virginia has regained about half of the ninety-four thousand jobs that were lost in March and April when nonessential businesses were ordered to close and residents advised to mostly stay at home, ranking it about in the middle of the pack among states. But as in other states, the comeback has slowed and it has still left out low-wage workers, economists say.
“All of that points to the need to diversify and grow the economy as a whole, which we’ve seen time and time again through the years doesn’t happen with energy development,” said Sean O’Leary, senior policy analyst with the progressive West Virginia Center on Budget and Policy.
The most recent West Virginia Economic Outlook, a West Virginia University publication that is closely watched by state political leaders and media, reported that COVID-19 “upended” the state’s energy sector, sending the demand for coal and the price of natural gas plummeting through the first half of 2020.
WVU’s report, published in early October, cautioned that while natural gas production continued at high levels, that shouldn’t be expected to continue. For one thing, temporary jobs related to construction of major natural gas pipelines are disappearing, partly as smaller projects are completed, but also as larger ones are canceled or delayed. Pipeline construction jobs had peaked at 14,500 in 2018, but they were down to four thousand at the end of 2019, according to the WVU report.
The three-hundred-mile Mountain Valley Pipeline, for example, is facing renewed litigation as regulators scramble to try to fix continuing weaknesses in its environmental permits. Another major project, the six-hundred-mile Atlantic Coast Pipeline was scrapped in July after numerous delays and questions about whether it was needed. West Virginia political leaders, though, rushed to say they hoped it might be resurrected after business tycoon Warren Buffett bought some of the assets of Dominion Energy, the company behind the project.
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“It was quite a shock all across West Virginia,” Charlie Burd, executive director of the Independent Oil and Gas Association of West Virginia, told a local television station. “But we will endeavor to persevere, and we will move right on past that.”
More broadly, though, WVU economists cautioned that the number of rigs actively drilling new wells—a better measure of the production and jobs to come—was down from twenty in the second quarter of 2019 to just five by the third quarter of 2020.
“Given the rapid decline in natural gas drilling activity in the state over the first half of 2020 we forecast that production and employment will soon follow suit,” the WVU report said. The report forecast a more than twenty percent drop in jobs in 2020, with employment to remain down through 2022.
Despite emphasizing such sobering data the WVU report professed optimism about the sort of gas-fueled economic renewal that Justice and other political leaders continually tout. “The emergence of downstream manufacturing in the Appalachian Basin will support long-term supply growth in West Virginia,” the report said.
Industry supporters point to the continuing construction of Shell Chemical Co.’s multibillion-dollar petrochemical complex in Beaver County, Pennsylvania, as reason for hope. More than six hundred permanent jobs are projected, and economic benefits are expected to span across the region and into the nearby West Virginia northern panhandle. The project is said to be seventy percent complete.
Just two weeks before Justice’s August 2019 speech to West Virginia business leaders, President Donald Trump had visited the Shell plant construction site. Trump claimed the project “would never have happened without me,” despite Shell announcing the plant in 2012, when Barack Obama was president.
This summer, a report from the Institute for Energy Economics and Financial Analysis, a research group that supports a transition to clean energy, warned that the Shell plant faced a new collection of potential risks, including low plastics prices, industry oversupply from a construction blitz and the economic slowdown from the pandemic. “These risks are analytically distinct, but taken together, raise significant red flags that the complex will be less profitable than originally presented,” said Kathy Hipple, a financial analyst who co-authored the report.
In June, the U.S. Energy Department issued a report that touted a $10 billion gas cracker plant that PTT Global Chemical wants to build in Belmont County, Ohio, across the river from Moundsville, West Virginia. Two weeks after the report was issued, one of that project’s key investors dropped out. The company has said it is looking for new partners.
Scholars, policy analysts, and economists had previously cautioned that the Belmont County project faced financial risks similar to Shell’s Pennsylvania plant.
One thing is clear: Coal isn’t coming back. In West Virginia, coal jobs dropped to less than eleven thousand in the second quarter of 2020, down about thirty-five hundred over the previous year, according to data from S&P Global Market Intelligence. While WVU projects a slight rebound in coal, and that the “worst is over” for the industry, experts don’t project anything close to a return to even the twenty thousand jobs provided as recently as 2013.
Still, as coal continues to decline, West Virginia political leaders seem to only try harder to prop up the industry. In March 2019, Justice traveled to Marion County to appear with a group of miners when he signed into law a $60 million-a-year tax cut for coal used at electrical power plants. And then in August 2019, the governor proposed and signed a measure giving a tax cut for a specific coal-fired power plant in Pleasants County.
The state is also taking steps to help the natural gas industry. Following a court challenge by gas operators of property tax formulas, the West Virginia Tax Department is proposing a rule change that the Ohio River Valley Institute, a progressive think tank, says could cost state and local governments as much as $62 million a year.
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As Justice runs for reelection, his Democratic opponent, Charleston attorney Ben Salango, has criticized the governor for not doing enough to push for construction of a new gas-fired power plant. And Salango’s economic plan proposes to “leverage natural gas and petrochemical opportunities” and “attract downstream petrochemical development.”
On Oct. 19, two weeks before the general election, Justice held a Capitol press conference to finally announce a $350 million plant that would use natural gas to produce the important chemical feedstock methanol. “Today’s announcement just goes to show that West Virginia is a great place to do business and one of the most business-friendly states in the whole country,” the governor said. “You’re seeing businesses leaving other states left and right, but West Virginia’s economy continues to grow.”
Lars Scott, executive vice president of West Virginia Methanol, called the facility his company’s “flagship project” and predicted it would “be the first of many across the state, the region and the world.” The new methanol plant, the governor’s office said, “is expected to create approximately 30 high-paying jobs once operational.”
Ted Boettner, senior researcher with the Ohio River Valley Institute, said that West Virginians have been promised “an industrial phoenix, rivaling the Gulf Coast,” but that instead so far they’ve gotten “a small facility with a payroll close to that of an Applebee’s or an Olive Garden.” ■
This article was originally published by ProPublica, a nonprofit newsroom that investigates abuses of power. It was co-published with Mountain State Spotlight, a new nonprofit newsroom covering West Virginia.
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