One thing is for sure in the energy and energy conversion renaissance in America: Texas and Pennsylvania, and specifically Houston and Philadelphia, are now linked in a synergistic partnership. By "energy conversion," I mean the processing and refining of crude and/or natural gas liquids. This is really where the value is added and the products we use every day come from.

Surprised? You shouldn’t be. Houston has been widely regarded for years as an American energy center, and has a tremendous oil and gas processing and refining infrastructure. Now, with the emergence of the Marcellus and Utica Shale plays in the Northeast, the Greater Philadelphia area is re-emerging as an energy hub. At one time, Philadelphia was a national energy center. As Professor Mark Alan Hughes, and his co-author, research associate Elise Harrington, described in their recent piece published in the Philadelphia Inquirer:

In 1847, …[Philadelphia’s]… enormous energy infrastructure of mines, coal breakers, railroads, freight yards, and docks helped generate the industrial base that made Philadelphia the "workshop of the world" in the half-century that followed. By 1880, William Cramp and Sons Shipbuilding was the largest iron ship maker in the United States, and Baldwin Locomotive was producing twice as many trains as anyone else. In 1907, the Atlantic Refinery burned 350,000 tons of coal to produce oil and oil derivatives that accounted for nearly one-fourth of Philadelphia exports, including half the world’s lamp oil. 

Click here to read their thoughtful article.

Since arriving at Blank Rome and joining my Houston partners,I have spent a lot of time in both Houston and my native Philadelphia. The connection between the two cities for energy- and refining-related value-added activity is palpable. Energy companies like Shell, Chevron, ExxonMobil, Kinder Morgan, Williams, Cabot, and many others with a strong Houston presence are connecting to Pennsylvania.

Those companies’ as well as others’ smart money view Pennsylvania and the Greater Philadelphia area as an up-and-coming American energy hub. For example, Greater Philadelphia is the site of two now-thriving oil refineries—the Philadelphia Energy Solutions ("PES"), a joint venture between the Carlyle Group (NASDAQ: CG) and Energy Transfer Partners (NYSE: ETP), and Monroe Energy, a wholly-owned subsidiary of Delta Airlines (NYSE: DAL). Those refineries were nearly dead but were then reborn because of the ability of the United States to produce domestic crude oil from the Bakken Shale in North Dakota.

The PES refinery employs over 1,000 workers and processes about 330,000 barrels of crude oil per day (bpd), which makes it the largest oil refining complex on the Eastern Seaboard. PES has already invested more than $250 million in capital and created 100 new permanent jobs at the refinery in just its first year of operation. PES is bringing in lower cost, lower sulfur crude oil from North Dakota’s Bakken shale, which is extracted by horizontal drilling and hydraulic fracturing. PES, in tandem with CSX (NYSE: CSX), just cut the ribbon in October on its on-site rail unloading facility that will see the daily unloading of at least two 120-car, 80,000 barrel unit trains from North Dakota. Monroe’s Refinery, located in neighboring Trainer, Delaware County, refines about 180,000 bpd. Monroe is also using domestic Bakken crude oil. If you add to the production output of the PES and Monroe refineries the PBF refineries in Paulsboro, New Jersey at 160,000 bpd and Delaware City, Delaware at 182,000 bpd, Greater Philadelphia accounts for about 862,000 bpd of refining capacity.

Although the Gulf Coast accounts for about 44 percent of the nation’s refining capacity, Northeastern oil refining capacity is also crucial to national security. In early 2012, when it looked like all three Northeast refineries would be lost, Congressman Patrick Meehan (PA-7) convened a hearing on the national security impacts of such closures and said:

Two of our local refineries have closed and one is slated for closure—together they account for 50 percent of the Northeast’s entire refinery capacity. More than 30 U.S. refineries have closed in the last decade. This hearing will help us understand the homeland security consequences of our declining domestic refining capacity, both in terms of threats to critical infrastructure and our dependence on imports from unstable parts of the world.

During the aftermath of Hurricane Katrina, when Gulf Coast refining output was significantly curtailed, the Northeastern refineries worked 24/7 to provide refined products to the eastern half of the nation. When Hurricane Sandy shut down about two-thirds of the East Coast’s refining output, the Gulf Coast facilities remained operational. Both Gulf Coast and Northeast refining capacity are therefore important and complementary national resources.

Braskem (NYSE: BSK), the Brazilian petrochemical company, 51 percent owned by Odebrecht, the diversified Brazilian conglomerate, has also staked out Philadelphia as its American base. Braskem makes polypropylene, polyethylene, and PVC from petrochemical feedstock derived from natural gas liquids. Just the other day, Odebrect announced that it was exploring the possibility of building a huge petrochemical processing facility (a "cracker") in the Northeast, to be operated by Braskem, which will, among other things, supply feedstock to Braskem.

The former Marcus Hook, Delaware County Refinery is being remade into a direct link between the Greater Philadelphia area and the natural gas liquids rich Western Pennsylvania and Appalachia Marcellus and Utica Shale fields. Sunoco Logistics (NYSE: SXL) and Range Resources (NYSE: RRC) are partnering on Mariner East to deliver ethane and propane. The project will start with the delivery of about 70,000 barrels per day and, based upon market response, is already in the process of being scaled up.

All the companies I’ve mentioned are responsible for a lot of economic activity in Philly.

Penn’s Hughes and Harrington, I should note, got a couple of things wrong. They said: "Research suggests that the natural gas boom won’t significantly help lower carbon emissions (basically because it is replacing renewables and efficiency in addition to replacing coal)." The Energy Information Administration and the Environmental Protection Agency both report that the American carbon footprint has been dramatically lowered thanks to the greater use of natural gas for electricity generation. Also, natural gas is about the best partner wind and solar can have right now, since gas generation can be used to solve the key problem with those two renewables: their intermittent nature. (Click here to read more on this topic.)

Hughes and Harrington are dead-on, though, about the big picture: Greater Philadelphia boasts an embarrassment of riches, allowing it to be uniquely poised as a great American energy hub. And they unabashedly say it can do that while being faithful to Philadelphia’s other traditions of being equitable, engaged, and environmentally sustainable.

We are just seeing the tip of the iceberg. Greater Philadelphia is located near the energy resources and in the heart of the location of the demand—60 percent of the United States’ population is within about a day’s drive. The region has a world-class transportation infrastructure, including a deep-sea port, rail lines, and airport. There is an experienced, well-trained, and well-stocked labor force. There are top-notch higher education institutions and a renowned healthcare network.

All this means that as time goes on and the American energy and energy conversion revolution continues, Texas and Pennsylvania, and especially Houston and the Greater Philadelphia area, will be further connected to provide the synergy and teamwork required for America’s transformation into an energy abundant, jobs-creating juggernaut.