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Shell picks Horsehead plant near Monaca for ethane cracker

| Friday, March 16, 2012

Lured by natural and man-made assets and promised tens of millions of dollars in tax benefits, Houston-based oil giant Shell Oil Co. took a tentative step toward building a highly anticipated, multibillion-dollar chemical plant near Monaca.

But it'll be a while before it gets cracking.

The announcement on Thursday ended a heated, three-state competition for the ethane cracking plant and drew cheers from the region's leaders. Building the plant could require 10,000 construction jobs and a $4 billion investment to a 300-acre site in Potter and Center townships in Beaver County, plus thousands more jobs in spinoff businesses throughout the region.

"It's the first pitch in a nine-inning game," Gov. Tom Corbett said Downtown. Still, it's a big game. The plant would be "the single largest industrial development in the state's Southwest in more than a generation."

Governors of Ohio and West Virginia, who aggressively had courted Shell with tax breaks and other offers, expressed disappointment but not surprise. Ohio Gov. John Kasich said nothing he offered could overcome Shell's vast natural gas holdings in Western Pennsylvania.

"They have 700,000 acres of leases over there that they don't have here. The added cost of a pipeline to ship their gas and liquids over here wasn't something they wanted to do," Kasich said.

Location certainly helped. Shell Chemical LP, a subsidiary of Shell Oil, signed an option agreement with Horsehead Corp. to acquire land that now is home to Horsehead's zinc smelting plant, both companies said. Horsehead, based in Crafton, announced last year that it would build a metals plant in North Carolina and close its smelter in Potter.

Interstate 376 runs from Pittsburgh International Airport, less than 20 miles away, north past the site. The property on the Ohio River is within the territory of the Port of Pittsburgh, the second-busiest inland port in the country. Rail lines surround and snake through the property, and the Conway Yard, a 4-mile-long riverfront railroad yard, lies just to the east, making a perfect mix of transportation options.

A Shell executive compared it to building a house when he outlined the project yesterday in a closed-door meeting at Shadow Lakes Country Club in Hopewell with the three Beaver County commissioners, local municipal leaders and state legislators.

"We found a lot we like, and now we're working on getting the architect in, and let's talk exactly what this thing is going to look like and how much it's going to cost to build," said Dan Carlson, Shell's general manager of new business development.

"This is a long game. It's a very big decision. It's a very big investment. ... We don't want to get ahead of ourselves, to understand exactly where we are."

Millions in tax benefits

Like the other contending states, Pennsylvania lawmakers offered Shell millions of dollars in tax benefits.

The Legislature expanded Keystone Opportunity Zones that could exempt the plant from property taxes for 15 years. It streamlined local land-use rules, stripping municipalities of their power over oil and gas site locations. That same bill, passed in February, contained almost $12 million that state economic officials could use over three years to lure a cracker and convert refineries in Southeast Pennsylvania.

Corbett said his administration and Shell officials are in private discussions about what else the state can give Shell, but he declined to comment on that, saying he had signed a confidentiality agreement with the oil giant. The state does not levy an extraction tax on the natural gas Shell will take from its wells, and its complex corporate income tax likely exempts the company, state Sen. Jay Costa said.

"You have to make investments, and you have to give up revenue to acquire these types of long-term, game-changing activities," said Costa, D-Forest Hills. "The lost revenue is an investment to bring revenue to this region."

Environmental advocates will keep a close eye on state regulators who must inspect the site to see what needs to be cleaned up, and on Shell's environmental permit applications.

"There are significant air emissions associated with these facilities," said Joe Osborne, legal director of the Group Against Smog and Pollution in Garfield.

In addition to the environmental permitting process and Shell's negotiations with state officials over what else the state can offer, the company still must design and plan a multibillion-dollar project in an unsettled global economy. Shell will work to make sure the region's ethane deposits are large enough to last for generations, Carlson said.

"We don't think this plant will be here for just 10 or 20 years; we think this plant will be here for a long, long time," Carlson said.

There are no guarantees

Ohio's Kasich said the company warned him that the plant might never be completed.

"They made it clear to me (Wednesday) that there is still no guarantee that they will build this. That decision will come over the next two years. I really hope they do build this, though, because if they do, then Ohio and the entire region will benefit because plants that use the products the cracker makes will begin springing up nearby," the governor said.

The Marcellus and Utica shales in Western Pennsylvania and parts of Ohio and West Virginia produce large quantities of ethane and other thicker or liquid gases, which are valuable because they can be turned into plastics. Cracker plants take ethane and other natural gas liquids, reduce them with heat, and transform them into the building blocks of plastics.

Federal lawmakers pledged to support the project.

"I've been -- I don't want to say a thorn in the side of the (Environmental Protection Agency), but very strident with them that they work with us and not against us," said U.S. Rep. Mark Critz, D-Johnstown, who is running in a primary contest against Rep. Jason Altmire to represent the redrawn district encompassing the site. "I'm hopeful that I can be an asset. I've communicated that to Shell."

Altmire, D-McCandless, said the project is too big to lose, and he offered visions of a rebirth of the depressed region's industrial heyday.

"It's going to change the face of the region," Altmire said. "This industry -- not just this plant, but with natural gas in general -- this is going to be the future employment base for generations. This is going to be like the steel industry used to be."

Shell Oil is the U.S. subsidiary of Netherlands-based Royal Dutch Shell plc, a nearly $500 billion-a-year enterprise based in The Hague, Netherlands. It was ranked No. 5 last year on Forbes magazine's Global 2000 list. It operates on every continent except Antarctica and has 93,000 employees, and its brand is on 43,000 petroleum stations around the world.

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