Pennsylvania's Hope Fades for Shell Ethylene Plant

Updated Oct. 21, 2013 12:07 a.m. ET

When Royal Dutch Shell RDSB.LN +0.65% PLC unveiled plans early last year to build a multi-billion-dollar petrochemical plant in Pennsylvania, the company saw it as a smart way to exploit the boom in natural gas coming from the region's Marcellus Shale formation.

The plant would turn ethane, which is a liquid produced alongside natural gas and oil, into ethylene, a chemical used to make plastics. Annual global demand for plastics is expected to rise by half by 2020 to about 225 million tons, according to estimates from Exxon MobilCorp. XOM -0.37% , which operates petrochemical plants.

Ethane costs have fallen by 20% from last year to a recent 25 cents per gallon, making it the feedstock of choice for plastic makers.

Yet Shell's proposed plant location in Northwest Pennsylvania sits vacant, despite almost $2 billion in state tax incentives. Meanwhile, analysts wonder whether new pipelines envisioned to move Pennsylvania ethane to Texas and Louisiana could erase Shell's advantage and torpedo its plans entirely.

State and local officials referred all questions about the plant to Shell, which still hasn't purchased the land for the project. The company now says it might take several more years to evaluate the 360-acre site, according to spokeswoman Kim Windon. Earlier this month the company ended an official search for oil and gas producers to supply ethane to the plant, but hasn't disclosed the outcome.

"They've taken 18 months to think about it, and then they say they're still thinking about it," said Rusty Braziel, an analyst with consulting firm RBN Energy Inc. The plant "fundamentally doesn't make sense to me," he added.

Since Shell proposed its plant, three pipeline projects that would channel Marcellus Shale ethane southward have been announced. Kinder Morgan Energy Partners KMP +1.89%LP, Enterprise Products Partners LP and Williams Companies Inc. have said they will build lines carrying 600,000 barrels per day of ethane and other liquids from the Marcellus down to the Gulf Coast.

With the added capacity coming on line, it may make more sense to pay to move ethane across the country via pipeline than build an entirely new plant with entirely new, expensive infrastructure in Pennsylvania, said Raymond James analyst Darren Horowitz.

At first blush, Pennsylvania would seem to offer a lot of advantages for ethylene production. In the next three years, the state's ethane output could increase eightfold, reaching 650,000 barrels a day, according to RBN Energy projections.

But even though Pennsylvania would seem to have a home-field advantage, sitting atop so much ethane, the state can't compete currently with the Gulf Coast's massive infrastructure, home to millions of barrels of ethane storage and pipelines feeding nearly a dozen petrochemical complexes and plastics plants, according to RBN.

http://online.wsj.com/news/articles/SB20001424052702304384104579143...


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Permalink Reply by Fred Flintlock on October 22, 2013 at 7:30am

They won't build anything til they get a tax abatement like Mckesson.  

I'm sure they don't need any help when they can afford to pay 970k for 21 ac.  

Permalink Reply by Chris Crawley on October 22, 2013 at 9:10am

What did they buy for that price?? I've got 15 AC I'd like to sell them..(:>)..

 

Permalink Reply by Fred Flintlock on October 22, 2013 at 10:49am

They bought an old bowling alley,  ripped it down.  It sits empty now.  Lots of woods.   It's right on RTE. 422. 

Permalink Reply by Trapper on October 22, 2013 at 12:12pm

Portersville Valve is going to build a brand new facility there. 25 or so new jobs if my memory serves.

Armstrong World Industries old site in Beaver Falls also is going to be home to a new facility by another valve manufacturer that does work for GE. 40 new jobs I believe were reported for this one.

The shale business is slowly but surely having a positive impact on our area.

Now if Shell would only build that cracker................

Permalink Reply by Samuel J. Orr on October 22, 2013 at 11:50am

Lance: Your posts used to be sensible and constructive. Our geology is not quite as good as eastern Ohio's. Many companies, not just O&G companies, bargain for concessions from State or local governments when deciding where to locate. As a general rule gluts turn into shortages and shortages turn into gluts. It may well be, as Chip Decker has posted, that many O&G companies currently have as much land as they can profitably drill in the  near future. At this time I hold some land that is unleased. Infrastructure is lacking to deliver any gas that my property might currently produce. Some of my neighbors are leased and were paid substantial bonus money. I am happy for them, but accept the fact that I also have some valuable property that will get leased at some point in time. It is what it is! Your recent rants are not at all constructive. Do you want a moratorium like they have in New York? Do you want Pa do remove all tax incentives for O&G companies to locate here and to drill here? I do not know where you are coming from but the tone of your recent posts suggests that you are coming a bit unglued? Chill out, take a valium if you need it, and be happy that you have valuable property. If you really need money, sell some land or perhaps some portion of your mineral rights! I too get frustrated that I do not as yet have a lease. Fortunately, one of my friends told me to chill out. It was good advice, and I am passing that same advice on to you.

Permalink Reply by james on October 22, 2013 at 12:36pm
Well spoken Sam, I don't know what the gas/oil companies have planned short term, but long term this entire area is going to be exciting over the next 20+ years. We also are not currently leased and we own one of the biggest chunks of acreage in the county, we are in the same boat, all the neighbors signed leases last summer/fall and received huge bonus payments. I hope we get a lease soon, but I'm not going to loose any sleep over it.
Permalink Reply by Samuel J. Orr on October 22, 2013 at 1:46pm

Glad to see your post James. Sorry to hear that your property has not yet been leased. It would be really nice to get a lease in 2014. It may be that 2015 will be the year. I do get frustrated at times but there is nothing I can do but try to be patient. It was very good news that HK just traded various parcels in the Utica to Shell in return for some of Shell's parcels in the Utica. I was initially concerned that HK was going to dispose of much of its acreage by way of a "fire sale"! It is very positive that both Shell and HK are holding on to their Utica positions as this suggests that the exploratory wells have been sufficiently good to justify developmental wells in the future. The planned pipeline projects will be further positive evidence when they get underway. Keep the faith!  In closing I will quote to the best of my recollection Abraham Lincoln... "Trusting to Him who can be with me and remain with you and be everywhere for good, let us confidently hope that all will yet be well." (I'm sure my recollection of the words are not 100% correct but I believe they are close!) Regards, Sam

Permalink Reply by Lance Nimmo on October 23, 2013 at 2:41am

Sam, so let me get this straight. Because I question the logic of offering huge tax breaks to O&G companies I am anti fracking? I think your reading comprehension is "unglued." Read my posts. At no point did I elude to any of the questions you posed to me in my previous post. I used to be constructive? This is getting hilarious. Anytime someone is critical of the God O&G companies they are for a moratorium. Feel free to look me up. I signed up land in two different counties over 5 townships at the height of the signing last year. I have zero sour grapes, etc. I just want PA to treat the O&G companies like OH does. They have severance taxes that exceed ours, and the O&G are not leaving the state. All I am asking for is that Exxon be treated like True Value hardware. Not like a bunch of black mailing pirates that get special treatment.

 

Let me guess, since making assumptions is the thing to do here, you think the law that Corbett signed making it possible for the O&G companies to force pool old HBP leases was a good thing? I mean it saved O&G companies billions and screwed landowners. Great law!

Permalink Reply by Fred Flintlock on October 23, 2013 at 2:58am

Great Post Lance.

It amazes me, as a small business owner myself, these companies get such special treatment.   They bring jobs, alright. I love seeing the Mexican Camp behind Sky King Fireworks in Hillsville, PA .  Glorified Campsite.   I know the neighbors are trying to get it shut down. 

Permalink Reply by Lance Nimmo on October 23, 2013 at 3:02am

Get out of here Fred. It's anti frackers like you that are ruining this country. Don't you realize the value that these foreign, low wage, temporary workers and their campsites bring to the local convenience stores? Communist ;)

Permalink Reply by Rick on October 24, 2013 at 4:51am

Thank you Lance! Very wise man! Actually i think tax abatements should be illegal all across the USA. Many times, but not all, they create an atmosphere where states try and steal companies from another state to locate in their particular state, in most cases with a net loss of jobs due to automation.These laws create a race to the bottom for land prices, and increase all of our taxes as these multinational companies cause a HUGE amount of wear and tear on a HUGE amount of infrastructure that you and I pay for while they pay less property taxes than you and I do for a two bedroom 50 year old house. Not counting their requests for special infrastructure to be built by me and you just to accomidate these operations. Tax abatements prove time and time again to be a waste money!

 

Permalink Reply by Ragnars Repo on October 24, 2013 at 4:58am
Government proves to be a big waste of our money time and time again. For some reason some always believe the answer is the other party. Time for a different party, one that is so radical it seeks to limit government and speaks of crazy things like flat taxes.

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