Cracker' Plants Could Bring Barge Opportunities

The Waterways Journal
13 February 2012
By David Murray

Four new plants in the Ohio Valley river system, one to process natural gas and three to "crack' ethane — a natural gas product — into ethylene illustrate the potential of the fracking boom to economically transform Appalachian communities — and to impact the barging industry. While some of these opportunities may be years away, now is the time for barge companies to begin thinking of how they might participate, say industry observers.

On January 20, the Wheeling, W.Va. News Register reported that Texas-based natural gas driller and midstream energy services company Caiman Energy plans to invest a further $1.3 billion in its Marshall County, W.Va., cryogenic gas processing plant by the end of 2014.

Caiman's barge-served Fort Beeler plant, near Cameron along U.S. 250 in Marshall County, opened only a year ago, in January 2011. It now processes about 120 million cubic feet of gas per day. Some of this gas flows to the site by a pipeline from
Trans Energy's nearby drilling sites, with more gas flowing to the site from Gastar Exploration and other drilling operations. By March 20, an additional 200 million cubic feet per day of processing capacity will come online, bringing total capacity to 520 million cubic feet per day. Caiman has about 60 miles of high-pressure, large-diameter pipeline in the Marcellus Shale and an-other 60 miles under construction, according to Business Wire.

Plants like this accept "wet" shale gas from the Marcellus and Utica shale "plays" from drillers like Trans Energy Gastar, Chesapeake Energy, or CNX Gas Corporation. "Wet" gas contains ethane, propane, butane. pentane and other substances, in addition to the methane natural gas. The ethane, propane, butane and pentane — known collectively as natural gas liquids or NGLs — are then sent to a fractionation facility, which separates these products from one another.

The separated natural gas liquids are then ready for further processing, with the ethane going to a "cracker" plant that will transform it into ethylene, a component of many plastics.

In a January 12 National Public Radio story on the project. Beverly Saylor, a geologist at Case Western Reserve University, said the Shell project could mean the revival of domestic plastics manufacture. "Plastic was made overseas, and that's be-cause there wasn't enough natural gas," she said. "But now with all the shale gas development, the price has come down on that, and so it's now worth it."

According to Caiman spokeswoman Casey Nikoloric, the company is building another processing plant about five miles west of the Fort Beeler facility that will be known as the Fort Wetzel cryogenic plant. This plant should be able to process 200 million cubic feet of gas daily by April 1, 2013, with an additional 200 million cubic feet set for processing each day by October 1, 2013. This will bring Caiman's total processing capabilities in Marshall County to 920 million cubic feet per day by the end of next year.
Caiman also has a fractionation facility under construction on a former Olin Chemical site along the Ohio River, south of Moundsville, W Va., where it will be able to separate 12,500 barrels daily by April 1, with total fractionation capacity at the site expected to reach 42,500 barrels daily by October 1.

"This is one of the most prolific regions in the country and the positive economic impact continues to increase," Jack Lafield, chief executive officer for Caiman, said recently regarding his company's Marshall County operations.

Shell Oil's Cracker Plant

Two "cracker" plants are planned for the Ohio Valley. This month, Shell Oil is expected to make a long-awaited announcement of where in the Ohio Valley system it will locate a new $2 billion-plus ethane "cracker" plant. While Pennsylvania, West Virginia and Ohio are on tenterhooks until the announcement is made, all the sites being considered are on commercially navigable rivers.
The American Chemistry Council has estimated that a West Virginia cracker would create 12,271 jobs, with 2,484 people employed directly in the chemical industry and 6,262 indirectly through its supply chain. The remaining 3,524 estimated "induced" jobs would depend on a subsequent increase in consumer spending.

Ever since Shell made the announcement of the project last June, competition among Appalachian states to land the lucrative project has been intense, with Ohio alone offering more than $1 billion in tax incentives. On January 25, West Virginia passed its own package of tax incentives in a bill fast-tracked to Gov. Earl Ray Tomblin's office for his signature, CBS' Moneywatch reported. The bill would reduce the cracker plant's annual tax bill from as much as $30 million in the first year to about $1.5 million.

Alan Walker, Pennsylvania's secretary of community and economic development, told NPR, "Potentially, it would be the biggest investment made in the Pittsburgh region in economic and industrial development since Andrew Carnegie built U.S. Steel, and we all know how long ago that was." he said. "I mean, it's a game changer."

Investor Couldn't Wait For Shell

In fact, the plant's potential is so enticing that one West Virginia investor decided not to wait for Shell's announcement, but instead to build his own plant, no matter what Shell does.

Richard Neely, a former West Virginia Supreme Court judge, announced December 12 that he was forming his own company to get a cracking facility built on 1,500 acres near Montgomery. W.Va. The site is on an old surface mine on the Kanawha River.
Neely's initial partner is Ryan Cunningham, owner of Charleston-based Cunningham Energy Neely told the Charleston (W.Va..) Daily Mail that he has finance contacts from his time at Yale University. The air quality permitting alone could take two years, during which Neely and his partners would have to raise at least $2 billion.

Aither To Build Its Own

On January 17, the Wheeling News-Register reported that West-Virginia-based Aither Chemicals LLC plans to build another $750 million ethane cracker in the Marcellus Shale region. Ieva Abolina, director of development for Pittsburgh-based Renewable Manufacturing Gateway, which is Aither's partner in the venture, said, "There is still debate as to which of the three states [Ohio. Pennsylvania, or West Virginia] we will build it in," she said. "We certainly plan to locate it on a river, though." Abolina said the project could employ 2.000 construction workers and about 200 permanent chemical employees when it is up and running.
Leonard Dolhert. Aither's chief executive officer, told The Waterways Journal that the availability of barge transportation is indeed a factor in its decision. While the feedstocks of such plants arrive by pipeline, many of its finished products cannot leave the same way, but must be shipped out by rail, truck or barge. When the plant is in full production, it will ship "significant volumes of product — perhaps billions of pounds per year," said Dolhert. Barging is also important for moving in heavy equipment during the construction phase, he said.

Aither has a patent-pending ethane-cracking method that, it says, allows it to operate at lower cost than competitors that use steam cracking, a technology dating back to the 1920s, while using 80 per-cent less energy and producing 60 per-cent less carbon dioxide.

Shifting to Wet Gas

It's a propitious time for cracking plants in the region. Chesapeake Energy. a major driller, announced on January 23 that it was shifting its 2012 drilling strategy from "dry" natural gas wells containing mostly pure methane, to "wet" gas wells containing more liquid natural gas, which contains the feedstocks for cracking plants, according to Bloomberg News. In a company press release, Chesapeake said it would "reallocate the capital savings from reduced dry gas drilling, well completion and pipeline connection activities to its liquids rich-plays that offer superior returns in the current strong liquids price environment."

Chesapeake operated as many as 75 dry wells during 2011, but said it would reduce its dry wells to 24 by June 2012. Chesapeake said it would spend 70 per-cent less of its capital budget on dry gas drilling in 2012, down to $0.9 billion from $3.1 billion in 2011.
There are two major reasons for this shift. One is that drilling companies have to carefully regulate their production so the price of natural gas — currently at 10-year lows — doesn't fall so low that drilling becomes unprofitable. The other reason is the higher value of "wet" gas that can be processed and cracked into many products.

Keeping Benefits In Ohio Valley

Every expert The Waterways Journal spoke with agreed that these developments do hold out promise for barge companies, even if they couldn't easily ex-press that promise in terms of bargeloads.

Patrick Donovan, director of maritime and intermodal transportation at the Rahall Transportation Institute of Marshall University in West Virginia, told The Waterways Journal that, while it is early. now is the time for barge companies to start thinking about where they fit in the cracking boom.

The first way will be in carrying heavy equipment and pipes during a plant's construction phase, which could last three to five years for an ethane cracker. Donovan agreed that barge transportation could be very important in the construction of a major plant. A Marcellus Shale blog,, that reported rumors (ahead of the official announcement) that the Shell plant would be located in Ohio, quoted an official of the Ohio Petroleum Council as saying that location on a major river port was a "nonnegotiable requirement" for Shell, putting sites in the state's north out of contention.

One reason the region is attractive to Shell and other chemical companies is that much of the pipeline infrastructure is already in place, due to "legacy" pipelines from companies such as Union Carbide. But while liquid natural gas can be piped in, some cracker products can't be proved out by pipeline. opening up prospects for barging.

Some in the ethylene plastics industry are reportedly skittish about bulk barge transportation of their ethylene pellets. Barges also compete with extensive rail networks to carry solid ethylene products. Donovan said that the ultimate destination for many plastic products made with the region's ethylene will be the northeast U.S. To carry from the Marcellus Shale region to the northwest, rail transportation is the practical erode.

Besides the initial construction opportunities, several factors could affect further ongoing opportunities for barge transportation. One is that economic planners in the region hope that the cracker plants will bring abundant "downstream" development in the region also, which means creating an entire processing industry.

"What we want to avoid is having cracker products piped down into the Gulf Coast for further processing there," Donovan said. "We want the downstream benefits of these plants to stay in our region, the Ohio River valley."

In November of last year, El Paso Corporation — recently merged with Kinder Morgan to form the nation's largest pipeline company — said a proposed pipeline to bring Marcellus Shale gas to the Gulf Coast for processing fell through when investors proved lukewarm.