W.Va. Officials Hope to Cut Rail Expenses in Ethane Cracker Bid
December 22, 2011
West Virginia officials are working to help multinational corporations cut their railroad transportation costs if they build a large petrochemical facility in the state.
As part of their efforts to lure a $2 billion ethane cracker to West Virginia, several members of Gov. Earl Ray Tomblin's Marcellus to Manufacturing Task Force met Tuesday to talk about how to lower the cost of rail transportation for the owner of the facility.
Two multinational corporations, including Royal Dutch Shell, are looking to build a cracker in Appalachia. West Virginia is in a race with Ohio and Pennsylvania to get one built here. A cracker would take advantage of the region's massive natural gas reserves and create thousands of construction jobs and hundreds of permanent jobs.
Both of the state's major railroads are "captive," meaning one company controls their use. Florida-based CSX owns one railroad. Virginia-based Norfolk Southern owns the other.
Each company serves different parts of the state, meaning any new facility is basically subject to one monopoly or the other, depending on its location. That jacks up prices manufacturers have to pay to ship goods.
Generally, the Kanawha or Ohio rivers separate the railroads from each other.
The problem isn't unique to West Virginia; about 90 percent of the chemicals in the country are shipped on captive rail lines.
But the Tomblin administration is apparently trying to persuade the rail companies to offer the chemical companies better terms. It would do that by threatening to break each company's monopoly by giving a cracker access to both railroads from one location.
The task force proposed several solutions - including spending tens of millions of dollars on a bridge to span a river. But it's not clear if the group has any intention to follow through on any of the ideas.
Jack Lafield, president and CEO of Texas-based Caiman Energy, put the group's goals succinctly.
"Isn't the threat significant enough?" Lafield, who joined the meeting via phone, said.
Caiman specializes in getting natural gas to market.
Commerce Secretary Keith Burdette said he's been told by the petrochemical industry that having to ship goods on a captive rail line will cost an extra $1,500 per car. A cracker could make about 12,000 to 15,000 cars of product each year. That means the cost of using a captive rail line could exceed $22 million.
"That's why bridges and all of those other options come into play," Burdette said.
Another option would be to build or buy a short rail line that would give the cracker access to both major railroads.
Tomblin's general counsel, Kurt Dettinger, represented the governor, who was not at the meeting.
Dettinger said he thought in the end that the economic opportunity alone would spur the rail companies to make a good deal with the cracker company.
Crackers use byproducts removed from natural gas before the gas is burned in homes. One of those chemicals is ethane, a key ingredient in plastics.
The chemical industry has indicated that its final product - which is small pellets of plastic - can't be affordably barged across a river. Coal companies use barges to let them choose between railroad companies.
Nor does it make sense to put the pellets on a truck before putting them on railcars. Most of the plastic products would be headed to manufacturers in the northeast, though officials eventually hope manufacturers will settle locally to be near the cracker.
Patrick Donovan, a director of transportation at the Rahall Appalachian Transportation Institute in Huntington, indicated that one rail company seemed to be more willing to negotiate than another about cracker shipping costs.
He said one company was looking to expand into the chemical business. CSX already has some equipment and dealings with the chemical industry, so Donovan was apparently suggesting Norfolk Southern's talks with Shell or the other company had so far been more productive. The other company's name has not yet been made public.
A spokesman for Norfolk Southern did not comment on the meeting. A spokesperson for CSX did not return a call seeking comment.
The meeting was yet another sign that officials are ramping up efforts to attract a cracker to the state.
Burdette recently said the state was considering a tax incentive that would save a cracker builder about a half billion dollars over 25 years.
Even if the state never has to build bridges or attempt to break the rail companies' respective monopolies, Burdette said the group's meeting was meant to send "a clear signal" to cracker companies that the state was doing what it could to attract a cracker.
The two petrochemical companies appear to be looking at sites in three states, including sites in the Kanawha Valley, the Northern Panhandle and in bottomland in Ohio, just across the river from West Virginia.
Because Ohio and Pennsylvania also have captive rail, they could face problems similar to West Virginia.
West Virginia has at least one advantage over Ohio: It technically controls most of the Ohio River, meaning that if the state of Ohio wanted to break the captive rail monopoly in its state, it might have to get permission from West Virginia.
Burdette said that if the cracker were built in Ohio and Ohio officials called about building a bridge across the river, "Wow, I might not be able to take their call."
Source: Charleston Daily Mail (West Virginia)
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