Only Time Will (Sh)ell - More On Shell's Plan for a Marcellus/Utica Ethylene Plant

Whether or not Shell Chemicals follows through on its plan to build a $6 billion ethylene plant near Pittsburgh, PA –– and when that steam cracker comes online –– will have a significant impact on the U.S. ethane, ethylene and polyethylene markets. By consuming an estimated 90-100 Mb/d of ethane, the cracker’s operation would reduce the volume of ethane that needs to be moved out of the “wet” Marcellus/Utica production area, trim the amount of ethane available for export from marine terminals, and likely push ethane prices higher than they would otherwise be. Today, we examine what’s driving plans for the Northeast’s first cracker, and what effects the plant will have.

There’s an old story about two bear hunters, Roy and John, who hike deep into the forest to their hunting cabin. While Roy cleans up the cabin and puts away their gear, John goes outside to look for any signs of a bear. Not too much later, Roy hears John yelling “open the door, open the door!”  Roy looks out the window and sees that John is being chased by a huge bear, so he opens the door of the cabin. Just as John reaches the door, he jumps to the side and the bear charges into the cabin. John slams the door shut and yells at Roy, “I caught the bear, now you skin him.”

In many ways Shell Chemicals’ recent commitment to a new ethane-based ethylene facility near the heart of the natural gas liquids (NGLs) production area in western Pennsylvania is an enormous bear.  On June 7, 2016, Shell announced that it had made a Final Investment Decision (FID) to move forward with the $6 billion project to build a 1.5 million tonnes per annum (MTPA) ethylene plant and three polyethylene plants that will produce 1.6 MTPA of polyethylene. Polyethylene is used in many products, from food packaging and containers to automotive components.  This FID does not fully “guarantee” that Shell will proceed with the project, but it represents a major commitment, and given the plant’s ready access to locally sourced ethane and Shell’s “first-mover” status (several other crackers have been under consideration in the Marcellus/Utica area), it is reasonable to conclude that the plant is likely to become a reality by 2021 or 2022.  Construction of the cracker could begin as soon as late 2017 or early 2018.

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The Shell cracker represents one of the biggest-ever industrial investments in the tristate region (Pennsylvania, Ohio, and West Virginia), whose industrial sector suffered a series of set-backs through the second half of the 20th century. To provide a forum to discuss the many issues facing the region, the company Petrochemical Update organized a conference entitled “Northeast U.S. & Canada Petrochemical Conference & Exhibition” which occurred on June 27 and 28, 2016 in Pittsburgh.  At the conference, various industry experts discussed a wide variety of topics, including Shell’s description of the project; regulatory and permitting issues; development of a new energy hub; a potential shortage of regional skilled craft labor; strategies for successful project execution; and local natural gas and NGL infrastructure. Much of the content of this blog is based on the presentations at the conference.

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