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'World Scale' Petrochem Complex Not Only Answer, Says Developer

Royal Dutch Shell plc hasn't given any indication that it will back out of plans to build a world-scale petrochemical complex in Pennsylvania, but a developer working on a smaller project in the Northeast thinks bigger isn't always better.

A Shell chemical unit last March agreed to build an ethane cracker on 300 acres in Monaca, PA, to profit from the Marcellus Shale natural gas reserves (see Shale Daily, March 16, 2012). Gov. Tom Corbett dangled an attractive $1 billion-plus tax-incentive package that helped the state leapfrog over competitive offers from Ohio and West Virginia. Shell was to have completed the agreement before the end of 2012, but it requested and was given a six-month extension (see Shale Daily, Dec. 28, 2012). Rumors since have been circulating that Shell wants to withdraw the project.

However, Corbett last week downplayed those rumors at Hart Energy's Marcellus-Utica Midstream Conference & Exhibition in Pittsburgh, where he was a keynote speaker.

"If they're going to build it, they're going to build it here," Corbett said during a question and answer session. Shell requested an extension because the legal team was still "dotting I's and crossing T's." On the contrary, "I've not heard anything that's taking it off the rails." The governor offered a bit of wiggle room when he told the audience that the U.S. economy might be a tipping point. Shell's facility, "if built," will lead to thousands of jobs in the state and offer spin-off opportunities, he said.

Global gas giant Shell has said nothing about changing its plans for the Northeast and at this point, the delay is considered technical. In fact, last week CEO Peter Voser during a conference call to discuss quarterly earnings said U.S. shales offered a "major opportunity" for projects to export liquefied natural gas, as well as for gas-to-liquids and gas-to-chemicals plants (see Shale Daily, Feb. 4).

Appalachian Resins CEO Jim Cutler thinks Shell's delay may signal doubts about the size of its planned facility. Cutler has some skin the game, and his comments last week at the midstream conference clearly were to boost a much smaller project that his company has in mind.

The privately held firm last summer launched plans to build a fully integrated ethylene/polyethylene production facility. Less than world-scale, the ethylene facility he envisions would have a nameplate capacity of 500 million pounds and consume 14,000 b/d of ethane from Marcellus Shale gas. The plant would use conventional technology and support a polyethylene plant that would produce a variety of polyethylene grades suitable for the Northeast market.

"World-scale ethylene plants are a myth" because the gas markets are undergoing a "sea change," Cutler told the audience. In the 1960s, there was a "petrochemical location debate about where to locate new plants because plastics were going through a tremendous growth spurt. The question was, did you locate near the markets or...near feedstock supplies?" The decision to site plants on the Gulf Coast was justified at the time because the supplies would help manufacturing processes were naphtha-based.

"The conditions that existed back in the '60s and around Mont Belvieu [TX] created huge infrastructure, and there's nothing like it in the world," Cutler said. "But it's taken a long time to build this infrastructure. And the world has changed."

With "huge facilities all together along the U.S. Gulf Coast," a "major problem," such as a hurricane, sends prices skyrocketing. Today the United States also has to prepare for possible terrorist attacks. Instead of putting all the eggs in one basket, he suggests "multiple, smaller plants" across the gassy basins to serve niche markets. "If you have a disaster, you have a problem, but you don't have the end of the world. You have resiliency...which has everything to do with homeland security. It's not what the banking community wants to hear. But in energy policy, you have to be aware of this consideration."

NGL fractionators don't have to be "large. Life is simpler than that..."

Some may question the efficiencies of several plants versus one giant one because of the separate feedstock costs, labor and market factors. However, Cutler believes "cluster efficiency" would allow several smaller plants to be connected via pipeline.

Cutler said he suspects that the economics of scale may be a reason that Shell and other possible entrants into the petrochemical space haven't "moved forward more aggressively. If Shell wanted to move, they'd move. They have the resources, they have the capital. They know how to build ethylene plants. They are world-class folks. If they wanted to go, they'd essentially snap their fingers..."

Still, a world-scale facility designed to process 60,000 b/d could become underutilized down the road, Cutler said. "They are going to go down at some point in time. If they have a smaller plant, 15,000 b/d, they'd have the ethane coming to them.

Besides, he said, "regional plants have the same variable costs as world-scale plants...Many people in the midstream business really believe that if they have a larger ethylene plant, just because it's bigger, everything will be bigger. But if you look at the yields, the yields don't change. So there is no economy of scale having to do with the natural characteristics of operating a plant like this," other than measuring the labor costs.

"If you can't find a pipeline to cooperate when a smaller plant goes down, you need a partner to re-inject 15,000 b/d of ethane into natural gas. It's not an onerous problem..." For bigger facilities, that might be a problem, he said. Mont Belvieu-type storage infrastructure isn't needed for smaller-scale plants, nor are huge new pipelines, which may take years to build.

"Less than a world-scale cracker allows for expedited development...The bottom line, bigger isn't always better."

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