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11 IMAGINE
WEST VIRGINIA A results-based policy
institute
1The Proposed Appalachian Ethane Storage HubCan it happen? What are the problems, constraints & pitfalls?
The Appalachian Ethane Storage Hub Study Act of 2017, sponsored by Senator Capito and co-sponsored by Senators Manchin and Portman, directed the Secretary of Energy and the Secretary of Commerce, in consultation with other relevant federal agencies, to conduct a feasibility study of establishing a subterranean ethane storage and distribution hub in the Marcellus, Utica and Rogersville shale plays in the United States.
The study was to include an analysis of potential locations based on favorable geology, the economic feasibility and benefits of the project, infrastructure, and proximity to production sites and potential industrial consumers.
A careful reading of the report generated by that study and of other published discussions of the project suggests that the possible economic benefits of proceeding with the development of such a subterranean ethane storage and distribution hub are enormous and could result in what Governor Jim Justice recently called “[a] job boom in West Virginia forever.”
The Opportunity
The case for the creation of an Appalachian Ethane Storage Hub is an extremely solid one. Consider:
• The recent unprecedented growth in natural gas production in the Marcellus, Utica, and Rogersville shales, an area covering much of West Virginia, Kentucky, Ohio and Pennsylvania has fundamentally changed the natural gas market in the United States. The shale resource in this area is so bountiful that, if the area were an independent country, it would be the world’s third largest producer of natural gas today!
• The U.S. Gulf Coast has been the nation’s historic hub of natural gas storage and activity. However, data from the U.S. Department of Energy’s November 2018 report, titled “Ethane Storage and Distribution Hub in the United States,” projects that Appalachian and East Coast states will produce more than 30 trillion cubic feet of natural gas by the year 2050, which is more than the combined total cubic feet of natural gas of the Gulf Coast and the rest of the country.
• One-third of U.S. petrochemical manufacturing activity occurs within 300 miles of Pittsburgh, which is solidly within the area being considered for an Appalachian storage
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hub, a dramatic reduction of distance from the historic hub of natural gas storage and activity along Texas’ Gulf Coast.
• Establishing a storage hub in the Appalachian region would protect the nation against the weather-related disruption of the Gulf Coast’s storage and other petrochemical activity by natural disasters in Hurricane Alley.
• Geographically diversifying the petrochemical industry is not necessarily in conflict with the Gulf Coast’s petrochemical expansion. Diversification will enable refineries and other producers on the Gulf Coast to focus on exports – reducing America’s trade imbalance – while the Appalachian market (which is closer to the bulk of the nation’s petrochemical product users) could support domestic manufacturing of plastics, resins, and other polymers, driving greater production of natural gas and its byproducts.
• An Appalachian storage hub would reduce greenhouse gas emissions because it would lessen the need for pipelines and compression stations to move natural gas and its byproducts to market.
• Storage is a key infrastructure investment needed to attract petrochemical manufacturers to the region. While an ethane storage hub itself could perhaps be managed by a relatively few workers, the downstream development that could grow up around the hub could create thousands of jobs and millions in tax revenue. The American Chemistry Council estimates a hub could attract up to $36 billion in new chemical and plastics industry investment and create 100,000 new area jobs.
• According to a 2017 geologic study conducted by the Appalachian Oil and Natural Gas Research Consortium (AONGRC) at WVU there are three subsurface storage prospects in West Virginia suitable for underground storage of natural gas liquids with potential to support a thriving petrochemical industry:
• The Northern Prospect, including northern panhandle of West Virginia and adjacent portions of eastern Ohio and western Pennsylvania contains potential storage opportunities in the Clinton/Medina sandstones of Ohio’s Ravenna-Best Consolidated Field and two Salina F4 Salt caverns straddling the Ohio River.
• The Central Prospect, which includes portions of southeastern Ohio, southwestern Pennsylvania and North-central West Virginia with five storage opportunities in Greenbrier Limestone mined-rock caverns; depleted gas reservoirs in the Keener to Berea interval; a depleted gas reservoir in the Sinking Creek gas storage field; depleted gas reservoirs in Upper Devonian sandstones in the Weston-Jane Lew field; and a Salina F4 Salt opportunity near Ben’s Run in West Virginia; and
• The Southern Prospect, which is situated in the Kanawha River Valley and, as the report states, “comprises the most storage opportunities of any prospect evaluated in this Study.”1
11 Carter, et al, “A Geologic Study to Determine the Potential to Create an Appalachian Storage Hub for Natural Gas Liquids: Final Report,” Appalachian Oil and Natural Gas Research Consortium, July 31, 2017, https://aongrc.nrcce.wvu.edu/files/d/b0b6b967-5911-4bbe-957f-0b149851224f/ngls-study-report-ilovepdfcompressed.pdf.
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The storage hub being considered could generate employment that reaches far beyond those directly employed by the hub itself. The true employment impact of an industry takes into consideration the following:
• Direct Employment – the people who work directly for the storage hub and the processing plant, the fractionators and in the manufacturing facilities that grow up around the hub. While across many producing regions in the country fractionation may take place far from where the liquids are processed, in the Appalachian basin all liquids extracted are fractionated locally. Thus direct employment around the hub would include plant operators, R&D engineers, chemists, etc., who work not only for the storage hub but those who work for the processing plant and fractionators, as well as the nearby manufacturing operations.
• Indirect Employment — the people who work in jobs surrounding the hub, processing plant and fractionator. For example, this could be third-party truck drivers who transport materials to/from the storage hub and the processing plant and the fractionator.
• Expenditure-Induced Employment — the jobs in the suppliers’ suppliers (e.g., truck manufacturers needed to make trucks that transport materials to/from the plant), and in those industries supported by the wages paid to employees (e.g., medical facilities, coffee shops).2
Constraints
Infrastructure and its financing: “The extent to which Appalachian NGLs will be converted and consumed locally will depend on regional infrastructure additions and, more specifically, the interplay between storage and transportation.”3
In simple terms this means we’re going to have to build a lot of roads and pipelines. In an article in the December 2018 issue of the trade publication ONG EVENTS, the author suggests the ethane storage hub project will involve a $10 billion infrastructure expansion which would require a public-private partnership with the financial backing of the private sector and federal and state governments. Financial incentives such as tax abatements or tax credits can also play a role.4
Steve Hedrick, President and CEO of South Charleston’s Mid-Atlantic Technology Research and Innovation Center (MATRIC), in an article in WV Executive magazine, agrees that “the single biggest barrier to building out the manufacturing base is inadequate infrastructure.”5
The Appalachian Development Group (ADG) was formed as a collaborative platform to deliver the Appalachia Storage and Trading Hub. ADG submitted a Part I application for a loan guarantee under the U.S. Department of Energy (DOE) Title XVII Loan Guarantee Program on September 13, 2017, and worked responsively with the DOE Loan Program Office thereafter.
22 https://www.americanchemistry.com/2018-Elements-of-the-Business-of-Chemistry
33 Appalachian Ethane Storage Hub Study. https://www.energy.gov/sites/prod/files/2018/12/f58/Nov%202018%20DOE%20Ethane%20Hub%20Report.pdf
44 http://www.ongmarketplace.com/appalachian-storage-hub-big-plan-big-price-tag/
55 http://.wvexecutive, com/appalachian-storage-hub/
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ADG was then invited to submit a Part II Application for a loan. The invitation for the Part II application is for a $1.9 billion loan guarantee to support the development of infrastructure for ASTH. This is the first of several steps in the process to secure a conditional commitment and final loan agreement.6
Thus, the project would be built with a combination of private investment and the $1.9 billion guarantee from the Department of Energy. So over $8 billion will have to come from private industry and state government.
Lack of certified site inventory: Lack of development-ready properties is one of the top barriers to attract businesses, create jobs and bolster investments in West Virginia. Nationwide, development-ready industrial sites are one of the most effective ways to lure new companies to the state. As of 2018, 31 U.S. states have adopted a site certification/readiness program, ranging from models designed by site selection consultants to initiatives developed by state governments.
Of the states surrounding West Virginia only Maryland does not have a site certification /readiness program.
The lack of a site certification/readiness program can be very costly.West Virginia recently lost out to the State of Alabama a $1.6 billion Toyota and Mazda auto-manufacturing plant – a joint venture expected to create up to 4,000 jobs – in part, because it did not have an inventory of sites ready for development. Additionally, compared to its neighboring states, West Virginia has fewer developable properties available for prospective firms. These and other factors hinder the state’s ability to successfully compete with other states for investment and business recruitment.
The WV Forward report on “Moving at the Speed of Business” said it plainly and unmistakably:
In today’s ever-changing economy, states are becoming increasingly expected and required to move at the speed of business. States without lists of sites that are confirmed to be ready for development frequently miss out on opportunities to attract companies, investment and, most importantly, jobs. Prospective and established businesses are generally unwilling and/or unable to wait until a potential industrial site is located or ready for development. There is also too much uncertainty surrounding the selection of a site with unknown conditions and infrastructure for an enterprise. For these reasons, businesses frequently decide to base their operations in states that have an inventory of developable sites.
West Virginia desperately needs an active statewide site certification/readiness program to define, identify and market development-ready locations in the state. If a West Virginia site for an ethane storage hub were to be considered, the lack of a site certification/readiness program which pinpointed ready-to-develop properties in the vicinity of the proposed storage hub could kill the entire project.7
66 https://www.prnewswire.com/news-releases/adg-invited-to-submit-part-ii-application-for-19-billion-in-loan-guarantees-under-does-title-xvii-loan-guarantee-program-300577137.html
77 https://wvforward.wvu.edu/wv-forward-work/creating-an-inventory-of-sites/moving-at-the-speed-of-business
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Qualified workers: While the downstream development that could grow up around an ethane hub could create thousands of jobs and millions in tax revenue, this growth will be highly dependent on the quality and quantity of workers. Currently, West Virginia is facing a severe skilled and unskilled worker shortage that has long and short-term economic implications.
The problem is not limited to West Virginia alone. In a 2017 article in Global Risk Insights, a January 2017 survey by the Associated General Contractors of America was cited revealing that 73 percent of businesses had a difficult time finding qualified workers and 55 percent identified worker shortages as a bigger concern than federal regulations and low infrastructure investment. The article noted that skilled workers fall into two categories:
• highly skilled such as engineers, scientists, and technicians who carry degrees and advanced degrees in their chosen fields, and
• workers with “middle skills” requiring more experience than just a high school diploma yet less than a four-year college degree such as welders, electricians, or machinists.
There is yet a third category of workers that employers need – workers with middle skills that include technical knowledge and a better-than-average understanding of the tools and machines they will operate, while also involving a high degree of problem-solving skills. 8
West Virginia students lag in reading skills
Statistics on the reading skills of West Virginia fourth and eighth graders do not offer much hope for locating well-educated workers in the state. A 2017 study conducted by the National Center for Education Statistics reveals that
• In 2017, the average score of fourth-grade students in West Virginia was 217. This was lower than the average score of 221 for public school students across the nation.
• In 2017, the average score in West Virginia (217) was lower than the average score in 31 states/jurisdictions - including the surrounding states of Pennsylvania, Virginia, Kentucky and Ohio.
• In 2017, the average score in West Virginia (217) was higher than the average score in only the five states/jurisdictions of the District of Columbia, South Carolina, Louisiana, New Mexico, and Alaska.9
• Statistics for West Virginia eighth graders are even worse, showing that the average reading score in West Virginia (259) was higher than the average score for eighth graders only in New Mexico.10
Developing pools of skilled workers
88 https://globalriskinsights.com/2017/09/labor-shortage-united-states-dire-issue/
99 https://nces.ed.gov/nationsreportcard/subject/publications/stt2017/pdf/2018039WV4.pdf
010 https://nces.ed.gov/nationsreportcard/subject/publications/stt2017/pdf/2018039WV8.pdf
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While American culture still pushes every high school graduate to get a college degree, there are a myriad of reasons for not going to college – and many of the alternatives to securing a college degree also provide a source of skilled workers for projects like the Appalachian Ethane Storage Hub.
Becoming a tradesman or entering a vocational school can be a great alternative to high school graduates who like working with their hands. There are many options that lead to potentially well-paying careers: electrician, plumbing, welding and metal work, masonry, lock smithing, and more. Moreover, students attending a vocational school or learning a trade as an apprentice can start earning money while still in school. Trade-trained students offer a solid and attractive source of skilled workers for projects such as the Appalachian Ethane Storage Hub.11
Various colleges and universities around the country are now offering programs for upgrading workers skills and qualifications in their work fields. For example, the College of Technology at the University of Houston offers programs in
• 5G and LTE Expert Telecommunications Network Training Courses• Amazon Web Services Cloud Computing Architecture Certification• Construction Management• Foresight/Future Studies• Learn Six Sigma• Logistics and Transportation Policy• Piping Technology Courses• Project Management• Retailing and Consumer Science
These programs draw from faculty within the college and university as well as experts from outside who have both the experience and the certifications to help students advance in their fields.12
Perhaps the state of West Virginia could develop partnerships with West Virginia University and Marshall University as well as other local colleges and trade schools to provide this sort of training, in-house or online. This could provide a ready source of trained workers ready to “hit the ground working.”
Environmental concerns: An undated article in the Wheeling Intelligencer reported that Greg Kozera, the marketing director for Shale Crescent USA, a nonprofit based in Marietta, Ohio, wants residents, community leaders and businesses to start using the term “Shale Crescent” when they refer to the energy-rich Appalachian area. The article reported on Kozera’s presentation to a Wheeling Area Chamber of Commerce event at Wheeling Jesuit University.
Kozera’s presentation pointed to the petrochemical deposits beneath the area and emphasized how development of these deposits could attract a broad variety of industrial interests to the region. He noted that his organization’s primary goal is to attract new, high-
111 https://www.forbes.com/sites/robertfarrington/2014/11/10/5-proud-alternatives-to-going-to-college/#2b410d5e354e
212 https://ssl.uh.edu/technology/programs/professional/
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paying manufacturing jobs to the area atop those layers of shale, including parts of Ohio, West Virginia and Pennsylvania.
He closed by discussing what local businesses and residents could do to help ensure petrochemical developers will choose this area for new projects. He suggested the following steps:
• Maintain a positive business climate;• Establish a petrochemical storage hub;• Prepare the workforce;• Keep our region clean and appealing.
Notwithstanding the upbeat and positive nature of Kozera’s presentation, the published report of the talk drew the following responses on the internet:
• Ah, NO! . . . sounds stupid.• I've been referring to the area as Frackistan. That's the same as Shale Crescent.• Since fracking began the area should be called what it looks like, a DUMP!• How about rebranding and reimagining the area as Innovation Valley? That could be a
place where the regular folks don't have to sacrifice clean air and clean water to the greed of yet another set of fossil fuel barons, a place where we develop livelihoods that respect workers, human health, and future generations, livelihoods that bring about restoration of the Ohio Valley, instead of more destruction.
• Sure, Kozera wants the region to brand itself as the "Shale Crescent." His company already has that name . . . He also tries to pawn off the lie that a dirty industry can be injected into a clean scenic region and all would be well. Cognitive dissonance, anybody? Why not? Haven't we fallen for it for a CENTURY with the coal industry?
• Wow. A proposal for a mega-industrial complex that would pollute our air and water, divide our communities, raise our already high cancer rates and turn the Ohio Valley into an ugly industrial zone, and he wants citizens to start naming our area after the assaulting entity?13
The newspaper’s report of the talk contained no positive comments about Mr. Kozera’s talk. We will have to be prepared for an onslaught from the environmentalists who will not always be willing to consider any position but their own. However, this not to suggest that environmental worries should not be at the top of any list of concerns surrounding the development of an ethane storage hub. The environment must always be a top interest to any legitimate business undertaking where there is serious potential for damage. But we can expect that there will be negative reaction from environmental groups and at least some of it will be extreme and perhaps false and misleading.
We will need to emphasize that, as noted earlier, an Appalachian storage hub would reduce greenhouse gas emissions because it would lessen the need for pipelines and compression stations to move natural gas and its byproducts to market. This simple truth will be a strong pro-hub argument, even if extreme environmentalists reject it outright.
CONCLUSION
313 http://www.theintelligencer.net/news/top-headlines/2018/06/shale-crescent-usa-wants-to-rebrand -region/
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Widespread Industry Recognition of the Opportunity by Experts
Organizations representing industries with much to gain by the development of an ethane storage hub have been enthusiastic. This alone provides enormous credibility to the concept of a hub. Consider the following examples.
Shale Crescent USA14 has been promoting the area extensively. The organization has done over 100 TV and radio interviews promoting the advantage of the Shale Crescent USA Region offers. Shale Crescent USA’s vision is to “enhance the quality of life and standard of living for the people of the Shale Crescent USA Region by bringing high wage manufacturing jobs to the region.”15
Founded in 2009, ShaleDirectories.com has a mission of “Connecting the Oil & Gas Industry with local businesses.” Speaking of The Appalachian Ethane Storage Hub Study Act Of 2017, ShaleDircteories.com noted that manufacturing feedstocks of ethane & other natural gas byproducts in the Appalachian region are currently being burned off for heating and power generation. The report noted that “Establishing a storage hub, and thereby a regional market for this material, will end this waste and drive refining and manufacturing activity. An Appalachian storage hub and regional energy market would also add needed redundancy to the concentration of the country’s refining and manufacturing capacity in the Gulf, which is threatened by natural disasters in Hurricane Alley.”
“Geographically diversifying this American industry will enable producers and gulf refineries to focus on exports– reducing America’s trade imbalance– while the Appalachian market could support domestic manufacturing of plastics, resins, and other polymers, in turn driving greater production of natural gas and its byproducts. Expanding these markets has the potential to create thousands of jobs and domestic consumers will benefit from lower prices and access to more goods that are made in America.”16
The Polymer Alliance Zone®, Inc (PAZ) was formulated in 1996 as a pilot project of the State of West Virginia through an executive order of Governor Gaston Caperton. PAZ is a membership organization, which includes both polymer and related industries. The zone has one of the highest concentrations of high-technology, specialty and engineering polymers production in the world. PAZ is dedicated to expanding the industrial base in Jackson, Mason, Pleasants, Tyler and Wood counties by adding multiple value to polymer businesses and related service companies that will provide increased quality job opportunities for West Virginians. This is, of course, a perfect fit with the efforts to develop an ethane storage hub in this area. With Keith Burdette, former Cabinet Secretary for West Virginia Department of Commerce as its president, PAZ is working to spread the word about the need to develop the zone.
Among other things, PAZ has publicized the fact that the zone is in the center of US commerce. More than 66 percent of the U.S. population and 30 percent of the Canadian population live within an overnight delivery of the Zone. Moreover, the zone has easy access within a one day trucking distance to 50% of the U.S. population and one-third of the Canadian
414 www.shalecrescentusa.com
515 January 2019 insert in The State Journal, p. 9
616 https://www.shaledirectories.com/blog/appalachian-ethane-storage-hub-study-act-2017/
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population. A typical West Virginia plastic manufacturer enjoys an average operating profit margin of 8.5%, compared to the national average of 4.8% and 5.3% for competing states. The area has the eighth most productive workforce in the United States. And industrial electricity rates are the third lowest in the nation.17 All this screams out: LOCATE THE HUB IN WEST VIRGINIA!
The Chemical Alliance Zone of West Virginia (CAZ) works with partners across West Virginia to boost and maintain investments and jobs in the chemical industry and related industries, including natural gas, manufacturing, and technology in general. CAZ creates, initiates, and facilitates business opportunities in the chemical industry. The organization represents the chemical industry and related industries across the state and region, and is active in public relations and education efforts, workforce development and training activities, and other issues and opportunities important to the chemical industry and West Virginia’s economy.18
In a May 20, 2018 op-ed piece in the Charleston Daily Mail Kevin DiGregorio, Executive Director of the Alliance, stated: “We have the most abundant and cheapest feedstock in the world thanks to the Marcellus and other shale plays. We also don’t have to transport ethane for long distances (say, to the Gulf Coast) and then turn around and send the product (mostly polyethylene) back to the Midwest and Northeast where some two-thirds of polyethylene users are located. It’s that simple. It’s that intuitive. Experience and insight tells you so. But Shale Crescent took the matter out of the realm of just intuition and experience and put it in the realm of hard numbers.”19
In May 2017 the Economics & Statistics Department of the American Chemistry Council released a study titled “The Potential Economic Benefits of an Appalachian Petrochemical Industry.” The study concluded: More than $23 billion of chemical and plastic resin output could be generated by [the facilities surrounding a storage hub] by 2025. As such, Appalachia would emerge as a major hub for petrochemicals and related downstream manufacturing activity. This economic activity is substantial and is expected to support tens of thousands of jobs within the region.20
An Idea Whose Time Has Come
The Appalachian Ethane Storage Hub will be developed. The arguments for its creation are manifold and they are backed by sound reasoning with solid statistical support. Moreover, it is difficult to conceive of legitimate reasons for opposition to the concept. It is “an idea whose time has come.” The Hub will become a reality. The only question is whether it will be located in West Virginia, Ohio or Pennsylvania.
717 http://www.pazwv.org
818 http://cazwv.com
919 https://www.wvgazettemail.com/opinion/daily_mail_opinion/ commentary/kevin-digregorio
020 U.S. Energy Information Administration, "Hydrocarbon Gas Liquids (HGL): Recent Market Trends and Issues," November 2014, https://www.eia.gov/analysis/hgl/pdf/hgl.pdf.
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The favorable geology of the area of West Virginia where the hub is proposed, the proximity of the area to the markets of the eastern United States and southern Canada, and the higher profits that can be obtained by locating in West Virginia, all point to the desirability of locating the hub in the state.
But we cannot afford to waste any time in seeing that the hub is located in West Virginia. The national political atmosphere is positive. Consider, among other things, that the U.S. Secretary of Commerce – a former Governor of Texas – supports the idea of such a regional development here instead of insisting that the development take place along the Texas coast with the other petrochemical expansion there. However, we cannot depend on the political atmosphere to remain friendly forever. We must “strike while the iron is hot.” The opportunities that will spill over from a storage hub in West Virginia are too exciting to ignore. Indeed, this may be our last chance for a long time to encounter such an enormous opportunity.
The hub will be developed. We must make certain that it happens in West Virginia.
Forest J. Bowman, Executive DirectorImagine West Virginia
28 Vintner PlaceMorgantown, WV 26505
(304) 288-7396(304) 241-4906 (fax)
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