U.S. CHAMBER OF COMMERCE

If You Store It, They Will Come

If You Store It, They Will Come

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By Dan Byer

Fairly or not, few regions of the United States are more associated with deep and longstanding poverty as Appalachia. Poor infrastructure and relative geographic isolation have always placed the region at a disadvantage, and decades of various economic development efforts have yielded only slow and spotty progress. And in the last decade, the Great Recession, War on Coal and emergent opioid crisis have combined to impose disproportionately harsh burdens on the communities of Appalachia.

The need for comprehensive and regionally-focused solutions to these burdens is clear, and this week, the bipartisan Appalachian Initiative released a report that aims to do just that. The Initiative is a joint effort of the Bipartisan Policy Center (BPC) and four bipartisan senators Mark Warner(D-VA), David Perdue (R-GA), Joe Manchin (D-WV), and Thom Tillis (R-NC).

Appropriately (and unsurprisingly), energy is featured prominently in the report, with a chapter dedicated to leveraging the region’s rich energy resources to spur economic growth. We were pleased and honored to participate in a task force advising the senators on this chapter (which was led by Senator Manchin), and believe the final findings and recommendations warrant serious attention and follow-up.

Of particular importance is the energy chapter’s top recommendation, which calls for development of an Appalachian petrochemical industry, beginning with an underground ethane storage hub:

“Use Appalachia’s vast natural gas resource to build out value-added chemical and advanced manufacturing industries. The first step is to develop a storage and trading hub for natural gas liquids. This would provide a powerful anchor for economic revitalization in the region. A hub would also be in the nation’s interest as Appalachia’s abundant natural gas resources and location near the Midwest and East Coast could make the area a top national center for the U.S. petrochemical and plastic resin manufacturing industries. Ultimately, the region could rival the Gulf Coast as a center of the petrochemical industry.” [Emphasis added]

The implications of Appalachia one day rivaling the Gulf Coast petrochemical industry speak for themselves, but why does a storage hub make so much economic sense for Northern Appalachia? This is primarily because the Marcellus and Utica shale basins are rich in natural gas liquids—such as ethane, propane, and butane (but mostly ethane)—that serve as petrochemical feedstocks used in plastics manufacturing and countless other industrial and commercial applications. However, a shortage of local market demand and a limited pipeline network to deliver to distant markets currently results in significant underutilization of these high value-added NGLs. In fact, this lack of a market results in widespread “ethane rejection.” With no ready market—and no storage option—it’s uneconomical to separate the ethane from the natural gas stream, and this premium resource is simply burned for heating and electricity generation.

A storage hub could change these economics in a major way, and do so for the direct benefit of the people of Appalachia. The West Virginia Department of Commerce estimates that a storage hub will deliver regional economic benefits 20 times greater than would be realized from shipping ethane out of the region via pipeline. Similarly, a recent study by the American Chemistry Council found that a hub could result in 100,000 permanent new jobs in West Virginia, Pennsylvania, Ohio, and Kentucky. Those are generally high-paying jobs to boot, and ACC estimates that development of the hub could generate nearly $3 billion in annual federal, state, and local tax revenue, which in turn can be used to invest in education and transportation infrastructure that Appalachia desperately needs.

In other words, delivering energy resources to markets is one thing, but bringing the market to the energy resource is a whole different ballgame. Call it the “If you store it, they will come” approach.

As tantalizing as this all sounds, barriers exist for a project of this size (estimated cost—$10 billion) and complexity. The BPC report recommends that, to reduce uncertainties and facilitate private investment, the federal government should study the geologic and technical aspects of a potential hub, and consider public-private financing such as Department of Energy loan guarantees to incentivize investment.

On the bright side, the BPC report and growing bipartisan support for the hub in Congress provide a solid foundation of positive momentum necessary to overcome obstacles that stand in the way of the hub’s development. As GEI President and CEO Karen Harbert wrote in a letter to DOE Secretary Perry emphasizing the importance of this project, that’s good news for the people of Appalachia and for American energy producers alike:

“Ultimately, development of an ethane storage hub promises to not only provide an anchor for job creation and economic revitalization that is critically important to the Appalachian region, it is a key component to enabling the energy-driven manufacturing renaissance that will enhance the competitiveness of U.S. businesses around the world.”