CANONSBURG, Pa. — Historically, the Gulf Coast has been the most profitable place to build and operate a petrochemical company. The numbers have always supported that fact, said Jerry James, president of Artex Oil and a director for Shale Crescent USA.
However, the numbers have changed.
Sitting atop two of the most prolific shale plays in the world, the tri-state area of Ohio, Pennsylvania and West Virginia, labeled Shale Crescent USA, is now the most profitable place to build a petrochemical company.
“Through a recent analytical projection from a global research firm, IHS Markit, these monumental findings have now become a reality,” said James, speaking at the Appalachian Storage Hub Conference June 7 in Canonsburg, Pennsylvania.
Five factors support this new realization:
Abundant natural gas supply
The region sits atop the Marcellus and Utica Shale formations, two of the most prolific shale plays in the world.
Natural gas from the Marcellus and Utica shale plays accounted for approximately 30 percent of total U.S. natural gas production in December 2017, and is expected to account for more than 40 percent of the nation’s production by 2030.
If the region were a country, it would rank third in terms of natural gas production, surpassing Saudi Arabia, Iran and Qatar, and trailing behind only the entire U.S. and Russia.
Due to its vast supply, natural gas prices within the Shale Crescent are now the lowest in the developed world.
Lower demand, has driven ethane prices to be 32 percent lower than on the Gulf Coast.
Polyethylene (plastic pellets) cash costs are 16 percent lower in the tri-state area than on the Gulf Coast, and delivered costs are 23 percent lower, since the supply is closer to end users
These low prices, coupled with the extensive supply of natural gas, position companies within this area for optimal profit, James said.
Access to water
The region sits inland, with room for large manufacturing complexes, but still provides convenient access to large waterways, such as the Ohio River and its tributaries.
Skilled labor force
With one of the lowest employee turnover rates in the country, the area has an available workforce, combining a history of manufacturing and a plastics manufacturing industry.
These cost savings simulated over a period of 20 years, from 2020 to 2040, result in a net present value cash flow advantage of $713 million, or a pre-tax cash flow advantage of $3.6 billion, according to the IHS Markit study. In other words, a petrochemical plant located in the Shale Crescent would generate a four-times-higher net present value cash flow than a comparable investment in the Gulf Coast.
Proximity to market
Facilities located here can avoid incurring shipping costs to and from the Gulf Coast. Businesses in the tri-state area have a significant geographic advantage due to the following:
• Within one day’s drive to 50 percent of high-demand North American markets.
• Within one day’s drive to 70 percent of polyethylene demand.
“For the first time in history, companies can now position themselves directly within the greatest region of supply as well as the greatest area of demand,” James said.