WHEN KEN ALEXANDER started working at the J&L steel mill in Aliquippa, Pennsylvania, in the 1970s, he was one of 17,000 workers. But the workforce quickly declined as the American steel industry withered in the face of cheaper foreign competition. In 1984 J&L shut the mill. Four years ago another mill where Mr Alexander had found a job, across the Ohio river in Ambridge, also stopped work because of the recession. He was one of a skeleton staff of 20 kept on as watchmen.

Derelict mills pepper the region, loose sidings flapping in the frigid Appalachian wind. The once celebrated steel industry around Pittsburgh (whose football team is called the Steelers) survived a series of crises over the years, notes Mr Alexander, but was further diminished by each of them—until now. These days the Ambridge mill, bought by a Russian conglomerate five years ago, is humming away. Its 400 workers transform solid steel bars produced at another mill nearby into seamless pipes, in demand by oil drillers, among others. The management is taking advantage of a seasonal lull in demand to straighten out kinks in the line and thus increase its capacity.

Other firms are making much bigger bets on the local steel industry. Fifty miles to the north-west, in Youngstown, Ohio, a French firm, Vallourec, has spent $650m building an entirely new mill to make similar pipes. It began production in October, with a staff of 350. Thirty miles in the opposite direction, in Brackenridge, Pennsylvania, Allegheny Technologies is spending $1.1 billion on a new mill to produce stainless steel and other specialty metals. US Steel opened a new $100m mill in Ohio in 2011, also to supply the oil and gas industry. Timken, another steelmaker, is spending $200m on its mill in Canton, Ohio.

The main reason for this flurry of investment lies a few thousand feet below the ground: the Marcellus shale, a geological formation containing huge reserves of natural gas trapped in tiny pores in the rock. It is thought to be America’s biggest gas field, stretching 600 miles along the Appalachians, from New York to West Virginia., but has only recently begun to be tapped, thanks to fracking and directional drilling.

Last year the government of Pennsylvania alone issued permits for 2,484 such “unconventional” wells; 1,365 of them were actually drilled. Wells in the Pennsylvanian part of the Marcellus produced 895 billion cubic feet (bcf) of gas in the first half of 2012, up from 435bcf in the same period in 2011 and almost nothing as recently as 2008.

Well lubricated

Driving through the south-western corner of the state, the benefits of this “shale gale” are easy to see. New roofs, fences, barns and tractors have sprouted on many local farms; plenty of shiny new pick-up trucks ply the roads. By one estimate, Pennsylvanians who allow drilling on their land earned some $1.2 billion in royalties last year. Suburban office parks are proliferating outside Pittsburgh, the biggest city in the area, with space being snapped up by oil firms, their suppliers and subcontractors, lawyers and environmental consultants. Even the most basic restaurants are overflowing at lunchtime, a local complains.

All told, the Marcellus already supports over 100,000 jobs in Pennsylvania, according to an analysis by IHS, a research firm. That figure is expected to rise to over 220,000 in 2020. Shale gas gave the local economy a $14 billion boost last year, IHS reckons, and will buoy it by almost $27 billion in 2020. All the extra economic activity generated nearly $3 billion in taxes, it calculates. A new “fee” (the Republican word for tax) on gas production adopted by the state legislature last year should help raise yet more in future.

Pennsylvania is just one of several states enjoying a shale-gas boom. Arkansas, Louisiana, Oklahoma and Texas have all seen similar rushes. Shale-gas production in the United States as a whole rose more than fourfold between 2007 and 2010, says the Department of Energy. That has helped push up its gas output by 20% over the past five years, making the country the world’s biggest gas producer. BP, a big oil and gas firm, forecasts that North American shale-gas output, largely from the United States, will grow by an average of 5.3% a year until 2030.

America is already producing so much shale gas that local gas prices have plummeted, from over $13 per million British thermal units (mmBTU) in 2008 to $1-2 last year. They have since recovered slightly (see chart 3), but America still enjoys remarkably cheap gas by international standards. In 2011 it had the second-lowest gas prices for industry among rich countries, after Canada, according to the International Energy Agency (IEA). American factories paid a third of the German gas price and a quarter of the South Korean one, the agency reckons—and prices have fallen further since.

Cheap gas is also translating into cheap electricity, since America’s marginal power supplies tend to come from gas-fired plants. In 2011, according to the IEA, American factories paid roughly half the going rate for electricity in Chile or Mexico and a quarter of the eye-watering Italian price. In New York last year prices were the lowest they have ever been since the state introduced a competitive wholesale market in 1999. Investors, naturally enough, are keen to take advantage of such bargain prices. They have been pouring money not only into steelmaking but all manner of energy-intensive industries, from plastics to fertilisers. Just up the Ohio from Ambridge, Shell is contemplating building a multi-billion-dollar “cracker” to turn the ethane that emerges with much of the gas from the Marcellus into ethylene, a feedstock for plastics. On the Gulf coast (another gas hub), Chevron Phillips, Dow Chemical, Formosa Plastics, Occidental Petroleum and Williams are all expanding existing chemical plants or building new ones. A chemical firm called Methanex is dismantling one of its factories in Chile and shipping it to Louisiana to take advantage of low gas prices. CF Industries is expanding its local fertiliser production. Nucor, a steel firm, is building a new mill. Sasol of South Africa hopes to build a refinery in Louisiana to turn gas into petrol. Several firms want to construct facilities in the region to liquefy gas and export it—a dramatic reversal from a few years ago, when the need was thought to be for import terminals. America’s big pipeline network creates a relatively liquid and fungible national market for gas, so customers far from any shale beds are still able to take advantage of low gas and chemicals prices. Orascom, an Egyptian conglomerate, plans to build a $1.4 billion fertiliser factory in Iowa. Bridgestone, Continental and Michelin are all planning to make more tyres in South Carolina, reversing a long decline.

Better still, the steep drop in the price of natural gas has driven America’s drillers to hunt for oil instead. Rigs are migrating from gassy places like the Haynesville Shale, in Louisiana, to spots where oil is trapped in tiny rock pores, such as the Permian Basin and Eagle Ford Shale in Texas, the Bakken formation of North Dakota and the Mississippian Lime, which sits astride the border between Oklahoma and Kansas. Applying the same techniques to such “tight oil” as to gas-laden shales, they have managed to increase America’s oil production by a third over the past four years, to 7m b/d. The government expects it to grow by more than 1m b/d over the next two years. The output of the Bakken Shale alone has risen from 100,000 b/d in 2008 to over 700,000 now. By the end of this year, BP predicts, America will overtake Russia and Saudi Arabia to become the world’s biggest producer of liquid fuel, meaning oil and biofuels.

The newfound oil brings just as much of a bonanza to the places where it is extracted as the shale gas does. Flights to previously obscure airports in North Dakota—Dickinson, Minot and Williston—are full, as are all hotels within striking distance of the Bakken. Property prices have shot up. The oil industry now accounts for 15% of the local economy, according to IHS, and has brought 72,000 jobs to a state with fewer than 700,000 people.

Despite its huge local impact, America’s shale-oil boom has pushed up global oil production by just a percentage point or two, not enough to reduce the price much. However, it has resulted in a big drop in America’s import bill. IHS calculates that unconventional oil reduced the trade deficit in 2012 by $70 billion, or about 10%.

All told, says IHS, unconventional oil and gas accounted for $238 billion in economic activity, 1.7m jobs and $62 billion in taxes in 2012. That includes the exploration and extraction itself, the supply chains they rely on and the extra spending by all those newly employed oilmen. But it leaves out the second-order effects of cheaper gas, electricity and chemicals. Last year the American Chemistry Council, an industry group, forecast that over the next couple of years cheap gas would spur some $72 billion in new investments in eight gas-hungry industries alone. That, in turn, would lead to a further $342 billion in new economic activity in 2015-20, along with the creation of 1.2m new jobs. The different levels of government, for their part, would rake in an extra $26 billion a year in new taxes.

An outsized bonus

In principle, all American companies and consumers benefit from lower energy prices. The effect may not always be big enough to spur heavy new investment, but it might be sufficient to keep American factories with high labour costs going in the face of foreign competition.

Economists at Citigroup and UBS predict that the shale gale will lift America’s GDP growth by half a percentage point a year for the next few years. Indeed, cheap energy is cited as one factor by those who predict a manufacturing renaissance in America. Labour in China is getting more expensive, the argument runs, and so is shipping Chinese-made goods across the Pacific. At the same time ever shorter product cycles confer an advantage on factories located close to the people who consume their goods. Quality is easier to maintain and intellectual property easier to protect if the head office is not far away. Throw in lower bills for power or petrochemicals, and bringing work back home begins to look attractive.

For the moment America’s manufacturing output remains below its 2007 level, and its trade deficit with China is still growing. But some high-profile examples have caught the headlines. GE has moved the production of some white goods from China and Mexico to Kentucky, and Lenovo, the Chinese firm that bought IBM’s personal-computer business, plans to return some manufacturing to North Carolina. In the long run, however, America will not be able to lure and retain investors like these without a better-educated workforce.

Correction: The original version of this article stated that the steel mill in Ambridge was bought by a Russian conglomerate six years ago. In fact, it was five. This was corrected on March 21st 2013.