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From Site Selection magazine, September 2012

New Solutions

Corporations, communities and Commonwealth officials display their creative side.

Benjamin Franklin Parkway is home to some of Philadelphia’s biggest annual events and festivals.
Photo by B. Krist for GPTMC

Allegheny Technologies is investing about $1.1 billion in a hot strip mill in Pittsburgh.
Allegheny Technologies is investing about $1.1 billion in a hot strip mill in Pittsburgh.

In 1859, a well was drilled in quiet farm country in northwestern Pennsylvania for the express purpose of finding and extracting "rock oil" from the ground. This was to be the fuel for lamps. It became much, much more.

The success of the Drake Well near Titusville fueled an entire petroleum industry that would grow, mature and contribute to Pennsylvania becoming a manufacturing powerhouse and transform the world.

In short, Big Oil was born here, and what followed is a story with new chapters still to come.

Today, more than 150 years later, the energy industry continues to dominate much of the thinking across the state. In the east, on the Delaware River near Philadelphia, aged oil refineries are finding new lifeblood, while 300 miles (483 km.) to the west, energy companies are building infrastructure and planning for a future in which a different fossil fuel plays a central role.

Just as technology permitted the first oil well to be drilled, new technology in the form of horizontal resource drilling and hydraulic fracturing has created great expectations in Pennsylvania for tapping into huge reserves of natural gas. The Marcellus Shale and Utica Shale plays, huge underground seas of natural gas spanning multiple states, have revived hopes and interest in what some had considered a dying landscape for old-line manufacturers.

C. Alan Walker, the secretary of the Department of Community and Economic Development, says Pennsylvania's aggressive push to tap into the natural gas fields will prove to be a historic game changer, with investments in the billions of dollars and thousands of new jobs to result.

"We think that the new energy discovery here in Pennsylvania and the technology that has been brought in to tap into these various shale gas fields that we have are going to play a big part in turning things around," Walker says. "Since we started tapping into these reserves, our unemployment rate, which is a pretty good measure, has consistently been about 1 percent below the national average, which for an industrialized state like Pennsylvania is a little unusual."

The administration of Gov. Tom Corbett contends that the prospect of a single petrochemical cracker plant being built in Beaver County could result in 10,000 new jobs. Industry experts say at least three cracker plants, which break down gas compounds into other elements, could be built in the region encompassing western Pennsylvania, eastern Ohio and West Virginia.

Shell Oil Co. announced in March that it had chosen a site in Beaver County for the location of a future cracker, making Pennsylvania the winner of a tri-state competition for the billion-dollar industrial operation.

On June 30, the state General Assembly passed the Resource Manufacturing Tax Credit as part of the 2012-2013 budget. The new law was designed to seal the deal with Shell, and enable future petrochemical companies to build ethane cracker plants in Pennsylvania. To qualify for the tax credit, a company must make a US$1-billion investment and create at least 2,500 new jobs. The credit authorizes a 5-cent-per-gallon tax credit for ethane bought in the manufacturing of ethylene between 2017 and 2042 for qualifying companies.

While economic developers caution that the Beaver County project is not yet a done deal, Walker says all signs point to the project happening. Shell will probably have completed enough of its due diligence to know by November whether it will go forward with the project, he says.

"The state of Pennsylvania has not signed a document yet with the company, but there are certain benchmarks along the way and every benchmark has been met," he says. "The company has told us that they will make their final announcement in November, so I think that we are on track."

Distribute the Wealth

Gov Corbett
Gov. Tom Corbett
Gov. Corbett says Pennsylvania is now getting its due recognition because of its improved business climate that has resulted in a wave of new investment.

"I am committed to putting Pennsylvania back on track by creating a pro-business environment that encourages new investment and job growth," said Corbett upon learning that Site Selection had ranked Pennsylvania third in the nation with 453 new or expanded facilities in 2011. "This new national recognition verifies that we are moving in the right direction."

The deal flow continues. Since March 1, when Governor's Cup rankings were announced, a number of major projects have landed in Pennsylvania. And while some have been energy related, there has been a recent spate of announcements for distribution centers in the eastern half of the state.

Dollar General Corp., a national retailer with more than 10,000 stores, announced in June that it will build a 900,00-sq.-ft. (83,610-sq.-m.) distribution center in a new industrial park in Berks County, anchored by the city of Reading just northwest of Greater Philadelphia. The $100-million project is expected to create at least 500 new jobs.

Ocean Spray Cranberries, Inc. is building a $110-million juice bottling plant on a 44-acre (18-hectare) site in Lehigh County, creating 165 jobs. The 315,000-sq.-ft. (29,264-sq.-m.) plant will produce over 32 million cases of beverages each year and is slated for completion during the fall of 2013. Ocean Spray plans to pursue LEED-Gold certification for the building, which will replace an aging facility in Bordentown, N.J.

A company spokesman referred to the Lehigh Valley as "a leading transportation hub" linking Atlantic ports with major highways going in all directions. The company also cited Pennsylvania as having lower power, water and trucking costs.

Pete Reinke, vice president of regional development with the Lehigh Valley Economic Development Corp., said Ocean Spray will join like-minded companies.

"We have a high concentration of food and beverage companies in our area, because we have good water, good logistics and an exceptional work force," says Reinke.

After what it termed a "long and thorough study of our future supply chain needs," luxury retailer Neiman Marcus has chosen to lease a nearly 200,000-sq.-ft. (18,580-sq.-m.) distribution center in Jenkins Township, just outside Wilkes-Barre. About 150 jobs are projected to be created at the CenterPoint Commerce and Trade Park East.

"The new facility is strategically located to allow us to better serve our customers and stores in the Northeast," said Jim Skinner, executive vice president, COO and CFO for Neiman Marcus. "After successfully operating stores in Pennsylvania for over 15 years, we look forward to expanding our presence in the state."

CenterPoint now consists of 20 buildings totaling 5.5 million sq. ft. (510,950 sq. m.). Neiman Marcus joins several major retailers with distribution facilities in CenterPoint, including J.P Boden, Men's Wearhouse, Lowe's and The Home Depot.

Penny Cannella, president of Penn's Northeast, a four-county regional group, said the Neiman Marcus project demonstrates Northeast Pennsylvania's strength as a strategic locale for moving product up and down the eastern seaboard.

"Probably most new investment in our region has been in distribution. We have a strong and growing food cluster that is a combination of manufacturing and distribution. Our proximity to market and the changing American tastes with ready-made foods, baked goods and frozen products have been driving factors," she says.

MIQ Logistics announced in June that it would move its regional distribution operations from a 45,000-sq.-ft. (4,181-sq.-m.) New Jersey facility into an expanded 116,000-sq.-ft. (10,776-sq.-m.) facility in Tannersville, Pa., just north of the Lehigh Valley along I-80 near Stroudsburg. The company will enter into a 15-year lease at the former Roadway facility, and will invest in infrastructure, site development and employee training. The project is expected to create at least 80 full-time jobs.

ULTA Beauty, the largest retailer of salon products, recently began operating a new 373,000-sq.-ft. (34,652-sq.-m.) distribution center, its third in the nation, in Chambersburg, just north of the Maryland state line along I-81. The company expects to eventually employ 400 workers at the facility when it reaches full capacity.

Steel Still Strong

While distribution centers have found a willing and able home in Pennsylvania, much of the emphasis still remains on making products. Manufacturing has a long tradition in Pennsylvania, and the Corbett administration has been intent on building upon that tradition. While recently touring U.S. Steel's Mon Valley Works Clairton Plant in Allegheny County in July, the governor spoke of the importance of the steel industry and its place in American history.

"This valley and this plant were the crucible in which the United States was built," Corbett told reporters. "The importance of steel should not and cannot be forgotten."

And contrary to popular belief, it's not being forgotten in the region surrounding Pittsburgh. Steel and advanced manufacturing remain a big focus and a concentration.

"We have a diversified economy but still are seeing activity in advanced manufacturing, which is one of our strong sectors," says Dewitt Peart with the Pittsburgh Regional Alliance. "One of our biggest projects being built right now is Allegheny Technologies, which is spending about $1.1 billion in building a new hot strip mill."

Officially known as the L. Patrick Hassey Hot Rolling Processing Facility, the mill at Allegheny Technologies Brackenridge Works northeast of Pittsburgh is expected to open in December 2013. The company says it will be able to produce any type of specialty metal needed by manufacturers. ATI has evolved over the past decade beyond steel to make specialty metals such as titanium and nickel-based alloys for the aerospace, oil and gas, electric power and medical device markets.

GE Transportation, the world's leading maker of rail, mining and transportation-related products, also continues to invest in western Pennsylvania. In December 2011, the company said it would invest a total of about $72 million in manufacturing in Grove City — $35 million to build capacity at a new diesel engine remanufacturing plant and an additional $37 million in an existing facility.

GE Trans Evolution Series Diesel Engine
GE Transportation announced in December 2011 it would invest approximately $72 million in manufacturing at its Grove City location.

The new plant will employ up to 250 employees by early 2013, including about 100 current GE employees who will transfer from the current Grove City facility. GE plans to hire about 150 additional employees by early 2013. Production is scheduled to begin by the end of 2012.

According to an economic impact study in 2010, GE Transportation has a total economic impact of $3.6 billion on Northwest Pennsylvania and $4.6 billion statewide. GE Transportation's operations generate $1 of every $130 in the state's economy.

GE's Grove City plant has expanded its scope during its 40-year history to include both new and remanufactured products. Its total annual production of about 2,000 locomotive engines a year makes it one of the largest locomotive diesel engine manufacturing sites in the world.

"The company thought that this was the most cost-effective decision," says Jill Newcomer with the Penn-Northwest Development Corp. and the Mercer County Industrial Development Authority. "They had an opportunity to do this project elsewhere, but they decided to remain here because of the synergies existing here. So it was beyond getting free land for them. This made the most sense for them, especially in terms of work force."

In most of the projects, the Governor's Action Team, a group housed within the Department of Community and Economic Development, played an instrumental role in getting the deals done, according to company and local economic development officials.

In a prepared statement, Richard Simpson, global services supply chain operations leader for GE, praised state and local economic development officials for responsiveness and support.

"We work very well with the Governor's Action Team," says Reinke of the Lehigh Valley Economic Development Corp.

Know Your Role

The proactive support falls in line with what Gov. Corbett says is state government's role in economic development. During his recent tour of U.S. Steel's Mon Valley Works Clairton plant, the governor said government's role should be simple: Either help or to "get the hell out of the way."

The state does play an active role when it can be a benefit to business, says Walker, head of the state's economic development agency. He confirmed that his boss, the governor, is trying to make a mark with business.

"We feel that we are doing very well relative to the other Northeastern states, because our governor is really working to improve the business tax climate here. We are eliminating the capital stock and franchise tax. We are doing a lot of things that are business friendly, and we are getting a lot more inquiries than we have been," says Walker. "The message is out there that Pennsylvania is just a great place to do business."

Doing business often means saving business, and Pennsylvania recognized the strategic value in helping three aged petrochemical plants and refineries along the Delaware River near Philadelphia, all of which had uncertain futures at best. Through grants and tax breaks, the Corbett administration provided:

  • $30 million to Delta, for taking over ConocoPhillips' Philadelphia refinery;
  • $25 million to Sunoco and the Carlyle Group, for overhauling and expanding Sunoco's Philadelphia refinery;
  • $15 million to chemical producer Braskem, which is purchasing Sunoco's idled Marcus Hook location, and turning it into a natural gas-processer.

"We put a team together to study the situation and it now looks as this plays out like we'll end up with more jobs at those three refineries than were there before," Walker says. "We came up with some really creative solutions to save them."

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