Storage hub carries big concept, price, but enormous economic potential

May 20, 2017

For most of the past year, the biggest story in energy in the Appalachian Basin has been the advent of the Shell ethane cracker plant, which is now under construction in Beaver County.

But details on the concept of a midstream hydrocarbon storage system at an upcoming conference next month could be the catalyst for attracting additional petrochemical investment and growth in the region, from more crackers to additional chemical and plastics manufacturing.

The Appalachian Storage Hub conference, the first of its kind in the region, to be held June 15 at the Hilton Garden Inn, Southpointe, will discuss efforts already under way to build a hub for storing raw material hydrocarbons like ethane and butane.

The hub can also include storage for manufactured chemical intermediates such as ethylene.

According to sources in the petrochemical industry, the proposed Appalachian Storage Hub is a big idea with a big price tag, but the concept is one that has been successfully implemented in many locations around the world. The largest example is the Mont Belvieu, Texas, storage hub on the Gulf Coast. Other global examples exist in Rotterdam, Netherlands, and in Saudi Arabia, all of which have operated for decades.

Catalyst for growth

According to Tom Gellrich, Chief Executive of TopLine Analytics in Devon, a chemical engineer who consults the energy industry on the downstream impacts of shale gas, and a featured speaker at the next month’s conference, sees the hub as a catalyst for attracting more petrochemical and plastics businesses to the region.

“It’s a critical next step” in transforming the Appalachian Basin and its Marcellus/Utica natural gas assets into a petrochemical production center, Gellrich said in a recent telephone interview with the Observer-Reporter.

According to Gellrich, Shell’s decision to build an ethane cracker plant to produce polyethylene pellets is based in large part on its recognition that with a massive local supply of ethane, it can crack the raw material at a large economic advantage.

Other companies are looking at the possibility of bringing additional crackers to the region for the same reason, he added. A study commissioned by the state Department of Community and Economic Development and released this spring by IHS Markit, concluded that the Appalachian Basin could support multiple ethane crackers, given the abundance of the raw material being produced here. A storage hub would serve the crackers and provide access to ethane as well as other petrochemicals.

Gellrich said the storage hub has been estimated at around $10 billion. The storage locations are either in below ground in salt domes, natural gas caverns or other non-porous formations. A storage hub also includes a backbone of pipelines from source locations to key manufacturing locations as well as associated monitoring equipment and pumps or compressors to move the materials.

There is also some above-ground infrastructure, but Gellrich said the footprint for the topside is around 2 acres plus some perimeter fencing.

Multi-purpose potential

While most storage hubs act as a materials storage and transportation network, some also act as or include financial exchange structures with price-setting based on local or regional supply and demand.

According to Gellrich, producers of hydrocarbons or chemicals link to the pipeline system and flow their material to the storage locations. Consumers of the materials similarly link to the pipeline system and withdraw materials. The flow of materials in and out of the system is governed by a set of contracts. An independent third party operator of the hub keeps track of the flows by the various customers and suppliers.

“You can create a chemical industry based on the hub,” he said, adding that the investment in the hub could come from ethane cracking companies, midstream operators or a consortium of partners.

According to an analysis of the American Chemistry Council, released in December, U.S. chemical industry investment linked to shale gas amounts to $164 billion. Forty percent of the investment for the 264 projects — new facilities, expansions and factory re-starts — is completed or underway, while 55 percent is in the planning phase. ACC analysis shows that $164 billion in capital spending could lead to $105 billion per year in new chemical industry output and support 738 000 permanent new jobs across the U.S. economy by 2023, including 69 000 new chemical industry jobs, 357 000 jobs in supplier industries and 312 000 jobs in communities where workers spend their wages.

Multi-state interest

Interest in the storage hub project is growing in Western Pennsylvania, Ohio, West Virginia and Kentucky. According to materials provided by TopLine, the system would handle ethane, methane, ethylene, propane, propylene and chlorine in an environmentally sound way, handling 100 million barrels of natural gas liquids, and liquid chemicals. It would include about 3,000 miles of underground pipelines to move the chemicals to industries along a 454-mile corridor in the four states.

The Appalachian Storage Hub was first proposed several years ago, and remains in the conceptual stage. According to Gellrich, researchers from West Virginia University and Ohio State University, as well as the states of West Virginia and Ohio have been analyzing possible sites for the underground storage.

Those two states, along with Pennsylvania and Kentucky, are working on the project, along with a public-private partnership that includes the U.S. Department of Energy, the U.S. Department of Commerce and private companies. The hub proposal is also backed by a $100,000 matching grant from the Claude Worthington Benedum Foundation.

Last week, U.S. Senators Joe Manchin, D-W.Va., Shelley Moore Capito, R-W.Va., and Rob Portman, R-Ohio introduced the Appalachian Ethane Storage Hub Study Act, to help encourage construction of more petrochemical plants such as crackers and keep more ethane in the region.

“The Appalachian Ethane Storage Hub Study Act will help us figure out the best way to utilize the region’s resources and improve our infrastructure,” Capito said. “No only will this legislation inform future projects and policies, but it will also help attract private dollars to ensure Appalachia remains an important player in America’s energy and manufacturing strategy.”

Gellrich acknowledged that the hub, as well as additional crackers that would also use it for storage probably wouldn’t occur until the middle of the next decade, around 2025. He added that despite its high price tag, the creation of another large storage hub in the U.S., separate from the Mont Belvieu hub, would lead to the formation of a petrochemical complex geographically distant from the Gulf, but would provide increased security from any single terrorist activity, as well as from potential weather disasters, especially hurricanes. He noted that hurricane Katrina forced a shutdown of many Gulf Coast complexes and resulted in price escalations of both feedstock and finished petrochemical products.

In addition to Gellrich, the June 15 Appalachian Storage Hub Conference will feature Joe Barone, CEO of Shale Directories and other executives from the chemical industry, including Steve Hedrick, president and CEO of MATRIC, an independent partner to the industry with expertise in chemical product research and development; Kevin DiGregorio, executive director of the Chemical Alliance Zone; and Jason Lankford, vice president and site director of West Virginia operations for Dow Chemical and a speaker from U.S. Methanol.

Speakers from state governments will include Denise Brinley, special assistant to the Secretary for Strategic Industry Initiatives for the state Department of Economic and Community Development; Joshua Jarrell, West Virginia Deputy Secretary and General Counsel for the Department of Commerce; and Dana Saucier, director, Jobs Ohio. A midstream panel to discuss the role in development, operation and management of a hub will include Marc Halbritter, senior vice president for business development at Blue Racer; and David Hooker, general manager at Mountaineer Midstream; Jim Crews of MarkWest Energy; and a speaker representing Baker Hughes. An E&P Panel, which will discuss access how the hub can provides access to downstream customers will include George Stark, director of External affairs for Cabot Oil and Gas Corp.; as well as speakers for Southwest Energy and Eclipse Resources.

The Appalachian Storage Hub Conference will be held June 15 at the Hilton Garden Inn, Southpointe. Registration is limited to 200. For additional information, access www.appastorage.com.

Michael Bradwell has been business editor for the Observer-Reporter since 1995, and was named editor of The Energy Report in 2012. He joined the newspaper in 1990 as a general assignment reporter in the Greene County bureau and has also worked as a copy editor. A 1974 graduate of Pennsylvania State University with a degree in English, he began his career at the Bedford (Pa.) Gazette. Prior to joining the O-R, he served as public relations director for Old Bedford Village, account executive at two Pittsburgh public relations agencies and copywriter for the country’s largest wholesaler of mutual funds.

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