Texas and Louisiana have their charms, but the wandering eyes of petrochemical investors soon might fall on Ohio, Pennsylvania and West Virginia.
Shale gas and oil deposits in that tri-state area can deliver "significant financial advantages" compared to a similar ethylene facility on the U.S. Gulf Coast, according to a recent report from the IHS Markit consulting firm.
The report — commissioned by the Shale Crescent USA trade group — concludes that an ethylene project in the Appalachian region is expected to produce a net present value on EBITDA of $930 million over the life of the project vs. $217 million for a similar project on the U.S. Gulf Coast.
Over a 20-year period, that is expected to equate to a pre-tax profit advantage of some $3.6 billion, according to the report. This compares to an initial plant investment of approximately $3 billion.
For the report, IHS Markit modeled theoretical, identical plants in both the Shale Crescent and the Gulf Coast, calculating the returns from an investment into an ethylene or polyethylene plant in both high- and low-price environments.
Accounting for a variety of risk factors — such as differences in capital costs, operating rates, proximity to customers, and access to international markets — the report found that the financial returns for a facility in the Ohio Valley are greater under all scenarios analyzed.
"The study confirms that the Shale Crescent USA is the most lucrative place to build a petrochemical manufacturing facility," Shale Crescent USA spokesman Jerry James said in a news release. "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," he added.
Shell Chemical is moving forward with a massive petrochemical plant outside of Pittsburgh that would include both ethylene and PE production. That complex could come online as soon as 2021.
A petrochemicals joint venture between PTT Global Chemical of Thailand and Daelim Industrial of South Korea also is being considered for Dilles Bottom, Ohio. That project would include an ethane cracker and would produce ethylene feedstocks and resins, most likely polyethylene.
In November, China Shenua Energy Investment Corp. Ltd. signed a memorandum of understanding with the U.S. government, calling for $83.7 billion of investment in shale gas development and chemical manufacturing in West Virginia over a 20-year period. State officials said that project likely would include plastics resin.
Development officials also have said that a storage facility for ethylene feedstock ethane is likely to be built in West Virginia as well.
The IHS Markit study "validates the significant competitive edge for an ethylene project in the Shale Crescent," lead author Ron Whitfield said in the release.
"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," he added.
"This ultimately leads to lower delivered costs of polyethylene, which is used to manufacture a multitude of consumer goods."
James added that the report "challenges conventional wisdom and corroborates the decision by several international energy companies that have already selected our region as the location for major, multi-billion-dollar projects."
"There are few other places in the world, if any, where the supply, the manufacturing facilities and the end users are all in very close proximity," he said.
