by Dennis Xander
President, Denex Petroleum Corporation
Value added. It’s a concept that for too long has been ignored by businesses in West Virginia. However, our willingness to enhance the natural resources we produce in the Mountain State before they leave our state will determine if our promising future is simply great or truly fantastic. We clearly have the opportunity to exceed our wildest expectations. But will we make that happen?
Consider, by way of example, the furniture industry in North Carolina. Much of the hardwood it requires comes from West Virginia’s forests. The same is true for the natural resources required for the production of energy. North Carolina is geographically challenged, being quite a distance from the major consumer markets in the northeast. Despite its lack of resources and location, North Carolina has dominated the U.S. furniture manufacturing business for the last century. West Virginia has a better supply of hardwood, abundant, inexpensive energy, a quality workforce, and is located within a one-day drive of 60% of the U.S. population. But instead of manufacturing furniture, West Virginia exports its hardwood, energy and often workers to the Tar Heel State to supply its furniture industry. To add insult to injury, West Virginians purchase the furniture North Carolina manufactures, allowing potential profits to leave our state. This makes little sense.
Virtually everyone in West Virginia is aware of the economic potential that shale development offers. We see wells being drilled and pipeline facilities being constructed. Many among us understand the value of ethane and other rich natural gas liquids (“NGLs”), like propane, butane, pentane, etc. These NGLs are produced along with the methane that provides heat and electricity to millions of homes and businesses. We are generally aware that Dominion, Mark West and others have invested billions to build processing plants to separate these valuable NGLs from the less valuable methane. To quote Dr. Kevin DiGregorio, Executive Director of the Chemical Alliance Zone of West Virginia, “Friends don’t let friends burn ethane.” Ethane is simply too valuable.
Currently, those NGLs are being shipped from Appalachia to places as remote as Texas and Canada for further processing and development. And profit for out of state interests. Despite our state’s rich history of chemical manufacturing, many West Virginians have only recently heard of the economic opportunities a steam cracker could bring to the state, by enhancing the value of ethane produced here. They are excited about the increasing likelihood of a cracker in Parkersburg, and the potential for other crackers in the state.
Sadly, the majority of West Virginians don’t seem to look past the cracker to see the world of opportunities that exist. Production from a steam cracker is not a “retail” product. It is still a raw material, which requires further enhancement. For years West Virginians have sawn logs into lumber for shipment to North Carolina to be transformed into furniture. We should not follow that path with products that leave West Virginia crackers. If we fail to find a way to add value to the production from a cracker plant before it leaves the state, we’ll be back to shipping rough lumber to North Carolina.
Consider all of the industrial advantages West Virginia enjoys, in addition to its rich deposits of NGLs associated with shale gas. Let’s not forget that the petrochemical industry had its origins right here in Clendenin, in 1920. The Mountain State is already home to chemical companies that are household names, such as Dow, DuPont and Bayer. Accordingly, we have a workforce with experience. We have idle plant sites that could be used for manufacturing. There is an abundant supply of affordable energy from coal and methane production, and infrastructure to deliver that energy. We can move materials around the state using truck, rail or barge. Our business climate is improving, with taxes decreasing in recent years. It seems that West Virginia has all the components required to exploit its ethane production by taking ethane beyond cracking and adding value.
Many fail to realize that West Virginia has good access to retail markets, both domestic and offshore. That access will be enhanced with the completion of Corridor H, linking I-79, which bisects the Mountain State, to the junction of I-66 and I-81 and the Virginia Inland Port near Front Royal, Virginia. From there, goods can be delivered by truck or rail to the northeast, or delivered directly to the Port of Virginia, the deepest seaport on the east coast, for shipment anywhere in the world. With the expansion of the Panama Canal, scheduled for completion by 2015, products manufactured in West Virginia can be quickly and economically delivered to eastern nations.
Without question, the abundance of shale gas in West Virginia is a profound blessing, and will ensure economic prosperity for decades to come, even if we never do more than sell our methane and NGLs. However, our rich supply of ethane provides the potential for economic growth that is incalculable. The question is, do we want to repeat our past, like selling lumber to North Carolina instead of exploiting our resources and building our own furniture industry? The alternative is to pursue the “value added” model, and convert our ethane into a finished, retail product, thereby adding tens of thousands of quality jobs, growing our tax base, and building economic security for our state and our nation.
“Marcellus to Manufacturing” is more than just a slogan. It is a pathway to economic prosperity for all West Virginians. And it doesn’t stop with the construction of a cracker. It should start at the wellhead, and continue through the packaging of a finished retail product.
