Monaca - How Shell's New Steam Cracker Is (and Isn’t) Impacting Northeast NGL Markets

Shell’s new, multibillion-dollar steam cracker in Monaca, PA — the first of its kind in the Marcellus/Utica shale play — is finally up and running and breathing new life into a small town on the Ohio River. When it’s running flat-out, the cracker will churn out up to 9 million pounds of ethylene a day to supply three adjoining polyethylene units. Shell Polymers Monaca, as the petrochemicals complex is formally known, is a world-scale giant, consuming about 95 Mb/d of ethane, which raises this question: How is the start-up of the region’s only large ethane consumer affecting the broader market? In today’s RBN blog, we provide the answer.

In energy-industry circles, it’s often said that you can’t get anything permitted and built in the northeastern U.S. — there are simply too many regulatory and legal hurdles to clear. There are certainly many tried-but-failed projects you could point to as evidence — natural gas takeaway pipelines into New York, New England and New Jersey come to mind, and the long-planned Mountain Valley Pipeline into Virginia remains in limbo. But it’s also true that many energy-related projects do advance to construction and operation. A prime example is the subject of today’s blog, Shell’s ethylene-and-PE complex northwest of Pittsburgh, which the company committed to building in 2016 and which recently came online, very close to Shell’s original schedule (despite some COVID-related setbacks).

As we said in our Ain’t Wastin’ Time No More and Only Time Will (Sh)ell blogs six years ago, Shell received strong local support for its Shell Polymers Monaca project in Beaver County (see photo below), as well as substantial financial incentives from the commonwealth of Pennsylvania. Under the Keystone State’s Local Resource Manufacturing Tax Credit (which was enacted to bolster Shell’s prospective cracker project), any company that develops an ethane-consuming ethylene plant valued at $1 billion or more and that creates at least 2,500 jobs during the construction phase would be eligible for a tax credit equal to 5 cents/gal (or $2.10/bbl) of ethane purchased and used to produce ethylene. (For perspective, the current price of ethane at Mont Belvieu is 41 cents/gal.) The tax credit, which applies to ethane purchased between January 2017 and December 2042, can be used to reduce Shell’s overall tax liability to the state by up to 20%. Assuming that the cracker remains operational through December 2042 (20 years and two months in total) and consumes an average of 85 Mb/d (close to full capacity, that is), the tax credit’s value would total more than $1.3 billion ($2.10/b x 85,000 b/d x 365 days x 20.167 years). Separately, Shell reached "payments in lieu of taxes” agreements with the local government and school district.

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