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 mark ondrusek on October 24, 2013 at 5:48am

getting back to the original post....the people in the county I talk to are saying the plant is on track and moving forward!

 

Permalink Reply by Fred Flintlock on October 24, 2013 at 6:41am

Mark, email the author of the article and let him know.

Permalink Reply by Mud Flaps on October 24, 2013 at 5:52pm

TEA Party!!!!!!!!!!!!!!

Permalink Reply by Lance Nimmo on October 24, 2013 at 8:04am

Take Texas for example. Those gracious, letting us share in the air we share, O&G companies have TRASHED the rural roads of the state. Farmers down there are having a helluva time getting products to market as the infrastructure has deteriorated that much. At least in PA, from what I've seen, the O&G companies have to beef up rural roads before moving in.....

Permalink Reply by Samuel J. Orr on October 24, 2013 at 10:34am

The more I read, the less convinced I am that Shell will build the plant in Pennsylvania. The more troublesome question is whether they ever seriously considered building it in Pennsylvania. I do not like to be cynical, but I am starting to wonder if the whole idea was floated by Shell as a means to secure concessions from our state government. By state government, I am referring not only to the Governor but also to the Pa. Senate, and the Pa. House of Representatives.

Permalink Reply by Lance Nimmo on October 25, 2013 at 3:40am

Wait, are you saying in a page in a half after saying that I used to be sensible I am now sensible?

Permalink Reply by Samuel J. Orr on October 25, 2013 at 9:47am

I guess you can conclude that. Although I disagree about the wisdom of enacting a severance tax, I do believe that Shell may have dangled the Cracker Plant to gain favorable treatment. To the extent that this is true, the Governor and the Pa legislature may have been played! (I still hope the plant is built but the article in the October 25 - November 1 issue of the Pittsburgh Business Journal suggests persuasively and provides reasons why it will not be built!)

Permalink Reply by Lance Nimmo on October 25, 2013 at 2:33pm

Sam, I'm not debating the wisdom of the tax. I'm debating the wisdom of having less of one than our neighbors do. It doesn't make any sense. Just create an even playing field. I think if you read all of my posts you'll see that...

Permalink Reply by Frank Nesmith on October 25, 2013 at 4:57am

You read my mind Sam. I have wondered that all along.

Permalink Reply by Fred Flintlock on October 25, 2013 at 5:04am

Mark Ondrusek, where do you get your Hearsay information from?

Permalink Reply by craig on October 25, 2013 at 5:41am

Fred, All information concerning the cracker plant is hearsay right now.

I'll just add more hearsay….. When a lead lawyer for a business buys an expensive house in the area and then pays 10's of thousands of dollars to re-paint the interior to their liking, I'd guess they plan on being in the area awhile.

Call that hearsay if you want.

Please remember the ole axiom:  Don't listen to what they say and don't believe what you read, but watch what they do.

Permalink Reply by Trapper on October 25, 2013 at 6:01am
Thank you Craig for bringing a voice of reason to this thread!

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