Energy production in the United States and abroad is changing rapidly. It wasn’t long ago that coal-fired plants accounted for more than 50 percent of the electricity in the United States. By 2017, plant retirements had reduced that share to just a little over 30 percent. Predictions are that coal will fall to 15 percent or less of electrical generation by 2040.
According to the Appalachian Regional Commission, over 40 percent of the retired coal-fired capacity can be found in Appalachia.
Along the Ohio River Corridor, we are working with companies repurposing these retired facilities in anticipation of the region becoming the next energy hub. Public and private partnerships are working on site preparation for the potential next wave of energy production along the Ohio River in the Appalachian Basin.
Analysis by Jackie Stewart with Energy in Depth reports that within the Appalachian Basin, record natural gas production is generating over $25 billion in natural gas electricity generation. The report finds that there are 29 new 475-megawatt (MW) or greater natural gas-fired power plants in various stages of permitting, construction or recently launched operations in Ohio (10), Pennsylvania (16) and West Virginia (3), representing more than 26,000 MW of added electrical capacity. NAI Ohio River Corridor was fortunate to have the opportunity to work with Advanced Power, NA for their site selection of two facilities in Ohio representing a total of 1,800 MW and total investment of over $2 billion.
Fertile Crescent
The tri-state area of the Appalachian Basin shale play includes Ohio, Pennsylvania and West Virginia. This Utica and Marcellus Shale play is also known as Shale Crescent USA. Since horizontal drilling in Pennsylvania began in 2008, there are 10,817 active horizontal wells statewide. In Ohio, there are 2,081 deep horizontal wells with another 376 drilled but not producing currently.
According to the U.S. Energy Information Administration, the Shale Crescent would be the third largest producer of natural gas in the world, after the U.S. as a whole and Russia. Production of natural gas in the Shale Crescent is greater than natural gas production in Texas and other shale plays throughout the United States.
Consider the marketplace for polyethylene, a product of ethane derived from shale drilling. Seventy percent of polyethylene demand in the U.S. and Canada is within a 700-mile radius of the Appalachian Basin. Currently most of the polyethylene is produced in Sarnia, Ontario, or the Gulf Coast.
The Appalachian Basin has the product (natural gas and natural gas liquids, or NGLs) and it’s near the market for natural gas co-generation and plastics. To date, over $25 billion has been invested in natural gas electrical generation, and Shell Polymers is investing over $6 billion in a polyethylene facility in Monaca, Pennsylvania. PTTGC has yet to announce a final decision on a $10 billion-dollar polyethylene facility in Belmont County, Ohio. My guess is that the announcement will come in early 2019 with construction beginning in 2020 in conjunction with completion of the Shell facility toward the end of 2020. Shell is scheduled to begin production in early 2021.
What Will It Take?
A private/public effort is needed for the Appalachian Basin to be the next energy hub. Will the region be a producer/exporter for the Gulf Coast and the rest of the world, or will the region embrace the natural gas and NGLs from shale and be a producer/consumer, which in turn will generate billions of dollars in investment and countless jobs and opportunities?
Success requires the following:
- Abundant, low-cost feedstock (Natural Gas and NGLs)
- Proximity to customers
- Suitable sites
- Infrastructure (road, rail and river)
- Workforce
- Government (local, state, federal) incentives
Shale Crescent USA in conjunction with IHS Markit has shown a pre-tax cash flow advantage of nearly $3 billion to build a facility in the Appalachian Basin vs. the Gulf Coast. Market studies have also shown that the Appalachian region is within 70 percent of polymer users, not even considering the number of electricity users of natural gas as a result of coal-fired plant retirements.
At the various conferences I attend, there has been considerable discussion about the lack of suitable sites. I do not believe this to be true. With the decommissioning of power plants, the repurposing of steel plants and some outside-the-box thinking by site planners and engineers, the Appalachian Basin and Ohio River Corridor have plenty of sites for companies to establish success in this region.
One of our greatest challenges is infrastructure. There are currently private and public initiatives to upgrade access from Canton, Ohio (US 30 expansion to the Ohio River), and Columbus, Ohio, to Pittsburgh (US 250 expansion) and the I-68 extension from Morgantown, West Virginia, to Marshall County. All three are critical infrastructure pieces to the overall success of the entire region.
The good news is that we have the Ohio River for movement of goods and modular building of facilities from the Gulf Coast. We have rail and barge infrastructure from the coal electrical plants and the steel mills up and down the Ohio River Corridor.
The Appalachian Basin prides itself on workforce with muscle memory from the times when steel dominated the landscape. The workforce can be trained by the area’s excellent trade schools to meet the tasks at hand. Great technical schools, trade schools and universities are all within the Appalachian region. The population exists to put together an exceptional workforce not only to build the facility, but to operate it into the future.
In November, the U.S. Department of Energy and Secretary of Energy Rick Perry released the Ethane Storage and Distribution Hub in the United States report to Congress.
“The establishment of an ethane storage and distribution hub near production from the Marcellus and Utica plays could provide benefits to the broader petrochemical and plastics industries along the lines of supply diversity,” said the report. “The present-day geographic concentration along the Gulf Coast of petrochemical infrastructure and supply may pose a strategic risk, where severe weather events limit the availability of key feedstocks.” Whereas with development of a hub in Appalachia, “this geographic diversity could provide manufacturers with flexibility and redundancy with regard to where they purchase their feedstock and how it is transported to them.”
Could the Appalachian Basin be the next energy hub for the U.S. and the globe? The simple answer is “Yes.”
With over twenty-five years of commercial real estate experience, Bryce Custer, SIOR, CCIM, MRICS, established Ohio River Corridor, LLC, in 2016 as a plastics site selection and commercial real estate services company dba NAI Ohio River Corridor. For information, visit www.NAIORC.com.