WV Officials Angry with Chesapeake Over Ethane Pipeline Deal

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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?

13 Comments

  1. Does the fact that Chesapeake has signed a deal to ship ethane out of
    the Marcellus region via pipeline to the Gulf Coast for processing
    rather than building a”cracker plant” locally – which would lead to local job creation – foreshadow how this industry is going to play out?  I just spoke with a gentleman at the DEP and explained my interest in creating a charter school that would educate and train to fill the industry pipeline with qualified applicants.  Are there any trade schools, community colleges, or oil companies that would be interested?  http://www.JustMath.net

  2. Sure does seem from the tone of the article like Chesapeake sandbagged WV officials and could have let them know they were seriously considering a deal to use a pipeline for their ethane. I can understand why WV officials are ticked.

  3. I see this purely as shipping “y grade” product to the Gulf Coast where CHK has an economic choice of purity ethane vs EP mix fractionators an well as mix of feedstock chemical markets as well as storage. The market there is developed and the costs are known.  There isn’t large  demand for highly fractionated product on the east coast so the product price received from a additional facilities on the east coast would most likely sell at a negative basis differential to the Gulf Coast until further local infrastructure was developed. 

  4. I am located in Ohio and I am already working on the title work for the Ohio leg of this project.  Looks as though CHK and Enterprise are going through with the pipeline…..