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Appalachia competing with China for NGL crackers, petchem exec says

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Appalachia competing with China for NGL crackers, petchem exec says

China is Appalachia's newest competitor in the quest to convince petrochemical firms to build more ethane crackers there, a U.S. petrochemical executive said at a conference on June 5.

"The reason potentially that that business model makes sense is because they believe that in China … they can build a cracker, an ethane cracker, for 50% of what it takes to build it here in the United States," Westlake Chemical Corp.'s Executive Vice President for Olefins Lawrence Teel said on a panel at the U.S. Energy Information Administration's 2018 conference in Washington, D.C. "The cost to get the ethane over there is about 30 cents/gallon. So the question is: does that lower capital [investment] offset the much higher cost [for feedstock]? "

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Lawrence Teel, executive vice president for olefins at Westlake Chemical Corp., said the first Appalachian cracker might be more expensive than the estimate.

Source: Westlake Chemical Corp.

Appalachia already has one ethane cracker under construction: Royal Dutch Shell PLC's $3.3 billion polyethylene cracker in the Marcellus Shale outside Pittsburgh in Potter Township, Pa. In addition, Thai petrochemical firm PTT PCL committed $100 million to perform the front-end engineering work on a site in Ohio's Belmont County in the Utica Shale.

Chemical companies may be waiting to see just how much it actually costs Shell to build a cracker in an area that lacks much of the piping and other infrastructure found along the Gulf Coast, Teel said.

"Many of the projects that were done on the Gulf Coast did come in more expensive than they were originally expecting," Teel said. "There's not as much existing infrastructure [in Pennsylvania] and experience to build these kind of projects up there, so we'll wait and see what happens. My guess is initially — it's a first timer — it's going to be a little bit more expensive than on the Gulf Coast."

"You need about four or five new crackers per year in the world ... just to keep up with demand growth," Teel said. "You want to build one where you have a cost advantage. Certainly Appalachia potentially gets you a long-term cost advantage."

The Appalachia Development Group LLC, or ADG, hopes to jump start the infrastructure solution with its $10 billion Appalachia Storage and Trading Hub project. ADG's $1.9 billion federal loan guarantee made it through the first stage of review at the U.S. Department of Energy in January. ADG thinks an underground NGL storage facility will provide the stability of supply the market needs to use Appalachia as an alternative to the NGL complex at Mont Belvieu, Texas. ADG thinks the storage project will have an economic impact of $36 billion and create 100,000 jobs.

The federal government's real interest seems to be a desire to diversify the country's chemical manufacturing base away from the hurricane-plagued Gulf Coast, ADG CEO Steve Hedrick said.

"I believe [the U.S.] would like to see diversification of our manufacturing platform inside the U.S. to avoid the disruptive issues associated with Hurricane Alley," Hedrick said. "To be able to harden our economy against natural disasters that can cause pain to those companies and to our economy in total."

"Why does the government need to touch this?" Hedrick asked. "I think everybody in the room recognizes that anything that is disruptive to the market, anything that's disruptive to the way that it has been or was, requires something to move it, something to change the inertia of the moment," Hedrick said.

Investing in petrochemicals requires a long time horizon that most investment groups cannot handle. "Typically it's a little bit too long for strategic investment or private equity to be interested," Hedrick said.