CEO: Shell cracker plant decision 'years away'
Pennsylvania is fighting more than just Ohio and West Virginia for a new petrochemical plant.
So many companies have joined Royal Dutch Shell plc in considering new gas-fed plants called crackers, it's clear that not every proposal is going to make it, analysts said on Monday. It will take several years for any construction, and that may happen for only about half the proposals, according to an estimate from an executive at Chevron Phillips.
Shell, which has announced plans to build in Pennsylvania, Ohio or West Virginia, is still "quite a few years away from a potential final investment decision," Chief Executive Officer Peter Voser said last week at CERAWeek, a Houston conference held by energy research and consulting firm IHS.
That timetable isn't surprising because of the project's cost and complexity, experts said.
"There's no question in my mind, the first guy will make money and the last guy in the game is going to have a tough time justifying what they did," said Ray Orriss, a former KBR Inc. vice president who oversaw the company's division that built and designed cracker plants. "Frankly, the issue is not going to be that gas is cheap. The issue is going to be how much of these products can we sell in the marketplace. And the growth, I think, is not going to support that ... many projects in this timeframe."
Five companies have announced plans to build chemical plants that help convert ethane to plastic, according to business and trade news reports. Most are destined for the Gulf Coast. A West Virginia businessman has publicly stated interest in building one there, according to news outlets in West Virginia.
Cheap natural gas and ethane from shale drilling have fueled the growing interest and can support five new U.S. plants, Mark Lashier, an executive vice president at Chevron Phillips, said at CERAWeek, according to Bloomberg News. Each will cost $5 billion to $6 billion and take more than a decade to build, he said.
Chevron Phillips is a chemical producer jointly owned by Chevron Corp. and ConocoPhillips.
The volatile economy, gas prices and politics, international competition and supply chain costs all affect these decisions, said Richard G. Mallinson, an engineering professor at the University of Oklahoma. Once a company decides to invest, it can take another four years to evaluate bids and technology, complete the design and do the building, Orriss said.
"Uncertainty in pricing is a huge obstacle. It is a big investment, and if lots of people build them, the product price may not justify it," Mallinson wrote in an email. "All of these create uncertainty, and that is the thing that slows decision-making and kills projects."
Three of the companies, including Shell, have targeted the Appalachian basin. Despite the industry hub on the Gulf Coast, gas from the Marcellus and Utica shales costs so little to produce and is so rich in ethane and similar chemicals that it makes sense to build at least one cracker here, said Kent Moors, Scholar in Residence at Duquesne University's Institute for Energy and the Environment.
Gov. Tom Corbett said he's "very hopeful" of Pennsylvania's prospects. He said he can't discuss specifics, but "I think we're very close to a decision."
Moors said Shell has invested so much -- not just in drilling, but in pipelines and other projects -- that, to maximize its investment and control its revenues, it makes sense to invest in processing, too. If Shell doesn't build a cracker plant, it probably would have to end up selling its shale gas land holdings, he said.
"It's a large investment, but let's face it, if they don't do it, they're out of business. So they've got to build it somewhere," Moors said. "It makes sense for them to build it closer to the location of the actual raw material. ... I'd be shocked if we don't end up with one here."
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.