PARKERSBURG - Construction of a cracker plant could mean billions of dollars in economic impact for West Virginia over the next four decades, but the state must take steps to realize that potential, according to a study released Tuesday.
"We need to keep our eyes on the prize, and that's long term," said Tom Witt, professor emeritus and former director of West Virginia University's Bureau of Business and Economic Research.
Witt, the chief economist for Witt Economics LLC, presented the results of his study, titled "Building Value from Shale Gas: The Promise of Expanding Petrochemicals in West Virginia," to the state House of Delegates' Gas Works WV Caucus on Tuesday.
The study was funded by Braskem America, which is controlled by Odebrecht, the Brazil-based company looking to build a petrochemical complex centered around an ethane cracker plant in Wood County.
"An ethane cracker of that magnitude is going to employ thousands of people in the manufacture of the ethane cracker and the suppliers," Witt said in an interview with The Parkersburg News and Sentinel Tuesday.
Witt's study did not focus specifically on Wood County, but looked at the construction of a hypothetical $3.98 billion cracker plant and associated polyethylene plants that would use materials generated by the cracker.
Photo by Jess Mancini
Tom Witt, chief economist at Witt Economics LLC and a professor emeritus at West Virginia University, answers a question during an interview Tuesday at The Parkersburg News and Sentinel.
Odebrecht's plans include three polyethylene plants in the complex that is proposed to be built at the current site of SABIC Innovative Plastics in Washington, W.Va. That facility is slated to close in 2015, and Odebrecht recently purchased the property for nearly $11 million.
According to the study, construction alone would generate nearly $1.35 billion and create the equivalent of approximately 18,156 job years (one job employed for one full year) in full- and part-time jobs over a four-year period. More than 6,000 indirect job hours and $697 million in economic output would also be generated through related businesses and the economic activity of those companies and their employees.
"The real, critical, long-term, value-added proposition comes after the construction, and that's in the operation," Witt said.
At A Glance
Projected cracker plant/polyethylene economic impact:
* $2.043 billion - Estimated economic output of the four-year construction process (retail and wholesale sales minus the cost of goods sold)
* 24,118 - Direct, indirect and induced job years (full- and part-time employment for a full year) over the four-year construction process
* $1.116 billion - Employee compensation during the four-year construction period
* 325 - Jobs at the cracker and polyethylene plants going forward
* 1,623 - Indirect and induced jobs during the startup phase
* 1,763 - Indirect and induced jobs at full operation
* $109 million - Direct, indirect and induced employee compensation per year at start-up
* $116 million - Direct, indirect and induced employee compensation per year at full operation
* $764 million - Total output per year at start-up
* $840 million - Total output at full operation
Source: "Building Value from Shale Gas," by Tom Witt.
At start-up in 2018, the hypothetical plant in Witt's study would employ 325 people, but indirectly would support 1,120 jobs for suppliers and related companies and 503 "induced jobs," related to employee spending. Economic impact is estimated at $764 million.
Four years later, at full operation, the study projects 140 more indirect and induced jobs, and economic impact of $840 million.
The ethane cracker plant would receive ethane, one of the natural gas liquids found in gas extracted from the deep-underground Marcellus and Utica shale formations, and use it to produce ethylene and other products. Polyethylene plants then use the ethylene to produce polyethylene used in a variety of products, including food packaging, plastic film and sheet, trash bags and more.
The presence of the cracker and polyethylene plants, along with the access to raw materials, a skilled workforce and proximity to many markets, could attract other companies to the area, the study says. Two scenarios it projects include the construction of multiple plants, creating 610 to 926 direct, indirect and induced jobs and economic impacts of $171 million to $280 million.
But those long-term dividends are not guaranteed. Witt said the state needs to create "the physical and social infrastructure" to make the possibilities reality. Otherwise, the products produced at the plants will go elsewhere, instead of staying in the area and forming the basis of a revitalization of West Virginia's manufacturing, chemical and polymer industries, he said.
That infrastructure includes pipelines, railroads, a favorable tax climate and a properly trained workforce.
"Even if you bring in a facility like this and you have it up and operating, it comes back to human resources," Witt said.
Businesses need to communicate with educational institutions, from elementary to post-secondary, to convey what types of jobs are available in the area and what type of training is needed, Witt said.
The state should review its tax structure to see what type of incentives are available to entice companies.
"I'm not arguing to give away the farm," Witt said. "(But) it's a war between the states when it comes to tax incentives."
One potential obstacle West Virginia faces is the presence of only one railroad provider, which means a lack of competition when it comes to rates, Witt said.
Delegate Tom Azinger, R-Wood, attended the caucus meeting Tuesday and said Witt's findings reinforced the magnitude of the opportunity the cracker plant represents.
"The opportunity we have to expand our economy with this Marcellus Shale is unprecedented," he said. "For every disadvantage, there's a dozen advantages."
Azinger said the state must balance its approach to the industry in terms of regulations and taxes.
"We need to regulate them but we need to not over-regulate them," he said. "We need to make sure that we stay competitive tax-wise. ... We don't want them to 'steal' our natural gas, but we also don't want to make it cost-prohibitive to drill."