The Evolving Appalachian NGL Storage Hub and Petrochemical Hub

The Evolving Appalachian NGL Storage Hub and Petrochemical Industry Hub

The Appalachian Basin is now home to one under construction ethane cracker in Beaver County, Pennsylvania along the Ohio River and possibly one or two more ethane crackers downstream, one possibly in Belmont County, Ohio. Plans for underground ethane storage and possibly underground undifferentiated NGL storage (propane and butanes) are also in the works. Currently NGLs are also being piped across Pennsylvania and to other points south and west for export or to petrochemical complexes along the Gulf Coast or Ontario, Canada. Most shale gas plays are rich in NGLs (natural gas liquids, including ethane, propane, butanes, and natural gasoline) and the Appalachian plays including the Utica, Marcellus, and Upper Devonian Geneseo/Burket shales are especially NGL-rich in fairly well-defined fairway trends on the southwestern part of the plays, based on geochemical maturity. Those trends overlap quite a bit and thus the NGLs of these reservoirs occupy a fairly concentrated geographical area. This makes it an ideal area for an NGL feedstock-based petrochemical hub.  

Comparison of the future Appalachian NGL hub to the petrochemical complexes in Louisiana is probably not a good one since the Louisiana area processes crude oil as well as NGLs. Although both products act as petrochemical feedstocks to some of the same end-products, many more products can be derived from crude oil as well as significantly more pollutants like sulfur compounds being expected from refining and processing crude oil than in processing NGLs.

Business people are excited about the potential for jobs and subsidiary and ancillary industries developing to support the ethane cracker(s). Oil & gas operators are excited at the potential of more local ethane demand and ethane prices high enough to make a profit from separating it from the natural gas stream. Midstream operators like it because it will mean less ethane and other NGLs in the natural gas they send to customers which must meet pipeline quality standards that require a cap on NGLs to keep in their BTU range. Several local plastics processors are developing expansion plans.

Geological Suitability for Appalachian NGL Storage 

An oil and natural gas research consortium associated with West Virginia University and state Geologic Surveys did a year-long study of the geologic suitability for ethane/NGL underground storage and found several potential reservoirs at different stratigraphic and structural depths across a large area from north of the main producing areas to south of the main producing areas. Several reservoirs show suitable porosity, permeability, trapping, and sealing conditions required for storage. These area(s) will need to be connected to producing areas via pipelines. Some areas have stacked storage reservoir potential. Others are within or very similar to natural gas storage fields. My guess is that those reservoirs closest to the producing areas will be prioritized for storage since this would require less additional pipeline infrastructure. Consortium lead author WVU’s Douglas G. Patchen noted: “The study revealed that we have adequate storage potential for NGLs in three types of storage "containers: “solution cavities in the Salina F4 salt, mined cavities in the Greenbrier Limestone, and depleted gas reservoirs in older producing fields and gas storage fields.” Another lead author, WVU’s Brian J. Anderson added: “The challenge, however, is to develop a transportation and storage infrastructure that is sufficient enough to retain some of the NGLs in this area to support a revitalized petrochemical industry.”

One proposed ethane storage facility in salt caverns in Monroe County, Ohio has seen significant delay due to the Ohio Dept. of Natural Resources (ODNR) being slow to approve it. Apparently, they are concerned about the integrity of storage in the Salina salt caverns, which would presumably be made cavernous by water injection to bring the salt into solution with water, then the ethane/NGLs (they also plan to store some propane and butanes) would also be pumped in to dissolve in the water and then separated back out when the NGLs  are retrieved. Construction of the nearly $500 million project has been delayed until mid-2018. Initial costs will be about $150 million. The project was first announced in early 2016. In April 2016 they drilled and completed a test well. This determined that the thickness of the proposed salt layer was adequate. For pumping out the stored ethane and/or NGLs, construction of a 3.25 million-barrel brine pond would be required. Perhaps that and the fact that such facilities are new to the region is part of the reason for the ODNR delay. Another facility, I believe has been proposed for Marshall County, WV.

On Nov. 9, 2017 when President Trump was visiting China it was announced that China signed a Memorandum of Understanding that they would invest “$83.7 billion in the State of West Virginia–largely in shale and shale-related petrochemical projects.” This is projected to occur over a 20-year period.

Types of Plants Utilizing NGL Feedstocks and American Petrochemical Expansion

The availability of natural gas liquids as feedstocks can support ethylene-derived plastics. Ethane crackers make ethylene which is transported as a liquid to facilities that convert it to polyethylene pellets which are then used as feedstock for various polyethylene (PET) plastics. NGLs are also feedstocks for alkylates (from butanes) for gasoline additives, butadiene (from butanes) for rubber, LP gas (from propane and butanes), propylene (from propane) for polypropylene plastics, and heavy NGLs (ie. pentanes, hexanes, natural gasoline) are used as gasoline additives, special purpose solvents, and to dilute tar sands oil bitumen to help it flow through pipelines. There are many other uses for the separated NGLs including as refrigerants, aerosol propellants, and as fuels for lighters, stoves, furnaces, forklifts, lawn equipment, and motor vehicles.  

The Appalachian petrochemical and NGL storage hub will also require pipelines to transport liquids such as ethylene between plants as well as pipelines from storage fields to plants. Before that there is a need for pipelines from natural gas wells to processing and fractionation plants and from there to the proposed storage fields. Pipelines that transport NGLs need to be able to withstand and operate within certain temperatures and pressures which makes them more expensive to build and with most pipelines being delayed these days due to organized public opposition there is predicted to be a significant short-term shortage of NGL supplies, particularly ethane, to the growing facilities along the Gulf Coast while at the same time Gulf Coast natural gas and NGL production slows, even after a few NGL pipelines were built to ship NGLs from Appalachia to the Gulf Coast. It makes better economic (and environmental) sense to feed plants nearby rather than far away.

In Appalachia a greater percentage of the natural gas stream along the wet gas and NGL fairways has access to processing and fractionation plants that separate the NGLs into various components and pipeline them to production facilities – since more fractionation has been added over the last few years. Before the fractionation plants separate the NGL stream into individual NGL components such as ethane, propane, etc., impurities like sulfur, CO2, and helium are removed in processing facilities. Thus, natural gas processing plants involve several chemical steps. NGLs are typically separated cryogenically by temperature.

Projections suggest that lower-priced ethane-derived polyethylene will thrive in the U.S. with costs competing with those in the Middle East which currently has the lowest cost for ethylene. This will eventually result in a surplus that can increase exports from the U.S. of polyethylene pellets and finished plastics. The cheaper polyethylene feedstocks should help European plastics manufacturers since they have been struggling with profitability. Some now receive exports of ethane and other NGLs via specially-designed tanker ships. The chance for better profitability is why European, Asian, Latin American, and companies from all over the world are investing in U.S. NGL-derived petrochemical companies as well as building their own facilities in the U.S. The Bain and Co. 2013 report referenced below notes that: “Future investments are likely to flow toward North America, not only for petrochemicals but also for industries further downstream.” Thus far they have been correct. According to Kinder Morgan: “The American Fuel & Petrochemical Manufacturers association estimates that feedstocks account for 60 to 70 percent of the total cost to manufacture petrochemicals.” Thus, the U.S. now has a quite substantial cost advantage for these feedstocks and is set to dominate the petrochemical industry and subsidiary manufacturing industries, although the Middle East still has cost advantage in some sections. The American Chemistry Council “reports that as of March 2017, 294 chemical manufacturing projects cumulatively valued at $179 billion in capital investment had been proposed, were under construction, or were recently completed in the United States as a result of the shale gas boom.” Kinder Morgan notes that about 60% of those expansions are being built by foreign companies. The American Chemistry Council estimates that chemical and plastics investment in Appalachian facilities could eventually reach $36 billion and create 100,000 jobs. The Appalachia Development Group which heads the Appalachia Storage and Trading Hub Initiative recently was approved for the early phases of what is estimated to be a $1.9 billion loan from the U.S. DOE.

Although there is some uncertainty in predicting future profit margins for ethane, ethylene, and other NGLs and NGL products, the overall outlook looks good for the U.S. Some analysts think there will be a bubble as demand rises and supply falls, partly due to the rising amounts of exports. Facilities along the Gulf Coast may have some lack of supply issues as new ethane crackers began coming online there in 2017. Ethane prices may rise faster than expected 2017-2019 as the glut of Appalachian supply is constrained by lack of takeaway capacity. As local Appalachian cracker(s) come online in 2020 and beyond and ethane and NGL storage fields are built the local demand will rise, keeping upward pressure on prices. However, with new pipelines, some pipeline storage, and more ethane recovered rather than rejected the Appalachian supply should continue to grow substantially. Until then, ethane will continue to be rejected into the natural gas stream. Other analysts think there won’t be a bubble because of long-term formula pricing for some firms and because there may be more pipeline storage capacity than stated by midstream companies since keeping this storage capacity private gives them advantages in negotiating price agreements – which would be another form of what I call ‘capacity manipulation.’ While it may seem devious I believe it is perfectly legal. However, it is also inefficient as it does not make full use of what is available at any given time.

Methanol and Fertilizer Plants Via Methane Feedstock

Methane, the main component of natural gas, can be used as a feedstock for methanol plants and fertilizer plants. The produced methanol can then be used as a feedstock for chemicals, antifreeze, gasoline, and gas-to-liquids (GTL) applications. Plans for two but possibly up to five methanol plants have been announced in West Virginia with construction on the first one beginning in Sept. 2017. Both are in Kanawha County near Charleston where there is a long established chemical industry. In both cases much of the plants are being shipped from other areas of the world (Brazil, Slovenia) to take advantage of the much cheaper Appalachian natural gas feedstock prices. Several large fertilizer plants came on line in 2016 and 2017, mostly along the Gulf Coast. I don’t believe any fertilizer plants have been announced in the Appalachian region but as the nation’s premier source area for natural gas that is certainly a possibility.

Natural gas can also be seen as an energy feedstock for manufacturing facilities that require a lot of energy. Everything from latex paint plants to ammonia plants to cement plants to basic manufacturing facilities can benefit from the lower fuel and electricity prices from natural gas abundance.

Environmental Implications of Petrochemical Hubs

The Ohio Valley Environmental Coalition likens the evolving storage and petrochemical hub to a horror story but of course there is NGL storage and associated petrochemical plants in several other places in the U.S. and Canada. While there may be some health issues with people living very close to oil refineries and petrochemical facilities this is not expected to be an issue here by regulators and most citizens. Of course, siting of facilities will be a factor as well. Storage fields likely won’t be developed in populated areas and presumably the petrochem facilities won’t either. However, locations along the Ohio River are likely due to the potential of shipping products by barge and other factors. While ethane steam crackers and other petrochemical and chemical industries do make pollution and CO2 emissions, newer modern facilities should make less of both, especially as feedstock being close to processing areas leads to less emissions due to transportation.

Much has been said about the dense petrochemical industry along the Gulf Coast of Louisiana where many different kinds of plants take advantage of their close proximity to better their economics. However, such concentration can also be potentially risky for very local residents as each facility emits both greenhouse gases, adds to local combustion pollutants, flared byproducts, and adds significantly to emissions of quite a few volatile organic compounds (VOCs). VOCs contribute significantly to ground level ozone, or photochemical smog, which is implicated in asthma and respiratory disorders like COPD. Others have argued that cancer rates along what has become known as “Cancer Alley” are high. While this is debatable, people are not likely to want to live very close to these facilities. This is probably going to be a factor with Appalachian facilities. Whether smog develops has a lot to do with local weather patterns as well. Air emissions can also fall to the ground and affect soil and groundwater concentrations of various contaminants. Leaks and spills can happen. Of course, all these facilities submit emissions plans to state regulatory agencies which then approve them after they are satisfied with them.

According to the Yale 360 article referenced below: “Researchers have found benzene in the air, ethylene dichloride in groundwater, and high dioxin levels in the blood of residents of “Cancer Alley.” These are all chemicals that are known or probable carcinogens, and toxic to health in other ways as well.” Some say the concentration of industries also concentrates contaminants and effects are cumulative. Toxicologists note that the “the dose makes the poison,” that some chemicals accumulate while others don’t, and that determining any specific causes or contributors to cancer is difficult. South African company Sasol has built a large ethane cracker along the Gulf Coast and soon the world’s first commercial “ethylene tetramerization unit” which makes plastic-strengthening chemicals out of ethylene. They bought out about half the residents living close to the facility but the other half chose to stay and will have to deal with any contaminants coming from this new commercial chemical process. Environmental justice advocates will likely be watching very closely as they will with any new Appalachian facilities.

References:

Appalachian Storage Hub: A Petrochem Horror – by Ohio Valley Environmental Coalition (Blog), Jan. 4, 2018

A Geologic Study to Determine the Potential to Create an Appalachian Storage Hub for Natural Gas Liquids – multiple authors, edited by Kristen M. Carter and Douglas G. Patchen, Appalachian Oil and Natural Gas Research Consortium, West Virginia University, July 31, 2017

US Methanol Breaks Ground on First Plant in West Virginia – in Marcellus Drilling News, Sept. 7, 2017

How Petrochemical Companies Can Thrive in the NGL Boom – by Jason McLinn, Mark Porter, and Tom Shannon, in Bain and Co. (Brief), Nov. 21, 2013

Natural Gas Liquids to Olefins – (power point presentation) – University of Wyoming

The Role of Natural Gas Liquids (NGLs) in the American Petrochemical Boom – Kinder Morgan White Paper, June, 2017

Can’t Get There From Here: Prospects for Ethane Production and Transportation from the Marcellus/Utica – by Kelly Van Hull, in RBN Energy, Oct. 18, 2017

Commentary: U.S. Ethane Uncertainty – by Will Beacham, in ICIS Chemical Business (News) Feb. 24, 2017

Natural Gas Boom Brings Major Growth for U.S. Chemical Plants – by Rachel Cernansky, in Yale 360, Jan. 29, 2015

Webinar will discuss Research on Underground Natural Gas Liquids Storage – webinar by Penn State Extension's Marcellus Education Team, Jan. 18, 2018

Ohio Continues to Drag Feet Approving Mountaineer NGL Storage – in Marcellus Drilling News, Jan 17, 2018

More Clarity on Status of Mountaineer NGL Storage Facility in OH – in Marcellus Drilling News, June 17, 2017

Mountaineer NGL Says 20 Drillers Interested in Ethane Storage – in Marcellus Drilling News, Oct. 17, 2017

Mountaineer NGL Storage Spending Up to $500M on Ethane Facility – in Marcellus Drilling News, Oct. 27, 2017

China Agrees to Invest Amazing $83.7 BILLION in WV Shale, Petchem – in Marcellus Drilling News, Nov. 9. 2017

More on that Massive $83.7B Chinese Investment in WV Shale/Petchem – in Marcellus Drilling News, Nov. 10, 2017

Natural Gas Briefing Document #1 – Natural Gas Liquids – by Brookings Energy Security Initiative, Natural Gas Task Force, Brookings Institute, 2012

Potential Appalachia Storage and Trading Hub Clears Hurdle – by Sara Welch, in Shale Gas Reporter, Jan. 10, 2018

Energy Poverty in Wealthy Countries: 'Green' Policies Can Hurt the Poor While Assuaging the Guilt of the Wealthy, While in Poor Countries Energy Access is the Priority

Energy Poverty in Wealthy Countries: ‘Green’ Policies Can Hurt the Poor While Assuaging the Guilt of the Wealthy, While in Poor Countries Energy Access is the Priority

As a member of the middle class or even upper middle class I can say that I have been benefited by green energy policies. Simply due to having enough money to take advantage of ‘green’ policies like incentives for electric and hybrid vehicles, solar panels, and shallow home geothermal heat pump systems, I have been benefited while those too poor to purchase such vehicles or systems will not be benefited. It has even been shown that carbon taxes in several forms can end up hurting the poor and being more neutral to the wealthy.

Policy determination to alleviate energy poverty in developing countries is straightforward: let them, encourage them, and help them develop energy and electricity systems based on fossil fuels, preferably natural gas and where applicable (through price and local availability) coal. Renewables should also be encouraged but the priority for developing countries is energy access. In developed countries where energy access is universal the priorities are different: de-carbonize, transition to lower carbon fossil fuels (typically from coal to natural gas where applicable), upgrade the grids to smart grids, enhance grid integration of renewables, and invest in efficiency. The authors and editors of the book, Climate Pragmatism, note that priorities for energy access in developing countries should emphasize typically cheaper fossil energy over renewables and this includes when funded by NGOs or entities like the U.N. While giving very limited solar energy components to rural residents of African countries with poor electricity access can be useful it is better for them and their societies as on the whole to have access to modern grid electricity.

However, there is some energy poverty in wealthy countries and there is potential for more. In fact, green policies can increase energy poverty in some cases. Most of us know people who have trouble paying electric and winter heating fuel bills. The U.S. does offer home energy assistance to the poor but often the funds are used up quickly, and the annual application process can be cumbersome for some. This is usually through HEAP, the Home Energy Assistance Program. This is a subsidy for the poor, although oddly some who rail against energy companies count it as a subsidy for energy companies. If fuel and electricity prices go up due to renewables mandates, carbon taxes, carbon markets, and increasing costs of renewables integration then that disproportionately affects poor people. Also true is that poor people often live in houses and apartments that are not energy efficient so they can pay more for heat.

Globally, energy poverty is defined as spending more than 10% of one’s income on energy. By that definition there is significant energy poverty in wealthy countries. Obviously, people with lower incomes will spend a higher percentage of that income on energy since energy prices are generally the same for all.

Another rather obvious issue is incentives for things like home PV solar systems, geothermal heat pumps, electric and hybrid vehicles. Those who can afford to shell out for these purchases are the ones who benefit. It is quite rare for the poor since the upfront costs are quite high compared to non-green energy and autos. Incentives work almost exclusively for the wealthy and so they are basically a subsidy to the wealthy.

Bjorn Lomborg’s WSJ article referenced below suggests that committing to the Paris Agreement means a potential 0f $1 trillion per year in slower economic growth and higher energy prices. There is no getting out of climate change policies being expensive, so we probably need to de-carbonize wisely, gradually, and without undue economic disruption. While Lomborg believes technology will eventually come to the rescue others are not so sure. He favors more green energy research as do Bill Gates and others. He also notes that the U.N. climate change panel estimates that damage from global warming will add up to 2% of global GDP by the end of the century, which is quite manageable and not quite apocalyptic. This is significantly less than the damage from the 2008 financial crisis. We can control energy costs now which help the poor now. We don’t really know the costs of damage from global warming but the estimates thus far are not at all problematic in comparison. Lomborg also says that in the winter of 2014-2015, 15,000 people died in the U.K. died from lack of ability to heat their houses as reported by The Independent. Frankly, I find that very hard to fathom. I would think that if 15,000 died, presumably freezing to death or somehow otherwise affected by the lack of heat to cause their deaths, that the world would know about it more intimately and that there would be outrage that a modernized wealthy country could allow such to happen. I suspect BS there but have not investigated.

Right now one could make a case that New York governor Andrew Cuomo, Senator Bernie Sanders, Bill McKibben, and others in the ‘Keep It In the Ground’ movement are both increasing energy prices (and thus energy poverty) and directly causing unnecessary climate and environmental impacts. How? By influencing the delay and potential banning of needed natural gas pipelines to the New York and New England regions. New York electricity is 40% nat gas and residential heat is over 50% nat gas. New England electricity is 50% nat gas except when it is unavailable due to not enough incoming pipelines so that diesel (No. 2 fuel oil) is used instead in the many dual-fuel (nat gas and diesel) plants in the region. This happens repeatedly during cold snaps and is not likely to change anytime soon. Thus, instead of keeping it in the ground they are favoring a fuel with more climate and environmental impacts and one that costs considerably more. The northeast region is not particularly well-suited for solar nor wind (except maybe offshore) so natural gas truly is needed there and will likely be for years and at least a few decades to come.

In Southeast Asia and other tropical regions, energy access, particularly fossil energy access, will continue and should continue. People want air conditioners so they can have some comfort in hot tropical conditions. The problem is exacerbated in various ways: people are moving en masse from the country to the city. The added population has meant more building and less trees and greenery that helped to cool the urban areas. Thus, the urban heat island effect makes the problem worse and potentially deadly during heatwaves. While limiting and phasing out things like HFCs and making better and more efficient A/C and cooling systems will help, there will still be many new coal-fired plants built in these regions and imported liquified natural gas (LNG) to power some gas-fired plants. Solar can help also since its peak production usually coincides with the hottest part of the day where A/C use is the highest. According to one estimate the amount of air conditioners globally is expected to triple by 2050 to 2.5 billion. Three quarters of India’s electricity comes from coal and that is not expected to change anytime soon but demand for power is expected to increase significantly since about half of peak energy load in summer is from air conditioning.

There is also some energy poverty here in the U.S. I know one person who spends between a third and a half of his SSI income on energy in the winter. I visited him once when he was out of propane, where he was wearing long underwear, multiple layers of clothing, coveralls, and a hat covering his ears while inside and still freezing.

References:

Climate-Change Policies Can Be Punishing for the Poor – by Bjorn Lomborg, in Wall Street Journal (op-ed), Jan. 4, 2018

Climate Pragmatism (Rightful Place of Science series) – edited by Jason Lloyd, Daniel Sarewitz, Ted Nordhaus, and Alex Trembath (2017 - Consortium for Science, Policy, and Outcomes, Arizona State University

One Appliance Could Determine Whether India, and the World, Meet Climate Change Targets – by Shashank Bengali, in Los Angeles Times, Jan. 7, 2018