Shell Announces Location of Ethane Cracker Plant

monaca-paStop Press: Shell Chemical has selected a location in Beaver County, Pennsylvania to potentially build an ethane cracker plant. Shell announced yesterday afternoon that the company has signed a land option agreement with Horsehead Corporation to “evaluate a site” near Monaca, PA, which is about 35 miles northwest of Pittsburgh, along the Ohio River (see the inset map). The site is about 15 miles from the borders of both West Virginia and Ohio, so Shell chose a location about as close to the tri-state border as it could get.

This is headliner news because the facility itself will mean at least $2 billion of investment to build, creating some 10,000 jobs both to build it and to operate it after it’s built. One of the components of “wet gas” or natural gas liquids found more often in western Pennsylvania and eastern Ohio is ethane. An ethane cracker plant chemically “cracks” the ethane into ethylene, which is a raw material used to make plastics and other materials. With an abundant supply of wet Marcellus and Utica Shale gas, the plant will have plenty of cheap ethane to crack.

Once the plant is built, other businesses that use cheap ethylene to manufacture plastics will also locate in the vicinity of the plant. The multiplier effect will be huge in the entire region—some estimates are as high as $15-$20 billion of new economic activity could come as a result of the plant.

All three states lobbied Shell heavily, offering various incentives to locate the plant in their state. A few weeks ago, MDN readers and MDN editor Jim Willis had some fun predicting where the plant may go. Jim was wrong! He predicted it would be built in West Virginia’s panhandle for a variety of reasons (see this MDN story). However, MDN readers guessed correctly. In a poll taken Feb. 12-18, 42 percent of MDN readers said the plant would be built in PA, 31 percent said OH and 27 percent said WV. Kudos to MDN’s readers!

It is interesting that Shell chose to locate so close to Pittsburgh, given that just last year the Pittsburgh City Council president called drillers “dogs” and threatened communities up river with “toxic trespass” if they allow shale gas drilling and if any of the wastewater from drilling reaches the rivers and comes downstream to Pittsburgh (see this MDN story). In fact, Pittsburgh City Council has been staunchly anti-drilling. In 2010, city council adopted a ban on drilling inside the city’s borders (see this MDN story).

Still, Pittsburgh has become the de facto capital of shale gas drilling in the Appalachian region, with most drillers locating their regional offices, and some of them their headquarters, in and around the city.

With the cracker plant being built so close to the border of all three states, the economic benefits will certainly spill over into neighboring WV and OH.

A study by the American Chemistry Council estimated that more than 10,000 new permanent jobs would be created in chemical and supplier industries as a result of a cracker facility locating in the region. Additionally, Shell expects 10,000 construction jobs will result from site development.

"If that plant goes in up there … it will mean a tremendous amount of jobs," said Washington County Commission Chairman Larry Maggi. "It is good for the entire region; it’s great news for Southwestern Pennsylvania."

Jeff Kotula, executive director of the Washington County Chamber of Commerce, said the real impact will come in the spinoff industries the ethane cracker will create.

"This is a truly phenomenal project for Southwestern Pennsylvania," Kotula said. "It’s not just attracting business for a cracker plant, but for all of the companies we can have an opportunity to attract to Washington County, Greene County and Allegheny County that will take advantage of having a cracker plant in the region."(1)

But everyone’s well-placed enthusiasm must be tempered by recent comments from Shell CEO Peter Voser, who last week said once the site location is announced, it could be “several years” before a go/no-go decision is made to build the plant (see this MDN story). That comment is confirmed by the fact that Horsehead Corporation, who signed the option with Shell, currently produces zinc at that location. They have plans to relocate their zinc production facility to North Carolina. The signed option agreement with Shell, if exercised, calls for Horsehead to vacate their facility by April 30, 2014—more than two years from now. That, apparently, is what Shell’s CEO was referring to with his comment last week.

So now we settle in and wait—for a couple of years. This announcement is a very good thing. It’s a huge vote of confidence in the ongoing shale gas drilling renaissance that is transforming the northeast. But if the decision to build the new plant is not made for two years, and then construction begins, it’s going to be a while before the real effects of the plant are felt.

Here’s Shell’s press release announcing the location and deal with Horsehead:

Shell Chemical LP (Shell) signed a land option agreement with Horsehead Corporation to evaluate a site in the US Appalachian region for a potential petrochemical complex.

The complex includes an ethane cracker that would upgrade locally produced ethane from Marcellus Shale gas production. The site is located in Potter and Center Townships in Beaver County near Monaca, Pennsylvania.

This positive development marks another phase as Shell continues to assess the commercial feasibility of a petrochemical complex in the Appalachian region. The next steps for this project include additional environmental analysis of the preferred Pennsylvania site, further engineering design studies, assessment of the local ethane supply, and continued evaluation of the economic viability of the project.

“We are very pleased to have signed this site option agreement,” said Dan Carlson, General Manager, New Business Development, Shell Chemicals. “This is an important step for the project, and we look forward to working with the communities in Pennsylvania, and gas producers across Appalachia, as we continue our efforts to develop a petrochemical complex.”

Shell looked at various factors to select the preferred site, including good access to liquids rich natural gas resources, water, road and rail transportation infrastructure, power grids, economics, and sufficient acreage to accommodate facilities for a world scale petrochemical complex and potential future expansions.

In addition to an ethane cracker, Shell is also considering polyethylene (PE) and mono-ethylene glycol (MEG) units to help meet increasing demands in the North American market. Much of the PE and MEG production would be used by industries in the northeast.

As an integrated energy company and a leader in worldwide gas technology, Shell has an array of long-term options to monetize natural gas. This includes extracting ethane and other natural gas liquids for petrochemicals production; shipping solutions for LNG (liquefied natural gas); proprietary gas-to-liquids technology to produce fuels, lubricants and chemicals; and LNG for heavy duty vehicles, marine and rail transport.(2)

(1) Washington (PA) Observer-Reporter (Mar 16, 2012) – Shell Chemical chooses Beaver County for cracker plant

(2) Shell (Mar 15, 2012) – Shell Signs Agreement to Evaluate Petrochemical Site in Pennsylvania

More articles on the Shell decision, including the finger-pointing that’s now going on in WV:

  • Anonymous

    I had to laugh when the announcement of a 2 billion dollar cracker plant near Pittsburgh suddenly became  a possible a 20 billion dollar effect for the region due to the “multiplier effect”. It reminded me how republicans, for years after the stimulus bill was passed, claimed that not one job was created by that investment  and tax cut into the economy. I guess there is no “multiplier effect” when the dollars come from the  government . Funny, it all looks green to me.

  • Anonymous

    I was disappointed with the Shell decision especially since they chose an operating plant location. There are numerous “brownfield” sites up and down the Ohio River they could have chosen and started building immediately. Sounds like “funny business” to me. We can be consoled by the numerous plants under construction including Dominion, Caiman and Mark West to name a few. There will be thosands of jobs created long before any “cracker” comes on line.

  • John Hammer

    The selection of Beaver County shouldn’t be a surprise at all.  1)  
    Despite this site’s previous prediction of West Virginia, Shell  wasn’t basing their decision on the political leanings of various politicians, they were using Excel Spreadsheets to perform detailed financial cost-benefit analysis on many different scenarios.  THAT was the primary driver of the site selection, not political calculus.   2)  The site is already a brownfield, so while environmental impact studies still have to take place, a cracker plant on this particular location is more likely to have less environmental impact than one located on un-developed land.  3)  Shell owns thousands of acres in Western PA already while having little land in OH or WV.  Building a plant elsewhere would mean having to ship the gas to the plant, which costs more money.  4)  Compared to a place like New Martinsville (one of the sites I had heard), Monaca is much closer to road and air transport (I imagine rail and water transport isn’t lacking at most sites in OH and WV).  Air and especially Road transport matters a great deal to this type of operation.   5)  Pittsburgh already has a large workforce in the Chemical Industry — Bayer, Mylan, Nova and PPG just to name a few.  Plus with Pitt and Carnegie Mellon pumping out Chemical Engineers every year, the pipeline of potential young employees is just 30 miles upstream from this plant.  While the sites in OH and WV aren’t that far away from this talent, the additional miles between OH & WV from the talent in Pittsburgh would be a bit of a concern to an employer.

    The two year wait should not be a surprise, either.  1)  A successful company just doesn’t invest a billion dollars without confirming the economic benefit of the investment.  It took months to analyze the finances associated with site selection.   Even after site selection, there are other factors that they have to analyze: Expected price of Natural Gas, Expected Price of Wet Fuels extracted, Expected Labor Costs (in what is most likely to be a union shop), Expected Transport Costs, etc.  2)  There will be an environmental impact analysis done before any shovel touches the dirt.  That impact study will have recommendations that have to be responded to (and those recommendations will impact the financial calculus).  3)  Rail connections to and from the site have to be upgraded.  While they have a major rail line running right next to the site now (with, from my view of Google what appears to be a feeder line going onto the property) rail running to the site now, I imagine that Shell will have rail requirements that differ significantly from Horsehead.  Changing rail lines around isn’t something you can do in a few days.

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