Last week, Community and Economic Development Secretary Dennis Davin was pitching Pennsylvania at the World Petrochemical Conference in Houston, armed with tantalizing new data.
“We are pretty new to the petrochemical business so there’s still a certain mindset to overcome when selling Pennsylvania,” Davin said. “But now I have the data to back up exactly what we have here, and it’s already making a difference in thinking about us.”
A study by IHS Markit and commissioned by Team Pennsylvania, “Prospects to Enhance Pennsylvania’s Opportunities in Petrochemical Manufacturing" shows that Pennsylvania has only begun to tap the investment and job creation potential from horizontal drilling in the Marcellus and Utica shale plays. The report summary states, “To maximize the potential economic development benefits of increasing NGL [natural gas liquids] production volumes and related investment… IHS Markit recommends that Pennsylvania take aggressive action to address potential developmental and infrastructure constraints proactively.”
Tony Palmer, IHS Vice President and one of the authors of the study, said while Pennsylvania is well recognized for its role in lower energy and manufacturing costs through abundant supplies of natural gas (methane). It’s not yet as well known for its vast supply of wet gases (NGLs), most notably ethane and propane, also produced by horizontal drilling. Through a cracker process, the NGLs are converted to polyethylene (PE) and polypropylene (PP), the building blocks of hundreds of products we rely on everyday from packaging to automotive parts to medical devices.
“We’ve seen a glut in the natural gas and that of course suppress prices and slows drilling for a time,” Palmer said. “But the market for goods stemming from petrochemicals will only continue to grow.”
Between 2010 and 2016, approximately $6 billion was invested in NGL-related assets (e.g., gas processing facilities, NGL fractionators, NGL pipelines and NGL storage facilities) in the portions of the Marcellus and Utica basins located in Pennsylvania.
Those investment numbers could soar. PMA President David N. Taylor says continued rapid growth in NGL production through 2030, combined with Pennsylvania’s sizeable presence of plastic molders and other plastic fabricators, represents an unprecedented opportunity for large-scale economic growth.
“The Team PA study validates what we all know: responsibly developing Marcellus and Utica shale assets can make Pennsylvania a world leader in manufacturing,” Taylor said. “As the report urges, Pennsylvania state government must prioritize pipeline construction and site pad development for new industry. A pro-growth, pro-production mindset needs to take hold in Harrisburg to facilitate economic growth, not delay progress with Red Tape or thwart investment with new, additional taxes. As I have said many times, the people who want the maximum amount of tax revenue out of this new industry need to LET IT GROW.”
For Team PA President & CEO Ryan Unger, the study helps to frame the answers to two key questions: what’s next and where are the opportunities for more?
“From a cost competitive and supply standpoint the study shows we can compete at the highest levels in the world,” Unger said. “So right now we’re looking at just the early stages in development here.”
One of the keys is getting more businesses to follow Royal Dutch Shell’s lead. The worldwide energy company is building a $6 billion ethane cracker plant 30 miles from Pittsburgh. Operation is expected to begin in the early 2020s. The IHS study says Pennsylvania could support four additional petrochemical facilities of the same scale.
“The domestic market alone is significant but the crackers can will help satisfy the export market as well,” Palmer said.
Pennsylvania likewise benefits from the adage about business and location. Over two-thirds of US and Canadian PE and PP demand is located within 700 miles of southwestern Pennsylvania. Shipping NGLs south to a cracker plant there adds 12 to 15 cents a gallon to the price.
Summed up: “Despite higher capital and developmental costs than the Gulf Coast which has an established and mature petrochemical industry, Southwestern Pennsylvania’s PE and PP production is forecast to be highly competitive on a cash cost basis relative to existing production centers,” the study says.
But the study comes with a warning as well. Jeffery S. Potkin, IHS Vice President, Training and Education, said one of the drawbacks for Pennsylvania being relatively new to the industry lies in its infrastructure.
“From all accounts the supply will be there and the cost of the product will be very competitive,” Potkin said. “But a company looks at feasibility, what does the investment cost and how quickly can I get a return on that cost. Without an infrastructure to move the product there is no return.”
Looking at it another way, a recent U.S. Chamber of Commerce study shows that Pennsylvania would be one of the economically hardest hit states if oil and natural gas development were suddenly banned. By 2022, the Commonwealth would shed nearly 500,000 jobs, lose $45 billion in annual GDP, and families would see costs increase $3,500 annually.
Not having the means to get the gas to market is effectively a ban. The Marcellus Shale Coalition estimates that approximately 25-30% of the Marcellus wells drilled to date still do not have pipeline takeaway capacity.
IHS strongly recommends that Pennsylvania take immediate steps to support a long-term strategy that will maximize in-state economic development—as other US states and regions are also competing for the resources.
For its part, the administration, Davin says, is being very aggressive in “developing a time line” to help companies site new facilities both for potential cracker plants but also for plastics manufactures and other down-the-line companies.
“We’re looking at getting pad-ready development, supporting NGL pipeline infrastructure, job training and ensuring quick permit turnaround,” he said. “The last time we had this kind of potential for growth was over 100 years ago with the steel industry. We have to act now but it has to be done the right way, and part of that is we have to ensure the environment is protected along the way.”