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'Shale Crescent' of Appalachia attracting petrochemical interest

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'Shale Crescent' of Appalachia attracting petrochemical interest

Natural gas production growth in the Marcellus and Utica shales and nearby markets are attracting investment interest from U.S. and overseas petrochemical industry players, a representative of a regional economic advocacy organization said.

The "Shale Crescent" region of Appalachia, a tristate region comprising western Pennsylvania, eastern Ohio and northern West Virginia, is poised to see the rise of a petrochemical industry complex rivaling the one along the U.S. Gulf Coast, Greg Kozera, marketing director of Shale Crescent USA, said in an interview.

About 70% of the customers that buy the products produced by the petrochemical industry are found within or near the region, while the gas and natural gas liquids that serve as feedstocks for the petrochemical industry are produced within the region. "This is one of the few places in the world when you get so close to something where the natural gas and liquids are under that plant," Kozera said.

Much of the regional production growth is taking place in the Utica Shale of eastern Ohio. The Ohio Department of Natural Resources recently reported that during the fourth quarter of 2017, Ohio's horizontal shale wells produced 4.19 million barrels of oil, a 16% increase over the fourth quarter of 2016, and 503 Bcf of gas, about 38% more than in the year-ago period.

For full year 2017, the Ohio agency reported gas production of 1.73 Tcf, up 24% from the 1.39 Tcf produced in 2016.

'Exponential growth' seen in Utica Shale

Steve Irwin, an Ohio Department of Natural Resources spokesman, said the state has seen "exponential growth in the Utica Shale," with gas production on an upswing every quarter since production began ramping up in 2011. He said operators are increasingly targeting the gas window of the play by drilling wells with longer horizontal laterals. "There are a few wells that have exceeded 20,000 feet in lateral length, an on-land record," he said.

Adding to the potential gas production growth, in the last year, the state has seen an increased buildout of midstream infrastructure as well as the construction and near completion of some major interstate pipelines such as the Rover and Nexus projects, Irwin said.

The growth in gas and liquids output from the region has caught the attention of international petrochemical players such as Royal Dutch Shell PLC, which has begun work on an 86,000-bbl/d world-scale ethane cracker in Monaca, Pa. "The Shell plant is already underway. They've got 2,000 contractors," Kozera said.

In addition to major projects such as the Shell cracker, smaller regional petrochemical companies are beginning to add employees to scale up for the expected growth in the industry. "What we're seeing already, since the middle of last year, was local firms adding 10 employees," Kozera said.

Asian petrochemical companies eyeing investment in region

Companies from Japan, India and Thailand have begun to express interest in the growing Appalachian petrochemical industry, Kozera said. Many of these players are interested in investing in an area removed from the Gulf Coast region, where major U.S. oil and gas and petrochemical companies dominate.

"Indian companies aren't integrated on the Gulf Coast," Kozera said. Locating in Appalachia will give these new players "a huge competitive advantage" by putting them much closer to the market for plastics and other petrochemical products than companies with manufacturing plants along the Gulf Coast, he said.

"This is where the U.S. industrial revolution started," he said. "This region is where the markets are."

According to S&P Global Platts Analytics, gas production from the entire Appalachian region is expected to grow from a May 2018 level of 27.1 Bcf/d to 31.8 Bcf/d in 2019, assuming current drilling activity holds. Growth is expected to be driven by drilling and efficiency gains.

Jim Magill is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.