PITTSBURGH—A series of four academic studies have concluded that not only can the Ohio-Pennsylvania-West Virginia region support a downstream cluster, but in significant ways the area boasts advantages over the massive petrochemical complex on the U.S. Gulf Coast.

Andrew Thomas, who runs the Energy Policy Center at Cleveland State University as its executive-in-residence, told attendees at Hart Energy’s recent Marcellus-Utica Midstream Conference & Exhibition that, despite the buzz in the region about construction of new crackers, the economic development agencies supporting the research see the potential for long-term growth from a cluster of operations. What they needed to support their claims was hard data that the studies provided.

The researchers found that the region’s potential for ethane production was better than expected. Some of the earlier data relied on results from wells away from the sweet spots. More recent data, recorded from high-pressure zones of the Utica, allowed projections of about 9.3 billion cubic feet per day (Bcf/d) of wet gas by 2020.

Assuming 6 gallons of liquids per thousand cubic feet of wet gas, and assuming 60% ethane and 20% rejection, the researchers reached a likely production total of about 638,000 barrels per day (bbl/d) by 2020. However, the region’s fractionation capacity is only about 371,000 bbl/d.

“That means there’s a shortfall for fractionation and we have to reject more of the ethane if we don’t build additional fractionation capacity,” Thomas said. “From speaking to the industry experts, our conclusions were that if there was a market for the ethane, it would not be difficult for them to add the additional infrastructure and get the de-ethanization up to the 600,000 range for the capacity.”

The region’s location is a major plus. Researchers used a rule of thumb of one day’s truck drive from the region, or about 500 miles, and discovered that 56% of the nation’s gross domestic product (GDP) was within that radius. By comparison, only 35% of GDP is generated within a 500-mile radius of the Texas Gulf Coast, only 42% of the Louisiana Gulf Coast and only 7% in the radius of California.

Many of the leading states for bulk chemical commodities are in that radius as well, including Ohio, Indiana, Illinois and North Carolina, not to mention Pennsylvania and New York.

Among other draws for companies wishing to build a cracker, Thomas mentioned:

  • Water access: “The four crackers that have been proposed for our region are all located on the Ohio River. The reason for this is obviously important for purposes of margin and finished product, but it’s also important for bringing in large equipment from Japan. It’s easier to barge them in than to try to take them in by pieces in trains.”
  • Rail infrastructure (need 2,000-2,500 rail cars): “A lot of this relates to the legacy in West Virginia and Ohio Valley region in terms of the chemical industry that was once very active there.”
  • Competitively-priced electricity: “This is very important to the chemical industry. We’re going to get more and more gas generation which will constrain the cost of electricity.”
  • Skilled and educated workforce: The Gulf Coast also has a skilled and educated workforce, but that it is largely taken up with expansion of that area’s petrochemical industry. In the Northeast, the workers are available now.

A significant drawback is the lack of storage available in the region, but midstream operators have developed strategies like pipeline redundancy and line packing to compensate. Ultimately, the proximity of companies that buy the products will sharply reduce transportation costs, resulting in a cost savings advantage of 14 cents to 20 cents per gallon over the Gulf Coast.

Joseph Markman can be reached at jmarkman@hartenergy.com or @JHMarkman