U.S. Oil Boom Revitalizing Rust Belt Economy

The American Midwest is enjoying a one-two punch of an economic boom thanks to hydraulic fracturing. The relatively new - and still controversial -- technique is not only generating more energy, it's also sparking a revitalization of old industries and boosting economically depressed cities and regions.

In whole swaths of Ohio, for example -- from the state's industrial northeast to its agricultural center - oil and gas fracking is helping to reawaken other sectors of the economy, including manufacturing, real estate and hotels.

Fracking - which involves injecting chemical-laced fluids into deep shale deposits to provide access to oil and gas deposits -- has plenty of opponents who raise legitimate environmental and health concerns. Yet in Ohio, concern is more muted. The state has become a symbol of the Rust Belt, where heavy industry was once the engine of local economies but which has been in a steep decline for decades.

Now the region is beginning to shine again. The French multinational Vallourec, which specializes in serving the energy and transportation industries, has just finished construction of a $1.1 billion plant in Youngstown, Ohio, to make steel pipes for the energy industry. The million-square-foot facility soon will be paired with an $80 million Vallourec plant that makes pipe connectors.

And all those facilities need workers. The unemployment rate in Ohio was just 5.7 percent in July, a nearly five point drop from four years ago, when its jobless rate was 10.6 percent. The current national unemployment rate is 6.1 percent.

The benefits aren't just being felt in Ohio. Several recent economic indicators, such as hiring in the manufacturing industry, indicate a growing momentum.

This is "a real game-changer in terms of the U.S. economy," manufacturing sector expert Katy George of McKinsey & Co. told The New York Times.

The Times Board of Economists, a group of industry leaders assembled by the Northwest Indiana Times, agree.

At a recent meeting of the group, Mark Ennes of Merrill Lynch, said foreign direct investment across the U.S. economy is being driven by growing U.S. energy independence. "For a long time, we were exporting jobs," he said. "But now [foreign investors] are bringing jobs here."

Of course, growing U.S. energy independence means U.S. energy imports are declining. That's causing Saudi Arabia to rethink its export strategy. Riyadh has for years kept the price of crude oil low enough to maintain a healthy market share in the United States, but now American oil is supplanting it.

"The Saudis are not going to sell crude at a disadvantage to themselves," Mike Wittner, an oil expert at Societe Generale's office in New York, told Bloomberg News. "They'll price crude to be competitive … and if that means their flows to the U.S. are down, so be it."

By Andy Tully of Oilprice.com