Study: State could support up to four more ethane crackers

A study released Tuesday by the governor’s office and the Team Pennsylvania Foundation suggests that up to four more ethane crackers could be built in Pennsylvania or Appalachia beyond Royal Dutch Shell’s $6 billion petrochemical plant under construction in Beaver County.

IHS Markit’s “Prospects to Enhance Pennsylvania’s Opportunities in Petrochemical Manufacturing” was released Tuesday by Gov. Tom Wolf during the World Petrochemical Conference, which is being held this week in Houston. Pennsylvania’s profile in the petrochemical industry has shot up since Shell’s decision. Several Pennsylvania officials, including Secretary of Community and Economic Development Dennis Davin and Team PA Foundation CEO Ryan Unger, were attending the conference.

The report predicted that between $2.7 billion and $3.7 billion in investments would be made in Pennsylvania that involve the use of natural gas liquids. And it confirms economic development and industry officials’ suggestions that beyond the Shell (NYSE: RDS.A) project — and two others in the early stages of development in Ohio and West Virginia — there could be enough natural gas liquids from the Marcellus and Utica shales for up to four more cracker plants beyond the Shell plant that could be built by between 2026 and 2030. Shell’s Beaver County plant is estimated to be completed by 2022. The four potential cracker plants would include the Ohio and West Virginia facilities if they're built, according to the report's author.

Pennsylvania’s got enough natural gas liquids — ethane and propane, both used for production of plastics — and it’s close enough to two-thirds of the market to position it uniquely to take advantage of the burgeoning petrochemical industry. But IHS Markit said the state needs to be aggressive in building out pipelines and storage for natural gas liquids, as well as getting sites in shape for development.

"Pennsylvania is currently only using a limited portion of the available Marcellus and Utica Shale natural gas and NGL in-state," the report said. "As such, it must begin taking immediate steps to support a long-term strategy that will maximize in-state economic development — as other U.S. states and regions are also competing for the resources."

The products that would be made by the ethane crackers — what isn’t sold directly to consumers but instead becomes the feedstock to make all sorts of plastic products including bottles and other containers — don’t have to go outside of the state either, IHS Markit said. The report lists 34 companies across Pennsylvania that could use the resins that will be made by Shell at its Beaver County plant; many of them are injection molding companies, and they are all over the state including Washington, Pa., Pittsburgh, Erie and Latrobe.

“Pennsylvania is uniquely well positioned to tap into an ample and growing supply of low-cost hydrocarbon feedstocks coming from the Marcellus and Utica Shale gas developments,” the report said. That means that southwestern Pennsylvania chemical companies — existing and new ones that come in — will have competitive advantages, including lower shipping and production costs.

But the IHS Markit report also outlines the perils of delay, citing other states would be happy to bring natural gas liquids like ethane out of Pennsylvania via pipeline and use them in their own projects. All of the ethane being produced in Pennsylvania is currently being shipped out of state.

“If the Commonwealth does not begin to take immediate steps to maximize its production and use of these chemicals, these attractively priced NGL will be exported and the economic development opportunity will diminish. … If Pennsylvania does not respond, then other states will,” the report concludes.

In a statement, Wolf said the state had work to do in the next phase of development.

“Pennsylvania has a once-in-a-generation opportunity to develop and implement a strategy that will cultivate a manufacturing renaissance and transform our economy across the Commonwealth,” Wolf said. “The foundation for building a diverse and robust petrochemical and plastics industry was initiated with the decision by Shell Chemicals to invest in Pennsylvania – and we must ensure that we make the most of this chance to create good paying jobs for Pennsylvanians.”

Davin has been traveling through Pennsylvania to talk up opportunities presented by the Shell cracker. In an August 2016 forum in Aliquippa, Davin acknowledged there were “rumblings” about companies scouting southwestern Pennsylvania for a potential second cracker in Pennsylvania but nothing definite. While the top three sites identified by petrochemical and economic development officials have been snapped up in the tri-state region, there are still several other sites in Washington and Allegheny counties that would have the potential river and rail access to build an ethane cracker.

“The study is a roadmap that will help us jump start our strategy to attract that investment,” Davin said in a statement.

“Pennsylvania’s world-class natural gas resource base has the potential, as this report outlines, to fundamentally reshape our near- and long-term manufacturing potential," said Marcellus Shale Coalition President David Spigelmyer in a statement. "To fully realize these generational opportunities however, as the authors point out, Pennsylvania must put in place policies that streamline permitting delays and address other regulatory challenges that we continue to face. Importantly, the report underscores the clear fact that other U.S. states and regions are also competing for these job-creating opportunities.”