Officials tout natural gas resources

HOUSTON — The Marcellus and Utica shale natural gas deposits throughout the Appalachia region have the potential to change the natural gas industry in North America, officials said.

Officials with Shale Crescent USA are at the World Petrochemical Conference this week in Houston, Texas. Shale Crescent USA has been involved with natural gas development efforts in West Virginia, southeastern Ohio and southwestern Pennsylvania as well as in the Mid-Ohio Valley.

Representatives with Shale Crescent USA, IHS Markit and Solvay spoke Tuesday in a telephone press conference about a report prepared by IHS that will be presented today at the conference as well as a luncheon Thursday for industry executives.

“Benefits, Risks, and Estimated Project Cash Flows: Ethylene Project Located in the Shale Crescent USA versus the US Gulf Coast” is an independent report by IHS Markit commissioned by Shale Crescent USA to evaluate and compare the financial returns and risks of a major petrochemical and plastics investment in the region with an identical investment in the U.S. Gulf Coast, which leads the world in petrochemical manufacturing expansion.

”The Marcellus and Utica shale plays are some of the largest natural gas resources in the world and underlay the Shale Crescent USA region of Ohio, Pennsylvania and West Virginia,” the introduction of the report stated. ”IHS Markit forecasts that this region will supply 37 percent of the nation’s natural gas production by 2040.”

Wally Kandel, senior vice president of Solvay, said they have been talking with CEOs and many are asking why they should invest in the Appalachian region when regions like Texas along the Gulf of Mexico, which has been the biggest producer of natural gas for years, have infrastructure in place.

A big advantage for this region is it is sitting on the gas supply, said Ron Whitfield, vice president of Applied Economics for IHS and lead author of the report.

It would have ample feed stock and there will be a significant financial advantage for an ethylene/polyethylene investment in the Appalachian region compared to a similar investment on the U.S. Gulf Coast, he said.

”The region 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,” Whitfield said. ”The financial advantages for a Shale Crescent USA project are robust under different feed stock price scenarios, even when considering a range of capital costs and operating rate conditions.

”This ultimately leads to lower delivered costs of polyethylene, which is used to manufacture a multitude of consumer goods – everything from food packaging to household containers.”

Jerry James, Shale Crescent USA spokesman/president and CEO for Artex Oil, said at the beginning of the decade the region only produced around 3 percent of the natural gas being produced, but that amount has grown to over 30 percent by Dec. 2017.

”We have become a major supplier,” he said. ”This is a world-class asset.”

James said that if Ohio, West Virginia and Pennsylvania were formed into their own country, it would be the third largest supplier of natural gas in the world.

“The study confirms that the Shale Crescent USA is the most lucrative place to build a petrochemical manufacturing facility,” he said. ”The region boasts a number of major advantages, including access to some of the lowest natural gas prices in the developed world from the abundant Marcellus and Utica Shale formations.

”When taken with the close proximity to more than two-thirds of the domestic market for polyethylene consumption, it means we are the most profitable location for a petrochemical project.”

The region also has access to an ample supply of freshwater and can utilize the Ohio River to transport supplies, Kandel said. With many customers nearby, it could cut down on transportation costs. The region also has access to a large skilled labor force, he said.

”We see that as the main advantage for the region,” Kandel said.

Many companies that already have a strong presence in the Gulf region would not be interested in trying to set up operations in the Appalachian region, officials said.

The majority of those who are expected to invest in the Appalachian region will be foreign companies, officials said.

For years, this region was a major producer of oil and gas before that focus moved to the Gulf region, they said.

James said the region’s re-emergence is a major change in how business has been conducted for years. It can take the industry 10-20 years to fully accept that change, he said.

With a Shell ethane cracker facility being built in Monaca, Pa., the officials were asked if they thought the industry was waiting to see if that was a success before investing in the region.

Kandel said many would end up missing the opportunity this presents if they waited five or six years for the facility to be built and put into operation.

”No one wants to miss the boat,” he said. ”I don’t think people will wait.”

With the Appalachian Storage Hub moving forward, the infrastructure is being put in place for this region to excel in natural gas development, officials said.

Whitfield said there is enough natural gas supply throughout the region to build five ethane cracker facilities, representing investments of around $3 billion each.

The United States is the number one producer of natural gas in the world, the report stated. The natural gas produced in the Marcellus and Utica shales is rich in natural gas liquids (NGL), including ethane.

”IHS Markit forecasts NGL production from these two plays will increase from 0.53 million barrels per day in 2017 to 1.37 million barrels per day in 2040, an increase of over 150 percent,” the report stated.

Keith Burdette, president of the Polymer Alliance Zone of West Virginia, said the report shows the potential for development in this region.

”The Gulf Coast of the USA has been considered the premier location for a petrochemical facility investment for the past 50 years or more,” he said. ”This paradigm shift to the Ohio Valley is attributed to the Marcellus and Utica shale natural gas reserves that will account for 35 percent of total U.S. production by the year 2020.”

Appalachian NGL production is projected to increase over 700 percent from 2013 to 2023, according to the Department of Energy.

Burdette said the study shows the Ohio Valley region of West Virginia, Ohio and Pennsylvania is the most profitable place for a petrochemical company to locate versus the Gulf Coast of the USA.

Shale Crescent USA offers 32 percent lower ethane prices and 23 percent lower delivered polyethylene costs due to proximity to end users, Burdette said.

”The study results are important because it provides quantifiable data to attract high-energy intensive industries to the Mid-Ohio Valley region,” he said. ”Our collective goal is to see that the development of shale gas reserves in the Ohio Valley results in creating jobs and investments in value-added manufacturing long after the drilling is complete. The IHS study will go a long way in helping us make the case for that type of investment, both in the United States and internationally.”

This article was authored by Brett Dunlap for the Parkersburg News and Sentinel. Click here to read it on the publication's website.