Corbett, Consol say Shell making 'positive' progress toward building proposed cracker plant
Shell Chemical LP is locking up ethane suppliers for a proposed petrochemical plant in Beaver County, a promising development as the company weighs whether to go forward with the project that has been under evaluation for more than a year.
Shell Chemical said on Tuesday it has secured supply commitments from CNX Gas Co. LLC, a subsidiary of Cecil-based Consol Energy Inc.; Hilcorp Energy Co.; Noble Energy Inc.; and Seneca Resources Corp. And the company is looking for more suppliers.
Obtaining additional ethane supplies is one of the key steps it must take to determine the next steps in evaluating the site and deciding whether to build the plant, Shell said in a statement.
Gov. Tom Corbett, a big backer of the project because of the economic benefits and job creation, said Shell's announcement was “an important milestone and another positive sign that Shell is continuing to move forward in their evaluation of the Beaver County site.”
“We are beginning to see the scope and impact this project would have on Pennsylvania. Securing ethane suppliers will develop a market for the state's natural gas supply, helping to create good-paying jobs for citizens statewide,” Corbett said in a statement.
Shell said it is still a year or more away from making a final decision on building the multibillion dollar plant at an industrial site about 40 miles northwest of Pittsburgh. It has an option to buy the property from Horsehead Holding Corp.
The unit of Royal Dutch Shell plc said it will accept bids from other ethane suppliers from Tuesday to Oct. 4. The company has not said how much ethane it would need for the plant to be viable.
Gillian Surbey, a researcher with ITG Investment Research in Calgary, said the main question is whether there will be enough ethane to feed a cracker plant like the one Shell proposed. Shell has asked that question as well, she said.
ITG forecasts that 660,000 barrels per day of ethane will be available from the Marcellus and Utica shales by 2025 if operators such as Consol, Noble and others chose to strip the maximum amount of ethane from their natural gas liquids production.
“We view this news as promising and encouraging,” Consol Energy said in a statement released by spokeswoman Lynn Seay. “It is further confirmation that the greater Pittsburgh region is rapidly emerging as America's energy capital.”
ITG forecasts several proposed pipeline projects could provide natural gas liquids and ethane for the proposed plant from supplies in the Midwest by mid-2015.
“If operators opt to extract ethane, our forecast implies sufficient ethane supply for the Shell cracker at an estimated 60,000-80,000 barrels per day capacity,” Surbey said.
The proposed site is now a zinc smelter for Horsehead. It spans Potter and Center along the Ohio River. It first surfaced as a site for the Shell plant in March 2012. The proposed “cracker” would help turn Marcellus shale ethane into plastics.
State leaders have courted Shell, offering it a tax-free zone in hopes the multibillion-dollar project would hire as many as 10,000 workers during construction and lead to a new chemical industry here.
If the complex is built, Shell Chemical expects to obtain a portion of the ethane supply it needs at the proposed petrochemical complex from its upstream affiliate, Shell Western Exploration and Production Inc. and other suppliers.
The bidding by interested suppliers requires them to sign a confidentiality agreement with Shell Chemical. It would then give them further information about the project and instructions on bidding.
Lysle Brinker, director of energy equity research with IHS Inc., said the main consideration for Shell is whether it is worthwhile to build a plant in Beaver County because of booming supplies of natural gas liquids, or expand existing facilities on the Gulf of Mexico coast. “The reality is they will likely do both. Shell has taken a multifaceted approach to the ‘shale gale,' the enormous growth in production” from the Marcellus and Utica shales, he said.
Shell said it still has several critical milestones to achieve before making a final investment decision on whether to proceed.
The plant would convert ethane from Marcellus shale natural gas into more profitable chemicals such as ethylene, which is used to make plastics, antifreeze and other products.
The Marcellus shale extends below parts of Pennsylvania, Ohio, West Virginia and New York.
John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or email@example.com.