As we watched Hurricane Michael threaten lives, properties, and commerce on the U.S. Gulf Coast, we were given a stark reminder that America’s growing petrochemical industry possesses an Achilles’ heel in the form of major storms.
Domestic petrochemical production has indeed become a giant on the world stage, attracting global investment fueled by plentiful and affordable shale gas. With huge increases in ethane and propane production, our petrochemical industry is fostering a renaissance in manufacturing that can leverage low-priced, American supplies of feedstocks like ethylene and propylene.
With that said, if their products can’t reach manufacturers and the markets they serve, the most promising potential benefits of a bolstered petrochemical industry will be wasted. We’re at risk for this very scenario as long as the industry continues to cluster in the path of danger.
The Gulf Coast hosts about 90 percent of our nation’s capacity for producing the plastics that manufacturers use as building blocks for everyday consumer and industrial goods. We’ve already repeatedly seen how a major hurricane can disrupt that capacity.
Last year, Hurricane Harvey “paralyzed” the Gulf Coast petrochemical hub. Ten days after the massive storm struck, two-thirds of ethylene and propylene production capacity remained offline as waterlogged plants struggled to restart and the rail corridors used to transport the feedstocks away from the coast were slow to clear.
The situation threatened to disrupt supply chains and prices across the American manufacturing sector. It’s a scenario that can repeat itself any hurricane season, threatening to damage a sector we should be looking to protect. This risk will persist so long as petrochemical producers continue to put all their eggs in one Gulf Coast basket.
Such an approach makes little sense when an opportunity to diversify and gain other substantial competitive advantages exists to the northeast, out of the path of most hurricanes and within a day’s drive of a majority of our country’s polyethylene demand.
The Ohio River Valley region, where Ohio, West Virginia, and Pennsylvania come together, has been dubbed the Shale Crescent USA — offers a cost-effective opportunity that has already caught the eye of major producers, government leaders, and economists.
Royal Dutch Shell chose the region for its newest world-class ethane cracker because of its proximity to both demand for polyethylene and supply of ethane. Production of this natural gas liquid and others from the Marcellus and Utica shale basins below the Shale Crescent is expected to increase by 700 percent by 2023, according to the Department of Energy.
That’s just one reason why a partnership led by global chemicals producer PTT is considering building a cracker just downriver from Shell’s plant, and why the DOE is supporting initiatives to develop an ethane storage hub in the heart of the Shale Crescent.
In addition to proximity to supply and markets, the Shale Crescent boasts a skilled workforce built on centuries of manufacturing in Appalachia, as well as transportation infrastructure — particularly on waterways — designed to efficiently move products in, out of, and around the region.
Recent research also shows that the Shale Crescent offers a more profitable alternative to producing petrochemicals in their traditional southern hub. A recent IHS Markit analysis found a petrochemical plant built in Appalachia would generate a four-times-higher net present value cash flow than a comparable plant on the Gulf Coast. The study pointed to lower ethane prices (32 percent less than the Gulf Coast), lower costs to deliver polyethylene (23 percent less), and lower ethylene and polyethylene cash costs.
Considering the inherent risks of continuing to build and operate this critical piece of our nation’s manufacturing chain in a region facing annual threats of paralyzing storms, the incentive to shift more investment to the Shale Crescent is vast and undeniable.
A strong American petrochemical industry bolsters and protects our national economy and global standing. It’s time to move more of that industry out of harm’s way to ensure it’s protected as well.
Wally Kandel is senior vice president and site manager for Solvay Specialty Polymers USA in Marietta, Ohio. He is also a founding director of Shale Crescent USA, an economic development initiative in Ohio, West Virginia, and Pennsylvania.