A startup company that launched plans in 2012 to develop a small-scale, regionally-focused ethane cracker in the Appalachian Basin continues to promote its project two years on, but even though more specifics have been released, the company still can’t say with certainty when it will break ground for the project.

NGI’s Shale Daily first reported on Appalachian Resins Inc.’s plans to build a 15,000 b/d ethane cracker capable of producing 500 million pounds per year each of single-grade ethylene and polyethylene after CEO Jim Cutler addressed a Pittsburgh midstream conference in February 2013 (see Shale Daily, Feb. 6, 2013). At the time, it wasn’t clear where exactly the facility would be built.

Vice President of Operations Rick Caldwell expanded on Cutler’s earlier comments at the Utica & Marcellus NGL & Natural Gas Markets & Takeaway Conference in Columbus, OH, on Tuesday, and he offered up a clearer picture of why the economics of a smaller facility work better than those that are considered to be “world class.”

Speculation persists about the reality of three crackers, which process ethane for use in plastics and petrochemicals, that are planned for the Appalachian Basin.

Royal Dutch Shell plc’s 2011 announcement for a 60,000 b/d, multi-billion-dollar cracker that would produce two billion pounds per year of ethylene in Beaver County, PA, is still largely considered a myth as the company decides whether to proceed (see Shale Daily, June 7, 2011; Dec. 26, 2013). Another $3.8 billion cracker proposed last year by Odebrecht Organization for West Virginia with about the same capacity and output is still a question mark (see Shale Daily, Nov. 14, 2013). Meanwhile, little is known about the status of Aither Chemicals LLC’s 2012 announcement for a one billion pound per year cracker in West Virginia (see Shale Daily, Jan. 19, 2012).

“We have a very viable, very strong business model for what we call a regional plant approach,” Caldwell said. “It definitely has a place in the equation for economic growth. We’re all for world scale production facilities, but we think there is definitely a place in the equation for regional development; it’s better for the regional economies and the country as a whole.”

Caldwell said Appalachian Resins will invest $900 million to build the smaller facility. He added that, “the way things are going right now,” the plant will likely be built on a brownfield site in New Martinsville, WV, about 125 miles north of Charleston near the Ohio border. An alternate site is also being considered in Monroe County, OH, where activity in Ohio’s Utica Shale is ramping up (see Shale Daily, Nov. 19, 2013).

Regardless of where the facility could be built, Caldwell said Appalachian Resins, which will develop, own and operate the facility, will likely have equipment and other operations in both states.

“The polyethylene will be sold into local and regional markets as well as export markets,” he said. “We believe firmly that our regional production model will create jobs and eliminate taxpayer burden. What I mean by that is we have not approached the state of Ohio and the state of West Virginia and said ‘what will you do for us if we build a plant here?'”

Caldwell said “it’s beyond time” for the region to build a petrochemical facility, given the area’s abundant feedstock, proximity to market and its established transportation corridors. Not only does a smaller cracker not require storage infrastructure or large pipelines, it’s not as capital intensive and does not require the kind of tax breaks that a larger facility does, he said.

“A world scale plant creates a lot of nightmares for the people trying to put the deal together,” he said. “There’s more environmental issues, more land-use issues, and more traffic and logistics issues. The cost-overrun potential is much higher on a facility like that. It’s also very difficult to try and balance your production between the ethylene you’re producing and the polyethylene you’re producing, especially if you’re making multiple grades of polyethylene.”

World-class facilities, Caldwell added, are also designed to run at, or above capacity. When feedstock runs low, is overpriced or is interrupted by market factors, such crackers lose their ability to produce ethylene or polyethylene at a discount. A smaller facility doesn’t have as many x factors and can therefore produce such products at about the same price no matter what the circumstances, Caldwell said.

Appalachian Resins estimates that the Northeast market currently demands about 7.2 million pounds per year of polyethylene. Based on the company’s plans, it’s Appalachian facility would serve only about 6.9% of the regional market. Caldwell said repeatedly during his time on stage that the company is “moving forward” with its project.

But when asked by NGI’s Shale Daily what exactly “moving forward” meant, Caldwell paused and could offer few details about financing, feedstock commitments or a development timeline, saying only that the project was getting closer to becoming a reality.

To be sure, many senior midstream and upstream executives have said a robust petrochemical industry in the Northeast is highly unlikely (see Shale Daily, March 24). They have also said it could be years, if ever at all, before a cracker is built in Ohio, West Virginia or Pennsylvania.

Michael Scott, an operations research analyst at the Energy Information Administration (EIA), who presented after Caldwell at the NGL conference seemed to make a compelling case supporting such arguments. Although Scott noted that the Marcellus and Utica shales currently account for 35% of all U.S. natural gas production, and that the plays will likely produce nearly half of all ethane in the country by 2020, he said the U.S. is not projected to grow fast enough to consume all of it.

“Ethane is a national export story — that’s it,” Scott said. “The U.S. is not going to consume this amount of ethane, we’re a developed country and we’re not going to grow so fast. Look at the petrochemical companies in the United States, what are they planning to do with all this ethane, they’re going to export it.”

Beginning next year, 20,000 b/d of Appalachian ethane are set to be shipped to Europe from the Marcus Hook terminal on the Delaware River south of Philadelphia.

“For people who aren’t familiar, what we do with ethane, and we’ve heard a lot about it, is we make ethylene,” Scott said. “Is that all we do with it? Yes, that’s all we do with it.”

According to the EIA’s projections, Scott said, global ethylene demand is currently expected to grow between 3% and 3.6% annually, as U.S. petrochemicals are poised to compete well with low feedstock costs.

For sometime now, companies like Dow Chemical and Sasol have been preparing to meet that demand along the Gulf Coast, where there are plans for 14 ethylene steam crackers to be built or expanded by 2017. Additionally, Scott said multiple y-grade pipeline projects will deliver another 848,000 bbls of natural gas liquids to the Gulf Coast this year and next.

“As you go down to the Gulf, we can see that the signals that have been sent from the Marcellus and the investments being made there have been received by petrochemical companies,” Scott said of the new facilities and upgrades planned for Gulf Coast. “This is the kind of commitment they’re making to use ethane. The last time the Gulf built a greenfield cracker was in 2000, look how much they’re building now — they expect to get ethane.”