What is a storage hub?
A storage hub is a single or set of, storage locations for raw material hydrocarbons such as ethane and butane. It can also include manufactured chemical intermediates such as ethylene. These storage locations are typically below ground in salt domes, natural gas caverns, or other non-porous formations.
A storage hub includes a backbone of pipelines from source locations to key manufacturing locations plus associated monitoring equipment and appropriate pumps or compressors to move the materials. Some hydrocarbons, especially methane (or natural gas) and crude oil can also be connected to a large country or continent wide pipeline system.
Most storage hubs act purely as a materials storage and transportation network. However, some also act as or include financial exchange structures with price-setting based on local or regional supply and demand. The materials all meet standard specifications.
How does is it work?
Producers of hydrocarbons or chemicals link to the pipeline system and flow their material to the storage locations. Consumers of these materials similarly link to the pipeline system and withdraw materials. This flow of materials is governed by a set of contracts.
Third parties independently monitor and report on flows and storage levels. They also assay the materials to ensure that standard specifications are met. Finally, they are tasked with the smooth operation of the storage hub, which includes both routine maintenance and long-term capital maintenance and needs.
Fees are collected for storage, input and withdrawal of materials. These fees include two components: the on-going payments to third parties to keep the operations running and a payback portion for the large capital outlays needed to establish the storage hub.
A governing body of stakeholders overseas the performance and negotiates the fees for third parties. They make decisions regarding changes in the operation of the storage hub. Changes to capital payback portion can also be made by this governing body.
Is this storage hub a new concept?
No, it has been around for decades and successfully implemented globally in many locations. It is considered standard practice in the petrochemical industry.
The largest example is the Mont Belvieu storage hub on the U.S. Gulf Coast. Other prominent global examples can be found in Rotterdam, Netherlands and Al Jubali Saudi Arabia. These examples have been in operation for decades.
What are the benefits of a storage hub?
The benefits are numerous and have a considerable and long term impact on the region, as demonstrated by the success in existing global storage hubs in fostering petrochemical investment and growth.
The storage hub is essentially a pooled resource of raw materials, overall capital outlays are dramatically reduced for any single producer or consumer. Both cost and risk is spread among a number of stakeholders.
If a financial exchange structure or system is included, then more transparent and market efficient pricing provides an added benefit producing a level playing field available to all.
However, the largest economic impact is simply the increase in attractiveness of the region to additional — and very large — investments along with potentially hundreds or thousands of high-paying, STEM (Science, Technology, Engineering and Mathematics) jobs. These include investments and jobs in upstream, midstream and downstream facilities.
For example if the storage hub includes ethylene from regional cracker facilities, then it opens up the region to the many consumers of ethylene (more than 20 distinct chemical processes) that are too small by themselves to invest in an ethane cracker. By consuming ethylene, they, in turn, create additional demand for ethylene which could lead to ethane cracker expansions or additional crackers. This in turn, causes increased demand for ethane from natural gas producers and midstream companies.
These additional capital investments not only bring large numbers of jobs but also increased taxes for the region to grow. It should be noted that each petrochemical manufacturing job historically creates additional 2 to 5 in direct jobs in the community.
Security, and thus reduced risk, is an important component as well. The storage hub features underground storage and transportation, widely accepted as much safer and more secure than above ground storage and transport. In addition, producers of these materials have access to a larger connected customer base while consumers of these materials have access to multiple suppliers, minimizing the impact of any single interruption in the demand or supply chain.
Finally, creation of another large storage hub in the U.S. separate from the Mont Belvieu hub will lead to the formation of a petrochemical complex geographically distant from Mont Belvieu. This would provide increased security from any single terrorist activity but also from potential weather disasters, especially hurricanes. Unfortunately, hurricane Katrina forced a shutdown of many of the Gulf Coast complexes with a resulting nationwide impact. A larger presence of chemical manufacturing in the Appalachian basin would reduce this risk substantially.
Where would it be built?
That is still to be determined and depends heavily on local geology. Underground storage sits typically impermeable underground salt domes will need to be evaluated. Many such sites exists, their suitability and capacity are unknown.
One proposal is essentially to follow the existing Appalachian basin chemical footprint and run along the Ohio River between West Virginia and Ohio, with small side branches. Further extensions along the Ohio River to Kentucky and Indiana petrochemical complexes have also been contemplated.
The Appalachian Storage Conference will be your opportunity to learn first-hand what this means to your company.
Appalachian Storage Conference information www.appastorage.com
Agenda and Speakers https://www.appastorage.com/agenda/