A unit of Royal Dutch Shell plc decided to proceed with a multi-billion dollar ethane cracker in Western Pennsylvania for three primary reasons: cost-advantaged feedstock, market proximity and strong local support, one of the project's leading executives said Tuesday.
"To answer the question, why Pennsylvania, why here? The basic answer is very simple," said Ate Visser, vice president of Appalachia petrochemicals at Shell Chemical LP. "You're sitting here on a world-class resource base at the doorstep of your customer. And this will give us a low-cost, sustainable and competitive advantage."
Visser gathered with other project executives from Shell to address and mingle with a packed crowd on Tuesday for the second day of the Northeast U.S. & Canada Petrochemical Construction Conference in Pittsburgh, one of the region's first shale-related petrochemical conferences. Shell's facility, which is expected to employ 600 permanent employees and another 6,000 during construction, took center stage and drove many of the event’s conversations and presentations.
Visser offered a reason for the excitement. He said -- as others repeated throughout the conference -- that 70% of the polyethylene market is within 700 miles of Western Pennsylvania, "which means that the customers will have shorter supply chains, will have more reliable supply chains, will have good capital savings and lower costs." With Shell's announcement, conference presenters said, Ohio, Pennsylvania and West Virginia can now focus on building a robust petrochemicals industry, which will have its start in Pennsylvania (see Shale Daily, June 27).
"We have been given economic development, job creation and investment savings from the state of Pennsylvania," Visser said. "I can tell you, with hand to my heart, that without these incentives, we would not have made this investment decision."
Without the state's Act 2 law, or what's more commonly known as its land recycling program, the cracker would not have been possible, Visser said. Act 2 provides for the revitalization of brownfield sites in the state. Shell announced its final investment decision on June 7, saying it would begin construction in 18 months on the ethane cracker (see Shale Daily, June 7).
The facility would be built on the 400-acre site of a former zinc-smelting plant near the Ohio River in Potter and Center townships in Beaver County, about 30 miles northwest of Pittsburgh. The facility would have the capacity to produce 1.6 million metric tons/year (mmty) of polyethylene and 1.5 mmty of ethylene, which are key building blocks for plastics. Visser told NGI's Shale Daily that the cracker would also have the capability to consume a little more than 100,000 b/d of ethane, providing one key solution for what has been a challenge for Appalachian exploration and production companies.
Matt Curry, founder of the consultancy Dreadnought Solutions LLC, noted that anywhere from about 55-60% of the typical barrel of natural gas liquids in the Appalachian Basin consists of ethane. With the production gains of recent years and the specifications of crucial interstate pipelines, it has become increasingly important to recover, rather than to reject, ethane.
Visser said 10 natural gas producers have signed 10-20 year agreements to anchor the facility. While he didn't name them all, they include Antero Resources Corp.; Ascent Resources LLC; Consol Energy Inc.; Eclipse Resources Corp., Hilcorp Energy Co.; Noble Energy Inc., and Penn Energy Resources LLC. Some of the producers, Visser added, have committed all of their ethane volumes to the cracker.
"The ethane we will use will be produced in the lowest-cost shale resource in the United States," Visser said of the volumes that will come from both the Utica and Marcellus shales. "We're doing it here instead of having to ship it to the U.S. Gulf Coast, which of course saves us costs."
Visser said the company has already moved 7.2 million cubic yards of dirt at the Beaver County site, completed a heavy long-haul bridge to eliminate traffic in the area and relocated nearby railroads. A load-on and load-off dock on the Ohio River is also nearly complete so the facility can accept barges. Currently, Visser said, 400 people are employed in the site preparation work alone.
As far as the time it will take to begin construction, Visser said, "This is consistent with matching our capital discipline in the current low price environment. But we use this time to complete our engineering, our design work and site preparation, which means that when we start with the main construction, we have all of our ducks in a row."
Production at the facility is slated to begin sometime in the early 2020s. Visser said this aspect is important because development of similar facilities on the "Gulf Coast will come on stream in 2017 and 2018." He added that "we expect the market will have absorbed additional demand when we come on stream, so the timing actually fits the market."
Mike Devanney, a retired petrochemical industry executive that worked in the Appalachian Basin, kicked off the conference on Tuesday by telling attendees that eight petrochemical facilities have either been announced or are under construction in the U.S. Most of those are in Texas and will come online before the Shell facility by 2020. Shell's Pennsylvania cracker would benefit from a second wave of anticipated demand when it comes online early next decade.