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Shell Picks Pittsburgh Area For Major Refinery

Filed by KOSU News in US News.
March 15, 2012

Shell Oil Co. has chosen a site near Pittsburgh for a major, multibillion-dollar petrochemical refinery that could provide a huge economic boost to the region.

Dan Carlson, Shell’s general manager of new business development, said Thursday that the company signed a land option agreement with Horsehead Corp. to evaluate a site near Monaca, about 35 miles northwest of Pittsburgh.

The so-called ethane cracking, or “cracker,” plant would convert ethane from bountiful Marcellus Shale natural gas liquids into more profitable chemicals such as ethylene, which are then used to produce everything from plastics to tires to antifreeze.

The plants are called crackers because they use heat and other processes to break the ethane molecules into smaller chemical components. A cracker plant looks very similar to a gasoline refinery, with miles of pipes and large storage tanks. The final complex could cover several hundred acres.

Jobs On The (Distant) Horizon

Pennsylvania’s Republican Gov. Tom Corbett is focused on the job-creation aspect of the plant.

“Ten thousand construction jobs for … something like five years is a lot of construction jobs for southwestern Pennsylvania,” he tells Scott Detrow of NPR member station WITF. “And that spins off a lot. The operation of it, depending on the size, could be up to 500 people that would be there full-time.”

Pennsylvania’s gain is West Virginia and Ohio’s loss, in some respects. Both states’ governors worked hard to win the cracker. They all offered Shell major tax incentives. Still, Monaca is about 15 miles from both the Ohio and West Virginia borders, so workers in all three states are likely to benefit.

Shell has said that it could spend several billion dollars to build the plant, and that the complex would attract a wide range of industry and suppliers to nearby locations.

Corbett says the cracker could be the region’s “single-largest industrial development … in more than a generation,” but his optimism is cautious. In a press conference, he said the announcement was “the first pitch in a nine-inning game.”

Actual construction is still years away. The company said the next steps are environmental and design studies and further economic analysis, then permits.

One lifelong resident of the Pennsylvania township almost broke down on hearing the news.

“Oh my God. It makes me want to cry. That’s just the best news,” said Christie Floyd-Gabel, Potter Township’s secretary.

A ‘Major Loss’ Perhaps Recuperated

It’s also an unexpected turn for Horsehead’s zinc factory on the banks of the Ohio River, which is currently operating. In September the company announced plans to shut the factory by 2013 and relocate to North Carolina, along with most of its 600 workers.

“That was a major loss,” Floyd-Gabel said of Horsehead’s plans to depart, adding that’s it’s amazing that another major corporation may come in to replace Horsehead.

Ali Alavi, a Horsehead spokesman, said the company would have to vacate the over 300-acre site by April 30, 2014, under the terms of the option agreement with Shell.

Shell said the Horsehead site had the mix of resource and transportation attributes “to accommodate facilities for a world scale petrochemical complex and potential future expansions.”

The American Chemistry Council, in a report last year, estimated the new petrochemical complex could attract up to $16 billion in private investment and create thousands of construction jobs. Shell estimated the core plant could employ several hundred people.

The Marcellus Shale’s Bounty

If the plant is built, Shell would be able to supply it partly with gas from its own wells, giving it more control over supply and costs. The company paid $4.7 billion in 2010 for drilling rights to about 650,000 acres in the region.

Shell’s choice may also represent an indication of just how strongly the industry feels about the vast gas reserves in nearby underground shale rock formations, given the multibillion-dollar commitments it has made. Carlson told The Associated Press that any plant must be economically competitive with existing cracker plants in Louisiana and Texas, and even with international plants.

The Marcellus Shale, which lies thousands of feet underground, has attracted a rush of major oil companies, who have drilled almost 5,000 new wells in the last five years. The Marcellus covers large parts of Pennsylvania, New York, Ohio and West Virginia, and drillers have also started to tap the adjacent, deeper Utica Shale formation.

How Pennsylvania Won

Ohio and West Virginia officials had made all-out efforts to attract the plant. Sources within the gas indus­try tell WITF that Ohio Gov­. John Kasich and West Vir­ginia Gov­. Earl Ray Tomblin were both told ear­lier this week that their states did not win the three-way bid­ding war.

Both Kasich and Tomblin made aggres­sive, high-profile plays for the Shell plant, trav­el­ing to Hous­ton to make their pitch to the com­pany. West Vir­ginia even passed a law cre­at­ing a 25-year tax break specif­i­cally aimed at the facility.

The Cor­bett admin­is­tra­tion took a much more low-key approach, reveal­ing scant pub­lic details about Pennsylvania’s bid for the facil­ity. Act 13, signed into law in February, directed 5 per­cent of impact fee rev­enue toward “infra­struc­ture projects related to the nat­ural gas indus­try.” Another new act expanded “Key­stone Oppor­tu­nity Zone” tax breaks to cre­ate 15 years-worth of tax breaks for com­pa­nies that invest at least $1 bil­lion in new Pennsylvania-based projects.

Several other companies are also reportedly considering building similar plants in the region.

Scott Detrow of member station WITF contributed to this report, which contains material from The Associated Press [Copyright 2012 National Public Radio]

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