Remarks of Assistant Secretary for Fossil Energy Steven Winberg as prepared at the Northeast Petrochemical Exhibition and Conference in Pittsburgh, PA on June 20, 2019
Thank you. Good morning everyone. I’m Steve Winberg, Assistant Secretary for the Office of Fossil Energy at the U.S. Department of Energy.
There have been a lot of good and informative presentations this morning, and I appreciate the opportunity to be a part of this important conference.
If there’s one take-away from my presentation, it’s this: If we play our cards right, every person in this room will be a witness to an Appalachian petrochemical and manufacturing renaissance on a scale that we could scarcely have imagined just a decade ago.
This renaissance has the potential to create more than 100,000 new jobs in the region, generate tens-of-billions in revenue annually, reinvigorate regional manufacturing, and enhance our national energy security.
So, I welcome the opportunity to talk with you today about the Administration’s commitment to capitalize on the Nation’s natural gas resources and help advance this renaissance.
Looking at the big picture, a decade ago, the storyline was that we were running out of recoverable oil, and we would increasingly become a net importer of natural gas.
But then came the shale energy revolution which rewrote that storyline. Spurred by innovations in hydraulic fracturing and horizontal drilling – pioneered by the Department of Energy and its industry partners – oil and natural gas shale resources suddenly became producible. The resulting change in our energy and economic landscape has been rapid and breathtaking.
We are truly living in a new world. Today the U.S. is the top producer of oil and gas in the world. And DOE’s Energy Information Administration projects that next year the U.S. will be a net energy exporter.
Let me put this in context. The last time we were a net energy exporter was in 1953. Dwight Eisenhower was president and most of us were kids – or perhaps not even born yet.
It’s worth noting that these energy accomplishments have been driven significantly by the Administration’s policies that seek to unleash the full potential of America’s fossil fuel resources. We are putting innovation ahead of over-regulation.
And by innovating more, and regulating a little less and more prudently, by encouraging—rather than discouraging—production, we ensure our energy security, grow our economy, create jobs, and protect the environment.
So, what we’ve seen in the last 10 years is nothing short of remarkable, and it’s certainly the biggest energy story in my lifetime. I think you’d have to go all the way back to Spindletop in 1901, which launched the Texas oil boom, to find a U.S. energy development comparable in its impacts to the shale revolution.
Thanks to the Marcellus and Utica shale formations, Appalachia is responsible for 85 percent of the growth in U.S. natural gas production over the past decade and accounts for 32 percent of U.S. production today. In fact, as the experts at Shale Crescent like to note, if Appalachia were an independent country, it would be the third-largest natural gas producer in the world.
Looking ahead, the region is expected to account for 45 percent of total U.S. natural gas production by 2040. So, Appalachia gas is abundant now and projected to be abundant through the middle of the century.
Of course, that abundance is vital to our energy security and economic growth – and it’s also critical to planning long-lived energy infrastructure development.
But, as most of you know, natural gas is just part of the story. Co-produced natural gas liquids are another part.
A lot of Appalachian gas is particularly “wet” – containing substantial volumes of natural gas liquids, such as ethane, propane, and butanes, all of which can serve as petrochemical feedstocks.
In fact, DOE’s Energy Information Administration projects that by 2025, ethane production in the Appalachian Basin will reach 640,000 barrels per day – which is 20 times greater than it was in 2013.
And by 2050, the eastern U.S., including the Appalachian Basin, is projected to account for the largest share of U.S. natural gas liquids output―30 percent of the national total―and 35 percent of all ethane production.
So, not only is the natural gas resource abundant and low-cost, the natural gas liquid resource, which provides valuable petrochemical feedstocks, is also abundant and low-cost.
That raises the question – what is the potential for petrochemical infrastructure development in Appalachia?
Long forgotten by some, and not realized by many, is that Appalachia is where it all began.
Nearly a half-century before Spindletop, the Drake well – located near Titusville, here in Pennsylvania – was America’s first commercial oil well.
Long before the extraordinary and immensely valuable build-out of Gulf Coast petrochemical infrastructure, Union Carbide constructed America’s first commercial ethane cracker in Clendenin, West Virginia in 1920.
So, Appalachia was the birthplace of America’s oil and petrochemical industries, and the region continues to welcome these industries—particularly given the advances in technology that make them cleaner than ever.
One of the reasons these century-old industrial developments are important is that they – along with Appalachia’s vast coal resources and its close proximity to a growing U.S. population base – helped drive the build-out of American manufacturing throughout the Midwest, Appalachia, and the Northeast during the early 1900s.
Over the course of the century, part of that manufacturing base remained and other parts adapted to take advantage of new materials, such as plastic resins and other petrochemical intermediates to meet the growing domestic demand for plastic car parts, film, PVC pipe, packaging, paints, adhesives, and any number of goods we use every day.
To put some numbers to that, today nearly a third of U.S. manufacturing involving petrochemicals is within 300 miles of Pittsburgh. This base creates $300 billion in revenue, employs 900,000 workers, and supports 7500 businesses, and it is positioned to grow.
So, in Appalachia today, what we have is a robust customer base that is hungry for cost-effective chemical intermediates, such as plastic resins. And, thanks to the shale gas revolution, Appalachian now has abundant, enduring, low-cost NGL feedstocks to manufacture those chemical intermediates profitably.
The gap, or what I think is better described as the private sector investment opportunity, is the construction of petrochemical infrastructure – crackers, resin and other production lines, and NGL storage – that can manufacture those intermediates. As that infrastructure is built it will usher in an Appalachian petrochemical industry renaissance.
Let’s take a look at the existing Appalachian infrastructure – ethane pipelines, petrochemical cracking infrastructure, and NGL storage.
With respect to ethane pipelines, there is a well-developed infrastructure that currently transports about 260,000 bbls/day of ethane out of Appalachia. This effectively represents all the current ethane that is separated from shale gas.
It’s worth noting that roughly an equal amount of ethane is currently “rejected” – or left in the produced natural gas – rather than separated out. The Department is working to refine these estimates to gain the best understanding of the available resource.
Because the sales of ethane are private business transactions, there is uncertainty around the precise volumes. With that said, the Department estimates about 150,000 bbls/day travels south toward the Gulf Coast.
About 10 to 15 percent of that amount is drawn off before reaching the Gulf Coast to feed the Calvert City, Kentucky mid-size ethylene cracker, which supports PVC pipe manufacturing.
About another 70,000 bbls/day head north to Canadian facilities. The 40,000 bbls/day are transported east to the Marcus Hook facility for export.
As I mentioned earlier, Appalachian ethane production is projected to grow to 640,000 bbls/day by 2025 and continue to grow after that.
So, there appears to be adequate resources to meet existing export demands and support an in-region petrochemical industry. In fact, IHS Markit has estimated that the market could support five world-scale crackers in the region. That is in addition to the existing mid-size cracker facility located in Kentucky, which the region’s ethane supports.
The Department is extremely encouraged by the investment leadership shown by Shell and with the progress that is now being made on PTT’s planned cracker plant in Belmont County, Ohio, which has received all its permits and is far advanced in its design work and contractual arrangements. And we’re hopeful that project will see a positive final investment decision this year.
Now, looking at NGL storage infrastructure, large-scale underground storage in the wet gas producing regions of Appalachia does not yet exist. Ultimately, this infrastructure will be needed to ensure the uninterrupted supply of NGL feedstocks to petrochemical facilities and to store some products.
We’re encouraged by market developments, but we believe that market demand for storage will need to increase before commercially-financed projects are likely come on-line at large-scales. Should the PTT cracker have a positive investment decision this year, this would certainly help create that market demand.
We’re now at a point in the market’s development that there are a handful of project developers advancing storage projects through the siting, geologic validation, engineering, permitting, and financing phases. That is a relatively new and encouraging development.
Now, as most of you probably know we delivered a report to Congress last year that examined the potential for a new ethane storage and distribution hub, as well as a number of associated issues.
As we discussed in our report, Appalachia – with its abundant resources upstream and extensive downstream industrial activity – could offer a highly competitive advantage and help the U.S. gain global petrochemical market share.
We also explored the manufacturing security advantages of an Appalachian petrochemical industry. In the report, we noted that over 95 percent of America’s ethylene production capacity, which uses ethane as a feedstock, is located in Texas and in Louisiana. These locations are exposed to devastating weather events like hurricanes, which have disrupted the petrochemical supply chain’s ability to meet downstream manufacturing demand.
Secretary Perry has said that one of the things that kept him up at night when he was Governor of Texas was the thought of a Cat-5 hurricane knocking out part of the petrochemical infrastructure in the Gulf.
And, in fact, Hurricane Harvey took 60 percent of U.S. ethylene production offline for weeks. That was just flooding not a full force, direct hit.
So, it’s pretty clear that if the Gulf Coast remains the sole anchor for our petrochemical assets, disruptions caused by hurricanes or other factors could impact the petrochemical supply chain across the country.
Now, let me be clear – Appalachian petrochemicals are not an alternative, they are a complement to production capacity in the Gulf region. Gulf Coast capacity is massive, strategically located to meet the expanding global market, and critically important to American manufacturing and the U.S. economy.
But there’s no question that there is enough natural gas and enough market share to go around. So, what we’re looking at is providing the geographic diversity of production and delivery that would enhance the reliability of the broader petrochemical and plastics manufacturing supply chain – and that would offer protections against unexpected plant shutdowns and transportation constraints.
So, where do we go from here to realize an Appalachian petrochemical industry renaissance? Ultimately, principally private capital will create this renaissance, but there is an important role – and opportunity – for government and other stakeholders to work together.
The Department’s view is that one of the most impactful things government can do is align our economic development efforts – at the state and federal levels – to catalyze private investment.
It’s also our view that the federal government, wherever possible and appropriate, must complement state efforts.
So, there are four areas that the Department – in alignment with other federal agencies – is focused on. They include:
- Communicating the market opportunity;
- Investing in public infrastructure;
- Supporting workforce development; and
- Facilitating the investment of private capital.
With respect to communicating the opportunity, at DOE, we’re in a full court press to get the message out. And I can tell you that Secretary has talked to President Trump about this opportunity, and he is excited and supportive.
At the same time, Secretary Perry, Deputy Secretary Brouillette, Under Secretary Menzes, and I are on the road every chance we get to shine a bright light on this opportunity.
That includes everything from meetings with local community leaders, state legislative leaders, governors, economic development group, industry groups, and international entities.
I want thank the states of Pennsylvania, Ohio, West Virginia, and Kentucky – who each in their own way are engaged and assisting with this effort.
Also, the team at Shale Crescent, other economic development groups, and other federal agencies are having tremendous impact as they too shine a bright light on this opportunity.
With respect to public infrastructure, petrochemical projects won’t happen without high quality barge infrastructure, roads, rail, and broadband in Appalachia. Every year the federal government invests in that infrastructure through annual appropriations and other programs. And should the opportunity arise for a federal infrastructure bill, we should be in position to do more.
However, I would offer as an example of federal efforts the good working partnership between the Army Corps of Engineers and Shell to effectively manage the complex barge infrastructure issues as deliveries travel up the Mississippi and the Tenn-Tom to the Ohio River and ultimately their cracker site.
I would also note the Department of Transportation’s rail infrastructure funding that aided the effort to ready the rail infrastructure for the PTT cracker project.
Looking at workforce development, there are a number of DOE, Department of Labor, and Appalachian Regional Commissions programs that have worked, and will continue to work, to help develop the workforce that will underpin the success of petrochemical industry renaissance.
And on the final point of facilitating the investment of private capital, a few examples of what we have done, and are doing, include:
- Driving forward the Tax Reform Act which created a more positive investment environment for petrochemical projects;
- EPA and other agencies redesigning regulations to create more regulatory certainty and speed infrastructure projects, while continuing to protect the environment;
- The Small Business Administration’s efforts to aid small business that support the industry;
- DOE’s loan guarantee program, which is available to assist with project financing; and
- USDA’s Office of Rural Development grant and loan guarantee authority that can help enable the Renaissance.
So, the federal government is doing a lot. But we recognize that others are doing even more, and we believe that together we can make this Appalachian petrochemical renaissance happen for the benefit of the industry, the region, and the country.