The Appalachian shale region is at a point where it can become a world-class exporter of natural gas, such as Qatar, or build a regional energy ecosystem like Texas, which adds value to local resources by converting gas and liquids into higher-end petrochemicals and plastics, a new report from the accounting and consulting firm Deloitte said.
As it stands, "the region is a price taker," one of the authors of "Sustaining growth: Appalachia's natural gas opportunity" said in an interview. "The revenue from upstream is not negligible," said Andrew Slaughter, executive director of the Deloitte Center for Energy Solutions, but the region needs to decide, "Would it make sense to go further?"
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While not making any specific recommendations, Deloitte said in the report that the region has a once-in-a-generation opportunity to transform itself from being a supplier of raw materials to building the industrial complex that converts those resources into more valuable products.
"It is imperative that regional leaders look to the horizon and not trade the future for the present," the paper said. "A long-view perspective that anticipates the shape shifting of the global economy and strategically positions Appalachia to capitalize on opportunities will yield benefits for both the public and private sectors for decades to come."
Deloitte sketched out four possible futures for the region, connecting demand for raw gas and liquids from ethane crackers and petrochemical plants to how much value is extracted from the gas stream and kept inside Appalachia.
In the current environment, "most of the natural gas will be sent elsewhere, and the gas that remains in the region will likely be combusted for power and heating purposes, which together will produce less value for the region than on-site chemical and fuel conversion," Deloitte said. "It is estimated that converting natural gas into petrochemicals generates eight times more value than using natural gas for power and heat purposes."
"NGLs are an important part of the equation," Slaughter said. Current efforts by West Virginia lawmakers to build an NGL storage hub in Appalachia "make sense," Slaughter said, though he cautioned against relying too heavily on headline deals, such as the recent memorandum by a Chinese power company indicating that it could invest $83.7 billion in gas and liquids projects in West Virginia over the next 10 years. "An MOU [memorandum of understanding] is not a commitment," Slaughter said.
Deloitte recommended that states, counties and cities in Appalachia get used to working together to build "clusters" of related industries inside the basin.
"Competitive clusters will likely span cities and states, thereby requiring a big-picture approach in which economic development agencies and investors work in concert to weigh local and regional interests," Deloitte said.
"As state and local governments strategically select the clusters that have the potential to be globally competitive, they need to assess the supporting and peripheral industries required when building out an ecosystem," Deloitte said. "A cracker that converts ethane to ethylene creates a molecule that can be used for a variety of downstream products. Given regional interests in tires, adhesives, and coatings, attention should be given to bolstering those industries in particular."
In the long term, the energy industry and policymakers need to get the Appalachian public to buy into whichever shape the gas complex takes, Deloitte said. "Going forward, as Appalachia explores opportunities to expand the value chain, it must communicate better. Industry must proactively present a compelling case that clearly articulates a value proposition to the public."
"The manpower needed to support a robust Appalachian economy based on products derived from shale gas is unlike anything the region has experienced for a century," Deloitte said, which will require investments in education and training. "Accommodating this growth will require a workforce with unique skill sets that may not align to capabilities within the existing talent pool."
Deloitte cautioned that the size of the Appalachian gas complex — three states, several major industrial cities and the world's third-largest supply of gas compared to entire nations — may work against a unified response to the gas opportunity.
"Moving the region in a decisive direction will require leadership across the public and private sectors to arrive at a unified vision and articulate that vision to the public and workers in a way that creates buy-in," Deloitte said. "While the conceptual message is clear and compelling (i.e., economic growth, job creation, public dollars), the details are not. As is typically the case with generational opportunities, time is of the essence as other regions and countries are seeking to monetize Appalachian resources."

