Chesapeake: Cracker Still Part of Equation

Rotruck: Pipeline to Texas doesn’t rule out local plant

Wheeling Intelligencer
14 November 2011
By Casey Junkins

WHEELING - Chesapeake Energy's agreement to send 75,000 barrels of ethane from the local region to Texas each day should not harm the chances of a cracker facility locating in the region, a Chesapeake official believes.

Chesapeake announced it would pipe ethane produced from the Marcellus and Utica shale regions in West Virginia, Ohio and Pennsylvania for cracking in the Gulf Coast region. Enterprise Products Partners revealed the agreement with Chesapeake earlier this month.

The 1,230-mile pipeline would have an initial capacity to send 125,000 barrels per day of ethane to the Gulf each day, with commercial operations set to begin in early 2014.

Scott Rotruck, Chesapeake's vice president for corporate development, also serves as a member of Gov. Earl Ray Tomblin's Manufacturing Task Force, a group charged with helping to bring an ethane cracker to the state.

Rotruck said despite the pipeline deal, the state continues to negotiate "with investors in the petrochemical industry to build a cracker in the production area."

"It is Chesapeake's belief that the extensive quantities of ethane in this wet gas window mean that pipeline, storage and a local cracker are all part of the marketplace. As long as there are rigs in the Marcellus, we will have to find multiple markets for the vast amounts of ethane coming out of the ground," he said.

"Without a market for the ethane, the industry could be choked in its formative stages. Now that we have made arrangements for pipeline outlet, we can produce more ethane and turn our attention to the development of a local cracker," Rotruck added.

A cracker facility would cost billions to build and could bring up to 1,000 permanent jobs paying an average of $60,000 per year. West Virginia officials have been working to attract a cracker for months now, with Bayer Corp.'s New Martinsville and Institute, W.Va., sites as possibilities. Royal Dutch Shell is one firm known to have an interest in building the cracker, as officials there have announced plans to build a cracker somewhere in the Appalachian region.

Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association, does not believe the pipeline deal hurts the state's chances of securing a cracker, as he said Chesapeake needs an outlet for the ethane the company is producing from the Marcellus area right now.

Ethane is used by chemical companies to formulate ethylene, the basis of plastic.

"Chesapeake was the first company to really get into the gas here to the point where they are producing enough now that they have to do something with that ethane," DeMarco said.

"Hopefully, (the pipeline) announcement will encourage these companies to hurry up," he added regarding the potential cracker developers. "When producers like Chesapeake start looking for alternatives for their ethane, it should behoove the developers to get moving."

Charlie Burd, executive director of the Independent Oil and Gas Association of West Virginia, called the pipeline announcement a "minor setback."

"The companies looking to build this cracker know what they are doing," Burd said.

Larry Matheney, secretary-treasurer of West Virginia AFL-CIO, has a different take on the matter, though, as he believes Chesapeake Energy has no intention of helping the state land a cracker facility.

"Today, if West Virginia working families - who struggle each day due to the scarcity of good jobs - were to ask Chesapeake Energy CEO Aubrey McClendon why he is robbing West Virginia, we suspect he would answer, 'Because that's where the money is,'" said Matheney.

"Is this justice for West Virginia working families, or is it another example of an out-of-state corporation robbing us? ... I really believe that Chesapeake has every intention of shipping all of the ethane they can ship out of this state."