CHARLESTON, W.Va. — While Gov. Jim Justice and his staff accused a West Virginia businessman of crossing the line on state efforts to develop multi-billion-dollar natural gas business with China, Steve Hedrick certainly wasn’t hiding his involvement.
Justice sounded alarms last month in revealing that his administration found “things that we didn’t think were right. People that were there in China maybe representing their own special interest. We didn’t think it was right.”
The roles of Hedrick and MATRIC, the non-profit development firm he leads, are highlighted in the application for a $1.9 billion federal loan for development of the Appalachia Storage & Trading Hub. West Virginia MetroNews obtained the application, along with 610 pages of materials, from the U.S. Department of Energy.
Hedrick is a West Virginia native and a former U.S. Army officer. He spent years in the chemical industry at companies like Bayer CropScience. He’s now president and chief executive at the Mid-Atlantic Technology Research & Innovation Center, a nonprofit development center built on the old Union Carbide tech center in South Charleston.
In recent years, Hedrick has been a driving vision behind a natural gas storage hub that could take the region’s ample raw material and supply the feedstock for manufacturers throughout the region.
Justice’s accusation about Hedrick has puzzled the state lawmakers most directly involved with natural gas development in West Virginia.
“The governor’s move does make one ponder and make one wonder what the hell is going on. You’re right to be scratching your head,” said Delegate Mark Zatezalo, R-Hancock, a vice chairman of the House Energy Committee.
Development of West Virginia natural gas through a central storage hub has been Hedrick’s idea for years, said Delegate John Kelly, R-Wood, another vice chairman of House Energy.
“That’s Hedrick’s project. He started it. Maybe the governor needs to back off,” Kelly said this week.
Kelly added, “If the governor wants private enterprise then stay the dickens out of private enterprise. Don’t come in and steal the thunder after two years of work these people have already put in.”
Big investment, big accusation
Billions of dollars, lingering mystery and political ripples continue to roll through this story.
Last November, state Commerce Secretary Woody Thrasher made a splash announcement that China Energy may invest up to $83 billion in West Virginia’s natural gas infrastructure.
The natural gas storage hub was immediately seen as being among the most likely investment targets.
“Hedrick has been involved in the Appalachian storage hub from the beginning, before the Chinese ever got involved in it,” Kelly said. “The Chinese had seen his work and wanted to get involved with it.”
In a November news conference about the China deal, Justice crossed his arms in a celebratory handshake with Thrasher and Brian Anderson, the director of the WVU Energy Institute and Hedrick’s partner in the development company for the natural gas hub.
Since the first triumphant announcement of the China deal, trust has soured.
On June 15, Gov. Justice revealed for the first time an investigation into Hedrick’s activities.
The issue surfaced among the factors that led to Thrasher’s forced resignation and the departure of Deputy Commerce Secretary Josh Jarrell.
Hedrick wasn’t named, but West Virginia is small enough that reporters quickly figured out who Justice was referencing. The accusation was that Hedrick was using his relationships for private gain.
“The people of this state don’t deserve us taking advantage of them. The people of this state do not deserve us taking their money,” Justice said at the time. “They deserve somebody that’s going to stand up and say, ‘That’s not right and I’m not going to stand for that.’ That’s exactly what I did.
“When we found out there was something that didn’t look right about the China situation we started an investigation. We brought everybody on board. We brought the legislative oversight, the U.S. Attorney. We brought everybody on board immediately because we didn’t like what we saw.”
The administration brought in former U.S. Attorney Mike Carey, who examined six months of data and 10,000 emails. The cost of Carey’s work was $20,860.45.
Unsure whether anything criminal had taken place, Justice said the information was turned over to the current U.S. Attorney.
The Governor’s office alleged Hedrick used close relationships to gain inside knowledge and formulate strategy about the China deal.
“The individual associated with that is an outside party that had also been working with Commerce,” said Brian Abraham, general counsel for the governor. “We heard some information within that that didn’t make sense. That caused us to go ‘Why is this person behind the curtain at Commerce if they’re an individual on the outside? That created an ethical dilemma.”
Abraham added, “It became aware at one point that Commerce had pretty much, it looked like, given the China strategy, the lead from that, to a person that didn’t work at Commerce.”
The Governor’s office alleged Hedrick had been on state flights related to the China deal, including one where he was the only passenger. Other flights included Hedrick traveling with prominent representatives of the Justice administration, including Thrasher, Environmental Secretary Austin Caperton and Chief of Staff Mike Hall.
The flights amounted to $23,000. MATRIC said it reimbursed the cost and released a statement by Hedrick alluding to invitations from the Department of Commerce to participate in talks:
“MATRIC can confirm that President and CEO Steven B. Hedrick was grateful to respond to the request of the State of West Virginia to support the Commerce Department’s mission to attract business to the state. Such business development missions included the use of both State transportation vehicles and commercial conveyances. MATRIC promptly paid any expenses invoiced by the State.
“Mr. Hedrick is not privileged to any outcomes of the investigation. Please direct any additional questions about the investigation to the Governor’s office.”
A MATRIC spokeswoman said Hedrick was out of pocket this week and unable to comment.
Kelly of the House Energy Committee acknowledged Hedrick’s judgment might have erred in accepting the flights. But the delegate noted that the Justice administration must have invited him.
“As far as Steve Hedrick getting too far and going across the line, between Steve Hedrick and Brian Anderson, that’s their project as far as I’m concerned,” Kelly said. “They’re the ones who have basically done all the work.
“If anyone crossed the line, I think the governor might have crossed the line getting involved with Hedrick’s project.”
The hub
Hedrick wasn’t lurking in the shadows.
Characterizations of the executive as an industry leader with expertise were up front in the pitch for investment in the enormous natural gas hub loan.
The natural gas storage hub, with an estimated development cost of up to $10 billion, is a key part of the vision for the region’s natural gas industry. The underground storage and distribution facility is viewed as a centerpiece for development of downstream products.
Supporters view the project as a way for shale development in Appalachia to compete with the Gulf Coast in Texas and Louisiana.
West Virginia’s congressional delegation — and delegations from surrounding states — signed off on their support for the project. The West Virginia delegation scrawled their names on a letter to President Donald Trump.
“The development and construction of a world-class natural gas liquid (NGL) storage and distribution hub in the Appalachian region would not only enhance America’s energy and national security, it could also spur a manufacturing renaissance and bring jobs and economic growth to an area that has struggled in recent years and overwhelmingly endorsed your pro-energy policies in last year’s election,” they wrote.
The vehicle for the project is a nonprofit consortium called the Appalachia Development Group, which was incorporated in Delaware in 2017. Hedrick is the chief executive officer.
Appalachia Development Corporation, in turn, incorporated several businesses that evoke facets of the gas supply chain.
They include Appalachia Development Group Chemical LLC, Appalachia Development Group Pipeline LLC, Appalachia Development Group Trading LLC, and Appalachia Development Group Storage LLC. All are also incorporated in Delaware, known for its business-friendly tax environment.
The Department of Energy announced early this January that Appalachia Development Group had made it through the first phase of a development loan guarantee. Essentially, the project’s backers were invited to move on to the next phase.
The application cast Appalachian Development Corporation not only as a company but also as a vision guided by key leaders:
“Appalachia Development Group is a vehicle established to deploy the Appalachian Storage and Trading Hub through principal leadership, investment attraction, and industrial growth.”
Hedrick is listed as the primary contact on the loan application for the natural gas hub. He is also the first person listed under “key staff.”
“Mr. Hedrick has nearly three decades of broad-based leadership experience in petrochemicals, leading businesses, chemical manufacturing and health, safety, environment and quality on broad industrial platforms,” his biography in the application states.
The biography of Hedrick states his role would be responsible for a series of staggering numbers: Steering up to $10 billion in development that could lead to $36 billion in spinoff investment, 100,000 new jobs and $6.2 billion in annual payroll and $2.9 billion in annual tax revenue for the Appalachian region.
The role of MATRIC, the non-profit technology company led by Hedrick, also gets some love. “MATRIC is a world-beating, market-driven innovation engine whose skilled, motivated and highly competent workforce is organized into three business areas, aligned by their area of technical capabilities.”
Besides Hedrick, Appalachia Development also includes Brian Anderson, director of the WVU Energy Institute, as its chief technology officer.
The loan application for the Department of Energy recalls Anderson’s upbringing as the grandson of a coal miner, as well as his many accolades in science and research.
Anderson’s employer, the WVU Energy Institute, has a 15-year collaborative history with China Energy, through its predecessor, Shenhua. The collaboration began in July 2002 with joint research on direct coal liquefaction technology.
In 2016, WVU and Shenhua signed a partnership agreement to establish West Virginia as the priority area for Shenhua Group’s investment into U.S. markets including natural gas power plant development and shale gas development.
“Steve Hedrick and Brian Anderson were the go-to people on this project. They know more about this project than anybody going on. They’re the people who went to energy department. They’re the people that talked to them, Delegate Kelly said. “They started it. They started it.”
Early promise, current clouds
An announcement celebrating the first hurdle on the federal loan came from Appalachia Development Group.
“There is much work to be done to drive this forward, and our team is strong, prepared and highly motivated to move forward,” Hedrick stated in the announcement.
It included comments by Hedrick, as well as by senators Joe Manchin and Shelley Moore Capito and Congressman David McKinley.
Capito: “This is another step in the right direction, and I will continue working to help make this game-changing idea a reality.”
Manchin: “I have long said that the Appalachian Storage Hub is a vital project that will help us capitalize on our state and region’s abundant natural resources, growing infrastructure and innovative spirit.”
McKinley: “The storage hub has the potential to create thousands of jobs, attract billions in investment, invigorate Appalachia’s economy, and establish our area as a force in the petrochemical industry.”
It was that press release that actually triggered suspicion, Abraham, the governor’s general counsel, said on June 15.
“We received a press release regarding the gas hub that had nothing to do with China Energy. The individual associated with that is an outside party, but had also been working in Commerce or was working with Commerce. We heard some information in that that didn’t make sense. So we started looking into that.”
Justice’s office put out a separate supportive statement this past Jan. 3 touting the milestone. The governor said he was pleased by the efforts of the Department of Commerce, West Virginia University and MATRIC.
“We are anxious to see it come to fruition over the next several months with the invitation for ADG to now complete part two of the application process and seek the issuing of the loan guarantees.”
Support may still exist for the project, but relationships have strained among the central figures.
Thrasher, the former face of the Commerce department, is out. Justice raised ethical questions about Hedrick. And the China deal itself is now in question because of broader issues — the ongoing trade strain between the United States and China, represented by increased tariffs on imports and exports.
Officials with China Energy canceled a planned appearance last month at an industry conference, where they’d been expected to announce their first investments. Anderson, Hedrick’s partner who appeared at the conference, broke the news.
Delegate Zatezalo, troubled by the events, maintains high hopes for the storage hub.
“I’m not sure what the Governor’s office is doing. I thought they had a pretty good handle on it and things were moving forward,” Zatezalo said. “The only thing I know for sure is that hub has to go. It is critical.”