We wanted to follow up on last week’s interview with Petral Worldwide’s James Cutler on how a Gulf Coast model for petrochemical processing is being imposed on the Appalachian basin by discussing a proposed ethylene/polyethylene plant that Appalachian Resins is working on in the region.

Appalachian Reins is in the second stage of preliminary developments for the 500 million pound plant, which would serve to fill the niche that Culter discussed with Midstream Monitor last week. It should be noted that while Petral is not involved in this project, Cutler is in discussions arranging financing for the facility.

“We’re taking a different approach than the Shells and Dows who are looking at worldscale plants. A lot of these plans don’t include the secondary operations, they just sell to other companies to polymerize it and make it into resins. We’re looking at a smaller scale and not just the ethylene plant. We’d look to buy ethane out of the Marcellus shale, turn it into ethylene as well as several different polyethylene resins, which we would sell into the East Coast marketplace,” Bob Mifflin, president of Appalachian Resins, told Midstream Monitor.

He declined to provide specific construction costs, but stated that they would likely be less than half of those being bandied about for worldscale crackers, which have been estimated at costing between $2 billion to $2.5 billion. “We’re looking to be more of a niche operation for Northeast fabricators. We feel we have the right niche and the right cost to fill a need,” Mifflin said.

A specific location for the 50-acre site has not been secured as of yet, but he stated that the company has three locations in mind for the facility, which would have a regional focus. Each of the prospective locations are situated near natural gas plants, which should make getting supplies easier.

“We’re probably better focused on West Virginia than on Ohio or Pennsylvania. Officials in West Virginia might be more conducive to sitting down and seriously talk to us when we’re ready to make a decision after losing out to Pennsylvania on the Shell plant,” he said while adding that the company anticipates being ready for such discussions in the next month or so.

As Cutler mentioned in our previous issue, Mifflin reiterated that it was important for a project of this scale to get into the market ahead of a worldscale plant. “The first credible, reliable guy that comes into the marketplace gets to cherry pick a little bit. People are ready and anxious for a plant in the region. Right now, some companies are having polymers shipped up from the Gulf Coast or Canada. They would love to have the chance to get these volumes from a closer facility just from a logistics point of view, which helps us from a cost-competitive standpoint with these larger plants located further away,” he said.

According to James Cutler, Shell is not currently in the U.S. polyethylene market. They divested themselves of these assets some time ago. Recently, because of the profitability of the U.S. polyethylene business, Shell has indicated that they are considering reentering this market. Shell certainly has the resources to do this. This overhang has made it difficult for Appalachian Resins to firm up its equity financing. There is a question of whether Shell will make a $2 billion investment in a worldscale ethylene/polyethylene complex in light of Exxon Mobil and others announcing major expansions on the Gulf Coast. Meanwhile, the Northeast polyethylene buyers are paying for this with higher freight costs.

“Most of these big players focus on making the ethylene. They have almost a different model than what we are looking at. They’re basically the Wal-Mart on the block and we’re the WaWa. We can’t compete on scale, but if we do things right we can give them a run for their money along with significant return on capital,” Mifflin said.

A worldscale-sized plant would not be dependent on regional supplies as it can gather supplies from all over the world. However, the smaller-sized plant that Appalachian Resins is focused on would seek to build close to the source of the raw material.

“For a project like this to be successful, you have to be sure that you have a good, reliable source of raw material. The Marcellus and Utica shales aren’t going away anytime soon so that shouldn’t be a problem in this region. We want to make sure we’re not moving into an area where we at least won’t have a competitive disadvantage and hopefully we could get a nice competitive advantage,” Mifflin said.

Ideally, the company would like this plant to come online in three years, but he acknowledged that this was probably overly optimistic. “Hopefully we’ll be in the marketplace as early as anyone and earlier than most,” he added.

Contact the author, Frank Nieto, at fnieto@hartenergy.com.