From the vantage point of Leonard Dolhert, CEO of Aither Chemicals, the choice is simple for public policymakers in Ohio when it comes to the gas liquids flowing from the Utica Shale formation under their feet.
"Use it or lose it," Dolhert said at a Pittsburgh conference in September.
Although development of the Utica resource is in its early stages, results from the first group of wells in eastern Ohio have prompted an investment spurt in processing and pipeline infrastructure to separate ethane and other gas liquids from natural gas.
Leaders of Ohio's extensive chemicals and polymer industries see low-cost ethane from Utica as a perfect raw material. Polyethylene, produced from ethane, and related polymers are ubiquitous components of consumer and industrial products made in the state.
But for now, Ohio's ethane and propane production is targeted to go out of state to the East and Gulf coasts on new pipeline connections under construction or announced. Capturing that resource for Ohio will require multibillion-dollar spending on cracker plants in the region to produce the ethane- and propane-based feedstocks for these industries.
Aither Chemicals, based in West Virginia, hopes to raise up to $750 million to build an ethane cracker in Ohio or nearby using proprietary catalytic technology. Executives there say the company was encouraged by an initial response from prospective customers but has not flashed the green light for the project. Nor has Royal Dutch Shell PLC, which has a potential site for a cracker plant in western Pennsylvania but says it is still weighing its options.
Whether and when this happens depends on decisions by a spectrum of gas developers and downstream companies that must decide that a homegrown petrochemical industry in Ohio can compete with a large, entrenched and expanding industry on the Texas and Louisiana coasts, experts say.
Ohio is in a strong competitive position at the far end of this supply chain, as a leader in research on polymer chemistry and in the manufacture of specialized plastic products made from ethane and propane-based polymers.
"Polymers are the No. 2 industry in Ohio in terms of employment and value," said Richard Heggs, senior market manager at Battelle Memorial Institute in Columbus, a center of polymer research. "It's very important for Ohio."
Battelle and partners produced a "2011 Update: Ohio's Polymer Strategic Opportunity Roadmap," documenting the industry's place in the state.
An example is Ohio's position as a producer of molded plastic parts for the automobile industry, Heggs said. An entire supply chain of raw material producers, machinists, tool makers and mold makers fills the state's injection molding industry.
Dennis Barber, executive director of the Ohio Polymer Strategy Council, a nonprofit advisory group of senior industry executives, believes that the Utica Shale's ethane production will stay home. "There's no doubt it could be and will be a feedstock for many of the polymers made in the state," he said.
But the Utica Shale story broke so quickly on Ohio that many were caught by surprise.
Tilt toward the Gulf Coast
Barber's strategy council spent 2010 working on a blueprint for expansion by the state's polymer industry, including many interviews with manufacturing and research officials.
A resulting report last year focused on future polymer production based on biofuels -- not ethane, he noted. "In not one instance did the Marcellus and Utica shale come up" as a source of cheap feedstocks, he said. "It's confounding to me how that happened."
Cheap production costs give ethane an edge over crude oil or biofuels also used as an ingredient in chemicals factories.
"Everybody agrees that there will be something there," Martha Gilchrist Moore, senior director for policy analysis and economics at the American Chemistry Council, said of eventual processing investment in the state. But Ohio is playing catch-up. "This is an area that has not been a part of the petrochemical base. They're starting from scratch."
Industry reports are full of announcements of cracker projects on the Gulf Coast, including projects by Chevron Phillips Chemical and Dow Chemical Co. Exxon Mobil Corp. and other majors are studying similar investments.
"In the Gulf Coast, you have plants in that area already there and you're just adding a line. In Pennsylvania, West Virginia and Ohio, it's all brand new. The chain needs to be put in place," Moore said.
"Nothing is going to be built immediately, because [the energy companies] are trying to figure out where the best opportunities are," she said.
Ohioans must also weigh the costs and benefits of a dramatic increase in petrochemical processing and production on their region, which already labors under high smog levels.
Ohio's competitive challenge is illustrated by the response to the shale gas boom by LyondellBasell, the world's largest producer of polyethylene and polypropylene, with a large research establishment in Ohio. LyondellBasell's operations are centered on the Gulf Coast, where it has six crackers. It has no plans for expanded operations in Ohio, despite its research base there, said public affairs director David Harpole.
"The simple answer is, LyondellBasell would not see, at least initially, a direct impact of growth from either the shale gas or other liquids-based gas regions in and around Ohio," he said.
"We're looking at low-cost, high-return projects we can have in service by 2014, 2015," Harpole said.
"The benefit the U.S. Gulf Coast has is that the infrastructure is so well developed, with numerous suppliers and customers, and companies that can work together to ensure that the business flows uninterrupted," Harpole said. The company is building a pipeline to deliver more ethane to its cracker plants from the nearby Eagle Ford Shale Basin in south Texas.
"Our focus is how to improve the competitive advantage we already have in this region as opposed to stepping out into a new region," Harpole said.
The comparative economic advantages of Gulf Coast development versus an Ohio expansion are not clear yet, said Kevin Petak, vice president of the ICF International consulting firm in northern Virginia. The ultimate outcome could be some combination of both these scenarios. "It's tough to tell how this may shake out," he said.