Prospects for a wide variety of chemical manufacturing in the Appalachian Basin are robust as methane, propane and butane production is expected to continue increasing in the Marcellus and Utica shales in the coming years, according to a study released last week by IHS Markit.

Low feedstock and product delivery expenses make the basin an ideal location for the production of ammonia, urea, methanol and polypropylene, among other derivatives. Much of the market for those products is near the shales, which makes the region especially competitive with other North American petrochemical centers in Canada and along the Gulf Coast, the study said.

IHS forecasts that the Appalachian Basin will supply 45% of the nation’s natural gas production by 2040, with volumes projected to grow from 28 Bcf/d in 2018 to 51 Bcf/d in 2040. Natural gas liquids production is also expected to nearly double over that time, with IHS forecasting volumes will reach 1.17 million b/d in 2040.

As production swells while propane and butane supply outstrip demand, prices are forecast to drop and “present promising economics for petrochemical assets in the region.” Prices in other basins outside of Appalachia, IHS said, would remain influenced by associated gas production and pipeline constraints.

The study was commissioned by Shale Crescent USA, a group formed to promote the Mid-Ohio Valley in Ohio, West Virginia and Pennsylvania, and to attract more energy-consuming and petrochemical businesses to the region. Revealed last week in San Antonio, TX, at IHS Markit’s World Petrochemical Conference, the study follows a similar one the group released at the event last year showing the advantages for ethylene cracker projects in the region, as Royal Dutch Shell plc constructs a multi-billion dollar facility in Western Pennsylvania and another facility is thought close to becoming a reality in Ohio.

Feedstock and transportation cost advantages do exist in Appalachia, said Jim Cooper, a senior adviser for the American Fuel & Petrochemical Manufacturers association, who was not involved in the study. He added that those factors are some of the reasons why Shell chose to build a facility there.

IHS estimated that in 2020 the cost of methane, propane and butane in Appalachia would be anywhere from 6-15% cheaper than on the Gulf Coast. Shale Crescent Marketing Director Greg Kozera told NGI’s Shale Daily that the study is not immune to price swings.

“The pricing could change. The market is going to be the market. But here’s what doesn’t change: it’s not so much a cost advantage on the product as much as it is a transportation cost advantage,” he said of the shorter distances to move both feedstock and finished products from the region.

For 2020, the delivered cost of ammonia and urea from Appalachia, commonly used as fertilizer or in the manufacture of plastics and other chemicals, would be 12% less than from the Gulf Coast in the IHS analysis. The delivered cost of methanol from the region, used in solvents and antifreeze, would be 26% less compared to obtaining it from the Gulf Coast next year.

Anthony Palmer, vice president of chemical consulting at IHS, said the most advantaged NGL derivative for Appalachia would be a propane dehydrogenation plant to make polypropylene, which is used in a wide variety of applications including in carpeting, gas tanks, plastic containers and beverage caps.

While IHS said Canadian polypropylene plants have the lowest cash cost advantages well into the 2040s, both the Appalachian Basin and Gulf Coast remain competitive on a delivered cost basis due to their proximity to both U.S. demand centers and those overseas.

IHS said about 77% of the U.S. and Canadian polypropylene market is within a 700-mile radius of the Appalachian Basin, where ample supplies could easily support a propane dehydrogenation plant’s typical consumption rate of roughly 25,000 b/d.

To be sure, the Gulf Coast continues to have the upperhand, where Cooper noted a wave of investment in the petrochemical industry continues. About two-thirds of the nation’s petrochemicals come from the Gulf region.

“It’s a lot easier to get a permit to build on your existing property than it is to do a grassroots project, trying to acquire the land and having to build all the infrastructure for it,” Cooper said, offering one example to explain why more chemical manufacturers haven’t flocked to Appalachia to take advantage of growing supplies. “That’s a pretty complex process.”

But in time, Cooper said, more downstream projects are likely to be announced, especially after Shell’s facility begins operating in the early 2020s and if the underground NGL storage projects being developed in Appalachia are built.