Caton, Ohio — It's tough times in the oil and gas business.
Prices are down and have been for a while, drillers have dramatically slowed the rate at which they're drilling in Ohio and many energy companies that have invested in the Utica Shale region have cut costs and laid off employees.
But Ohio still has a great chance to not only continue to cash in on the Utica Shale's natural gas, but also to capitalize on its ethane by building an ethylene processing and plastics industry around the shale play, says a national expert on the petrochemical industry.
Tom Gellrich, a noted expert on ethane and the related chemical industry gave that upbeat message to an audience of about 150 people at the Utica III conference, held by the Canton Regional Chamber of Commerce on Oct. 13 at Kent State University's Stark County campus.
Gellrich is one of the best experts to hear from when it comes to the ramifications of Ohio's ethane, said David Kaminski, vice president for public policy and energy for the Canton Chamber and the man most responsible for its Utica summits.
Gellrich not only follows ethane production, but has close ties to chemical companies that are the end market for ethane-related products — which has made him a sought-after speaker at events like the one in North Canton. Gellrich is also particularly interested in whether the Ohio region gets a new cracker, just as local economic developers are, Kaminski said. And Gellrich had some favorable predictions on that front.
“I think by the end of 2020, we'll probably have three or four” ethane crackers in the region, predicted Gellrich, founder of Philadelphia-based TopLine Analytics. He's a former chemical engineer who now follows the ethane industry and consults for major U.S. chemical companies.
If he's right, it would be a big deal for not only Ohio, but the entire region. In fact, as Gellrich was speaking in Canton, officials from Ohio, Pennsylvania and West Virginia were meeting at a separate conference to discuss how their states could become ethane processing centers, rather than becoming merely drill sites with extractive economies.
Gellrich predicts that one of the largest crackers proposed for the region — Shell's big $4 billion project in Beaver, Pa., just across the Ohio River — actually has the best chance of getting built.
While Shell has not given the project a formal green light for completion, it has already spent more than $100 million on the project, mostly on engineering work, Gellrich said. Shell also recently agreed to pay nearly $70 million to move some water supplies in the area to help facilitate the project too, according to recent media reports out of Pennsylvania.
What might be more telling, however, is that Shell has cancelled other large projects, but not the Pennsylvania cracker, Gellrich said. That includes its proposed drilling in the Arctic, offshore drilling in South America, a project in Qatar and a gas-to-liquids project in Louisiana.
“Shell is not shy about pulling out of projects. ... They're continuing with their project here in the Appalachian basin, though,” Gellrich said.
Other projects that have been announced are less likely to proceed, but some will and others will be announced, Gellrich predicts.
For example, Gellrich believes the Appalachian Resins cracker initially planned for Munroe County won't get built. That facility, which is tiny compared to the crackers proposed by Shell and others, was recently put on hold by its Texas developers — not because it was a bad idea economically, but because its investors feared it could not compete with other larger projects for labor and other resources.
Other larger projects proposed by international firms, such as the $5 billion cracker proposed by Odebrecht of Brazil in Parkersburg, W.Va., or the $5.7 billion Belmont County cracker proposed by Thailand's PTT Global Chemical, have a better chance, he said.
The Odebrecht plant will likely be slowed by political and legal issues in Brazil — where its CEO is currently jailed and involved in a major corruption case — but the incentives are too great for international chemical companies not to build here, Gellrich contends.
That's because ethane, which crackers use to make chemical feedstocks like polyethylene, costs half as much in the United States as it does in China or even in places like the Middle East, where ethane is made from naphtha at much higher costs. With most of the U.S. supply of natural gas and ethane now coming from the Appalachian basin, there's a local glut of ethane that is too big for the petrochemical industry to ignore.
“There's plenty of room for many more plants — maybe as many as a dozen or more. ... Ethane availability is a non-issue,” Gellrich said.
Currently, natural gas processors in the Utica region say that enough ethane is already being “rejected” — sent into the pipeline with methane to be burned as fuel — to supply several crackers. More will be rejected as drilling proceeds, until a cracker is built in the region, they say.
The potential in plastics
Gellrich says the U.S. ethane glut is a game changer for nearly the entire nation's industrial base. The shale boom has already resulted in more than $125 billion in investments in U.S. chemical facilities, he said, with more on the way. If a cracker is built in or near Ohio, it will only attract more of those investments to the region, Gellrich and other industry proponents contend. Currently, most of the ethane processed in the U.S. is handled on the Gulf Coast, but bottlenecks are developing there, and there's a big cost savings to processing it close to the source in Appalachia, Gellrich said.
“There are hundreds of millions of dollars in potential saved transportation costs,” he said, both from being close to the gas wells and close to the U.S. plastics industry that uses the crackers' products.
“Customers for the end products are local. Akron and the Canton area is the birthplace of the U.S. plastics/polymer industry, which came from the tire and rubber industry. Within a 250 mile radius, still, 50 percent of the North American plastics processing exists,” Gellrich added.
Ultimately, he predicts, plastics will become so cheap that they will replace other materials. They're already to the point that things like composite decking materials are becoming cheaper to use than real wood. In five years, consumers will find very little in terms of glass or metal packaging, including bottles and cans in the grocery store, he said.
That's pretty much the message that economic developers in northern Ohio want to hear.
While there's little to no shale drilling done in the far northern part of the state, there is ample industry that officials hope will benefit from cheaper natural gas and related feedstocks.