WV Officials Angry with Chesapeake Over Ethane Pipeline Deal

gas pipeline constructionState officials in West Virginia are angry with Chesapeake Energy over the announcement that Chesapeake has signed a deal to ship ethane out of the Marcellus region via pipeline to the Gulf Coast for processing. A quick petrochemical lesson: Some of what comes out of the ground when drilling for natural gas is the chemical compound ethane—especially found in “wet gas” areas of the Marcellus like West Virginia. Ethane can be processed into ethylene, which is the raw material used to make plastics.

West Virginia and Pennsylvania have been heavily courting Shell and at least one other unnamed company to build a “cracker plant” to process the ethane (crack it) into ethylene. Building a cracker plant in the region would attract thousands of jobs and billions of initial investment, and billions in revenue from associated plastics industries that would sprout up around the plant. It’s like winning the biggest imaginable lottery jackpot when it comes to jobs, money and tax revenue.

Enterprise Products Partners recently announced they will build a pipeline from the Marcellus Shale region to the Gulf Coast to cart ethane away for processing (see this MDN story). As MDN mused, that’s certainly one way to do it. But the other way, building a cracker plant in the region, is a better solution for those living in the Marcellus region, and perhaps a reward, a “sweetener” for putting up with the inconveniences of gas drilling. Chesapeake’s announcement that they will be the first and perhaps largest customer for the new Enterprise pipeline (see this MDN story) has changed the prospects of a cracker plant being built in the Marcellus region according to officials.

Chesapeake Energy’s decision last week to sign a long-term contract to transport 75,000 barrels of ethane per day from the Appalachian shale region to the Texas Gulf Coast could jeopardize West Virginia’s chances of getting a multibillion-dollar cracker plant, state Commerce Secretary Keith Burdette said.

"It’s not a ‘cracker-killer,’ but this certainly doesn’t help," Burdette told the Sunday Gazette-Mail. "The timing is bad, the message is bad, and we’re disappointed."

Chesapeake said it doesn’t expect the pipeline project to decrease West Virginia’s chances of landing an ethane cracking facility.

Burdette said state officials are in "serious talks" with two companies looking to build crackers in West Virginia. He declined to name the firms.

Burdette had expected at least one of the companies to decide to build an ethane cracker here by the end of the year — until Chesapeake announced its plans last week to ship ethane from the Marcellus and Utica shales out of West Virginia, Pennsylvania and Ohio.

"We’re very frustrated with Chesapeake," Burdette said. "Every barrel of ethane shipped out of West Virginia means less and less investment."

Burdette said Chesapeake executive Scott Rotruck, who sits on Gov.-elect Earl Ray Tomblin’s Marcellus to Manufacturing Task Force, didn’t notify state officials about Chesapeake’s plans to ship the ethane out of West Virginia and neighboring states.

He said state officials have included Chesapeake in numerous meetings about luring an ethane cracker plant to West Virginia, and Chesapeake executives have taken part in discussions with the two companies interested in building cracker facilities in West Virginia.

Burdette said he found out about Chesapeake’s decision last week, when reading the company’s news release.

"The fact they didn’t tell us about this was very disheartening," Burdette said. "It doesn’t send a very good message that this is a two-way partnership. They knew how important we feel recruitment of a cracker is to West Virginia."

The pipeline is scheduled to start operation in early 2014 with a capacity of 125,000 barrels of ethane per day.

Burdette said 75,000 barrels of ethane — the amount Chesapeake plans to ship to Texas at the start — is enough to support at least one cracker plant.

"They’re shipping out a cracker’s worth of ethane to the Gulf Coast," he said. "They’re shipping out gas that could support investment here."

Burdette said Commerce Department officials plan to meet later this week to discuss ways to persuade companies not to ship ethane outside the state.

"We’re going to discuss how to incentivize developing and retaining value-added products in the region, encouraging suppliers that we can use those products here," Burdette said.

He said a single cracker plant would create about 500 full-time, high-paying jobs and 10,000 construction jobs. A company would spend $2 billion to $4 billion to build such a facility, he said.*

*Charleston Sunday Gazette-Mail (Nov 6, 2011) – Ethane cracker plant cracking up?