Ethane cracker plant cracking up?
CHARLESTON, W.Va. -- Chesapeake Energy's decision last week to sign a long-term contract to transport 75,000 barrels of ethane per day from the Appalachian shale region to the Texas Gulf Coast could jeopardize West Virginia's chances of getting a multibillion-dollar cracker plant, state Commerce Secretary Keith Burdette said.
"It's not a 'cracker-killer,' but this certainly doesn't help," Burdette told the Sunday Gazette-Mail. "The timing is bad, the message is bad, and we're disappointed."
Chesapeake said it doesn't expect the pipeline project to decrease West Virginia's chances of landing an ethane cracking facility.
Burdette said state officials are in "serious talks" with two companies looking to build crackers in West Virginia. He declined to name the firms.
Burdette had expected at least one of the companies to decide to build an ethane cracker here by the end of the year -- until Chesapeake announced its plans last week to ship ethane from the Marcellus and Utica shales out of West Virginia, Pennsylvania and Ohio.
Cracker plants convert ethane, a natural-gas liquid, into ethylene, the base material for a host of plastic products.
"We're very frustrated with Chesapeake," Burdette said. "Every barrel of ethane shipped out of West Virginia means less and less investment."
Burdette said Chesapeake executive Scott Rotruck, who sits on Gov.-elect Earl Ray Tomblin's Marcellus to Manufacturing Task Force, didn't notify state officials about Chesapeake's plans to ship the ethane out of West Virginia and neighboring states.
He said state officials have included Chesapeake in numerous meetings about luring an ethane cracker plant to West Virginia, and Chesapeake executives have taken part in discussions with the two companies interested in building cracker facilities in West Virginia.
Burdette said he found out about Chesapeake's decision last week, when reading the company's news release.
"The fact they didn't tell us about this was very disheartening," Burdette said. "It doesn't send a very good message that this is a two-way partnership. They knew how important we feel recruitment of a cracker is to West Virginia."
Rotruck said the pipeline project actually could help West Virginia's chances of recruiting a cracker plant to the state. Ethane supplies "should remain significant" in the region, he said.
Sites under consideration for the cracker plant include Bayer-owned properties in New Martinsville and Institute.
"This announcement should not preclude our state's ability to attract an ethane cracking facility," said Rotruck, Chesapeake's vice president of corporate development. "It will help ensure robust Marcellus development, which must be demonstrated in order to build a cracker.
"Proper ethane management will be a multi-tiered solution, with possibilities for storage, pipeline and cracking facilities."
Oklahoma-based Chesapeake is the largest natural gas driller in West Virginia.
"They're a huge player in the state right now," Burdette said. "They're relying on us for production. They don't have a product to sell if they're not drilling it here."
Last week, Chesapeake announced it has signed a contract with Enterprise Products Partners, which plans to build a 1,230-mile pipeline from the Marcellus and Utica shales in West Virginia, Pennsylvania and Ohio to Texas's Gulf Coast, which is considered the hub of the petrochemical industry. From there, the ethane would have access to chemical factories throughout the United States.
The pipeline is scheduled to start operation in early 2014 with a capacity of 125,000 barrels of ethane per day.
Burdette said 75,000 barrels of ethane -- the amount Chesapeake plans to ship to Texas at the start -- is enough to support at least one cracker plant.
"They're shipping out a cracker's worth of ethane to the Gulf Coast," he said. "They're shipping out gas that could support investment here."
Burdette said Commerce Department officials plan to meet later this week to discuss ways to persuade companies not to ship ethane outside the state.
"We're going to discuss how to incentivize developing and retaining value-added products in the region, encouraging suppliers that we can use those products here," Burdette said.
He said a single cracker plant would create about 500 full-time, high-paying jobs and 10,000 construction jobs. A company would spend $2 billion to $4 billion to build such a facility, he said.
"We're not surrendering because of Chesapeake's decision," Burdette said. "This is too important. We think this is a multi-generational opportunity."
Chesapeake CEO Aubrey McClendon repeatedly has bashed West Virginia in recent years, saying the state deserves its "judicial hellhole" reputation.
In 2007, Chesapeake got socked with a multimillion-dollar jury verdict in a Roane County gas-royalties case.
In response, Chesapeake scrapped plans to build a regional headquarters building in Charleston and cut 215 jobs.
Reach Eric Eyre at email@example.com or 304-348-4869.