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Study says West Virginia lacks infrastructure for ethane cracker

By: Kerri Jansen

February 27, 2014

A potential new ethane cracker in West Virginia could yield billions of dollars for the regional economy, but will require a commitment to developing infrastructure the region currently lacks, according to a study released Feb. 25.

Author Tom Witt, an economist and professor emeritus at West Virginia University, also explored the potential of a new ethane cracker to attract downstream investments in the form of plants manufacturing polyethylene-based end products, most likely in the film and sheet and injection molding sectors.

"As we continue to capture more of the value added from the natural gas … through the development of the ethane feedstock into an ethane cracker PE complex and downstream into fabrication facilities that use those polyethylenes, it has the ability to really rejuvenate the chemical and the downstream manufacturing sector in West Virginia," Witt said in a conference call about the research.

Witt presented his findings to the state legislature's natural gas caucus Feb. 25. Braskem America Inc., a petrochemical company co-owned by Odebrecht, provided funding for the study.

Odebrecht, a Brazilian construction conglomerate, is one of a handful of companies that have shown interest in operating an ethane cracker in the state. The region including West Virginia, as well as Ohio, Pennsylvania and other nearby states, has seen a natural gas boom in recent years with the development of new mining technologies, with experts predicting continued growth in the industry.

Witt's study is based on a theoretical ethane cracker costing $3.8 billion, plus additional investments to build a pipeline, ethane storage facilities and rail and truck terminals that the region currently lacks. He estimates a direct annual output from the ethane cracker and associated PE plants of $530 million at startup, ramping up to a direct output of $585 million annually at full production.

The facilities could employ an estimated 325 full-time, permanent staff with total yearly compensation of $35 million, plus additional temporary construction jobs, according to the study.

These numbers do not include indirect and induced effects of the ethane cracker's operation in the region.

Witt further explored the economic impacts of two scenarios involving downstream plants using products from the cracker. The operation of two large film and sheet plants and one large injection molding plant could have an estimated direct output of $190 million, the study found. Witt estimated the output of two medium-sized film and sheet plants and two medium-sized injection molding plants at around $116 million.

Though West Virginia's access to local raw material is a significant draw, expanding the petrochemical industry in the region would not be without obstacles. To attract investments in chemical manufacturing, a necessary first step is to develop infrastructure like pipelines and transportation routes, Witt said.

"It's very essential that we have an ethane pipeline to deliver that ethane … to appropriate locations within the region where ethane crackers would be located," he said.

Existing pipeline structures extend out-of-state, Witt said. Adding the appropriate regional infrastructure would cost an estimated $150 million.

Witt estimated the necessary rail and truck terminals to carry resulting products to market would cost around $20 million, and ethane storage facilities another $20 million.

And though the region's industrial base offers a variety of skill sets, additional development is needed to ensure the availability of an adequate skilled workforce for a growing petrochemical industry, according to the study.

"Supporting the development of an ethane cracker and downstream industries will require a volume of workers and a myriad of skill sets that may not all be present in the Ohio River Basin," Witt wrote in the study. "Thus, significant workforce training programs will also be needed to be effective. It will take a strong commitment from government, industry, unions, and the public to develop the workforce and attract the vendors needed to develop, build, and operate a petrochemical cluster."

Successfully kick-starting an expanded petrochemical sector and manufacturing industry in the region requires a long-term commitment, Witt said.

"What the region lacks is a unifying strategy for focusing these disparate private sector developments on establishing a high-value local market for [natural gas liquids] products in the form of a regional petrochemical manufacturing hub," the study states. "Working together, West Virginia's government and workforce can partner with the business community to invest in the growth of an entire petrochemical industry in the mid-and upper-Ohio valleys."