When you hear someone talk about “Appalachia” what sort of landscape comes to mind? For some, the image of a beautiful, mountainous region of the Eastern United States comes to mind. For most, sadly, the moniker still conjures images of shuttered steel mills, idled manufacturing plants and blight brought on by industrial abandonment. They envision the poverty and economic collapse wrought by the decline of steel and manufacturing industries — the “Rust Belt” of America.
For more than a generation this was reality. Then, starting in the mid-2000s, the oil and gas industry tapped into the carbon-bearing geological gifts the region offered, bringing about the shale revolution that would transform the Appalachian Basin.
The development of the Marcellus and Utica shale formations in Pennsylvania, Ohio and West Virginia brought an economic boom to the region. Hundreds of thousands of men and women found jobs in the energy sector and its ancillary industries. Continued development in the basin has transformed the region as the ample supply of oil and, especially, natural gas has drawn several new investments to the Ohio River Valley — including the return of steel and manufacturing projects.
Now, the region is shedding its “rusty” image. Rebranded as “Shale Crescent USA,” it is now in a position it to compete with the Gulf Coast as the premier choice for petrochemical investment.
The Gulf Coast has held reign as the nation’s petrochemical hub for over 70 years; however, the Shale Crescent region offers significant appeal for new petrochemical operations in its financial and security advantages. These market advantages make its attractiveness for investment over the Gulf Coast difficult to ignore.
Bolstering the case for investment is a recent IHS Markit study commissioned by Shale Crescent USA, a group of regional business and industry leaders. The study, Benefits, Risks and Estimated Project Cash Flows: Ethylene Project Located in the Shale Crescent USA versus the U.S. Gulf Coast, found the region will “provide a significant financial advantage” comparatively, given the region’s prolific natural gas liquids production.
Ron Whitfield, the study’s lead author, noted the Shale Crescent has “an abundance of natural resources at costs below their Gulf Coast equivalents, it is in close proximity to a very large installed base of plastics manufacturing customers, and the region benefits from reasonable costs of doing business.”
The study found ethane costs would be 32 percent lower than in the Gulf Coast, while ethylene, a petrochemical derived from ethane, would cost 23 percent less to produce. Moreover, it found the transportation costs of polyethylene — a plastic formed from ethylene in the form of pellets — would cost 16 percent less.
These savings are substantial. IHS Markit estimates that between 2020 and 2040, a petrochemical project in the Shale Crescent region would generate an $11.5 billion pretax cash flow, as well as a net present value of $713 million — that’s four times higher than the Gulf Coast.
These findings mirror those of previous studies from Deloitte, the U.S. Department of Energy (DOE) and the American Chemistry Council projecting the prolific natural gas resources in the Appalachian Basin create the potential for vast petrochemical manufacturing opportunities.
Testifying at a recent U.S. House committee hearing, Secretary of Energy Rick Perry echoed the importance of the development of the region. “To develop [the Gulf’s petrochemical industry] in another region of this country, the Appalachian makes sense because you’re sitting on top of Marcellus and Utica, which are prolific gas fields, and helping transition the workers who are either out of work or not working in jobs that are satisfactory from their perspective into higher-paying refining and petrochemical type jobs. That is something we’re working on actively today at DOE.”
In addition to its economic benefits, Secretary Perry emphasized he supports expanding petrochemical manufacturing in the Shale Crescent to enhance our national security.
“As the Governor of Texas, in August and September, I worried greatly about a Category 5 hurricane coming up the Houston ship line and devastating the petrochemical footprint that is a substantial amount of that industry for the United States,” he stated. “That is a national security issue.”
Concern over a concentration of America’s petrochemical capacity in a hurricane-prone region is not to be dismissed, as the effects of storms such as Harvey can be far-reaching. Ohio-based toy manufacturer Little Tikes reported last October that their costs for polypropylene from the Gulf Coast in the wake of Harvey jumped 25 percent overnight due to supply constraints. These costs could then potentially be passed on to the consumer in the form of higher prices.
Little Tikes isn’t the only manufacturer that relies heavily on petrochemical feedstock in the region. In fact, the Shale Crescent is within 400 miles of 17,000 companies that make rubber, chemicals and plastics.
To that end, it’s no wonder the area’s businesses are working diligently to make potential investors recognize expansion in the region is in their interests on a number of fronts. So far, the effort seems to be paying off, with Royal Dutch Shell deciding to locate their multi-billion ethane cracker in western Pennsylvania. The facility will eventually provide feedstock to 70 percent of the North American polyethylene market, which resides within a 700-mile radius of their project.
Shale Crescent USA spokesman and President of Ohio-based Artex Oil Co. Jerry James is optimistic the region will continue to capitalize on its attractiveness for future investments and looks to showcase the new study as further evidence the effort will come to fruition.
“This report challenges conventional wisdom and corroborates the decision by several international energy companies that have already selected our region as the location for major, multibillion-dollar projects,” said James. “Our message to any other companies that are considering similar investments either here in the United States or internationally is that the Shale Crescent USA region offers unparalleled advantages for petrochemical manufacturing and is open for business.”
Appalachia’s geological gifts and geographic advantages will attract further investments from petrochemical manufacturing industry and others. This new focus and renewed investment in the region will undoubtedly knock the “rust” off the “Rust Belt,” and provide a brighter, petrochemical-filled future for Shale Crescent USA.
About the author: Jackie Stewart is a Managing Director in the Strategic Communications segment at FTI Consulting, Inc., and is part of the segment’s Public Affairs practice and Energy and Natural Resources industry practice. Based in Ohio, she is also State Director for Energy in Depth. Stewart has more than a decade of experience in government and community relations, public policy and event management.