Shale Revolution Rolls On

WASHINGTON–Thanks to the area’s abundance of affordable energy and feedstock, conditions appear right for the Appalachian region to become a major center for U.S. petrochemical and plastic resin manufacturing, second only to the U.S. Gulf Coast, indicates analysis by the American Chemistry Council. Fully capitalizing on the opportunity will require significant new infrastructure, the report suggests, but the associated economic benefits should be big.

ACC President and Chief Executive Officer Cal Dooley unveiled the findings at a May 18 Capitol Hill press event that also emphasized public policy factors that could help the petrochemical industry flourish in the quad-state area of West Virginia, Pennsylvania, Ohio and Kentucky. Dooley touted Appalachia’s advantages that could enable such development. “Proximity to a world-class supply of raw materials from the Marcellus/Utica and Rogersville shale formations and to the manufacturing markets of the Midwest and East Coast already has led several companies to announce investment projects, and there is potential for a great deal more,” Dooley stated.

ACC’s report presents a hypothetical scenario that includes the construction of a storage hub for natural gas liquids and chemicals, an extensive pipeline distribution network and associated petrochemical, plastics and potentially other energy infrastructure and manufacturing in the quad-state area. It relies on the IMPLAN input-output methodology to estimate direct, indirect and payroll-induced job impacts, as well as tax revenue impacts.

The economic benefits could be substantial, ACC suggests. By 2025, the quad-state region may see 100,000 permanent new jobs, including 25,700 in manufacturing new chemical and plastic products, 43,000 jobs in supplier industries and 32,000 ‘payroll-induced’ jobs in communities where workers spend their wages, according the report. The new investment also may lead to $2.9 billion a year in new federal, state and local tax revenue.

Policy Considerations

Reducing the cost of industrial inputs such as natural gas and ethane enhances competitiveness and encourages a positive supply response, which shifts the supply curve and yields more output at a lower cost, ACC’s report considers. It goes on to cite the economic principle that a lower-cost good prompts greater demand by consuming industries.

“The new competitiveness dynamic has made the United States a cost-advantaged location for chemical and resin production, which fosters overall economic growth and job creation,” the study describes. “Much of the investment is geared toward export markets, which can help improve the U.S. trade balance.”

ACC’s analysis assumes an initial infrastructure investment that includes a storage facility for ethane, propane, ethylene and propylene and 500 miles of pipeline running along the Ohio River valley. It projects that such a storage hub and distribution network will enable market participants, including NGL producers, petrochemical manufacturers and plastic resin producers to source feedstock and ship product among facilities in the region. The report compares the concept behind the Northeast storage facility to the Mont Belvieu NGL hub in Texas that supports the Gulf Coast chemical industry, and suggests an Appalachian storage hub can be the foundation of a robust petrochemical and downstream plastic products industry in the quad-state region.

Among those who appeared with Dooley at the May event that introduced the study were Senator Shelley Moore Capito, R-W.V., Senator Joe Manchin, D-W.V., and Representative David McKinley, R-W.V. Dooley pointed to S 1075, the Appalachian Ethane Storage Hub Study Act of 2017, sponsored by Capito and co-sponsored by Manchin and Senator Rob Portman, R-Oh. Dooley described the legislation as an important step forward. “The right policies are critical to realizing this opportunity,” he emphasized. “(S 1075) will help inform efforts to maximize America’s domestic energy and manufacturing potential.”

“Uncertainty around financing is a key barrier to the development of energy infrastructure in the Appalachian region,” Dooley warned. “Policymakers can help by affirming that NGL storage and distribution projects are eligible for existing private-public financing programs. As Congress and the administration consider infrastructure modernization legislation, the Appalachian hub should be a priority. And a timely and efficient regulatory permitting process is essential.”

ACC’s analysis projects a $32.4 investment in petrochemicals and derivatives and a $3.4 billion investment in plastic products, put toward the construction of five ethane crackers and two propane dehydrogenation (PDH) facilities. Three of the crackers would produce polyethylene and two would supply downstream petrochemical derivatives. Each PDH facility would contain a polypropylene resin plant. These capital investments are under way and will likely continue through the mid-2020s.

ACC notes that since 2010, 301 projects cumulatively valued at $181 billion have been announced, with nearly half completed or under construction. “The projects include new facilities, expansions and process changes to increase capacity,” the report details. “Of these, 46 percent have been completed or are under construction, while 45 percent are in the planning phase. Most are geared toward expansion of production capacity for ethylene, ethylene derivatives (such as polyethylene and polyvinyl chloride), ammonia, methanol, propylene and chlorine.”

Moreover, the analysis points out that the investment is coming from companies based around the world. “Fully 62 percent of the $181 billion is foreign direct investment, or includes a foreign partner,” ACC observes. “The fact that such large numbers of firms based abroad are choosing to source their chemistry in the United States is unprecedented in recent history and a testament to the value and affordability of America’s shale gas and ethane supplies. The United States is capturing market share from the rest of the world, and no other country or continent has as bright an outlook when it comes to natural gas.”