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The World Has Changed! Are You Ready?

  April 2018 / Vol. 8 Issue 2

The World Has Changed!  Are You Ready?
By: Greg Kozera, Director of Marketing, Shale Crescent USA

New Study shows Region has a $3.6 Billion advantage over the Gulf Coast!

In February my wife, Lynnda, and I were at a conference in Baltimore, Maryland.  The theme was, “The Future”. What do Polaroid, Circuit City, Blockbuster, Borders, Pan-Am, Radio Shack, Compaq and Woolworth all have in common? They are all companies that have gone bankrupt. They could not adapt to change. John Chambers, Chairman and CEO of Cisco USA said, “If you don’t innovate fast, disrupt your industry, disrupt yourself, you’ll be left behind.” The internet and smart phone are changing our world. Amazon is disrupting the retail world. We are already seeing stores close because they can’t compete with online retailers. Today, technology has become the great disrupter.

Technology disrupted the oil and gas industry. The shales in the United States were known to contain abundant natural gas and oil. But the technology to extract it didn’t exist until recently. Hydraulic fracturing is an old technology that has been around for over 70 years. Horizontal drilling goes back to the 1960s. When the oil and gas industry figured out how to put these two technologies together effectively the United States went from energy crisis to the World’s leading oil and natural gas producer in less than 10 years. That was a major global disruption. Russia and OPEC lost much of their power and half of their oil revenues costing them billions of dollars.

In 2010 the Shale Crescent USA Region of eastern Ohio, western Pennsylvania and northern West Virginia produced about 3% of the USA’s natural gas. In 2017 that number was 30%. This Region now produces more natural gas than Texas. That is disruption. The Shale Crescent USA is where almost all of the growth of the USA’s gas supply has come from. The rest of the USA has only replaced the decline. The natural gas industry in the Shale Crescent USA region caused this disruption. The rest of the world and most of the United States still thinks Texas, Oklahoma and the Gulf Coast are where most of the growth in US natural gas supply is coming from. The Japanese were shocked to learn our Region produces more natural gas than Texas. The comment we heard the most was, “We had no idea.” Maybe most important what does this disruption mean to the local natural gas industry and the people of our Region?

Last week in Houston, Texas at the World Petrochemical Conference (WPC), Shale Crescent USA announced another potentially huge disruption. The World has changed again. This big change was announced to the World as part 45-minute panel discussion from the main stage in front of 1,300+ attendees from 40+ countries. We know about the Shale Crescent USA having a huge natural gas advantage and therefore feedstock advantage. A new Study by IHSMarkit, a highly respected global company, commissioned by Shale Crescent USA looked at what this advantage means to the petrochemical industry. The study, Benefits, Risks, and Estimated Project Cash Flows: Ethylene Project Located in the Shale Crescent USA versus the US Gulf Coast did a direct comparison between the two regions. Representatives from Shell, Bechtel (who is constructing the Shale plant at Monaca) and Mountaineer Storage were also on the panel.

The Study says, a new petrochemical plant built in our Shale Crescent USA Region would have a 4 times greater cash flow and save $3.6 Billion over a 20-year period, compared to similar plant built on the Gulf Coast. The Shale Crescent USA is now most profitable region in the world for a petrochemical plant. For the past 75+ years the US Gulf Coast has been the most profitable region for a petrochemical plant.

This Study compares the financial returns and risks of a major petrochemical and plastics investment in our Region with an identical investment in the US Gulf  Coast. The Study will help create an understanding of the basis for decisions like Shell Cracker in Monaca and the recent PTT- Daelim announcement. It will give local companies hard data they can use to justify expansion. It will give foreign companies like those in Japan the hard data they need to justify coming here and bringing high wage jobs for our people.

Because of the Study results, the Shale Crescent Team of Jerry James, Nathan Lord and me spent most of our time at WPC with key decision makers of our prospect companies. We had meaningful meetings with CEOs, company presidents, VPs, Directors and GMs. All of this happened because of the new technology that disrupted the oil and gas industry and allowed the natural gas industry to create world class wells through horizontal drilling and hydraulic fracturing. Shale Crescent USA (the organization) sponsored a special, invitation only lunch that resulted in 4 solid leads. All were foreign companies. One man was so excited that he said to me, “Can you send these slides to my boss TODAY.”

What does this all mean to you and your company? The slide that got the most attention in Houston was our slide showing the location of the wells, gas processing facilities and plant locations. How many places in the world are there where raw materials, fuel, abundant water, petrochemical plants and their customers are all in the same place? The US Gulf coast is getting their fuel and feed stocks primarily from the Permian (which is 500 miles away) and the Shale Crescent USA. This is a significant cost to Gulf Coast petrochemical plants. Once they manufacture their pellets, 70% of the polyethylene converters are in our Region or within a short drive of it, requiring Gulf Coast pellets to be shipped here at a significant cost. The converters (companies that turn the pellets into products) are in our Region because they are close to 50% of the US and Canadian markets.

We are already seeing some expansions in manufacturing and petrochemicals. The Shell cracker is under construction. All of these expansions will increase demand for natural gas. The crackers will increase demand for natural gas liquids. (NGLs) What would a significantly increased local gas demand mean for our E&P companies? The gas here is literally underneath the plants! Could this create direct sales to end users of gas or shorter pipeline hauls? Gas will still need to be shipped out of the Region, but a mix of long haul pipelines with local sales that avoid a major transportation fee would help to improve profitability for the natural gas industry?

Outside of the natural gas industry thousands of high-wage construction and manufacturing jobs will be created. These are long term career oriented jobs. The average petrochemical salary is close to $100,000 a year. That sure beats installing solar panels for $25,000 a year. The people with these jobs will need housing, vehicles, consumer goods and services, financial planners and attorneys. They will spend money in nice restaurants, movie theaters and amusement parks. They will buy tickets for concerts and sporting events. They will raise families and kick start regional growth.

When we talk about new construction and expansion the questions about workforce always come up. Joe Thompson, Senior VP of Bechtel said in Houston that he was thrilled with the local workforce. “They are safe, productive and intelligent.” This doesn’t surprise those of us who grew up here in the Region. We have a history of manufacturing. My grandfather, uncles and cousins were all steelworkers. The modern petrochemical industry started here. The first cracker was built by Union Carbide at Clendenin, WV in the 1920s. We still have a lot of work to do to train our workforce for the coming growth. We can accomplish that. The training facilities are in place.

This increased local demand isn’t going to be a sprint, it is a marathon but at least we now have several miles behind us. We got a lot of positive media on the Study the week we were in Houston. We have been told that this news has a “very long tail”. We have begun to create awareness and people all over the world are interested. We have a lot of follow up work from WPC to do. The next big event for Shale Crescent USA is the West Virginia Manufacturers’ Association Conference on April 16th and 17th in Morgantown, WV. Ron Whitfield of IHSMarkit will present the Study results there to the people in this Region. It will be a great conference.

A disruption has been created. The world has changed again and we are in themiddle of it. Are YOU ready? Thoughts to ponder. For more information including the Executive Summary you can check out www.shalecrescentusa.com

 

Greg Kozera is the Director of Marketing for Shale Crescent USA www.shalecrescentusa.com . He has over 40 years of experience in the energy industry. Greg is a leadership expert with a Masters in Environmental Engineering and the author of four books and numerous published articles, including numerous presentations, radio shows and TV.

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