By Jennifer Jett Prezkop
The Appalachia Storage and Trading Hub is gaining momentum. What once may have seemed like a fantasy is now growing closer to reality, and the fight to revolutionize energy and manufacturing in Appalachia is taking place—with West Virginia right in the middle.
“Onward we go.”
This sentiment, shared by Steve Hedrick, the CEO at Appalachia Development Group, LLC, is a mantra for those behind the development of the Appalachia Storage and Trading Hub.
“We’re working very hard at this,” Hedrick says of the effort to go from concept to reality. “We’re stubborn—folks from Appalachia have always been that way. We have the will to win, and we hate to lose.”
The concept of the Appalachia Storage and Trading Hub is a significant subsurface storage across multiple facilities for natural gas liquids (NGLs) and chemical intermediates connected to a network of pipelines that would serve as a catalyst to both the petrochemical and manufacturing industries. After years of conducting studies and addressing potential challenges to prove the hub is an endeavor worth fighting for, momentum is picking up. Tri-state leadership support as well as the firm backing of leaders on Capitol Hill have propelled this concept closer to reality. With an American Chemistry Council study showing that the $36 billion investment in the hub could result in 100,000 jobs, $2.9 billion in annual tax revenues and a $28 billion economic expansion, the flames have been stoked, and anticipation is spreading like wildfire.
With the opportunities that exist with the hub, West Virginia—and Appalachia as a whole—are on the precipice of a major energy and manufacturing revolution that will create jobs, sustain families, encourage start-ups and expansions, jumpstart manufacturing and create a U.S.-based powerhouse that will help support energy dominance.
Laying the Foundation
Hedrick has been working to deliver this opportunity for a number of years, and Brian Anderson, the director of the WVU Energy Institute and technical pillar lead for the Appalachia Development Group, joined the chase for the hub a few years ago. The basis for the hub is the fact that West Virginia and the surrounding states of Ohio, Pennsylvania and Kentucky have a substantial supply of NGLs. Initially, the focus was on ethane, which meant there needed to be an ethane cracker, and the four states began to compete with each other on which state would win the coveted facility.
“The argument over who would get the cracker was a little short sighted,” says Hedrick. “The real question was how we will responsibly advantage Appalachia and the U.S. by virtue of this natural gas growth. The totality of the hub effort was born of this.”
To determine if the hub would have adequate geology to support its technical feasibility, the Appalachia Development Group, through Anderson, led a proposal to the Claude Worthington Benedum Foundation to fund geologic work in identifying potential subsurface storage locations across West Virginia, Ohio and Pennsylvania. Those surveys confirmed that the tri-state region did, in fact, have the geologic strata that would be applicable to underground storage of NGLs.
Last summer, the Appalachia Development Group was formed, solidifying the team behind the hub effort. In addition to Hedrick as CEO and Anderson as the technical pillar lead, Joe Bozada, the CEO of Environmental Services Laboratory, serves as chief operating officer and chief financial officer, and Kathy Beckett, an environmental attorney with Steptoe & Johnson PLLC, is the environmental and sustainability pillar lead for the group.
“The four of us share a common passion for the delivery of the hub for those 100,000 jobs and those 100,000 families that will be touched,” says Hedrick. “More than $6 billion in annual payroll that should generate $2.9 billion in annual taxation—we’re all driven by that.”
Defining the Structure
The Appalachia Storage and Trading Hub will be more than just storage. It will consist of a network of pipelines that will connect to industrial sites within the petrochemical industry such as the Shell cracker in Monaca, PA, and the PTT Global Chemical cracker in Belmont County, Ohio.
The subsurface storage of the hub will act as intermediate storage for raw materials, which is key to preventing upsets in the supply chain. Companies like Shell and PTT Global will then have surge capacity in raw materials stored so they will not be forced to shut down operations in the case of an extreme weather event or disaster because access to the hub’s materials will enrich that supply. The pipelines will connect facilities like the crackers to the hub’s subsurface caverns, which will be created in either a limestone, sandstone or salt formation.
Limestone and salt formations make for ideal environments for NGL storage due to their stability and porosity. The limestone caverns would be 2,000 feet below surface and would resemble a limestone mine with caverns and pillars to support the roof. While limestone requires miners go underground to carve out the caverns, the salt formation does not. With salt, fresh water is pumped underground, dissolving the salt and forming a cavern.
According to Anderson, there are a number of reasons why underground storage is preferred.
“Ethane at the surface at normal pressures is a vapor,” he explains. “It’s transported in the pipeline as a liquid under high pressure. If you store very large amounts of ethane at high pressure on the surface, many additional safety concerns must be addressed. It also involves a lot of steel, which brings concerns over the long haul about mechanical integrity through corrosion and even punctures. The water pressure that exists underground, called hydrostatic pressure, will be at a higher pressure than our ethane. We will store ethane at a pressure that is lower than the surrounding water pressure. If there is any leakage, it’s actually leaking water into the cavern. You run a pump to remove it, and it’s no big deal. If you were to store it in a big tank on the surface, you don’t have that option. The atmosphere is at normal atmospheric pressure, and you would be storing ethane at a much higher pressure. If there were any leaks, it would be leaking ethane. It’s much safer to store it underground.”
Anderson also explains that with the amount of storage needed, the surface disturbance is pretty small with underground caverns. “You have an access shaft if it’s mined storage or you have wellheads just like oil and gas wells that are at the surface,” he says. “You can have a whole series of caverns underground and access a lot of space with a very small surface footprint.”
Selecting the Site
Site selection is still underway for the Appalachia Storage and Trading Hub. While West Virginians would love to see the $36 billion facility within its state boundaries, it’s important to understand that the final location of the hub doesn’t matter as much as the actual construction of the hub.
“The industry spread is the win,” says Hedrick. “Competing for the storage hub is like competing for the one cracker years ago. The hub needs to be in Appalachia. If you want to do the win-lose thing, the loss is to see all of our NGLs exported to points unknown. It’s not a failing for the hub to be in Ohio or Pennsylvania or Kentucky. We should define a win as Appalachia earning the opportunity to have this industrial spread occur in a safe and environmentally sound way.”
While it might be hard to understand how West Virginia could possibly be on the winning side if it is looked over in the final site selection process, the Mountain State will see growth and prosperity regardless.
“The reason it’s not important which state the hub is built in is the number of jobs that are going to be created by the storage facility post-construction,” says Anderson. “The number of jobs the hub will create will be miniscule compared to the growth of the petrochemical industry it will catalyze. The storage hub is the catalyst to spark new manufacturing growth in the petrochemical sector. If it were in Ohio, there would be pipes that connect to industrial sites in West Virginia and vice versa.”
He also points to the high likelihood that there will be multiple sites for the hub, not just one facility in one seemingly lucky state. The entire industry is going to reap the benefits, resulting in exponential growth.
The cherry on top is the trading piece that has been added to the hub’s official name.
“That trading piece allows for industry to make investment decisions much more freely,” says Anderson. “Right now, to buy the raw materials necessary to build a cracker, Shell and PTT Global have had to sign long-term contracts with producers through the midstream operators. That’s not how business is done in the Gulf Coast, where it is much more predictable because you have a trading market for those raw materials that’s transparent. When new companies are looking to invest in the region, all they have to do is look at the historical performance of that market to try to predict their future raw material costs. We’re basically creating a commodities trading market in the region that is transparent to future investors.”
Applying for a Loan Guarantee
As the geologic studies for the three states took place, the team began to develop the storage hub from a business and technical standpoint. Last year, a number of conversations with the U.S Department of Energy (DOE) identified its Loan Programs Office (LPO) and its Title XVII program as a place where the Appalachia Development Group could develop a public-private partnership with federal debt backing and DOE collaboration to accelerate the hub’s development. The purpose of the LPO and Title XVII is to help emerging technologies move forward across a very difficult journey from innovation to commercialization. With the establishment of the Appalachia Development Group, the team developed a loan program application and submitted it.
There are two parts to the application, which Hedrick describes as a funnel. “The initial screening is the top of the funnel, where all these companies are trying to get into the Loan Program Office and get themselves associated with a loan guarantee,” he says. “Lots of them bounce off the top because of the criteria, but we made it through that part because of our sound business and technical base. Then you have the narrowing of the funnel, which is the Part I Application process. It is many months and many documents of due diligence from the Loan Program Office and its staff to make sure the applicant’s program or initiative is worthy of both consideration and further due diligence under the Part II Application process.”
It was a difficult journey to get to January 3 when Appalachia Development Group received a letter signed by the DOE inviting them to the Part II Application, but Hedrick says the payoff was much greater than the time and energy invested.
“Getting that letter emboldened our efforts and invigorated the team,” he says. “I think more people took notice after that of our progress from a concept eight years ago to an engineering application for a business solution that creates value in and of itself.”
Impacting the Mountain State
The difficult journey to a loan guarantee is drawing closer to the finish line, but it is by no means finished, much like the journey to the hub’s construction. The Appalachia Development Group anticipates it will have to wait about two years to complete the journey through the Part II Application process and earn a conditional commitment from the LPO, and building the hub and getting it into production will take years.
“Just imagine how long it took for Shell to make a decision and construct,” Hedrick says of the Pennsylvania cracker. “The construction of subsurface storage in its varying locations and cross-country pipelines to different manufacturing locations will also take years. That stick-to-itiveness we have as Appalachians—we’re going to have to have that as we move forward, as the investment rolls out, as off-take agreements are made and as the business case continues to expand.”
According to Anderson, the hub’s development timelines will line up with the execution and construction of the petrochemical sector’s projects. Shell is looking at starting up its cracker in 2022, and PTT Global will be six years from now at the earliest.
“The timeline for the storage hub is to have things in place for the operations of those cracker facilities and other potential users on the network,” he says, adding that six years is a reasonable estimate, give or take a couple of years depending on industry development timelines.
Readying the Workforce
That means leaders have six years or less to find a solution to another challenge: finding a qualified workforce to fill those 100,000 jobs.
According to Hedrick, workforce development has been an issue in Appalachia for years—since the Baby Boomers’ retirement left open positions that couldn’t be easily or quickly filled. For the petrochemical industry, several institutions and programs are doing their part to help prepare this future workforce need, like BridgeValley Community & Technical College and its Advanced Technology Center and West Virginia State University. The industry is also looking to reputable engineering schools like West Virginia University, Ohio State University and Virginia Tech that are creating graduates now.
“We need those schools and universities to generate not just chemical engineers but many other STEM education-based graduates,” he says. “We also need people who will run businesses. There’s a general shortage when you look at $36 billion of investment in the petrochemical industry because it generates jobs outside the chemical sector on a 5:1 basis. For every job inside the chemical industry’s fence lines, five more are created outside of the fence line.”
More than anything, though, the future workforce needs hope. Middle schoolers who have a knack for STEM education need to be informed about the career opportunities that exist for them, especially in the petrochemical industry in West Virginia.
“The key ingredient is hope,” says Hedrick. “If we as leaders in the industry and the state and all across Appalachia can’t create hope by virtue of what we are doing, then it’s time for a little bit of a gut check. We need our young people to have hope that what is next for them is good—not an escapist mentality but a mentality of how do we stay here and get this done.”
Moving Full Speed Ahead
Getting things done is the hard part. It’s the choosing to stay that comes easy for West Virginians. They have a unique loyalty to the Mountain State, and given the opportunity to prosper here, more times than not they will choose home. That choice becomes a little easier when considering all the successes the hub initiative has already garnered.
The Appalachia Storage and Trading Hub has earned its Part II Application invitation from the DOE’s Loan Program Office, and the Request For Information (RFI) to engineering and procurement and construction (EPC) companies has closed. Hedrick is proud to confirm that the RFI had a significant response from the heaviest of heavyweights in the EPC community, though he can’t name names just yet. In the coming months, the group will open the Request for Proposal (RFP) process, and in the weeks that follow they will begin reviewing RFP responses for the specific design of the hub.
“We are moving right along,” says Hedrick. “We’re moving with vigor to deliver on the mission we took up to create the Appalachia Storage and Trading Hub as a catalyst for the development or redevelopment of the chemical industry across Appalachia. Some people say, ‘You’re trying to take us back to where we were.’ No, we’re trying to take us to an even better place.”
