Shell Heats Up Rust Belt Revival With Ethylene Cracker
By Ben Lefebvre
Of DOW JONES NEWSWIRES
(c) 2012 Dow Jones & Company, Inc.
HOUSTON -(Dow Jones)- Shell Oil Co. is about to unveil the site of a future $2 billion petrochemical production unit, a project that symbolizes the natural gas-driven resurgence of the U.S. chemical industry and has sent several Rust Belt states scrambling to reap the benefits.
Shell, the U.S. arm of Royal Dutch Shell PLC (RDSA, RDSB), plans to build a giant ethylene cracker --which converts the ethane found in natural gas into ethylene, a core component for plastics and fertilizer--near the natural-gas rich Marcellus Shale formation, which underlies much of the U.S. Northeast. The company will announce the final location by the end of the first quarter.
Shell's would be the first ethylene cracker built in the country since 2000; its construction illustrates the revival of the U.S. petrochemical industry, which by the end of the last decade had been considered moribund amid high prices for natural gas liquids. At the time U.S., chemical manufacturers could barely fend off imports from the Middle East and Asia, which had better access to cheaper gas.
But hydraulic fracturing has made NGLs abundant and cheaper; prices for ethane, the most common natural gas liquid, were 53 cents a gallon on Feb. 24, a third of the high they hit in July 2008, according to Platts. Shell, Dow Chemical (DOW) and other companies are searching for new ways to transform that abundance into revenue.
"It makes good economic sense for gas producers and customers in the Marcellus to have a cracker in the region," Shell spokeswoman Kelly op de Weegh.
States which are seeing their natural gas production soar are also expecting to capitalize on petrochemical growth. Shell expects 10,000 construction jobs will result at the peak of building the cracker, a massive block of interconnected steel pipes, and hundreds of permanent jobs and millions in tax revenue will be created during its operation. Ohio, West Virginia and Pennsylvania--areas hit hard by the economic downturn and the decline in low-skill manufacturing jobs--are all in heated competition to host the project, which was announced in June 2011.
Shell expects the cracker to be running in 2017.
West Virginia and Pennsylvania both passed laws in the past month offering tax incentives for large construction projects. The West Virginia law passed on Jan. 25 caps property taxes at 5% for 25 years for any ethylene cracker costing $2 billion or more built in the state--the same amount Shell estimates its project will cost.
Ohio has been less vocal about its attempts to woo Shell, but Governor John Kasich flew to Houston to personally meet with Shell executives, a spokeswoman for his administration said.
No matter in which state the cracker sits, its neighbors will benefit from the expected resulting pipeline and other infrastructure projects, West Virginia Secretary of Commerce Keith Burdette said.
"The short term celebration of the location of one plant will be followed by ribbon cuttings in all three states," Burdette said.
Shell's cracker is not the only being one planned in the U.S. ChevronPhillips, Dow Chemical, LyondellBasell (LYB), and South African chemical producer Sasol Ltd. (SOL.JO), have publicly said they will consider building their own, either near the Marcellus or along the U.S. Gulf Coast.
-By Ben Lefebvre, Dow Jones Newswires; 713-547-9201;ben.lefebvre@dowjones.com [ 03-05-12 1153ET ]
Dow Jones & Company, Inc.