Proponents of Appalachia Ethane Hub, PetChem Buildout Seek Federal Study

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Researched by Industrial Info Resources (Sugar Land, Texas)--With its abundance of shale-derived natural gas and natural gas liquids (NGLs), the Appalachian region has the chance to become a major ethane storage and distribution hub, unlocking the potential to develop petrochemical facilities rivaling those on the U.S. Gulf Coast, according to proponents of the idea. Of course, some big investments would be needed to make all of this work.

American Chemistry Council (ACC) President and Chief Executive Officer Cal Dooley outlined an ACC report last week that highlights the potential benefits of turning the Appalachian region into a second center of U.S. petrochemical and plastic resin manufacturing. Speaking at the Downstream Engineering, Construction & Maintenance (DECM) Petrochemical Update conference in New Orleans, Louisiana, Dooley said that according to a projection by West Virginia University, the region has the potential to produce about 1.1 million to 1.3 million barrels per day of natural gas liquids, of which roughly 700,000 barrels is ethane. Even after factoring in growth in pipeline shipments of ethane out of the region, an estimated 350,000 to 400,000 barrels per day of ethane would still be available as feedstock for local petrochemical production, according to the report.

Natural gas produced in the Eastern U.S.--mainly from the Marcellus and Utica shales--has already grown from "next to nothing" to more than 20 billion cubic feet (BCF) per day, according to the report, and production is expected by the Energy Information Administration (EIA) to more than double over the next 35 years, accounting for 40% of total U.S. natural gas production. Currently, however, NGLs produced in the region are being transported to petrochemical producers along the Gulf Coast and are even being exported to petrochemical producers in Canada, Europe and India, the report says. Also, a large amount of the ethane is being left in the natural gas stream, according to the report.

"Because of the vast resource available in Appalachia, several petrochemical producers have announced plans to build ethylene and polyethylene facilities in the region," the report continues. "These facilities will bring much-needed economic activity to this part of the country."

As such, Shell Chemical Company, part of Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands), plans to build a major petrochemical complex, comprising an ethylene unit with a polyethylene derivatives unit, to be located in Monaca, near Pittsburgh, Pennsylvania. Structural construction of the 1.5 million-metric-ton-per-year ethylene cracker is expected to kick off in the third quarter of this year, with completion in second-quarter 2020. For more information, see Industrial Info's project report.

"There is potential, however, for much more," the ACC report continues. In addition to the projects already announced for the region, ethane and propane from the region could feed at leave five more world-scale ethylene complexes and a handful of propane dehydrogenation and polypropylene facilities, the report says.

A group of lawmakers, including U.S. senators Shelley Moore Capito (Republican-West Virginia), Joe Manchin (Democrat-West Virginia) and Rob Portman (Republican-Ohio), are sponsoring legislation directing the Secretary of Energy and the Secretary of Commerce to conduct a feasibility study into establishing an ethane storage and distribution hub in the Marcellus, Utica and Rogersville shale plays. The study would be completed within two years of the enactment of the legislation.

Despite the growth in shale-derived natural gas production in the region, lack of infrastructure has meant much of the gas being produced has been "locked in" to the region, depressing prices and limiting the potential use of associated NGLs, according to a statement in support of the study.

Proponents of the hub and a subsequent petrochemical buildout in the region say that in addition to providing a much-needed boost to the local economy, it would add redundancy to the concentration of U.S. refining and manufacturing capacity in the Gulf of Mexico, which can be disrupted by hurricanes. The ACC report said that during 2005, the disruptions from hurricanes Rita and Katrina had a ripple effect on manufacturing and businesses around the country. Even dairy producers in the Midwest could not package milk in plastic gallon jugs, it said.

Dooley said a federal study would provide the private sector with more clarity as to whether to invest in an underground ethane storage facility and supporting pipeline, which would cost an estimated $10 billion.

The ACC analysis regarding the potential impact of further petrochemical development includes a "what if" scenario that includes construction of five ethane crackers with a combined capacity of 6.25 million metric tons per year, along with polyethylene plants and other derivatives facilities, to the tune of $35.8 billion in capital investments. Such a massive build-out would result in about 25,700 new direct jobs, as well as 43,000 indirect (supply chain) jobs and 32,000 payroll-induced jobs in Kentucky, Ohio, Pennsylvania and West Virginia.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.