States collaborate to grow region’s petrochemical industry

The governors of Pennsylvania, Ohio and West Virginia signaled their interest in expanding the petrochemical industry’s footprint in the tri-state region last year to take advantage of abundant natural gas in the Marcellus and Utica shale formations underneath it.

After competing against one another to lure the industry to their states for years, Pennsylvania Governor Tom Wolf and his counterparts in West Virginia and Ohio agreed in October to reach across boundaries to collaborate on creating conditions that support shale gas-related industries, particularly downstream petrochemical companies that use natural gas liquids as its feedstock.

The agreement comes during a deep slump in oil and gas prices, oversupply and concerns over the outlook for the industry, at least in the short term. How that affects prospects for growing a globally competitive petrochemical super region remains unclear.

‘Crackers’ and more

Drilling for natural gas in the Marcellus and Utica play has led to grander visions for the region’s petrochemical industry, which the agreement among governors seeks to move forward through collaboration rather than competition.

One high-profile prize being sought is the ethane “cracker” complex. Such plants take ethane in natural gas, “crack” or break ethane molecules apart, and rearrange the carbon and hydrogen atoms to make ethylene. Ethylene is then processed to create polyethylene that is shipped to manufacturers of a range of plastic products.

Ethane crackers, the prospects of attracting them, and the jobs and other benefits associated with them were widely discussed by the more than 200 people ranging from government and industry leaders to educators who gathered in October for a shale summit in Morgantown, W.Va., where the multi-state cooperative agreement was announced.

In 2012, Royal Dutch Shell made public its interest in building an ethane cracker complex on the site of an abandoned zinc smelting plant in Beaver County and has spent millions of dollars to purchase and prepare it. Construction of the plant could create 10,000 jobs and, once operational, it would employ about 400 workers, Shell estimates. By the end of 2015, the company had not yet committed to building it.

Two Brazilian companies have also expressed interest in building an ethane cracker in Parkersburg, W.Va. and a Thai company is considering a plant in southeastern Ohio.

Ethane, however, has not been immune to the market slump, complicating decisions on whether or when to move on such investments, which run in the billions of dollars. Recent years have seen ethane prices tumble and supply increase beyond the needs of the available markets.

Underscoring the industry’s need to grow markets and improve access to them is the fact that a sizable portion of the ethane produced in the U.S. is being burned as inexpensive industrial fuel instead being used as feedstock for making plastics, coatings, films and rubber products. “Friends don’t let friends burn ethane,” James Crews, vice president of Northeast production for Denver-based energy company MarkWest, told the Morgantown audience.

Expanding the petrochemical industry involves several challenging issues. Transporting gas and natural gas liquids and related materials is one. The principal means of moving them are by rail and pipelines. Improving infrastructure is expensive and not without controversy. The industry also points to the need for major upgrades. The current pipeline capacity, for example, doesn’t allow the methane that drillers extract in the region to reach markets in Philadelphia.

And several widely publicized industry-related accidents in recent years have not helped ease environmental and safety concerns. A train carrying North Dakota crude oil to Virginia derailed in Mt. Carbon, W.Va., in February 2015, causing a fire that consumed one home and spilling oil into the Kanawha River, jeopardizing the water source in two counties. A year earlier, chemicals from a storage facility spilled into the Elk River, which left much of the Charleston, W.Va., metropolitan area without potable water and led the governor to declare a state of emergency.

United front

The agreement among governors contains no commitment of money and does not prescribe specific projects for further developing the natural gas and petrochemical industry.

Instead, the three-year agreement requires the state to collaborate on drawing a plan to market the Appalachian Basin region as a destination for the industry, educate an industry-ready workforce, spur investment in transportation and other infrastructure, and encourage research on natural gas, natural gas liquids and their end uses.

By the end of 2015, government officials, economic development groups and others in the states had organized and begun working together on plans to address industry-related workforce development, infrastructure, research and a strategy to market the tri-state region to industry.

“Companies want to work where governments and economic development groups have their act together and have created a stable, supportive business environment,” says Ken Zapinski, senior vice president for energy and infrastructure at the Allegheny Conference on Community Development. “What you saw in that room in Morgantown were business people, economic development people, academics, researchers and educators from three states showing the kind of support for downstream manufacturing that the business sector likes to see.”