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Shell's Proposed Pennsylvania Ethane Cracker Still 'Viable' as Work Continues

Extensive site preparation and behind-the-scenes administrative work is continuing for Royal Dutch Shell plc affiliate Shell Chemical Appalachia’s proposed multi-billion dollar ethane cracker in Western Pennsylvania.

If constructed, the facility would be the first of its kind to be built outside the Gulf Coast in more than 20 years. For years now, a final investment decision on whether the company will actually build the plant has been delayed.

Despite a shadow that has been cast over the project by the fall in commodity prices and plans to scale-back liquids production in the region, Shell has maintained that the downturn has not specifically influenced its decision on the project, but noted instead that it must ultimately compete with other future investment opportunities in the supermajor's portfolio.

"They're still doing a lot of preparation out there for roads, bridges and road relocation," DEP spokesman John Poister said about work at the site. "They have what they need and they're continuing to do lots of work," he added about state approvals and permits.

The company has, or plans to spend, millions of dollars to prepare the site, which would be built on 400-acres near the Ohio River in Potter and Center townships in Beaver County -- about 35 miles northwest of Pittsburgh near liquids-rich windows of the Marcellus and Utica shales. The company completed its purchase of the land for the site last year after first signing a purchase option in 2012 (see Shale DailyJune 18, 2015March 16, 2012). It was formerly the site of a zinc smelting plant.

So far, Shell has spent heavily to construct a bridge that would allow construction crews to move material back and forth from the site without interrupting local traffic. It has committed to spending about $80 million to clean up environmental contamination at the site and prepare the land for the massive structure, which would ultimately convert locally sourced ethane into ethylene and polyethylene, which are key building blocks for plastic. The facility would be capable of producing 1.5 million metric tons of ethylene per year and another 1.6 million metric tons of polyethylene per year, according to permit applications Shell has filed with the state (see Shale DailyAug. 5, 2014).

Shell also has agreed to pay nearly $70 million to move Center Township's water intake site and build it a new water treatment plant. The water intake is located where Shell plans to build docking facilities that would be used during the construction phase to deliver major equipment. More recently, in what was met as a sign that an investment decision is close, a local news media outlet reported that the company had reached a deal to build a new office in Beaver County at the site of a 76,000 square-foot building that once served as the headquarters for a locally-based engineering firm.

Local officials and other sources could either not be reached to provide comment about possible negotiations or could not confirm them. But Shell told NGI’s Shale Daily it has no plans to purchase or build a new office in the area.

"To prepare for a potential construction phase, Shell has looked at interim lease options in the area," said spokeswoman Kimberly Windon. "As a matter of practice and for confidentiality reasons, we will not comment on the status of the specific commercial arrangements. The proposed petrochemical facility is still being evaluated and a decision is yet to be made."

Shell has posted a job position for a "technical service team lead" for a "large petrochemical complex" it's developing in Pennsylvania. The posting appears on both the company's website and the social media site LinkedIn. It has been posted for weeks and had 773 views as of Friday.

The team lead would support new, existing and potential customers. The new hire would also be responsible for building a team of technical service representatives, according to the posting, which currently has a closing date of April 1.

"Posting positions prior to making a final decision to proceed with a proposed project is routine. It's no guarantee of employment," Windon said, adding that if anyone is hired before the project is canceled then the company would try to relocate them. The job posting said a new employee could work virtually and travel regularly to Houston, TX, during initial start-up, but noted that the employee would have to move to Pennsylvania "in line with the project timeline" of 2017.

Poister said the company has all the state permits it needs for now, including a key air permit, national pollutant discharge elimination permit for stormwater and water obstruction and encroachment permits for the docking facilities (see Shale DailyJune 23, 2015). He said the company would need more if construction starts.

Last month during its year-end earnings call, Shell management said only its most competitive projects are going ahead, noting that several have been purposely delayed, resized or canceled altogether (see Daily GPIFeb. 4). Shell has cut this year's capital budget to $33 billion, down by $12.5 billion from 2015, and it has cut thousands of jobs in the last year. But the ethane cracker in Pennsylvania has thus far been spared.

Edward Hill, a professor of public affairs at The Ohio State University who tracks development in the region's oil and natural gas industry and its effects on the economy, said that Shell's investments at the site have so far been expected given its size.

"Can they walk away from the fixed cost, of course. There's still billions to spend," he said. "Shell is sitting with their spreadsheets and not paying a lot of attention to ethane forwards and their derivatives. They're looking globally at five to 10 years out."

Given that timeframe and the work Shell has done so far, Hill said the ethane cracker is still "viable."

"There has been no yellow flag," he said. "At the same time, the investment isn't so deep that they can't cancel. The only ones that really know the fate of this project are Shell's senior management and their board of directors. For the rest of us, it boils down to semi-informed speculation that's being made with varying degrees of intelligence."

Shell's cracker proposal is one of five that have been proposed for Ohio, West Virginia and Pennsylvania. But other than PTT Global Chemical pcl's proposed cracker for Belmont County, OH, the others have been postponed indefinitely, with some developers recently citing the commodities downturn as the reason (see Shale DailyJan. 8April 23, 2015).

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