Proposed ethane storage hub can add security to its list of advantages

September 9, 2017
Image description
This graphic, provided by the Energy Information Administration, shows the growth of produced natural gas liquids (middle panel), including ethane, from natural gas extraction in the Appalachian Region from 2010 to 2016.

Officials discussing the potential for an ethane storage hub that could be built somewhere in the tri-state area weren’t too far into their bullet points of advantages during an Aug 29 workshop at Southpointe when one panelist brought up another reason for considering such a project in the Appalachian Basin.

Bryan Morreale, of the U.S. Department of Energy National Energy Technology Laboratory, who heads NETL’s office of research and development for its molecular science division, noted that the impact of Hurricane Harvey on Texas’ massive petrochemical industry makes a case for adding ethane hub here.

As Morreale noted the shutdown of petrochemical refineries along the Gulf Coast, he said the actions would precipitate temporary price increases in gasoline “and everything else - even a gallon of milk.”

Prime petrochemical

A few days later, a Bloomberg report on U.S. ethane production underscored Morreale’s comments. Noting that ethane “could be the most important petrochemical on the planet,” the piece went on to explain why.

Ethane is the odorless, colorless gas extracted from natural gas that’s used to make ethylene, which is the building block for everything from car parts, milk jugs, diapers, paint and mattresses, plastic film, food packaging, bottles, bags, textiles, PVC pipes, medical devices, footwear, clothing, furniture and synthetic rubber for tires.

At present, Texas, and more specifically Houston and the Gulf Coast, produces about 75 percent of the U.S. supply of ethylene, and as of the end of August as a result of being directly in the path of Hurricane Harvey, it was estimated that about 61 percent of ethane capacity there was shut down.

Morreale wasn’t suggesting that the Appalachian ethane storage hub being proposed here would displace the massive storage hub at Mont Belvieu, Texas. But he was indicating that diversification of the process to a place like the Appalachian Basin, which isn’t prone to hurricanes, would be a good thing from a national security perspective

Oil and Gas industry analysts believe the Houston and Gulf Coast petrochemical industry will recover quickly in the aftermath of Harvey. But in that region of the country, there’s always the chance of another hurricane.

Outside of the security issue, Brian Anderson, director of the WVU Energy Institute, who moderated the panel discussion portion of the Aug. 29 workshop, noted that constructing a hub here makes sense for the amount of ethane that’s already being produced form drilling for natural gas in the Marcellus and Utica shales in the Appalachian Basin.

Growing abundance

On the same day that the workshop was being conducted at Southpointe, the U.S. Energy Information Administration reported that Appalachian natural gas processing capacity is key to increasing natural gas and NGLs. Noting that between 2010 and 2016, EIA estimates natural gas processing capacity in Kentucky, Ohio, Pennsylvania and West Virginia has grown from 1.1 billion cubic feet per day to 10 Bcf/d. Of that amount, the EIA estimates that during that time frame natural gas plant liquids production has increased from 106,000 barrels per day to 621,000 b/d last year. The EIA also noted that de-ethanization capacity in the region, the ability to remove ethane from natural gas has grown from none in 2010 to more than 200,000 b/d in 2016, and may reach 350,000 b/d by 2019. “In addition to helping gas quality meet requirements on natural gas pipelines, de-ethanization capacity also helps provide supplies to meet increasing domestic and global demand for ethane as a petrochemical feedstock,” the EIA wrote.

So far, Shell’s cracker plant that’s under construction in Beaver County, has secured ethane delivery contracts from natural gas producers in the region. But outside of those commitments, most of the natural gas and natural gas liquids produced here is going to other parts of the country.

Anderson noted that much of the ethane that’s extracted from natural gas in the basin is going to Mont Belvieu for processing into ethylene and conversion into polypropylene pellets, some of which are sent back to this region for use by the plastics industry.

From an economic standpoint, he said, it makes more sense to be producing finished products from ethylene here, adding that if a hub were built, it would also create a center for spot pricing.

“We need a spot market for natural gas liquids in the region,” Anderson said. “We only have long-term contracts for ethane today.”

But aside from having the spot pricing advantage, the idea of building a storage hub here makes sense for a number of other reasons tied to the economy.

Yes, prices for building the hub and its infrastructure aren’t cheap; some industry estimates have it pegged around $10 billion.

But building one somewhere in the tri-state- and the workshop unveiled a year-long geologic study that revealed multiple locations in the basin that would support such a structure –would attract numerous manufacturers to the area in petrochemicals and plastics. Anderson said the concept has the potential generate $36 billion in industrial investment in petrochemical and plastic processing facilities and create more than 100,000 jobs in the region.

Rebirth opportunity

“Appalachia is poised for a renaissance of the petrochemical industry due to the availability of natural gas liquids,” Anderson said. “A critical path for this rebirth is through the development of infrastructure to support the industry. The Appalachian Storage Hub study is a first step for realizing that necessary infrastructure.”

The renaissance Anderson referred to was underscored by comments by panelist Paul Boulier, vice president of industry and innovation for Ohio’s Team NEO, a branch of Jobs Ohio, who explained why it is important to approach the hub concept from a regional perspective.

According to Boulier, the tri-state region represents $1.4 trillion in gross domestic product. If it were viewed as a country, the figure would make it the 20th largest in the world.

But most important takeaway from Boulier’s figures is that a large petrochemical and plastics industry already exists in the 250-mile radius that is the tri-state region: more than 17,000 petrochemical and plastics companies, including 250 that each employs more than 100 people.

Approaching a project of this size and scope regionally also makes sense to David Ruppersberger, president of the Pittsburgh Regional Alliance, the economic development marketing affiliate of the Allegheny Conference, who also was a panelist at the workshop.

“Having natural gas liquids storage capacity in the greater region is critical to fully realizing the potential of the shale gas resources found in our three states,” Ruppersberger said, noting that Shell’s decision to build a world-scale petrochemical facility “is game-changing and shines a spotlight on fresh opportunities in this part of the country.

While Ruppersberger conceded that the storage hub is more likely to find a home in Ohio or West Virginia than Western Pennsylvania, the final placement would create a win-win for all three states.

“(It) will do the same (as the Shell plant), positioning us to attract additional ethane crackers and other petrochemical investments, as well as supporting further upstream and midstream development.”

Michael Bradwell is business editor for the Observer-Reporter.

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