The U.S. Department of Energy (DOE) Office of Fossil Energy recently released a report examining the outlook for natural gas liquids (NGLs) in the Appalachian region. The report analyzes natural gas liquids (ethane, propane, butanes, and natural gasoline) production, consumption, overall current market trends and infrastructure to support taking the resource to market. In a nutshell, the report finds the future for NGLs in the region is very bright, and is being hailed by local elected officials as an opportunity to put the Ohio River Valley “on the map.”

As Monroe County, Ohio, County Commissioner Mick Schumacher told EID,

“This DOE study proves that what we are doing here in the local region is a national issue.”

Mark Thomas, President of the County Commission of Belmont County, Ohio, which would be home to the proposed multi-billion dollar, world-class PTT Global Chemical petrochemical complex, also said:

“It is good to see that the federal government recognizes the economic importance of the tri-state area.  We appreciate so many people/entities working together to insure that the Appalachian Region is getting the attention it deserves.”

As we see it, the DOE made three key points in the recent report:

1) Staggering Appalachia NGL production growth expected in the years to come.

DOE finds that NGL output will continue to grow through 2025 before plateauing and gradually declining by 2050. Over the course of the next 13 years, DOE projects NGL production will more than double and will eventually reach 1.2 million barrels/day in 2050.

Ethane is slated to grow 20 times greater than regional ethane production in 2013, and propane forecasted to climb to 372,000 barrels/day by 2026!

Propane production is also on the rise in Appalachia and nearly tripled in from 2013-2016. According to the report, annual production will rise to 372,000 b/d by 2026.

2) Appalachia NGL infrastructure is keeping pace, but we need storage to maximize local use.

The report outlined the incredible growth of natural gas processing over the years, showing how modern, efficient processing plants have cropped up all across the region in Kentucky, Ohio, Pennsylvania, and West Virginia, growing by “nearly tenfold” from 2010.

By 2016 natural gas processing grew to 10.0 Bcf/d, which has in turn accelerated production of natural gas and natural gas liquids.

Once natural gas is processed, it is further refined into distinct NGLs, such as ethane, propane, normal butane, isobutene, and natural gasoline. The DOE report shows that, like processing, fractionation plants have also sprouted up all over the region. According to DOE,

“Fractionation capacity in the region has increased from just 41,000 b/d in 2010 to nearly 850,000 b/d in 2016, and may grow as high as 1.1 million b/d in 2019 (see Figure 13 below).”

Once the fractionation process is complete, NGLs need to be transported. According to the report,

“At current levels, the NGL output exceeds in-region demand, necessitating transportation to other demand regions.”

The chart below essentially shows that the region is about ready to experience a major change in both pipeline takeaway capacity and world-class petrochemical complexes, like the Shell Chemical Appalachia plant, which will use natural gas liquids locally. Together, these NGL pipelines and petrochemical plants will allow for a combination of massive local use of locally produced ethane and propane (through the cracker plants) along with exports to other regions of the country.

Currently, a vast majority of locally produced NGLs are being exported out of the region, which is why the DOE stated in their report that,

“Storage of NGL is necessary since produced volumes typically exceed the pipeline takeaway capacity and processing capacity. The Appalachian region, and a greater area around it, has generally been dependent on storage outside the region to satisfy peak-season NGL demand. Only a few facilities satisfy the criteria of being significant to the market.”

According to the DOE, Mountaineer NGL Storage’s project is currently the only major NGL storage project in development. Mountaineer praised the DOE report in a press release, noting that developing additional storage facilities is essential,

“We’re pleased to see that the federal government has identified the need for NGL storage in the region and specifically cites Mountaineer NGL Storage as part of this Natural Gas Liquids Primer. We commend the DOE for providing this resource to help educate the public on the importance of keeping NGLs local to the region and believe our project is vital to help foster additional investments across the NGL supply chain. As this report clearly identifies, net exporting of NGLs is a certainty if we do not create storage solutions. Our company is the first to take real proactive steps to address underground storage in the Appalachian Basin.”

>Storage has become a hot topic nationwide and is a concern for the region, which is likely why it has received support from local, state, and federal officials. However, the Mountaineer project is still waiting on state permitting, and as Platts correctly stated, the Appalachian petchems storage hub faces ‘chicken-and-egg’ issue, and in looking at the amount of NGL pipelines coming on line, it’s no wonder DOE has cited storage to be “necessary” and groups like American Chemistry Council (ACC) have stated that,

“The creation of a storage hub… could enable the Appalachian region to develop a community of petrochemical and derivative producers modeled after that on the U.S. Gulf Coast.”

ACC has found that by addressing NGL storage the region could see up to 100,000 permanent jobs. Storage will also help keep ethane and propane in the United States and, more specifically, in the Appalachian region.
3) Petrochemical projects are in early stages in the region and more end-users need to be identified.

From processing to fractionation, the prolific natural gas liquids found in Marcellus and Utica shales must ultimately find a home, or end-use in the market. The end-use of these NGLs, of course, is found in over 6,000 consumer products, and after the raw natural resources makes their way through processing and fractionation, they must continue through a petrochemical process (ethylene crackers) where natural gas liquids are converted to usable product for manufacturers, such as Little Tykes.  The DOE study outlines the current landscape of projects in various stages of development, as indicated in the image below.

Perhaps the most important part of the DOE’s report was the question that’s frankly on everyone’s mind right now, “will new markets emerge and new trade patterns be established with increased U.S. NGL production and petrochemical plant capacity?”

Time will tell.

Conclusion

What we know for sure is that the private sector has and will continue to invest billions into this region, which has generated hundreds of millions in taxes and support for local communities, and provided tens of thousands of jobs over the past few years.

There has been no other industry, without exception, that has lifted the Appalachian region like the oil and gas industry.  And, if this trend continues toward shale-driven manufacturing, it will be fracking that will be ultimately responsible for singlehandedly creating economic prosperity for a region of the country that has long been forgotten.