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