- Gulf Hurricanes Highlight Need for Redundant Petrochemical Infrastructure in Appalachian Basin
- October 11, 2017 | Author: Drew Romig
- Law Firm: McDonald Hopkins LLC - Columbus Office
It may be months before a complete picture emerges of the impact of Hurricanes Harvey and Irma in Texas, Florida, and around the Gulf of Mexico. For the first time in recorded history, two Category 4 hurricanes made landfall in the U.S. in the same year, causing potentially hundreds of billions of dollars in damage, leaving millions homeless or without power, and taking dozens of lives.
In addition to the tragic immediate impacts of the storms, the heavy concentration of petrochemical facilities in the Gulf states, and the greater Houston area in particular, is fueling concerns about ongoing economic disruption. Harvey’s record-shattering rainfall totals in the Houston metro area – over four feet throughout much of the region - forced 20 percent of the nation’s oil refining capacity and 40 percent of its petrochemical manufacturing offline. As a recent Forbes article notes: “Modern refineries, chemicals manufacturing and plastics production are designed to work like well-oiled, continuously operated machines, and most of the time, they perform remarkably well, running safely in an increasingly regulated and controlled environment.” Whether due to Acts of God or otherwise, shutting down and starting back up creates inefficiencies and other problems even at plants that weathered the storm unscathed. At several plants that did sustain damage, consequences have been even more severe.
Moreover, supply chain disruptions are expected to reverberate throughout the U.S. and global economies in the coming months. Global demand for plastics is surging. The supply of chemicals required to produce them, the bulk of which are derived from natural gas liquids (NGLs), is already expected to struggle to keep pace. Over three-fifths of U.S. production of ethylene (an NGL considered by many to be the world’s most important chemical and an indispensable building block in the production of most plastics and innumerable other synthetic products) halted to let Harvey pass. Production may not return to pre-Harvey levels until November.
APPALACHIAN BASIN OFFERS STABLE, CONVENIENT ALTERNATIVE
Meanwhile, the Appalachian Basin, which is home to the mighty Utica and Marcellus shales and their abundant natural gas supplies, continued its impressive streak of not being struck by a hurricane. By process of elimination, if we remove from consideration the wildfire-and earthquake-prone western states, the Gulf and Atlantic states in the hurricane danger zone, and anywhere nicknamed “Tornado Alley,” it seems the Appalachian Basin is the ideal place to locate a facility that doesn’t take kindly to disruption. With its central location within 700 miles of over 70% of North American polyethylene demand, low costs, and abundant water, the Appalachian Basin compares well with the Gulf from a logistics perspective as well.
In addition, this Rust Belt region boasts an eager workforce left adrift by a coal industry that has been torpedoed by cheap natural gas, and abundant disused industrial sites that would make ideal and potentially-tax-credit-generating locations. So why would a company build a new petrochemical plant in the Gulf when the cheap, stable and convenient Appalachian Basin seems so advantageous? As it turns out, “Because everyone else does it” isn’t a bad answer.
IF WE BUILD IT, THEY WILL COME
The fracking boom in the Appalachian Basin has already demonstrated the region’s vast potential for production of oil, natural gas and NGLs. What the region lacks, however, is the necessary infrastructure to move, store, and refine (or “crack”) these NGLs for large-scale industrial use. The gulf coast petrochemical hive primarily surrounds the Mont Belvieu storage hub near Houston, a massive system for storing NGLs in a naturally-occurring salt dome deep underground, which is, in turn, surrounded by pipelines and linked to other significant transportation infrastructure.
Despite the Appalachian Basin’s numerous advantages, it cannot yet compete with the gulf coast’s vast infrastructure. It’s a chicken-and-egg problem; why build the industrial sites without the infrastructure to support them and why build the infrastructure without the industry to use it? But that’s changing. Pipelines like Rover and Nexus will, once complete, carry more of the region’s natural gas to markets throughout the Northeast, Midwest, and Canada, and the possibility of creating a storage hub like Mont Belvieu, which could attract billions of dollars in new investment, is being explored.
A few recent wins for the Appalachian Basin provide reason for optimism, too. Royal Dutch Shell is building a $6 billion ethane cracker plant in Beaver County, PA, and Thai company PTT Global is considering another $6 billion cracker plant on the former site of a coal-fired power plant in Belmont County, Ohio. The flip-side of the industry/supporting infrastructure dilemma is that it may become a positive feedback loop once moving. And we should hope that it does.For the region, a new petrochemical hub in the Appalachian Basin would bring billions of dollars in new investment and create tens of thousands of well-paying jobs in a region desperate for them. For the nation, ensuring a stable, reliable domestic supply of gasoline for its cars, natural gas to heat its homes and raw materials for its factories, one which is far less likely to be interrupted by a disaster, is a matter of economic and national security.