By Timothy Puko

Published: Tuesday, July 10, 2012, 12:01 a.m.
Updated: Monday, September 24, 2012

With tax-free status and more than $1.5 billion in state-paid incentives lined up for Shell's proposed ethane processing plant, only one deal-breaker might remain before the company commits: ethane.

Royal Dutch Shell plc is working to ensure it can get enough of the gas from the ground and from business partners at affordable rates to feed the plant for several decades, according to municipal officials who toured Shell Chemicals' operations in Louisiana this month. Experts agree that securing the raw commodity to feed the plant should be top priority.

“This is huge: It's go or no-go,” said John Stekla, director of ethylene studies for IHS Chemicals in Houston. “The ethane supply is absolutely key. Unless you have an assured source of feedstock, you're not going to go ahead.”

Shell could build a multibillion-dollar complex in Beaver County to convert ethane to plastic and that could lure other businesses and thousands of jobs. The plant would employ at least 400, and Shell's payroll in the region could grow toward 1,000 employees. That could prompt the company to consolidate its three offices in Pittsburgh's northern suburbs into a regional headquarters.

But company officials likely won't decide anything for six months to a year, officials said.

Shell's local production arm ramped up its effort to assess the amount of gas it has in Western Pennsylvania by expanding to four exploratory drill rigs, said Bill Langin, who leads Shell's Appalachian exploration. It controls about 175,000 acres in Butler, Beaver, Lawrence, Mercer and Venango counties, a promising area for ethane and other liquid gases, regional spokeswoman Kimberly Windon said.

If the appraisal projects a rich area, Shell corporate officials could decide next year to start expanding the local production staff to as many as 450 workers, up from 260, Langin said.

Shell executives located here want to consolidate office locations, but the company owns one of its offices in Marshall and has invested $10 million to $15 million in the ongoing buildup of its newest office in Franklin Park, Langin said. If the company consolidates, it would stay within about 5 miles of its offices to ensure employees a short commute and convenient interstate highway access for trips to field sites, he said.

That headquarters might not include Shell Chemicals, even if it builds here. The chemical and production divisions have little interaction operationally and likely would stay separate, as they do at the company's U.S. headquarters in Houston, Langin said.

Shell geologists are optimistic about ethane in Pennsylvania's deep shale but the chemical division officials plan cautiously, Daniel K. Carlson, general manager of new business development at Shell Chemicals Americas, told municipal officials, according to George S. Warzynski, supervisor in Center, where Shell secured its land deal along the Ohio River.

Warzynski and Supervisor Richard N. George said they were impressed with the safety precautions and cleanliness at petrochemical plants in Norco and Geismar, La., and believe the tax breaks Pennsylvania will offer Shell and the resulting project will benefit the region.

The most recent tax break lawmakers approved is designed to reduce the cost of Shell's ethane and to encourage drillers in Pennsylvania to sell to Shell, said David W. Patti, president and CEO at the Pennsylvania Business Council. Shell likely would not sell the credits in straight cash transactions for 80 to 95 cents on the dollar, like most tax credits, but would package them during purchases and sales much as sports teams trade draft choices, he said.

With that option and maybe billions of dollars on the table, it could be hard for Shell to drop the project, Stekla and others said.

“Frankly, it would be a black eye to the state and to (Shell) if they backed out at this point,” Patti said.

Timothy Puko is a staff writer for Trib Total Media. He can be reached at 412-320-7991 or tpuko@tribweb.com.

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