(The Wall Street Journal – October 18, 2013) Shell's Pennsylvania Plans Remain Dormant (By: Ben Lefebvre)
When Royal Dutch Shell unveiled plans early last year to build a multi-billion-dollar petrochemical plant outside of Philadelphia, the company saw it as a smart way to exploit the boom in natural gas coming from the region's Marcellus Shale formation.
The plant would turn ethane, which is a liquid produced alongside natural gas and oil, into ethylene, a chemical used to make plastics. Annual global demand for plastics is expected to rise by half by 2020 to about 225 million tons, according to estimates from Exxon Mobil Corp. which operates petrochemical plants. So makers of plastics—and all of the raw materials used in the process—are expanding world-wide, from the U.S. Gulf Coast all the way to China.
Yet Shell's proposed plant location in southeast Pennsylvania sits vacant, despite almost $2 billion in state tax incentives. Meanwhile, analysts wonder whether a new pipelines envisioned to move Pennsylvania ethane to Texas and Louisiana could erase Shell's advantage and torpedo its plans entirely.
State and local officials referred all questions about the plant to Shell, which still hasn't purchased the land for the project. The company now says it might take several more years to evaluate the 360-acre site, according to spokeswoman Kim Windon. Earlier this month the company ended an official search for oil and gas producers to supply ethane to the plant, but hasn't disclosed the outcome.
"They've taken 18 months to think about it, and then they say they're still thinking about it," said Rusty Braziel, an analyst with consulting firm RBN Energy Inc. The plant "fundamentally doesn't make sense to me," he added.
At first blush, Pennsylvania would seem to offer a lot of advantages for ethylene production. In the next three years, the state's ethane output could increase eightfold, reaching 650,000 barrels a day, according to RBN Energy projections. In general, energy companies have found so much natural gas in the U.S. that prices are languishing and look to stay low for a while. Ethane costs have fallen by 20% from last year to a recent 25 cents per gallon, making it the feedstock of choice for plastic makers.
But even though Pennsylvania would seem to have a home-field advantage, sitting atop so much ethane, the state can't compete currently with the Gulf Coast's massive infrastructure, home to millions of barrels of ethane storage and pipelines feeding nearly a dozen petrochemical complexes and plastics plants, according to RBN.
