An ethane cracker and associated petrochemical facilities could bring billions to the economy of West Virginia for the next 40 years, but state officials must enact several strategies in order to take maximum advantage of that opportunity, according to a report.
According to a 46-page study, "Building Value from Shale Gas: The Promise of Expanding Petrochemicals in West Virginia," released in December by Witt Economics LLC, West Virginia is attractive for downstream facilities due to an abundance of raw materials, competitive electricity rates and a skilled workforce. Downstream investments alone have the potential to create at least 900 jobs and $280 million in annual economic output.
"Attracting such polyethylene product manufacturers could be a tremendous opportunity for West Virginia and surrounding region to further capture the downstream value-added benefits of its NGL [natural gas liquids] resources," the report said. "Creating the conditions for manufacturers to thrive would drive significant economic impact in the years following the startup of an ethane cracker and polyethylene plants."
But the report also said West Virginia faces some challenges. Since it's a landlocked state with no ocean access, there is a potential transportation cost disadvantage. The state also has elevated railroad freight rates due to limited infrastructure and reduced competition; 93% of all the railroads in the state are controlled by one company.
"Given the opportunity that a local cracker and polyethylene complex represents, it would certainly be in the best interest of the state and the region for West Virginia to consider employing policy tools to mitigate high local rail transportation rates and unlock the latent potential of an industry serving regional markets," the report said. "Investments in additional rail, port, and truck infrastructures would create greater competition in intermodal transportation and expand options to local industry for shipping locally produced products to other regions."
The report's authors also suggested that West Virginia offer tax, workforce training and infrastructure incentives for a cracker and any petrochemical facilities. Specifically, the report suggested that lawmakers tailor seven programs to the industry, including:
Five for Twenty-Five Program -- a 25-year special salvage-value property tax valuation program for facilities with a capital investment of more than $2 billion (see Shale Daily, Jan. 30, 2012);
Five for Ten Program -- a similar program for certified additions to existing facilities, with capital investment of at least $100 million; and
Manufacturing Investment Tax Credit -- 5% of capital investment for new and existing businesses, pro-rated over 10 years.
"Developing infrastructure and the necessary business environment to seize opportunities takes time and resources," the report said. "Transforming West Virginia from a region focused on resource extraction to one focused on chemical manufacturing requires West Virginia to become a hub for petrochemicals with key assets like NGL storage, pipeline connectivity, and expanded transportation corridors."
The report -- which was funded by Braskem America, a unit of Odebrecht Organization -- assumes that a world-scale ethane cracker and three downstream polyethylene plants would be built in West Virginia, at a complex with a construction cost of $3.8 billion. It also assumes $150 million would be spent on pipeline infrastructure, $20 million on ethane storage equipment and $20 million on rail and truck terminals.
Last November, Odebrecht, a Brazilian company, said it would explore the possibility of building those very facilities in Wood County, WV (see Shale Daily, Nov. 14, 2013).
According to the report, a complex of that size would create 1,948 direct and indirect jobs upon startup in 2018, generate $109 million in annual employee compensation and create $764 million in annual economic output. By the time the complex was at full operation in 2022, there would be 2,088 direct and indirect jobs created, with $116 million in annual worker pay and $840 million in annual economic output.
The report also said that if three facilities -- two large film and sheet plants, plus one large injection molding plant -- were built in West Virginia, they alone would create 926 direct and indirect jobs, generating $43 million in annual worker pay and $280 million in annual economic output.
"The opportunity to create a world class ethane cracker and associated petrochemical complex, coupled with downstream polyethylene converter plants in West Virginia could generate billions of dollars of economic impacts, both during the construction period and in the resulting 40-plus year life span of these plants," the report said.