Gas storage hub concept could further region’s manufacturing base

June 17, 2017
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Michael Bradwell/Observer-Reporter
Tom Gellrich, right, a chemical engineer and co-organizer of the region’s first Appalachian Storage Hub conference, talks with an attendee following his remarks Thursday at Hilton Garden Inn at Southpointe. Order a Print

Editor’s Note: This story has been modified from a previous version to correct some figures.

For the past decade, massive amounts of natural gas and natural gas liquids have been extracted from the Marcellus and Utica shale regions thousands of feet below the Earth’s surface, with much of the production being shipped for export.

On Thursday, about 200 energy executives, as well as those from the legal and construction industries, gathered at Southpointe to hear about the next underground revolution in natural gas.

Regional hub

The concept of an Appalachian Storage Hub, which is rapidly moving toward fruition, is being studied with a goal of creating a large underground storage hub in a salt or limestone cavern as a way to hold ethane and possibly other natural gas liquid products, which would be deposited by cracker plants and withdrawn by manufacturing customers.

The concept is envisioned as a way to keep some of the abundant product in the region as a means of attracting petrochemical and plastics manufacturers here.

Tom Gellrich, a chemical engineer and co-organizer of Thursday’s event at Hilton Garden Inn, told the group as a result of the Marcellus and Utica shale regions’ tremendous output of natural gas and their associated liquids, the United States has now become the top gas producer in the world.

“We now have an advantage in North America,” said Gellrich, whose Topline Analytics consults with companies on the downstream impacts of shale gas, with a focus on the revolutionary changes in the chemical industry.

The “shale shock” of the past decade has impacted the domestic chemical industry the most, he said, because it uses gas for fuel as well as feedstock to create its products, which when combined equals 85 percent of operating costs.

A chemical buildout

As a result of cheaper natural gas, the chemical industry has been building out in the U.S., creating a 50 percent capacity increase.

According to the American Chemistry Council, new manufacturing projects have created 294 new chemical industry projects due to shale gas, registering $179 billion in new capital investment, 462,000 direct and indirect jobs by 2025, $294 billion in new economic output and $25 billion in new tax revenue.

The revolution is happening in Beaver County, where Shell Chemical is constructing a $6 billion ethane cracker plant where it will supply 70 percent of North America’s polyethylene demand within 700 miles of its customer base.

Gellrich and others who spoke at Thursday’s event want to see more of those customers in chemicals and plastics locate plants here to take advantage of the cheap feedstock from Shell or other cracker plants that are expected to locate in the tri-state area.

Brian Anderson, director of West Virginia University’s Energy Institute and professor of chemical engineering at WVU, said plans for a storage hub for ethane and other natural gas byproducts have been in the works for several years, and are picking up momentum.

Several pieces of legislation at the federal level are creating a tailwind for the project, with bills created in the House and Senate in May that would provide additional funding for the hub study.

While the proposals haven’t become law yet, the hub study has continued with assistance from the Benedum Foundation.

The study, which is about 75 percent completed, also has the support of the U.S. Department of Energy.

According to Anderson, the next step will be to choose among sites in the region where a storage hub could be created from underground limestone or salt caverns.

He acknowledged that while the hub study is operating on a $200,000 budget, an engineering study on the actual site “would be an order of magnitude greater” than the hub study.

He added that numerous potential investors have been identified for the project, which has been estimated to cost $10 billion.

But James Cooper, a senior petrochemical adviser for the trade group American Fuel and Petrochemical Manufacturers, said the storage hub won’t magically appear.

“It’s going to happen in waves,” Cooper said. “People have to be patient.”

Cooper and others also stressed that a storage hub in Appalachia shouldn’t be seen as competing with the other U.S. hub that exists at Mont Belvieu, Texas, which supplies ethane feedstock for Houston’s massive petrochemical industry.

That sentiment was also expressed by Janson Lankford, site director for Dow Chemical’s West Virginia operations.

“Dow wants an Appalachian region and a Gulf Coast region,” Lankford said.

A regional approach

One of the most unique aspects of the natural gas revolution in the Appalachian Basin has been the effort by Pennsylvania, West Virginia and Ohio to promote themselves as a region.

The initiative was launched in October 2015, when the governors of the three states signed a pact committing to the regional approach.

“The geology doesn’t care where the borders are,” said Anderson, who also chaired a panel on regional planning.

Lance Chimka of the Governor’s Action Team for Pennsylvania’s Department of Economic and Community Development, noted that the Keystone State’s interest in the collaboration stemmed from the fact that currently 100 percent of all natural gas liquids are being exported from Pennsylvania.

His panel counterpart from Ohio, Paul Boulier, who works for a subsidiary of Jobs Ohio, showed a map pinpointing 17,000 companies in the three states that are involved in petroleum and plastics processing that could grow if cheap feedstock were to become available here.

While the ethane feedstock is used to create everything from fertilizer to plastic bottles and medicine, Gellrich gave one example to illustrate how the low-cost environment in Appalachia could work.

“Ninety-eight percent of all toothpaste tubes are made in China today,” he said. “We can make them cheaper here.”

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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