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Perry, US DOE lend support to creation of petrochemical complex in Appalachia

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Perry, US DOE lend support to creation of petrochemical complex in Appalachia

Highlights

If Appalachia were a country, it would be third-largest gas producer

US production of NGLs expected to double by 2050

Houston — The US Department of Energy projects Appalachian Basin ethane production will surge to 640,000 b/d by 2025, more than 20 times 2013 levels, leading Energy Secretary Rick Perry to push for a petrochemical storage hub in the region.

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A 91-page report to Congress, which DOE published Tuesday, highlights the potential for the development of an ethane storage hub in the region to take advantage of the low-cost natural gas and natural gas liquids produced from the Marcellus and Utica shales.

In comments made to the National Petroleum Council in Washington, Perry said the US needs to diversify its petrochemical infrastructure beyond Texas and Louisiana. He said an Appalachian ethane storage hub would complement, not compete with, Gulf Coast producers.

"If the Appalachian region were its own country, it would be the third-largest gas producer in the world," Perry said. "The potential raw product is there, and they have particularly wet NGLs that can be separated, value added." The establishment of an Appalachian Basin ethane storage and distribution hub in the heart of the Marcellus and Utica plays "could provide benefits to the broader petrochemical and plastics industries along the lines of supply diversity," the report says. "The present-day geographic concentration along the Gulf Coast of petrochemical infrastructure and supply may pose a strategic risk, where severe weather events limit the availability of key feedstocks."

Perry said one of his great fears as Texas governor was a Category-5 hurricane moving up the Houston Ship Channel and the "stunning impact" it would have on the region's energy infrastructure, shutting as much as 95% of petrochemical operations.

"Someday the potential for that to occur is real," he said. "For us to be at this moment in time where we have the potential to diversify our petrochemical footprint, I think would be very inopportune for us to miss this opportunity."

US NGL PRODUCTION TO DOUBLE

According to the report, US NGL production is expected to nearly double between 2017 and 2050, supported by an increase in global petrochemical industry demand. The largest increases are expected to occur over the next 10 years, driven by crude oil and gas production from the Marcellus and Utica plays in the northeastern US and from the Permian Basin in the Southwest. By 2050, the two regions are forecast to account for more than 60% of total NGL production in the US, the report says.

Data from the US Energy Information Administration projects ethane production in the East region to continue to grow rapidly in the coming years.

"Projected production in 2025, at 640,000 b/d, is more than 20 times greater than regional ethane production in 2013," the report said. "By 2050, ethane production in the region is projected to reach 950,000 b/d."

The report bolsters the case for the creation of a second major US petrochemical storage and distribution hub, to supplement the Gulf Coast regional hub in Mont Belvieu, Texas. Advocacy groups promoting the concept, such as Shale Crescent USA, cheered Tuesday the release of the DOE report and Perry's strong endorsement.

"The DOE report solidifies the notion that diversifying America's petrochemical manufacturing base -- and investing in a second petrochemical hub in the Shale Crescent USA -- would increase our global petrochemical market share, while better and more reliably fulfilling domestic demand," Shale Crescent USA Co-founder Jerry James said in a statement.

-- Jim Magill, jim.magill@spglobal.com

-- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com