Study of Economic Impact from Ethane Cracker Plant in WV

1
December 2013
Building Value from Shale Gas:
The Promise of Expanding
Petrochemicals in West Virginia
Author
Tom S. Witt, PhD
Managing Director and Chief Economist
Witt Economics LLC
Referenced Authors
Dr. Thomas Kevin Swift, American Chemistry Council
Martha Gilchrist Moore, American Chemistry Council

This study was supported by funding from Braskem America. The opinions herein are the
opinions of the author and do not necessarily represent those of Braskem America.
© Copyright 2013 by Witt Economics LLC and Braskem America Inc. All rights reserved.
SUMMARY
Book 1 provides an overview of the study, issues addressed, economic drivers and associated economic
impacts of a potential petrochemicals expansion in West Virginia.
Book 2 gives an overview of the shale gas industry. In collaboration with the American Chemistry
Council and reproduced with permission, this section is an excerpt from the recent report, Shale Gas,
Competitiveness, and New US Chemical Industry Investment: An Analysis Based on Announced Projects
by Dr. Thomas Kevin Swift and Martha Gilchrist Moore (May 2013, pp. 10-22). Figure numbers and figure
references have been renumbered to be consistent with this overall report.
Book 3 discusses the ethylene value chain, including a review of the world market supply and demand for
ethylene, which is used as a raw material for a wide array of consumer packaging, transportation, and
construction industry products.
Book 4 reviews how West Virginia oil and natural gas production contributed to the development of the
regional chemicals industry. At one time, the chemicals industry was a bedrock of the West Virginia
economy but has declined in recent years. Yet the extraction of natrual gas liquids (NGLs)-rich shale
gas in the Appalachia region could serve as a catalyst that renews the chemicals industry, resurrects the
region’s manufacturing sector, bolsters the state’s economy, and creates an important new pool of jobs
for the region.
Book 5 focuses on the opportunity that shale gas development presents to the West Virginia economy.
Specifically, it addresses how the development of an ethylene industry, and its application in the
polyethylene industry, would enhance the local industrial and employment base of West Virginia. It
assesses how recent investments in natural gas infrastructure enable producers to move natural gas
and NGLs to markets outside the state, as well as provide an opportunity to revitalize the petrochemical
industry inside the state.
Book 6 evaluates the positive economic impacts associated with the construction and operation of a
world-scale ethane cracker and polyethylene plants in West Virginia. It examines a generic, integrated
plant complex, including associated pipeline infrastructure, on-site ethane storage and rail/truck
terminals, with an assumed cost of approximately $4 billion.

Economic Opportunities
for West Virginia
Overview
Development of Ethane Crackers and
Associated Petrochemical Plants
01
BOOK

1
Overview of Economic Opportunities for West Virginia:
Development of Ethane Crackers & Associated Petrochemical Plants
Introduction
The advent and development of natural gas produced
from shale rock formations create a new dawn for the
oil, gas and petrochemicals industries in the United
States, particularly in West Virginia and the Appalachia
region. This region sits atop two of the most prolific
shale deposits in the country, namely the Marcellus and
Utica shale formations. The technological advances of
horizontal drilling and hydraulic fracturing, combined with
almost a decade of shale gas production experience, have
unleashed a tremendous new set of natural resources and
a rebirth of the natural resource economy in Appalachia
and the wider United States. Existing shale gas regions,
as well as ones yet to be explored, are groundbreaking for
the US economy.
Natural gas production from shale that is rich with
associated natural gas liquids (NGLs), such as ethane,
propane, butane, and natural gasoline, presents new
opportunities for the regional petrochemical industry.
This research provides a detailed study of the economic
impacts associated with the potential construction of
new petrochemical facilities in West Virginia, including
an ethane cracker and downstream polyethylene
manufacturing plants, as a means to better understand
how such an investment would impact the state economy.
State government, local manufacturers, and the oil,
gas and chemical industries are all excited about the
potential expansion of manufacturing in natural-resource-
rich places like West Virginia. This report builds on the
2011 American Chemistry Council study Shale Gas &
New Petrochemicals Investments in West Virginia using
new data and a deeper analysis of the economic impacts
associated with the creation of an ethane cracker and
downstream polyethelene plants.
Study Organization
Book 1 provides an overview of the study, issues
addressed, economic drivers and associated economic
impacts of a potential petrochemicals expansion in
West Virginia.
Book 2 gives an overview of the shale gas industry. In
collaboration with the American Chemistry Council and
reproduced with permission, this section is an excerpt
from the recent report, Shale Gas, Competitiveness, and
New US Chemical Industry Investment: An Analysis Based
on Announced Projects by Dr. Thomas Kevin Swift and
Martha Gilchrist Moore (May 2013, pp. 10-22). Figure
numbers and figure references have been renumbered to
be consistent with this overall report.
Book 3 discusses the ethylene value chain, including
a review of the world market supply and demand for
ethylene, which is used as a raw material for a wide array
of consumer packaging, transportation, and construction
industry products.
Book 4 reviews how West Virginia oil and natural gas
production contributed to the development of the regional
chemicals industry. At one time, the chemicals industry
was a bedrock of the West Virginia economy but has
declined in recent years. Yet the extraction of NGL-
rich shale gas in the Appalachia region could serve as a
catalyst that renews the chemicals industry, resurrects
the region’s manufacturing sector, bolsters the state’s
economy, and creates an important new pool of jobs for
the region.
Book 5 focuses on the opportunity that shale gas
development presents to the West Virginia economy.
Specifically, it addresses how the development of an
ethylene industry, and its application in the polyethylene
industry, would enhance the local industrial and
employment base of West Virginia. It assesses how
recent investments in natural gas infrastructure enable
producers to move natural gas and NGLs to markets
outside the state, as well as provide an opportunity to
revitalize the petrochemical industry inside the state.
Book 6 evaluates the positive economic impacts
associated with the construction and operation of a world-
scale ethane cracker and polyethylene plants in West
Virginia. It examines a generic, integrated plant complex,
including associated pipeline infrastructure, on-site ethane
storage and rail/truck terminals, with an assumed cost of
approximately $4 billion.

2
Executive Summary
Shale-gas-based petrochemical development offers
tremendous opportunity to West Virginians and others
in Appalachia. The advent of ready access to globally
competitive, low-cost ethane feedstock in the United States
is fueling a renaissance in the US chemicals industry.
Already, the chemicals industry has announced over 10
million tons of new ethylene capacity investments in North
America by 2018 with more expansion being considered
over the coming decade. Thus, the conditions are ripe for
Appalachia to redevelop a regional petrochemicals industry
that uses locally available, high-value raw materials from
the Marcellus Shale formation, which is the most prolific
natural gas play in the United States.
Policy Considerations
The key policy question facing West Virginia is:
How do we best capture the full value of local raw
materials to stimulate, develop, and sustain the
local economy?
With North America becoming a focus region for natural
resources and petrochemical expansion due to the
discovery of significant new hydrocarbon reserves and
given the state’s proximity to critical feedstock, the
opportunity exists for West Virginia to re-emerge as a
center of chemical manufacturing.
Figure 1-1 The Ethylene Chain
ETHYLENECHAIN
Ethane
Intermediate Products
CrackerNatural
Gas
Tires
Sealants
Paint
Antifreeze
Food Packaging
Bottles
Cups
Housewares
Crates
Pool Liners
Window Siding
Trash Bags
Sealants
Carpet Backing
Insulation
Detergent
Flooring
Pipes
PVC
Vinyl Chloride
Ethylene Glycol
Styrene
Polystyrene
Polyethylene
Footwear
Clothes
Diapers
Stockings
Toys
Textiles
Adhesives
Coatings
Films
Paper Coatings
Models
Instrument Lenses
Source: American Chemistry Council
Natural resources support the manufacture of consumer
goods through the ethylene value chain (See figure
1-1). Investment in natural gas processing and in natural
gas liquids (NGLs) fractionation facilities drives follow-
on investments in pipeline and storage infrastructure.
This can enable further investment in value-capturing
chemicals manufacturing plants that use NGL products as
raw materials. Chemicals like ethylene are manufactured
and converted into intermediate products such as
polyethylene and then further converted into consumer
products. These products – ranging from food and product
packaging, textiles, automobile components and appliance
parts, to construction materials and industrial machinery –
use polyethylene as a major raw material. Manufacturers
rely on competitively priced polyethylene to thrive. The
ethylene market is extremely competitive with access to
cost-competitive feedstock being the primary cost driver.
The pervasiveness of polyethylene products in the world
economy is growing, with per-capita use rising globally,
particularly in the developing world. The strongest
demand growth will continue in the Asian region, where
high GDP growth rates drive increasing consumption
by populations with increasing disposable income.
Furthermore, as polyethylene capacity around the world
continues to grow in the Middle East and Asia, North
American feedstock competiveness, with its more than 10
million tons of new North American polyethylene capacity
on the horizon, will drive increased exports from North
America to other regions. West Virginia could participate
in this tremendous expansion. Building an ethane cracker
and associated polyethylene (PE) manufacturing facilities
is a watershed economic opportunity for the state and
region. This opportunity would expand a high-value
manufacturing industry that creates high-wage jobs, new
technologies, and the prospect for expanding downstream
plastics industry investments.
Significant New Investments in the Region
to Move Natural Gas and NGLs to Market
In response to the growth in both reserves and
production, significant investments have been announced
in the Marcellus and Utica shale plays to process and
deliver natural gas and NGLs to markets inside and
outside the region. While West Virginia has existing
gas processing and fractionation capacity, the growth
of the Marcellus and Utica Shale plays has dramatically
increased regional gas production and, consequently,
investments in gas processing and fractionation. Bentek
Energy forecasts gross natural gas production in the
Appalachian Basin, which includes both shale plays and
extends from New York to Tennessee, to increase from
an anticipated 10.9 billion cubic feet per day (Bcf/d) in
2013 to 19.4 Bcf/d in 2023, an 8.4 Bcf/d increase. This
growth is largely being driven by the liquids-rich plays
in the Marcellus/Utica region. Adequate processing
capacity will be built to accommodate this increase. In
fact, approximately 5 Bcf/d of incremental processing
capacity is slated to come online by the end of 2016,
for a total regional capacity exceeding 8 Bcf/d.1
1
BENTEK Energy. Son of a Beast: Utica Triggers Role Reversal, Oct 2013, p.20.

3
2
All costs and impacts are presented in 2012 dollars.
In addition, moving NGLs to market requires infrastructure
to connect gas processing and fractionation facilities
to manufacturing facilities. NGL pipelines are being
developed to carry NGLs from the Appalachia region to
established markets in the US Gulf Coast, Ontario, and
Europe. Local opportunities exist as well in West Virginia,
which has had a heritage of and appreciation for the
chemicals industry since the 1930s. A strategic effort on
the part of the state and local government to promote
the physical and social infrastructure required for a
renewed local petrochemicals industry would be a signal
to investors that the state looks to once again become a
serious player in the US chemicals manufacturing sector.
Without it, these high-value raw materials would find
alternate markets.
Economic Impacts Associated with
Petrochemical Industry Development
Economic Impacts of an Ethylene Cracker
and Associated Polyethylene Plants
The study evaluates the economic impacts associated
with the construction and operation of a world-scale
ethane cracker and associated polyethylene plants in West
Virginia.2
A generic integrated plant complex is examined
with an assumed start-up date in 2018 and an assumed
cost of $3.8 billion, with an additional $150 million in
pipeline infrastructure, $20 million in on-site ethane
storage, and $20 million in rail and truck terminals. The
economic impacts are estimated using the IMPLAN® input-
output modeling system (IMPLAN Group LLC, implan.com).
Table 1-1 summarizes the construction impacts.
Impact Type
Employment
(job-years)
Employee
Compensation
(million)
Output
(million)
Direct Effect 18,156 $893 $1,346
Indirect Effect 976 46 134
Induced Effect 5,087 178 563
Total Effect 24,118 $1,116 $2,043
Table 1-1 One-Time Economic Impacts Associated with Construction of
New Ethane Cracker and Associated Polyethylene Plants in West Virginia
($2012)
Note: The economic impacts from construction are spread over the
construction period and are one-time impacts. For example, the direct
employment of 18,156 full- and part-time jobs are spread over a four-
year construction period and would be at multiple locations within the
state. Table totals do not add due to rounding.
The study also examines the economic impacts associated
with the yearly operation of the plant complex. Table
1-2 reports the annual economic impacts from the plant
complex at full operation.
Impact Type
Employment
(job-years)
Employee
Compensation
(million)
Output
(million)
Direct Effect 325 $35 $585
Indirect Effect 1,229 62 196
Induced Effect 534 19 59
Total Effect 2,088 $116 $840
Table 1-2 Annual Economic Impacts Associated with Operation of an
Ethane Cracker and Associated Polyethylene Plants in West Virginia at
Full Operation ($2012)
Note: Totals may not add due to rounding.
The study found that the development of an ethane
cracker and associated polyethylene plants in West
Virginia would have a multibillion dollar positive impact
on the state’s economy in both the short and long terms
by employing an estimated 325 full-time staff annually
and generating hundreds of millions of dollars in annual
economic output over a 40+ year operating period. In
addition, the project is expected to generate at least $36
million in state and local taxes, exclusive of property taxes
and government incentives, when at full operation and for
each year thereafter.
Economic Impacts of Additional Downstream Product
Manufacturing Plant Development
The positive economic impact of building a world-
scale ethane cracker and associated polyethylene
plants also brings with it a significant opportunity to
advance and expand the regional industrial base by
attracting new polyethylene product manufacturers
to the state. Ethylene is one of the primary building
block chemicals in the chemicals industry, and its
primary end-use product sector is for conversion into
polyethylene (PE). From PE pellets, PE converters create
an array of manufactured products across the spectrum
of consumer products, as shown in figure 1-2.
Figure 1-2 Types of Polyethylene Products Produced by Converters
Source: Data from American Chemistry Council, Plastics Industry
Producers Statistics (PIPS), 2012.

4
Building a profitable PE industry can also contribute to
building a successful product manufacturing industry.
The major drivers of profitability in end-use polyethylene
converter plants are:
1. The price of delivered polyethylene raw material
2. The cost of electricity
3. Proximity to product distribution and retail centers for
finished goods
4. The availability of a skilled workforce
The presence of an ethane cracker and polyethylene
plants, local raw material advantage, competitive
electricity rates, and a skilled workforce would place
West Virginia in a position to attract downstream
polyethylene converters. Beyond the tremendous
economic potential, the study recognized and analyzed
the value-added downstream opportunity that a
polyethylene manufacturing complex presents to
consumer products manufacturers using plastics. The
report further studies the economic impact associated
with an ethane cracker and polyethylene complex
seeding the creation of downstream manufacturing
in consumer and industrial products made from
plastics. While it is challenging to estimate the pace
and scope of downstream development, the study
estimated two potential scenarios to gauge the range of
potential economic impact associated with PE product
manufacturers moving to West Virginia. Downstream
investments have the potential to create upwards of
over 900 jobs and $280 million in output annually.
Attracting such polyethylene product manufacturers
could be a tremendous opportunity for West Virginia and
surrounding region to further capture the downstream
value-added benefits of its NGL resources. Creating
the conditions for manufacturers to thrive would drive
significant economic impact in the years following the
startup of an ethane cracker and polyethylene plants.
Non-quantifiable Economic Impacts Associated with
Construction and Operation of an Ethane Cracker and
Associated Polyethylene Plants
In an effort to be comprehensive, the study recognized
that many important economic impacts are challenging
to quantify, yet vitally important contributions to the local
economy. The project analyzed in this study would also
create the following non-quantifiable impacts:
ƒƒ The presence of a cracker complex sends a signal to
other chemical and manufacturing companies to make
similar investments in ethane crackers or downstream
plants using the petrochemicals produced at this
complex. Out-of-state suppliers to the new plant may
perceive expanded economic opportunities and may
relocate operations within the state.3
ƒƒ The increased demand for ethane may necessitate
considerable expansion in natural gas drilling plans,
resulting in additional lease acquisition, permitting,
drilling, and natural gas production. The resulting
increases in natural gas supplies may be attractive to
firms using a significant amount of natural gas in their
production processes. This increased supply might also
necessitate development of more midstream processing
and pipeline extensions in the state.
ƒƒ Expanded economic activity rooted in the sciences
should reinforce the teaching of science, technology,
engineering, and mathematics in public schools,
community colleges, and colleges and universities.
ƒƒ The additional economic activity will probably result in
more charitable giving and volunteering with nonprofit
institutions, thereby adding to the quality of life of the
communities impacted by the plant and its employees.
ƒƒ Consistent with other petrochemical plants within the
state, considerable investment in maintaining a safe
operating environment will result in employees being
trained on fire-safety and suppression procedures.
Some of the trained employees may also be members of
volunteer fire and ambulance organizations.
ƒƒ The resulting expansion of economic activity should
generate more deposits in regional and state financial
institutions, increasing the latter’s ability to provide
loans and support to families and businesses.
ƒƒ Consistent with bringing technologically advanced
industry to the state, the demand for a highly skilled
workforce will attract a population with advanced
science and mathematics skill levels and drive
educational advancement.
ƒƒ Finally, the resulting chemical industry renaissance will
provide an endorsement of the state’s economic viability
to global markets.
3
Similar phenomena occurred when Toyota announced its engine (and now transmission assembly) plant in Buffalo, West Virginia. The Toyota Manufacturing facility
has undertaken considerable expansion since 1996, and its success has attracted other automotive equipment manufacturers to the state, including NGK Spark Plugs,
Diamond Electric, K.S. West Virginia, and Hino Motors.

5
Additional Considerations
Optimizing the Opportunity in West Virginia
Promoting an Industry Cluster: The Ohio River Basin
as a geographic center for interconnected businesses
A geographic cluster of businesses can increase
productivity, drive innovation, and stimulate new
businesses. Collaborative links with regional universities,
leveraging human and social capital, and incentives to
magnet investors who, in turn, attract other business can
facilitate the transition from an extractive economy to a
manufacturing and innovation economy.
In the chemicals industry, feedstock hubs are important.
A feedstock hub usually requires close proximity to
feedstock sources, pipeline infrastructure, storage
capabilities, and access to a ready market for feedstock
consumption. As such, focused regional investment in
storage and pipelines is critical to establishing a feedstock
hub because any one entity would be hard-pressed to
bear the cost of this infrastructure alone. Hubs tend
to grow incrementally over time, as they achieve the
economies of scale needed for the industry to thrive;
potentially, they can become a catalyst that creates a
petrochemical industry business cluster.
West Virginia and the greater Ohio River Basin, stretching
from Pittsburgh to Kenova and beyond, have the
advantage of being at the center of NGL-rich shale gas
development, but they face the challenge of building a
well-established storage capability and product pipeline
network. Fortunately, the region already has the
beginnings of a robust natural gas and ethane pipeline
network as established players like MarkWest Energy, Blue
Racer Midstream, Williams, and M3 Midstream have each
grown their respective gas processing networks over the
last ten years. Figure 1-3 shows a partial map of the
Appalachian regional NGL infrastructure. What the region
lacks is a unifying strategy for focusing these disparate
private sector developments on establishing a high-value
local market for NGL products in the form of a regional
petrochemical manufacturing hub.
Figure 1-3 Appalachia Regional NGL Infrastructure Map
Source: BENTEK Energy. Map by Maria Majia, Energy Analyst. December 16, 2013.

6
Developing the right workforce:
Availability of skilled labor and educational programs
West Virginia has a strong history of petrochemicals
production in the Kanawha Valley and Charleston area, as
well as in the Mid-Ohio Valley. The state also has a strong
industrial base and with it, an existing labor pool capable
of fielding many of the required skill sets needed for an
expanding petrochemical sector. Innovative programs
within West Virginia’s Community and Technical College
System for the training of chemical plant operating
personnel already exist and have the capacity to be
expanded as the petrochemical and related industries
come online. For example, the Associated Construction
Trades assessed the Parkersburg and Wood County
region to have over 34,000 total skilled workers available
in the immediate vicinity, as shown in figure 1-4.
Figure 1-4 Local Skilled Workforce Profile - Wood County
Source: Associated Construction Trades, ACT Parkersburg Maps, 2013.
While no one project would ever employ an entire
region’s skilled labor force, the availability and diversity
of a skilled labor pool are critical for the development
of large scale capital projects. The labor pool of skilled
trades required to build and operate petrochemical
facilities — particularly for the thousands of craft workers,
such as welders, pipe fitters, carpenters, electricians,
iron workers, scaffold builders, and construction hands
— will be crucial. Supporting the development of an
ethane cracker and downstream industries will require
a volume of workers and a myriad of skill sets that
may not all be present in the Ohio River Basin. Thus,
significant workforce training programs will also be
needed to be effective. It will take a strong commitment
from government, industry, unions, and the public to
develop the workforce and attract the vendors needed
to develop, build, and operate a petrochemical cluster.
Enabling the growth of an educated workforce with the
requisite skill sets needed to construct, operate, and
maintain a new world-scale petrochemical industry will
require collaboration with local high schools, colleges, and
trade schools during the years leading up to construction
and continuing on well after the complex is operating.
Developing a robust market: Promoting
incremental value in petrochemical production
Producing ethylene through cracking produces co-
products that are part of the conversion process. These
co-products include: hydrogen, methane, propylene,
butadiene, butylene, pyrolysis gas, benzene, toluene, C8
aromatics, and fuel oil. While the majority of the output
stream of an ethane cracker is ethylene, significant co-
products are produced. The sale of those co-products into
the chemicals market is an important factor in business
sustainability. In addition, many of these co-products
are volatile materials that are expensive to transport,
so selling them to users in the market region has
tremendous value. The Appalachia chemicals industry
needs to identify market opportunities for selling cracker
co-products such as butadiene, pyrolysis gas, and other
potentially high-value products. The ability to market
those products to downstream customers and optimize
economic value is a strategic priority.
The Importance of transportation:
Getting products to market
The majority of polyethylene pellets are delivered to
market using either railroad transportation (for domestic
consumption) or waterborne vessels (for export).
Furthermore, polyethylene is priced on a delivered basis,
meaning that the polyethylene producer is responsible for
paying to transport the finished goods to its customers.
Hence, cost competitive logistics proves very important
when selecting the site location for an ethane cracker
and polyethylene complex. Generally, waterborne and
rail transportation are the least expensive forms of
bulk transportation. Furthermore, geographies with
competitive rail transportation markets generally have
more competitive freight rates.
West Virginia has a mix of opportunities and challenges
with respect to logistics. West Virginia may have a
regional advantage because of its proximity to the
eastern US markets, where a significant portion of US
national demand for polyethylene products resides.
Shorter domestic transportation logistics may give a
petrochemical company developing a West Virginia ethane
cracker and polyethylene complex advantaged delivery
times in serving major polyethylene markets, provided
the company has well-negotiated, cost competitive rail
and truck contracts. That said, being inland with river
access but no ocean access, a cracker in West Virginia
would be challenged with a potential transportation

7
cost disadvantage to serve export markets where ocean
freight is often favored. In addition, West Virginia
suffers from elevated railroad freight rates due to limited
railroad infrastructure and a lack of railroad competition;
93% of all West Virginia rail stations are captive to one
Class I railroad.4
Yet, given the opportunity that a local
cracker and polyethylene complex represents, it would
certainly be in the best interest of the state and the
region for West Virginia to consider employing policy
tools to mitigate high local rail transportation rates and
unlock the latent potential of an industry serving regional
markets. Investments in additional rail, port, and truck
infrastructures would create greater competition in
intermodal transportation and expand options to local
industry for shipping locally produced products to other
regions.
Strategies for success: Progressive policy
and selective economic development tools
The state of West Virginia has a tremendous set of tools
at its disposal to close the competitive gap that may exist
as industry players consider building new petrochemical
facilities. Targeted tax incentives, workforce training
incentives, and infrastructure incentives can be deployed
to address and mitigate the types of challenges that the
state faces to make West Virginia a competitive center for
petrochemicals, as is done for other core industries in the
region. Applicable state programs that could be considered
for such a project include, but are not limited to:
ƒƒ Five for Twenty-five Program: Program to provide
special salvage-value property tax valuation, which
applies to a certified facility with a capital investment of
over $2 billion. The special tax valuation for real and
personal property lasts for a period of 25 years and
was designed specifically to attract large oil, gas, and
petrochemical facilities to the West Virginia economy.
ƒƒ Five for Ten Program: Program to provide salvage-
value property tax treatment on a certified addition
to facilities with initial capital investment of at least
$100 million. The certified capital addition must be at
least $50 million. In the case of natural gas-related
manufacturing, the addition must be at least $410
million to an existing facility with an original capital
investment of at least $20 million.
ƒƒ Manufacturing Investment Tax Credit: 5% of
capital investment for new and existing businesses
pro-rated over 10 years. Tax credit may offset up to
60% of state corporate tax liabilities.
ƒƒ Manufacturing Property Tax Adjustment Credit:
Non-refundable 100% state tax credit equal to the
amount of local property tax paid on manufacturing
inventory.
ƒƒ Economic Opportunity Tax Credit: Investment tax
credit for those who create new jobs. Tax credit may
offset between 80% and 100% of state business tax
liability directly attributable to new employment created.
ƒƒ Strategic Research and Development Tax Credit:
Credit that can offset up to 100% of corporate net
income tax and business franchise tax, based on
qualified expenditures for R&D projects with the goal of
attracting high-value R&D jobs and programs to West
Virginia.
ƒƒ Governor’s Guaranteed Workforce Program:
Flexible, customized training program under the West
Virginia Development Office; offers assistance to eligible
companies and businesses by providing funding that
directly supports the transfer of knowledge and skills to
new employees.
Developing infrastructure and the necessary business
environment to seize opportunities takes time and
resources. Transforming West Virginia from a region
focused on resource extraction to one focused on
chemical manufacturing requires West Virginia to become
a hub for petrochemicals with key assets like NGL storage,
pipeline connectivity, and expanded transportation
corridors. Working together, West Virginia’s government
and workforce can partner with the business community
to invest in the growth of an entire petrochemical industry
in the mid-and upper-Ohio valleys.
As this study shows, such development can yield
billions of dollars in ongoing economic impact for West
Virginia and its extended regional economy. However,
this requires a long term commitment to expand the
petrochemical industry and revive the manufacturing
sector of West Virginia’s economy. As the petrochemical
industry enters its next period of growth, there is
tremendous promise for the United States and potentially
for West Virginia. The time is right for West Virginia to
re-invest in the petrochemical industry.
4
Rail Price Advisor. Volume 22, Number 8. August 2013, p.1.

The Development of Shale
Gas & Energy Use and
the Chemical Industry02
BOOK

8
The Development of Shale Gas &
Energy Use and the Chemical Industry
The Development of Shale Gas
One of the more interesting developments in the last
five years has been the dynamic shift in natural gas
markets. Between the mid-1960s and the mid-2000s,
proved natural gas reserves in the United States
fell by one-third, the result of restrictions on drilling
and other supply constraints. Starting in the 1990s,
government promoted the use of natural gas as a clean
fuel, and with fixed supply and rising demand from
electric utilities, a natural gas supply shortage occurred,
causing prices to rise from an average of $1.92 per
thousand cubic feet in the 1990s to $7.33 in 2005. The
rising trend in prices was exacerbated by the effects
of hurricanes Katrina and Rita in 2005, which sent
prices over $12.00 per thousand cubic feet for several
months due to damage to gas production facilities.
Shale and other non-conventional gas were always
present geologically in the United States. Figure 2-1
illustrates where shale gas resources are located in
the United States. These geological formations have
Figure 2-1 Shale Gas Resources
Source: Energy Information Administration based on data from various published studies;
updated May 9, 2011.

9
been known for decades to contain significant amounts
of natural gas, but it was not economically feasible
to develop, given the technology available. However,
uneconomic resources often become marketable assets
as a result of technological innovation, and shale gas is a
prime example.
Over the last five years, several factors have combined
to stimulate the development of shale gas resources.
First was a new way of gathering natural gas from tight-
rock deposits of organic shale through horizontal drilling
combined with hydraulic fracturing. Horizontal drilling
allows producers to drill vertically several thousand feet
and then turn 90 degrees and drill horizontally, expanding
the amount of shale exposed for extraction. With the
ability to drill horizontally, multiple wells from one drilling
pad (much likes spokes on a wheel) are possible, resulting
in a dramatic expansion of shale available for extraction,
which significantly boosts productivity. A typical well might
drill 1½ miles beneath the surface and then laterally
2,000 – 9,000 feet.
The second innovation entailed improvements to hydraulic
fracturing (or fracking). This involves fracturing the low-
permeability shale rock by using water pressure. Although
these well stimulation techniques have been around
for nearly 50 years, the technology has significantly
improved. A water solution injected under high pressure
cracks the shale formation. Small particles, usually sand,
in the solution hold the cracks open, greatly increasing the
amount of natural gas that can be extracted. Fracturing
the rock using water pressure is often aided by chemistry
(polymers, gelling agents, foaming agents, etc.). A typical
well requires two – three million gallons of water and 1.5
million pounds of sand. About 99.5% of the mixture is
sand and water.5
Figure 2-2 provides a simple illustration
of these technologies. Another important technology is
multi-seismology that allows a more accurate view of
potential shale gas deposits.
Figure 2-2 Geology of Shale Gas and Conventional Natural Gas
Source: US Energy Information Administration and US Geological Survey
5
Report Note: While this water consumption is significant, it is important to put it in perspective. Nationwide, the EPA estimates that landscape irrigation consumes about
nine billion gallons of water a day, which is 20 times the highest estimate for the amount of water used annually in fracking. See “Water for Fracking, In Context,” Forbes,
July 7, 2013.

10
With these innovations in natural gas drilling and
production, the productivity and profitability of
extracting natural gas from shale deposits became
possible. Further, unlike traditional associated and non-
associated gas deposits that are discrete in nature,
shale gas often occurs in continuous formations. While
shale gas production is complex and subject to steep
production declines, shale gas supply is potentially
less volatile because of the continuous nature of shale
formations. Many industry observers suggest that the
current state of shale gas operations is more closely
analogous to manufacturing operations than traditional
oil and gas exploration, development, and production.
These new technical discoveries have vastly expanded
estimates of natural gas resources and will offset
expected declines in conventional associated-gas
production. Estimates of technically recoverable shale
gas were first assessed by the National Petroleum
Council (NPC) at 38 trillion cubic feet (TCF) in 2003.
More recently, the Potential Gas Committee (PGC)
estimated US shale gas resources of 1,073 TCF at the
end of 2012. The United States is now estimated to
possess nearly 2,700 TCF of potential (or future) natural
gas supply, 40% of which is shale gas that could not be
extracted economically as recently as eight years ago.
This translates into an additional supply of 47 years
at current rates of consumption of about 23 TCF per
year. Total US natural gas resources are estimated to be
large enough to meet over 115 years of demand. Due
to the emergence of new shale gas supplies, the US
sharply reduced gas imports from Canada and liquefied
natural gas (LNG) receipts over the past several years.
Higher prices for natural gas in the last decade (especially
after hurricanes Katrina and Rita) and the advances in
horizontal drilling and hydraulic fracturing (i.e., chemistry
in action) changed the dynamics for economic shale
gas extraction. These technologies allowed extraction of
shale gas at about $7.00 per thousand cubic feet, which
was well below the historical trend. With new economic
viability, natural gas producers have responded by drilling,
setting off a “shale gas rush.” As learning curve effects
took hold, the cost to extract shale gas (including return
on capital) fell, making even more supply (and demand)
available at lower cost. Moreover, natural gas liquids
have become paramount in changing the economics
of shale gas production. It is the sales of ethane and
other liquids that have enabled producers to extract and
sell natural gas at less than $3.50 per thousand cubic
feet. Although the path was irregular, average daily
consumption of natural gas rose from 60.3 billion cubic
feet (BCF) per day in 2005 to 62.0 BCF per day in 2009.
Moreover, since the mid-2000s, US-proved natural gas
reserves have risen by one-third. In economists’ terms,
the supply curve has shifted to the right, resulting in
lower prices and greater availability. As a result, average
natural gas prices fell from $7.33 per thousand cubic
feet in 2005 to $3.65 per thousand cubic feet in 2009. In
2010 and 2011, a recovery of gas-consuming industries
and prices occurred. Average daily consumption rose
to 66.9 BCF and prices strengthened to $4.12 per
thousand cubic feet. But the mild winter of 2011-12
resulted in a record level of stocks and pushed prices
even lower to $2.79 per thousand cubic feet. Figure
2-3 illustrates how this new technology’s entrance into
the market expanded supply and pushed prices lower.
Before the development of shale gas, the US was a gas-
importing nation. The US is now a gas-surplus nation
and has become the leading global producer. Shale
gas is thus a “game changer.” In the decades to come,
unconventional gas could provide half of US natural gas
needs, compared to only 8% in 2008. The US’s favorable
position is illustrated in figure 2-4. As natural gas prices
have fallen in the US in wake of the emerging shale gas
revolution, prices in other major nations have risen.
Figure 2-3 The Advent of Shale Gas Resulted in More, Less Costly
Supply of US Natural Gas
Figure 2-4 Trends in Natural Gas Prices across the World
Source: EIA, Petrobras, IMF, World Bank, various national statistical agencies
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
02 03 04 05 06 07 08 09 10 11 12
United States Belgium Germany Japan Brazil China India
Sources: EIA, Petrobas, IMF, World Bank, various national statistical agencies
$ per million BTUs

11
By 2012, North America featured some of the lowest cost
natural gas in the world. Figure 2-5 illustrates this. Prices
in Russia and Iran have appreciated beyond that of the
United States. Prices in Saudi Arabia are set at $0.75 per
million BTUs by government decree. These prices were
originally due for adjustment in 2012, but a decision on
this has been delayed. Prices at this level are artificial and
would actually be around $3.00 per million BTUs if a free
market existed.
The availability of low-priced natural gas improves US
industry competitiveness. Lower natural gas prices mean
lower input prices for major US manufacturing industries.
Leading industries, including aluminum, chemicals, iron
and steel, glass, and paper, are large consumers of natural
gas and, thus, benefit from shale gas developments.
Lower input costs have boosted capital investments and
expanded output. These manufacturers add a great deal
of value to the natural gas they consume.
Manufacturers in these industries compete globally,
and small cost advantages can be all it takes to tip
the balance for some companies. In their recent
study – U.S. Manufacturing Nears the Tipping Point:
Which Industries, Why, and How Much? – the Boston
Consulting Group uncovered a “tipping point” in cost-
risk among seven key industries (computers and
electronics, appliances and electrical equipment,
machinery, furniture, fabricated metal products, plastic
and rubber products, and transportation goods). They
found that as these industries “re-shore” to the US, the
US economy will gain $80 billion – $120 billion in added
annual output and two million to three million jobs.
With a growing and increasingly affluent population
and economic growth, demand for electricity will rise in
the US. In addition, clean air regulations are promoting
natural gas use in electricity generation. This will increase
natural gas demand, and economic theory suggests that
barring any increase in supply, market prices will rise.
There is a risk that higher gas prices could partially offset
some of the positive gains achieved during the past five
years. Further technological developments in drilling and
fracturing, however, could generate additional low-cost
natural gas supplies.
The use of hydraulic fracturing in conjunction with
horizontal drilling has opened up resources in low
permeability formations that would not be commercially
viable without this technology and has led to many
positive gains in US industry and the economy. However,
there are some policy risks as there is public concern
regarding hydraulic fracturing due to the large volumes
Figure 2-5 Average Natural Gas Prices by Nation6
6
Note: Prices generally reflect domestic wellhead/hub process or imported prices via pipeline. Some nations (e.g., Japan and Korea) import LNG; thus, the higher prices.
Other nations import LNG if it is a minor share of demand, but the graphic does not generally reflect these prices.

12
of water and potential contamination of underground
aquifers used for drinking water.7
The concern exists
even though fracturing occurs well below drinking water
resources. Limiting the use of hydraulic fracturing would
impact natural gas production from low permeability
reservoirs. Ill-conceived policies that restrict supply
or artificially boost demand are also risks. Local bans
or moratoria could present barriers to private sector
investment. A final issue is the need for additional
gathering, transport, and processing infrastructure. The
Marcellus and some other shale gas deposits are located
outside the traditional natural gas supply infrastructure to
access the shale gas.
The United States must ensure that our regulatory policies
allow us to capitalize on shale gas as a vital energy source
and manufacturing feedstock, while protecting our water
supplies and environment. ACC supports state-level
oversight of hydraulic fracturing, as state governments
have the knowledge and experience to oversee hydraulic
fracturing in their jurisdictions. Furthermore, ACC is
committed to transparency regarding the disclosure of
the chemical ingredients of hydraulic fracturing solutions,
subject to the protection of proprietary information.
Energy Use and the Chemical Industry
Excluding pharmaceuticals, firms in the $587 billion
chemical industry produce a variety of chemistry
products including chlorine, caustic soda, soda ash and
other inorganic chemicals, bulk petrochemicals and
organic chemical intermediates, industrial gases, carbon
black, colorants, pine chemicals, other basic chemicals,
adhesives and sealants, coatings, other specialty
chemicals and additives, plastic compounding services,
fertilizers, crop protection products, soaps and detergents,
and other consumer chemistry products. Although
pharmaceuticals are classified by the government as
part of chemicals, for the purposes of this analysis,
pharmaceuticals were excluded because of the different
industry dynamics.
The chemical industry transforms natural raw materials
from earth, water, and air into valuable products that
enable safer and healthier lifestyles. Chemistry unlocks
nature’s potential to improve the quality of life for a
growing and prospering world population by creating
materials used in a multitude of consumer, industrial, and
construction applications. The transformation of simple
compounds into valuable and useful materials requires
large amounts of energy.
The business of chemistry is energy-intensive. This is
especially the case for basic chemicals, as well as certain
specialty chemical segments (e.g., industrial gases).
The largest user of energy is the petrochemical and
downstream chemical derivatives business. Inorganic
chemicals and agricultural chemicals also are energy-
intensive.
Unique among manufacturers, the business of chemistry
relies upon energy inputs, not only as fuel and power
for its operations, but also as raw materials in the
manufacture of many of its products. For example, oil
and natural gas are raw materials (termed “feedstocks”)
for the manufacture of organic chemicals. Petroleum and
natural gas contain hydrocarbon molecules that are split
apart during processing and then recombined into useful
chemistry products. Feedstock use is concentrated in bulk
petrochemicals and fertilizers.
Petrochemical Feedstocks
There are several methods of separating or “cracking”
the large hydrocarbon chains found in fossil fuels
(natural gas and petroleum). Natural gas is processed to
produce methane and natural gas liquids (NGLs) that are
contained in the natural gas. These natural gas liquids
include ethane, propane, and butane, and are produced
mostly via natural gas processing. That is, stripping the
NGLs out of the natural gas (which is mostly methane)
that is shipped to consumers via pipelines. This largely
occurs in the Gulf Coast region and is the major reason
the US petrochemicals industry developed in that region.
Ethane is a saturated C2 light hydrocarbon, a colorless
and odorless gas. It is the primary raw material used as
a feedstock in the production of ethylene and competes
with other steam cracker feedstocks. Propane is also
used as a feedstock, but it is also used primarily as a
fuel. Butane is another NGL feedstock8
. The revolution in
shale gas has pushed ethane prices down from a peak
of 93 cents per gallon in 2008 to an average of 41 cents
per gallon during 2012. That is a 56% decline. In recent
months the price fell to as low as 23 cents per gallon.
Petroleum is refined to produce a variety of petroleum
products, including naphtha and gas oil, which are the
primary heavy liquid feedstocks. Naphtha is a generic term
for hydrocarbon mixtures that distill at a boiling range
between 70°C and 190°C. The major components include
normal and isoparaffins, naphthenes and other aromatics.
Light or paraffinic naphtha is the preferred feedstock for
steam cracking to produce ethylene, while heavier grades
are preferred for gasoline manufacture. Gas oil is another
distillate of petroleum. It is an important feedstock for
production of middle distillate fuels — kerosene, jet fuel,
7 Report Note: Numerous studies are underway to study the environmental impact risk related to hydraulic fracturing with varied results. At the request of the U.S.
Congress, the U.S. EPA is conducting a study to better understand any potential impacts of hydraulic fracturing on drinking water resources that is expected to be
released in 2014. http://www2.epa.gov/hfstudy
8
Report Note: NGL feedstock includes ethane (C2), propane (C3), butane (C4), natural gasoline (C5), and condensate (C6+), all of which can be used as feedstock for
manufacturing petrochemicals.

13
diesel fuel, and heating oil — usually after desulfurization.
Some gas oil is used as olefin feedstock. Naphtha is the
preferred feedstock in Western Europe, Japan, and China.
The price of naphtha is highly correlated with the price of
Brent oil. As a result, naphtha prices in Western Europe
rose from an average of $793 per metric ton in 2008 to
$942 per metric ton in 20[12]. That is a 19% increase.
Petrochemical Products and Their Derivatives
Naphtha, gas oil, ethane, propane, and butane are
processed in large vessels or “crackers,” which are
heated and pressurized to crack the hydrocarbon chains
into smaller ones. These smaller hydrocarbons are the
gaseous petrochemical feedstocks used to make the
products of chemistry. In the US petrochemical industry,
the organic chemicals with the largest production
volumes are methanol, ethylene, propylene, butadiene,
benzene, toluene and xylenes. Ethylene, propylene,
and butadiene are collectively known as olefins, which
belong to a class of unsaturated aliphatic hydrocarbons.
Olefins contain one or more double bonds, which make
them chemically reactive. Benzene, toluene, and xylenes
are commonly referred to as aromatics, which are
unsaturated cyclic hydrocarbons containing one or more
rings. The figures in the Appendix A illustrate supply
chains of several building block chemicals from feedstock
through intermediates and final end-use products.
Ethane and propane derived from natural gas liquids
are the primary feedstocks used in the United
States to produce ethylene, a building block
chemical used in thousands of products, such
as adhesives, tires, plastics, and more. While
propane has additional non-feedstock uses,
the primary use for ethane is to produce
petrochemicals, in particular, ethylene.
Ethane is difficult to transport, so it is
unlikely that the majority of excess ethane
supply would be exported out of the United
States. As a result, it is also reasonable to
assume that the additional ethane supply
will be consumed domestically by the
petrochemical sector to produce ethylene.
In turn, the additional ethylene and other
materials produced from the ethylene are
expected to be consumed downstream,
for example, by plastic resin producers.
Increased ethane production is already occurring
as gas processors build the infrastructure to
process and distribute production from shale gas
formations. Chemical producers are starting to
take advantage of these new ethane supplies
with crackers running at 95% of capacity,
and several large chemical companies have
announced plans to build additional capacity.
And because the price of ethane is low relative
to oil-based feedstocks used in other parts of the world,
US-based chemical manufacturers are contributing to
strong exports of petrochemical derivatives and plastics.
Another key petrochemical feedstock — methane — is
directly converted from the methane in natural gas and
does not undergo the cracking process. Methane is
directly converted into methanol. Methanol is generally
referred to as a primary petrochemical and is the
chemical starting point for plastics, pharmaceuticals,
electronic materials, and thousands of other products
that improve the lives of a growing population. Methane
is also directly converted into ammonia. Ammonia is a
starting point for a variety of chemical intermediates used
in manufacturing synthetic fibers used in apparel, home
furnishing, and other applications. Ammonia is also the
starting point for a variety of nitrogenous fertilizers used
to enhance crop growth and feed a growing population.
The Shale Advantage
Energy represents a significant share of manufacturing
costs for the US business of chemistry. For some energy-
intensive products, energy for both fuel and power needs
and feedstocks can represent 85% of total production
costs. Because energy is a vital component of the
industry’s cost structure, higher energy prices can have
a substantial impact on the business of chemistry. Figure
2-6 illustrates the energy intensity of some of these
products.
Figure 2-6 Fuel, Power, & Feedstock Costs as a Percentage of Total Costs for
Selected Chemical Products
20
Chlorine/Caustic Soda (Sodium Hydroxide)
Sodium Carbonate (Soda Ash)
Acrylonitrile
Adipic Acid
Aniline
Benzene
Butadiene (1,3-1)
Cumene
Ethylbenzene
Ethylene
Ethylene Dichloride (EDC)
Ethylene Glycol
Ethylene Oxide
Methanol
Phenol
Propylene
Styrene
Terephthalic Acid
Vinyl Acetate
Polyethylene (LDPE)
Polyethylene (LLDPE)
Polyethylene (HDPE)
Polypropylene (PP)
Polystyrene (PS)
Polyvinyl Chloride (PVC)
Anhydrous Ammonia
Urea
Energy Costs
40 60 80 100
Other Costs

14
The falling cost of ethane and other light feedstocks
(propane, butane, etc.) in the United States since 2008
contrasts with rising costs for naphtha and other heavy
liquid feedstocks in Western Europe. Indeed, prices for
North American NGL feedstocks have fallen in half since
2008 [as illustrated in figure 2-7]. This has advantaged
US production of ethylene, the main product for which
these two feedstocks are used. As a result, the production
cost to manufacture ethylene in the United States is
35% of that in Western Europe. As figure 2-8 illustrates
the United States is now one of the low cost producing
nations for ethylene, the bellwether petrochemical.
Because of US shale gas resources, this position will
likely be maintained, placing low production costs as a
strong incentive to invest in the US chemical industry.
Moreover, falling energy costs and renewed
competitiveness are not limited to ethylene but
encompass a broad variety of downstream derivative
products (plastic resins, synthetic rubber, etc.) and other
chemical products. For example, chlorine (and co-product
caustic soda) production uses large amounts of electricity
in what is an electrolytic process and with low natural
gas prices favorably affecting electricity costs, chlor-alkali
production in the United States is favored. These cost
advantages have improved margins, which provide the
funding for capital investment.
Figure 2-7 US Ethane Prices vs. Western European Naphtha Prices
Western European Naphtha
($/metric ton)
US Ethane
($/gallon)
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
$1.00
$0.90
$0.80
$0.70
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12
Figure 2-8 Change in the Global Cost Curve for Ethylene and Renewed US Competitiveness
Global Supply (Cumulative in billions of pounds)
ProductionCosts($/pound)
$0.00
0 73 136 172 247 307
Middle
East
United
States
China
China
2005
2012
Western
Europe
Western
Europe
Other
Northeast
Asia
Other
Northeast
Asia
United
States
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20

15
The shift toward ethane cracking in the United States
has reduced supplies of propylene and butadiene, two
important petrochemical products. As seen in figure 2-9,
while ethane cracking has higher ethylene yields, cracking
ethane yields comparatively less propylene, butadiene,
and other chemical products. Because of lower propane
and butane costs (from shale gas) and reduced supply of
these chemicals from the shift to ethane steam cracking,
a number of “on-purpose”5
propylene and butadiene
projects have also been announced.
Abundant and low cost natural gas plays a key role for
a low cost feedstock and production cost position. This
is engendering a massive expansion of the US chemical
industry. Abundant supplies of ethane are destined for
ethylene production while new supplies of propane will be
used to produce on-purpose propylene, among other uses.
Figure 2-9 Relative Olefin Yields by Feedstock
100%
Other
Aromatics
C-4
Propylene
Ethylene
Ethane Naphthas LPG Mix (80/20)
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Understanding the
Ethylene Value Chain
03
BOOK

16
Understanding the Ethylene Value Chain
Ethylene is a basic organic chemical; it forms the
building block for a wide array of industrial chemical
products ranging from polymer plastics, fibers, and other
chemicals that are ultimately used in applications such
as packaging, transportation, and construction materials.
As one of the highest volume petrochemical products
in the world, ethylene is most often converted into
three types of polyethylene: high density polyethylene
(HDPE), low density polyethylene (LDPE) and linear low
density polyethylene (LLDPE). Each of these plastics
has different properties and can be converted into an
array of consumer products, including food packaging,
plastic film and sheet, trash bags, housewares, crates,
and food containers. Ethylene is also a building block
for polyvinyl chloride (PVC) or vinyl. Building materials
such as pipe, home siding, window frames, and flooring
are manufactured using PVC. Finally, the manufacture of
antifreeze, polyester fibers for clothing, and plastic bottles
is also rooted in ethylene.
Ethylene Supply
Manufacturing ethylene involves converting crude
oil and/or natural gas components as feedstock
materials into ethylene using a high temperature
cracking process. Naphtha, gas oil, ethane, propane,
and butane are all used as feedstock for producing
ethylene. Typically, the choice of feedstock depends on
its availability in a geographic region, and that choice
drives the marginal cost of ethylene production. The
vast majority of ethylene is produced from naphtha/
gas oil feedstock, though the volume produced from
ethane, propane, and butane has continued to rise
since 1990, and many industry forecasts expect that
trend to continue to rise over the next ten years.
Asia, North America, and the Middle East are the largest
supply regions for ethylene in the world. Because
natural gas liquids (ethane, propane, and butane) are
abundant and low-cost in the Middle East and North
America, these regions have a manufacturing cost
advantage when petroleum prices are higher than
natural gas prices. Also, a run-up in crude oil prices
in recent years has given the Middle East and North
America a cost advantage over Asia and Western Europe,
which rely on naphtha cracking to manufacture ethane.
Furthermore, the advent of shale gas and the emergence
of significant new low-cost sources of natural gas and
natural gas liquids (NGLs) in North America, second
only to the Middle East, have exacerbated the trend.
In the last decade, capacity expansions have been
centered in Asia, where ethylene demand growth is
strongest, and in the Middle East where feedstock
is most competitive. However, North America has
recently re-emerged as a competitive region and is
currently the second most cost-advantaged region
for new capacity expansions. The recent advent of
shale gas and the emergence of significant new low-
cost sources of NGLs in North America have turned
the focus to this region for new capacity expansions.
Also, North America is set to see significant capacity
expansions beginning in 2016 and beyond. According
to Wood Mackenzie, there are over 10 million tons of
new ethylene capacity investments poised to come
online in the United States by 2018 (see table 3-1).
Table 3-1 New Planned Investments in Ethylene in North America
Source: Wood Mackenzie, “Chemical Markets Forum” Presentation,
Houston, TX. May 2, 2013.
Year
2013
2019+
2014
2015
2016
Operator(s)
BASF/Total,
Eastman,Equistar,
Ineos, Westlake,
Williams
Aither, Appalacian
Resins, Axiall,
Braskem, Indorama,
Sabic, Shell
Expansions/
Restarts
Publicly
Announced
New Cracker
Interest
Expansions/
Restarts
Expansions/
Restarts
Equistar,
Westlake
Dow, Equistar,
Westlake
Braskem Idesa Nanchital
817
445
810
1000
1070
1790
2200
1800
Output
(thousand
tons)
Output
(million
lbs.)
Location/
Comment
2017 CP Chem Cedar Bayou 1500 3310
2017 Dow Freeport 1500 3310
2017 ExxonMobil Baytown 1500 3310
2017 Formosa Point Comfort 1040 2290
2017 Sasol Lake Charles 1500 3310
2018 Occidental Ingleside 544
tbd tbd
1200

17
Ethylene Demand
The worldwide demand for ethylene is driven primarily
by the rate of global GDP growth and demand for
polyethylene, its primary end use product. HDPE,
LDPE, and LLDPE production remain the largest
drivers of ethylene demand, with the largest growth
coming from LDPE and LLDPE, especially in emerging
markets. Ethylene-derivative product demand is
seeing its largest growth in Asia where emerging
economies are growing and consumers are beginning
to have more disposable income. Another growing
ethylene demand region is the Middle East, where
polyethylene derivative plants are being built alongside
ethylene manufacturing to drive manufacturing for
export. Conversely, developed economies in Europe
are seeing stagnant growth rates in the consumption
of plastics and other ethylene derivatives.
Overall, ethylene demand continues to grow worldwide
as product applications for polyethylene in product
packaging, plastic films, blow molding, and injection
molding for consumer products continue to expand as the
world economy becomes more consumer based.
Ethylene Conversion to Downstream Products
Ethylene is one of the primary building block organic
chemicals in the chemicals industry. Its primary end-use
product sector is for conversion into polyethylene (PE).
However, there is an array of end-use products that are
derived from ethylene. Figure 3-1 illustrates the variety
of products that stem from the downstream conversion of
ethylene and its derivatives into end-use products.
Figure 3-1 Simplified Ethylene End-Use Flow Chart
Source: American Chemistry Council. Shale Gas and New Petrochemicals Investment: Benefits for the
Economy, Jobs, and US Manufacturing (March 2011), p.5.
Miscellaneous
Chemicals
Miscellaneous
Miscellaneous
Ethylene Glycol
Vinyl Chloride
Vinyl
Acetate
Ethane Ethylene
Linear
Alcohols
Detergent
StyreneEthylbenzene
Instrument Lenses
Housewares
Carpet Backing,
Paper
Styrene
Butadiene
Latex
Tires,
Footwear,
Sealants
Pantyhose,
Clothing,
Carpets
Food Packaging,
Film, Trash Bags,
Diapers, Toys,
Housewares
Siding,
Wndow
Frames,
Swimming Pool
Liners,
Pipes
Models,
Cups
Automotive
Antifreeze
High Density
Polyethylene
(HDPE)
Ethylene
Dichloride
Ethylene
Oxide
Housewares, Crates,
Drums, Bottles, Food
Containers
Low Density Polyethylene
(LDPE) and Linear Low
Density Polyethylene
(LLDPE)
Polyester
Resin
Bottles
PVC
Fibers
Styrene
Butadiene
Rubber
Styrene
Acrylonitrile
Resins
Polystyrene
Resins
Adhesives,
Coatings,
Textile/
Paper
Finishing,
Flooring

18
The focus of this report is on ethylene and its application
in the polyethylene industry, so the following primarily
discusses these end-use markets.
Downstream conversion of polyethylene into products
that people use every day is where the ethylene value-
chain touches the consumer. As detailed in figure 3-2,
products ranging from food and product packaging,
trash bags, building and construction materials,
home furnishings, to industrial machinery all use
polyethylene as a major raw material. These businesses
rely on competitively priced polyethylene to thrive.
Many of these downstream PE conversion industries
follow consumer buying patterns of the general economy,
growing during periods of economic expansion and
contracting during periods of economic slowdown. Yet,
per-capita use of polyethylene products is rising around
the world, particularly in the developing world. Demand
growth will continue in the Asian region, where high
GDP growth drives increasing consumption by people
with increasing disposable income. Furthermore, as
polyethylene capacity around the world continues to grow
in the Middle East and Asia, the economic competitiveness
of North American feedstock and the more than 10 million
tons of new North American capacity on the horizon
will drive continued and expanded exports from North
America to other regions. Worldwide, significant exports
will come from the Middle East and North America,
with net trade flowing toward the large consuming
markets in Asia, Latin America, Europe, and Africa.
Figure 3-2 Major Polyethylene End Uses
Source: Data from American Chemistry Council, Plastics Industry
Producers Statistics (PIPS), 2012.
U.S. Polyethylene Volumes 2012
All volumes are in million of tons
Total Volumes, by
PE Resin Type
6,111
2012
1,090
2,231
2,790
LDPE
LLDPE
HDPE
Selected Major PE End Users
1,121
721
457
190
136
63 50
20
Packaging Film
Non-Packaging Film
Injection Molding
Liquid Food Bottles
Pails
Pipe and Conduit
Caps and Closures
Tubs and Containers

Oil and Gas Production
and Petrochemicals
in West Virginia04
BOOK

19
Oil and Gas Production and Petrochemicals in West Virginia
History of the Oil and Gas
Industry in West Virginia
Natural gas has been one of West Virginia’s essential
natural resources since the state’s founding. Early
settlers first discovered natural gas in “burning springs”
on the Kanawha River just north of Charleston. The
natural gas industry was developed many years after this
discovery as an outgrowth of the state’s salt industry.
While drilling for salt, developers would frequently
hit oil or natural gas. In 1841, William Tompkins was
the first to use natural gas found while drilling for salt
as a fuel in the salt manufacturing process. Once the
value and usefulness of natural gas were realized,
drillers began to drill deeper into the earth and use
the natural gas in West Virginia. By the 1860s, the
natural gas industry had been developed, and towns
using natural gas to produce home and street lighting
sprung up near drilling operations in the state. From
1906 to 1917, West Virginia was the leader in natural
gas exploration and development in the United States.
Since then, West Virginia has continued to grow its
natural gas industry and, combined with the state’s
strong position as a coal producer, is ranked third
in the US for total energy production and tenth
for total natural gas marketed production.9
History of the Chemical
Industry in West Virginia
The chemical industry has a long history in West
Virginia.10
Native Americans used the salt deposits found
along the banks of the Little Kanawha River, giving rise to
trade with settlers in the latter part of the 1770s. These
rich deposits led Elisha Brooks to construct a salt furnace
in 1797. With the relative abundance of other natural
resources (natural gas, coal, oil, limestone, et al.), the
region saw the development of bromide and potassium
salt production after the Civil War. In 1898, ferrometal
alloys were produced at the Wilson Aluminum plant at
Alloy using river-run electricity produced at the Kanawha
Falls. In 1901, the company purchasing this plant was
known as Electromet and produced more than 50% of the
ferroalloys used in the world. In 1917, the merger of The
Union Carbide Corporation, Electromet, Linde Products,
Prest-o-Lite and National Carbon Co. resulted in the Union
Carbide and Carbon Corporation. Union Carbide played a
key role in the development of the chemical industry.11
With the advent of World War I, the United States needed
to substantially increase its production of chemicals for
the war effort. Major developments and investments by
the federal government in the Kanawha Valley included:
ƒƒ Explosives plant ‟C” at Lock Seven and Sattes
(now known as Nitro) on the Kanawha River
ƒƒ Naval ordnance plant at South Charleston
ƒƒ Mustard gas plant at Belle
9
US Energy Information Administration. State Profile and Energy Estimates: West Virginia; 2011 data.
10
This section relies extensively on Nathan Cantrell, “West Virginia’s Chemical Industry,” West Virginia Historical Society, Volume XVIII, No. 2, April 2004 and the article by
Charles J. Denham, “Chemical Industry,” in the West Virginia Encyclopedia, http://www.wvencyclopedia.org
11
Detailed historical timeline for Union Carbide, http://www.unioncarbide.com/history

20
E.I. Du Pont De Nemours & Co., Inc. (hereafter DuPont)
helped develop the explosives plant, but the federal
government completed the actual construction of the
plant and surrounding town. Nathan Cantrell (“West
Virginia’s Chemical Industry”) notes that the Warner-
Klipstein Chemical Company and Rollins Chemical
Company were among the first formal chemical companies
established in the Kanawha Valley at the beginning of
World War I. Warner-Klipstein produced chlorine, caustic,
carbon disulfide, and carbon tetrachloride, ultimately
becoming the largest chlorine producer in the world in
1930. With the ending of the war, however, the Rollins
plant was never able to begin production.
During the 1920s, the industrial infrastructure established
through the war effort by the federal investment led to
the formation of plants and companies primarily centered
around Nitro, Belle, and South Charleston. In 1920, the
Belle Alkali Company purchased the federal investments
in the mustard gas plant and began producing chlorine,
hydrogen, and caustic soda. In 1926, DuPont began
construction of a plant in Belle to make ammonia from
coal. In 1927, this plant began making synthetic wood
alcohol. By the 1930s, the DuPont Belle Works started
producing the first synthetic urea for fertilizers and plastic
polymers, using coal and other resources available in the
Kanawha Valley.
South Charleston also saw considerable chemical industry
growth between the wars. The Warner-Klipstein Company
was reorganized as Westvaco Chlorine Products Corp. and
became the largest chlorine manufacturer in the world
by the end of the 1920s. Meanwhile, Union Carbide
initiated petrochemical production at the former Clendenin
Gasoline Company facility in 1920, with the subsequent
production of propane or Pyrofax in 1924. By 1925, Union
Carbide was producing ethylene glycol, subsequently
named Prestone, for use as antifreeze. In 1926, Union
Carbide established a research and development
laboratory in the valley.
According to Cantrell,12
the advent of World War II led to
the search for a replacement for rubber, with the result
being further expansion of the chemical industry. The
production of synthetic rubber required both butadiene
(produced from butane extracted from natural gas) and
styrene, both of which were being produced in the valley.
Union Carbide and U.S. Rubber Company operated a
federal synthetic rubber plant at Institute, WV. After
purchasing the plant from the federal government in 1947,
Union Carbide established the Technical Center at South
Charleston.
The 1950s mark the peak of the chemical industry in the
valley, with the presence of chemical giants like Union
Carbide, DuPont, American Vicose, and others. In the
1950s, the American Vicose Plant in Nitro was the largest
stable fiber plant in the world. The plant was subsequently
sold to FMC in 1963; FMC operated it until 1976, when
it sold the plant to Avtex. The plant was subsequently
closed in 1980 due to the decline of the US textile
industry. During the 1950s, the valley was home to as
many as six ethylene crackers, processing the NGLs from
West Virginia and other regional suppliers into butadiene
and other downstream products.13
During the 50s, 60s, and 70s, Union Carbide expanded
the Tech Center, which became the company’s largest
center for engineering, research, and development
with R&D laboratories, chemical pilot plants, and 1,800
employees, of whom over 200 had PhDs, located on 651
acres. In 1999 Union Carbide and The Dow Chemical
Company announced an $11.6 billion transaction under
which Union Carbide became a wholly owned subsidiary
of Dow. The transaction was finalized on February 6,
2001, after which Dow downsized Carbide’s facilities and
employees. The West Virginia Higher Education Policy
Commission accepted the donation of the Center facilities
from Dow and now manages the bulk of the Center as the
West Virginia Regional Technology Park.14
But not all of the chemical industry development occurred
in the Kanawha Valley. In the period after World War II,
plants were built along the Ohio River, stretching from the
Northern Panhandle to Huntington. Among the notable
plants and original developers were:
ƒƒ American Cyanamid plant near Willow
Island to produce pigments and dyes
ƒƒ Monsanto and Bayer joint venture (Mobay)
polyurethane foam plant in New Martinsville
ƒƒ GE Plastics and DuPont plastics plants in Wood County
ƒƒ Union Carbide silicones plant near Sistersville
ƒƒ Goodyear rubber chemicals plant near Apple Grove
From a high of 26,893 employees in 1970, the chemical
industry had declined to 9,467 by 2010.15
DuPont’s
Washington Works plant is their second-largest
manufacturing facility in the world with an employee base
of over 1,800 people. The remaining parts of the state’s
chemical industry continue to downsize, merge, or close
as a result of technological innovations, changing market
conditions, and foreign competition; the downsizing has
led to significantly lower employment in the industry.
12
P .5.
13
Casey Junkins, “Four Companies Consider Ethane Cracker,” The Intelligencer/Wheeling News-Register, May 5, 2011.
14
www.wvtechpark.com
15
Bureau of Economic Analysis, US Department of Commerce.

21
Creation of the Chemical Alliance Zone
In 1996, the Business and Industrial Development
Corporation released The Chemical Attraction, a study
documenting the chemical industry’s economic impact on
the Kanawha Valley (the Charleston Metropolitan Statistical
Area [MSA]).16
From nearly 12,500 employees in 1980,
the chemical industry in the Kanawha Valley had declined
to 5,900 employees in 27 facilities in 1995. Even with this
decline, the average wages paid to chemical workers was
well above the regional average. During 1995, the wages
paid by the chemical industry were nearly 11% of total
wages paid by all employers even though the share of total
employment was only 4.9%. This study also calculated
the economic impact of the chemical industry, finding that
the industry accounted for nearly three additional jobs
in other economic sectors. A subsequent report laid out
recommendations for an economic development strategy
to grow the chemical industry in the Kanawha Valley.17
On
December 7, 1999, Governor Cecil H. Underwood signed
an executive order creating a Chemical Alliance Zone
(CAZ) in Cabell, Kanawha, Putnam, and Wayne Counties.
The nonprofit CAZ comprises a collaborative of citizens,
labor leaders, educators, government officials, chemical
executives, and business leaders focused on maintaining
and expanding the chemistry industry in West Virginia.18
Using a synergistic approach, the CAZ promotes the region
to chemical companies, to businesses that use chemical
products, and to those that produce related consumer
end goods. Specific programs include participation in
economic development efforts, trade missions and trade
shows, education, and related areas. CAZ is housed at
the West Virginia Regional Technology Park (WVRTP)
in South Charleston. Previously housing Union Carbide
Corporation’s Research Center, the WVRTP, is the state’s
newest research, technology, and education campus.
CAZ supports the establishment of chemistry-based
companies in the incubator space located at WVRTP,
and its facilities are open to these innovative companies.
The Chemical Alliance Zone can play an important
role in the expansion and deepening of the chemicals
industry in West Virginia and the larger Appalachian
region by helping to build links between existing
chemical companies, innovative new R&D in the region,
and companies looking to build new facilities locally.
16
Mark A. Thompson and David Greenstreet (1996). The Chemical Attraction, Marshall University Center for Business and Economic Research and West Virginia University
Bureau of Business Research.. The report was commissioned by the Business and Industrial Development Corporation, Charleston, West Virginia
17
David Greenstreet (June 1998). Economic Prospects of the Central West Virginia Chemical Industry with Recommendation Regarding a Potential Chemical Alliance
Zone, West Virginia University Bureau of Business and Economic Research.
18
www.cazwv.com

Shale Resources in West
Virginia and Appalachia
Growth and Opportunity
05
BOOK

22
Shale Resources in West Virginia and Appalachia:
Growth and Opportunity
The Marcellus Shale geological formation underlies an
area of approximately 95,000 square miles from southern
New York across Pennsylvania and into western Maryland,
West Virginia, and eastern Ohio. The Utica Shale
geological formation sits beneath central and eastern Ohio
and parts of Pennsylvania (see figure 5-1). The Marcellus
Shale formation is wedge-shaped, as it is thicker in the
east and thins to the west, at an average thickness of 200
feet to 50 feet. The thicker sections of the Marcellus Shale
are composed of sandstone, siltstone, and shale, while
the thinner sections consist of finer grained, organic, rich
black shale interblended with organic lean gray shale.
Since 2002, drilling and development operations in
the Marcellus Shale play have become an important
component of the natural gas industry in West Virginia
and Pennsylvania.19
The Marcellus Shale play is the top
gas producing region in the country, currently producing
10.8 billion cubic feet per day (Bcf/d) and projected to
grow to 16.6 Bcf/d by year-end 2023.20
The Marcellus
Shale has a wet gas region containing high natural gas
liquids (NGL) content in southwestern Pennsylvania
and northern West Virginia and a dry gas region in
northeastern Pennsylvania that has produced many
prolific natural gas wells in recent years. The Utica
Figure 5-1 Map of Marcellus and Utica Shale Formations
Source: Projecting the Economic Impact of Marcellus Shale Gas Development in West Virginia: A Preliminary Analysis Using Publicly Available Data,
National Energy Technology Laboratory (NETL), March 2010, p.6; Assessment of Undiscovered Oil and Gas Resources of the Ordovician Utica Shale of
the Appalachian Basin Province, US Geological Survey, 2012, p.1.
19
A “play” is an area where hydrocarbon accumulations or prospects of a given type (natural gas, oil) occur.
20
BENTEK Energy (Oct. 2013). Son of a Beast: Utica Triggers Role Reversal, p.20.

23
Shale formation is an emerging shale play in eastern
Ohio and western Pennsylvania. With production in its
early stages of development, the Utica play is still being
characterized. However, early results indicate the presence
of a dry gas region, a wet gas region, and a light-oil rich
region. Production of hydrocarbons in the Utica region is
expected to rise tenfold from current levels and presents
a significant economic development opportunity for Ohio,
Pennsylvania, and the surrounding region.
Development of the Marcellus Shale has led to a
significant amount of job creation in West Virginia’s
natural gas industry and has raised the wage level for
the industry.21
Drilling operations in the shale play have
increased the amount of state tax collected from the
industry while also raising new policy questions focused
on how to best capture the full value of development
beyond simply resource extraction. Continued investment
in downstream natural gas processing and NGL
fractionation facilities has spurred follow-on investments
in pipeline infrastructure and creates the opportunity for
continued investment in value-capturing manufacturing
plants that use the raw materials from gas processing
and NGL fractionation. Thus, given its proximity to critical
feedstock, West Virginia has an opportunity to re-emerge
as a center of chemical manufacturing.
Significant New Investments in the Region
to Move Natural Gas and NGLs to Market
In response to the growth in both reserves and production,
significant investments have been announced in the
Marcellus and Utica shale plays to process and deliver
dry gas and, increasingly, NGL to markets. While West
Virginia has had existing gas processing and fractionation
capacity, the growth of the Marcellus and Utica Shale
plays have dramatically increased regional gas production
and, consequently, investments in gas processing and
fractionation. Bentek Energy forecasts that gross natural
gas production in the Appalachian Basin, which includes
both shale plays and extends from New York to Tennessee,
is expected to increase from an anticipated 10.9 Bcf/d in
2013 to 19.4 Bcf/d in 2023, an 8.4 Bcf/d increase. This
growth is largely being driven by the liquids-rich plays in
the Marcellus/Utica region. Gas producers anticipate that
adequate processing capacity will be built and available
to handle this increase. In fact, approximately 5 Bcf/d of
incremental processing capacity is slated to come online
by the end of 2016 with 1.77 Bcf/d of newly installed
capacity already available as of November 2013, for a
total regional capacity expected to exceed 9 Bcf/d.22
Table 5-1 lists announced processing projects; table 5-2
lists announced fractionation projects; and table 5-3 lists
some of the existing NGL pipeline and pipeline projects as
of November 2013.
Farther downstream, major fractionation capacity
additions to process the gas from the Marcellus and
Utica shale plays have also been announced. Table 5-2
provides a list of these announcements along with their
projected startup dates.
Finally, additions to the existing pipeline networks have
been announced and are listed, with expected capacities
and lengths where available, in table 5-3. These NGL
pipelines represent critical infrastructure for bringing
high-value ethane, propane, butane, and pentane to
market. To date, these pipelines are designed to serve
petrochemical industry manufacturing markets in the US
Gulf Coast, Sarnia (Ontario), and Western Europe via the
Sunoco Logistics export terminal at Marcus Hook, PA.
Opportunity for Petrochemicals in West
Virginia
As the development of new shale gas resources continues
and the cost of hydrocarbon extraction falls, North
America in general and the United States in particular
are poised for a tremendous expansion in petrochemical
manufacturing. Domestic and international chemical
companies have announced plans for new large-scale
projects (see table 5-4). However, the vast majority
of announced projects are slated to be constructed
in the US Gulf Coast region. The driver for this site
selection is rooted primarily in the presence of significant
existing petrochemical infrastructure, such as pipelines,
railroad access, and export terminals in the Gulf Coast
region, and close proximity to large NGL feedstock and
feedstock storage facilities in Texas and Louisiana. As
with many capital-intensive industries, the economies
of scale associated with shared infrastructure can
be compelling, and the US Gulf Coast region has the
historical advantage of being close to NGL feedstock,
geological salt dome storage caverns, and a networked
feedstock and olefins pipeline infrastructure.
21
Witt, Tom S. et al. “The Economic Impact of the Natural Gas Industry and the Marcellus Shale Development in West Virginia in 2009.” Bureau of Business and Economic
Research, College of Business and Economics, West Virginia University. Available at www.bber.wvu.edu
22
BENTEK Energy (Oct. 2013). Son of a Beast: Utica Triggers Role Reversal, p.20.

24
Start-Up Status Plant Name Owner State
Capacity
(MMcf/
day)
1/1/2012 Current Langley MarkWest Energy Partners KY 175
6/1/2012 Current Bluestone MarkWest Energy Partners PA 50
8/13/2012 Current Arrowhead MarkWest Utica OH 40
9/1/2012 Current Sherwood I MarkWest Liberty Midstream WV 200
11/23/2012 Current Cadiz Interim MarkWest Utica OH 60
3/5/2013 Current Mobley I, II MarkWest Liberty Midstream WV 320
5/25/2013 Current Cadiz I MarkWest Utica OH 125
5/30/2013 Current Natrium/404 - Phase I Blue Racer Midstream, LLC WV 200
5/30/2013 Current Sherwood II MarkWest Liberty Midstream WV 200
6/17/2013 Current Renfrew XTO Energy Inc. PA 125
6/30/2013 Current Fort Beeler III Williams Partners WV 200
7/28/2013 Current Kensington Utica East Ohio Midstream, LLC OH 200
10/30/2013 Current Seneca I MarkWest Utica OH 200
11/1/2013 Current Majorsville V MarkWest Liberty Midstream WV 200
12/1/2013 New Build Hickory Bend Pennant Midstream, LLC OH 200
12/1/2013 Expansion Kensington II Utica East Ohio Midstream, LLC OH 200
12/1/2013 Canceled Seneca Interim MarkWest Utica OH 45
12/1/2013 Expansion Sherwood III MarkWest Liberty Midstream WV 200
12/31/2013 Expansion Mobley III MarkWest Liberty Midstream WV 200
1/1/2014 Expansion Seneca II MarkWest Utica OH 200
3/1/2014 Expansion Kensington III Utica East Ohio Midstream, LLC OH 200
3/1/2014 Expansion Majorsville IV MarkWest Liberty Midstream WV 200
3/1/2014 Expansion Natrium/404 - Phase II Blue Racer Midstream, LLC WV 200
3/1/2014 New Build Oak Grove I Williams Partners WV 200
6/1/2014 Expansion Blue Stone II MarkWest Liberty Midstream PA 120
6/1/2014 Expansion Cadiz II MarkWest Utica OH 200
6/1/2014 New Build Leesville Utica East Ohio Midstream, LLC OH 200
6/1/2014 Expansion Seneca III MarkWest Utica OH 200
6/1/2014 Expansion Sherwood IV MarkWest Liberty Midstream WV 200
9/1/2014 Expansion Sherwood V MarkWest Liberty Midstream WV 200
12/1/2014 Expansion Majorsville VI MarkWest Liberty Midstream WV 200
12/1/2014 New Build Tuscarawas I MarkWest Utica/Kinder Morgan JV OH 200
1/1/2015 Expansion Oak Grove II Williams Partners WV 200
3/1/2015 Expansion Mobley IV MarkWest Liberty Midstream WV 200
6/1/2015 Expansion Houston MarkWest Liberty Midstream PA 200
6/1/2015 New Build Three Rivers Three Rivers Midstream PA 200
Table 5-1 New Natural Gas Processing Infrastructure in Appalachia (as of November 2013)23
23
BENTEK Energy. NGL Facilities Databank, November 18, 2013.

25
However, given its location in the heart of the Marcellus
Shale development, West Virginia and the Appalachia
region have a clear opportunity to reintroduce chemical
manufacturing. The primary cost advantage in the
ethylene value chain is access to cost-competitive
feedstock. The Marcellus Shale region is the largest,
most prolific natural gas play in the United States in
recent years, and the availability of NGL feedstock is
robust. The conditions exist for the region to capture the
opportunity to develop a local petrochemicals industry
that uses locally manufactured, high-value raw materials.
Building an ethane cracker and associated polyethylene
manufacturing facilities in West Virginia is a watershed
economic opportunity for the state. It would bring high-
value manufacturing, and with it, create high-wage
jobs, technology development, and the prospect for
expanding downstream plastics industry investments.
Start-Up Status Plant Name Owner State
Capacity
(Mb/
day)
3/1/2014 New Build Cadiz MarkWest Utica OH 40
3/1/2014 Expansion Harrison II Utica East Ohio Midstream, LLC OH 45
6/1/2014 Expansion Harrison III Utica East Ohio Midstream, LLC OH 45
1/1/2014 New Build Hopedale MarkWest Utica OH 60
12/1/2014 New Build Seneca MarkWest Utica OH 38
7/28/2013 Current Harrison Utica East Ohio Midstream, LLC OH 45
7/1/2013 Current Houston De-ethanizer MarkWest Liberty Midstream PA 38
3/1/2014 Expansion Keystone Complex MarkWest Energy Partners PA 20
Operating Current Hastings Dominion Transmission, Inc. WV 14
Operating Current Holden Gas Processing Facility (HGP) Greystar Corporation/NiSource WV 15
9/1/2013 New Build Ft. Beeler Williams Partners WV 30
Operating Current Houston Fractionator MarkWest Liberty Midstream PA 60
3/1/2014 Expansion Majorsville De-ethanizer II MarkWest Liberty Midstream WV 38
12/1/2013 New Build Majorsville De-ethanizer I MarkWest Liberty Midstream WV 38
1/1/2014 Expansion Moundsville II Williams Partners WV 30
10/1/2013 Expansion Moundsville III Williams Partners WV 30
3/1/2014 Expansion Natrium/404 Blue Racer Mistream, LLC WV 23
3/1/2014 New Build Oak Grove Williams Partners WV 40
3/1/2015 New Build Sherwood MarkWest Liberty Midstream WV 38
Operating Current Moundsville I Williams Partners WV 12.5
5/30/2013 Current Natrium/404 Blue Racer Mistream, LLC WV 36
Operating Current Siloam Fractionation Plant MarkWest Liberty Midstream KY 24
Table 5-2 NGL Fractionation Units in Appalachia (as of November 2013)24
24
BENTEK Energy. NGL Facilities Databank, November 18, 2013.

26
Year Operator(s) Location/Comment
Output
(thousand tons)
Output
(million lbs.)
2013
BASF/Total, Eastman, Equistar, Ineos,
Westlake, Williams
Expansions/Restarts 817 1800
2014 Equistar, Westlake Expansions/Restarts 445 1070
2015 Dow, Equistar, Westlake Expansions/Restarts 810 1790
2016 Braskem Idesa Nanchital 1000 2200
2017 CP Chem Cedar Bayou 1500 3310
2017 Dow Freeport 1500 3310
2017 ExxonMobil Baytown 1500 3310
2017 Formosa Point Comfort 1040 2290
2017 Sasol Lake Charles 1500 3310
2018 Occidental Ingleside 544 1200
2019+
Aither, Appalachian Resins, Axiall,
Braskem, Indorama, Sabic, Shell
Publically Announced
New Cracker Interest
TBD TBD
Table 5-4 New Planned Investments in Ethylene in North America
Source: Wood Mackenzie, Chemical Markets Forum, Presentation, Houston, TX, May 2, 2013.
Start-Up Status
Name
(Segment)
Owner
Primary
Product
Capacity
(Mb/
day)
Expandable
to (Mb/day)
Miles
3/31/2014 Proposed ATEX Express Enterprise Products Partners L.P. Ethane 190 1,230
9/1/2015 Proposed Bluegrass Williams & Boardwalk Joint Venture Y-Grade 200 400
12/1/2013 Proposed Butler-Houston MarkWest Energy Partners Y-Grade
3/1/2013 Operational Cadiz-Harrison MarkWest Energy Partners Y-Grade
3/1/2014 Proposed Majorsville-Harrison MarkWest Energy Partners Y-Grade 50
9/1/2012 Operational Majorsville-Houston MarkWest Energy Partners Y-Grade 43 33
9/1/2013 Proposed Majorsville-Houston MarkWest Energy Partners Ethane 33
9/1/2014 Proposed Mariner East MarkWest/Sunoco Ethane 70
3/1/2015 Proposed Mariner South Lone Star NGL/Sunoco Propane/Butane 200
7/21/2013 Operational Mariner West MarkWest/Sunoco Ethane 50 65
12/1/2014 Proposed TBD Kinder Morgan & MarkWest Utica JV Y-Grade 200 1,100
3/1/2014 Proposed Seneca-Harrison MarkWest Energy Partners Y-Grade 40
5/1/2013 Operational Sherwood-Mobley MarkWest Energy Partners Y-Grade 30
Table 5-3 Pipeline Announcements for Appalachia (as of November 2013)25
25
BENTEK Energy, NGL Facilities Databank, November 18, 2013. Note that Sherwood-Mobley and Seneca-Harrison pipeline segments are listed as Y-Grade (mixture of
NGL products transported as a single stream) product lines, but industry sources indicate possible consideration for purity ethane service.

Economic Impact of a
New Ethane Cracker and
Downstream Polyethylene
Plants in West Virginia
06
BOOK

27
Economic Impact of New Ethane Cracker and Downstream
Polyethylene Plants in West Virginia
This section examines the economic impacts in West
Virginia associated with a world-scale ethane cracker and
three downstream polyethylene plants. The study assumes
a complex with a total construction cost of $3.8 billion
($2012).26
In addition, it is estimated that $150 million
($2012) in pipeline infrastructure, $20 million ($2012) in
ethane storage equipment, and $20 million ($2012) in
rail and truck terminals would also be needed to bring
ethane to the facility and to ship resulting polyethylene
products to markets out of state and in West Virginia.27
Research Methodology
The IMPLAN® input-output modeling system was used
to determine the economic significance associated with
new petrochemical investments in West Virginia.28
Witt
Economics LLC acquired the 2011 IMPLAN® data for
West Virginia and used this data and modeling system
for this study. This analysis quantified the direct, indirect,
induced, and total economic impacts that will occur as a
result of construction and operation of new petrochemical
investments in the state.
The IMPLAN® input-output modeling system was used
to determine the economic significance associated with
new petrochemical investments in West Virginia. Witt
Economics LLC acquired the 2011 IMPLAN® data for
West Virginia and used this data and modeling system
for this study. This analysis quantified the direct, indirect,
induced, and total economic impacts that will occur as a
result of construction and operation of new petrochemical
investments in the state.
Direct impacts are those associated with expenditures
made within the state by the companies that are
constructing and operating the complex. Indirect
economic impacts are those economic activities, such
as sales, that result from contractor purchases. For
example, a contractor may purchase concrete and steel
fabrication materials from other firms that have a physical
presence within the state. These firms, in turn, purchase
manufactured goods, utility services, and other procured
items to manufacture and deliver their goods and services
to the contractors. The continued backward linkages from
firms purchasing from their suppliers and so on result in
a continued re-spending of these funds. If the necessary
suppliers are not located in the state, some funds will
leave West Virginia, while others will remain within the
state and produce local economic benefit.
Induced economic impacts represent the expenditures
by households of the income they receive associated with
the direct and indirect impacts. For example, construction
workers earn wages, a portion of which they spend locally
on the consumption of goods and services, which, in
turn, creates additional economic activity. The economic
multipliers associated with the indirect and induced
economic impacts are a clear indication of the strong
economic linkage between the construction and operation
of a new petrochemical industry and the rest of the West
Virginia economy. The sum of the direct, indirect, and
induced economic impacts is the total economic impact
associated with this investment.
This study examines four types of economic impacts:
employment, employee compensation, output, and taxes.
Employment is both full- and part-time. In the case of
multi-year construction projects, employment is defined
in terms of job-years. For example, 1,000 job-years for a
24-month construction project would average 500 full- and
part-time employees each year for the two-year period.
Employee compensation represents wages and
salaries, plus employers’ contributions to social insurance
(social security, unemployment insurance, workers
compensation, etc.) as well as other labor income, such
as pension contributions and health benefits. IMPLAN uses
economy-wide estimates of wages and salaries as well as
non-wage and salary benefits for both full- and part-time
employees.
Output is the sales of the respective industrial sectors to
which are added net inventories and the value of intra-
corporate shipments. In both retail and wholesale trade
sectors, output is the sales of these sectors minus the
cost of goods sold.
26
All dollar figures in this report are expressed in terms of 2012 dollars. This adjusts for the effects of inflation over the time periods associated with the construction and
operation of the various plans examined in this study.
27
Assumes the cost for a single ethane delivery pipeline. For estimation purposes, the study considers a hypothetical pipeline 60 miles long at a cost of $2.5 million per
pipe mile. Actual pipeline cost would depend on site selection and proximity to existing NGL pipeline infrastructure, if any.
28
More information regarding the IMPLAN input-output modeling system can be found in Appendix A.

Study of Economic Impact from Ethane Cracker Plant in WV

Study of Economic Impact from Ethane Cracker Plant in WV

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