Profit plunge unlikely to stop Shell plant for cracker plant in W.Pa.
Shell's plan to sell some North American oil and gas land likely would not affect the company's proposal to build a petrochemical plant in Beaver County, analysts said Friday.
The chemical arm of Royal Dutch Shell plc may build the multibillion-dollar plant even if its parent company tries to sell out of Pennsylvania, analysts said. The complex, still under consideration, would turn ethane from Marcellus shale into plastics.
Ethane's cheap price means Shell likely would build the so-called “cracker plant” even if it had to buy ethane from other drillers, analysts told the Tribune-Review.
Shell announced a 60 percent drop in second-quarter profits on Thursday, including a $2 billion writeoff in the value of its North American shale properties. It plans to reevaluate its holdings, which include land in Pennsylvania. It will sell some, though company officials have not said which properties.
“I wouldn't assume it means bad news for the cracker,” said Andy Walberer, a chemical industry consultant at A.T. Kearney. “It certainly doesn't help, but it doesn't for sure mean they're pulling back.”
Shell officials are working in Beaver County without any sign of hesitation, said several state and local officials and business partners. All reported having contact with Shell officials within the past week or two.
Shell showed its 350-acre footprint for the plant to local officials on June 25, County Commissioner Joe Spanik said. Local governments would need to approve a tax-free zone the state promised Shell.
“I have no concern about Shell right now,” said R.T. Walker, a real estate agent who specializes in oil and gas properties and recently became a vice president at CBRE Inc. He noted that parts of the Marcellus in Western Pennsylvania remain among the most profitable for producing gas and other fuels. “It makes sense that they would keep going on there.”
A Shell spokeswoman in Houston declined to comment. Company officials have not announced specifics of their plan. Shell's quarterly earnings report simply called it a “strategic review” for North America and warned investors it would enter a period of selling more properties than usual.
The company entered the shale-gas market in 2010 when it paid $4.7 billion for Marshall-based East Resources Inc. The purchase gave it 700,000 acres of mineral rights and an active drilling operation in northeast Pennsylvania.
It since became the second-largest gas rights holder in the state, with 850,000 acres as of May 1, according to research and consulting firm Wood Mackenzie.
Shell has drilled slowly in the Pittsburgh area, primarily to test how much gas it has. State production reports showed it had 39 wells in Butler and Lawrence counties, which it refers to as its Slippery Rock holdings. Only seven of the wells actively produced in the last six months of 2012, according to the Department of Environmental Protection.
Ideally the company would own the wells and the cracker, analysts said. But so much drilling in shale plays around the country led to a glut of ethane and prices plummeted. Building a plant to turn ethane into plastics would enable Shell to get money from the premium product, experts said.
The $200 billion company has many arms, however, and could opt to let another driller spend money up front while its chemical arm builds the cracker, experts said.
Stephen Lewandowski, research director at IHS Chemical, said it might not matter which company owns the gas.
“I think there's a lot of hurdles still for the cracker, in general, but I'm not sure this integration play is that important,” he said. “It just boils down to their view on ethane prices and the added-value of the big investment.”
Timothy Puko is a Trib Total Media staff writer. Reach him at 412-320-7991 or email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- SEC alleges BNY Mellon bribed foreign investors by handing internships to their relatives
- Obamacare enrollment up in Pennsylvania
- Pennsylvania shale gas producers received hundreds of environmental citations in 4 years, PennEnvironment says
- U.S. company outlooks worry investors, sending stocks lower
- India nuke deals still thorny for U.S. despite ‘breakthrough’
- U.S. Steel has 1st profitable year since 2008
- MSA Safety products in demand to protect workers in dangerous jobs
- Yahoo to spin off Alibaba shares
- U.S. Steel warns it may lay off almost 2,000 workers in Alabama, Texas
- Interest rates likely to stay low until fall
- Energy-saving tactics pay off in Green Workplace Challenge