States vie for huge new Shell gas plant

Posted September 4, 2011


PITTSBURGH - Big industry may be coming back to the northeast United States.

Shell Oil Co. is nearing a decision on where in the Appalachians to build a huge new petrochemical refinery - a project that could bring thousands of construction and production jobs and change the face of the region for decades.

The plans are driven by the vast natural gas reserves discovered in the Marcellus Shale, a deep formation that lies beneath New York, Pennsylvania, Ohio, West Virginia and parts of other states.

The scale of the multibillion-dollar project is unlike anything seen for decades in the region, said David Hounshell, a professor of technology and social change at Carnegie Mellon University.

"I think it's a radical shift," Hounshell told the Associated Press. "The region has really focused, since the 1980s, on looking more towards a service economy."

Shell spokeswoman Kelly op de Weegh said the company plans to decide soon where to build the so-called ethylene cracker plant, which would convert natural gas liquids to other chemicals.

"For this project, we are concentrating on three states - Pennsylvania, West Virginia and Ohio - and we expect to have a decision on a location by the end of this year," op de Weegh told the AP.

The industrial complex would likely attract many smaller, specialized chemical plants, since the main product, ethylene, is then used to produce chemicals that go into everything from plastics to tires to antifreeze, according to the American Chemistry Council.

The council, in a recent report, estimated the new petrochemical complex could attract up to $16 billion in private investment and create more than 17,000 jobs and billions in tax revenue. Shell's investment alone could be "several billion."

Other U.S. and overseas companies are also considering similar projects in the region, so there could be more than one complex. Politicians in the three states are lobbying hard for the plant, and Pittsburgh-based Bayer Corp. is negotiating to sell land at industrial parks it owns in New Martinsville or Charleston, W. Va.

"We've been having discussions with several companies, some in the U.S. and some not in the U.S.," Bayer spokesman Brian Iams told the AP.

West Virginia Commerce Secretary Keith Burdette said the negotiations are picking up speed.

"We intend to compete with the last breath in our body to attract one or more crackers," Burdette said. He acknowledged the states are "very aggressively competing" but said the most important thing is that the cracker or crackers get sited in this region.

Petrochemical plants are not without risks. A 1988 explosion at a Shell cracker in Norco, La. killed seven people, injured dozens, and forced 2,800 residents to evacuate. The blast was so powerful it broke windows and set off burglar alarms 20 miles away.

Jan Jarrett, president of the environmental group PennFuture, told the AP that the location and permitting of such plants are critical issues.

If a complex ends up on land that's already set up as an industrial park, that makes far more sense, she said.

"That's sort of like reviving our industrial heritage in a productive way," Jarrett said. "But you've got to have the highest permitting standards possible. What we'd like to see is a will both from industry and regulatory agencies to meet the highest standards."

Matthew Tejada, executive director of Air Alliance Houston, said there's much to be learned from how petrochemical plants have impacted communities in Texas. A buffer zone between the plant and communities is critical, he said. But Tejada said new plants in the Appalachians could be designed and built to run cleaner and more profitably than older ones in the Gulf, some of which were constructed 50 or even 100 years ago, and updated with costly anti-pollution retrofits over time.

"Every bit of that stuff we don't want someone to breathe is a molecule they can sell. It's a win/win," said of the best designs. He also said that a petrochemical plant produces less pollution over a year than a big coal-fired plant, for example.

"And there are good jobs at these facilities," Tejada said of cracker plants. Ultimately, the environmental impact depends on how well the local authorities enforce whatever laws are on the books, he said.

Shell, which paid $4.7 billion last year for gas rights to about 650,000 acres in the Marcellus region, says it's considering building several specialized types of refineries at a complex. If it builds a cracker refinery, the company would thus be able to supply the plant partly with gas from its own wells, giving it more control over supply and costs.

Currently, most crackers in this country are located in Texas and Louisiana. Experts said it's striking that Shell and other companies are considering building new plants, instead of just expanding existing ones.

"This is very different than building a cracker on the Gulf Coast," said Geoffrey Styles, an energy consultant and former senior planner for Texaco with a widely-read blog. "If you're building a cracker in the Appalachians, you have to be absolutely certain that the supply is there. It's a heck of an endorsement of the Marcellus resource."

Hounshell noted that even though there's a lively debate over just how much gas the Marcellus region contains, there's no question it's a huge amount. The U.S. Geological Survey recently dramatically increased its estimate of reserves, from 2 trillion cubic feet to 84 trillion. At almost the same time the Department of Energy lowered its own estimate, saying the USGS figure is more accurate.

"There's no question about it, it's going to be here," Hounshell said of the region. "There's lots of opportunity for them to take cheap gas, and convert it."

A spokesman for Pa.'s Department of Community & Economic Development declined to provide details of negotiations for the plant. A spokesman for the Ohio governor's office also declined to comment.

Burdette, while reluctant to compare and contrast West Virginia and Pennsylvania, said the Mountain State is "a very reliable partner" with a stable, business-friendly environment that is attractive to many industries.

"Our budgets are balanced. There's not any fear of unknown tax increase or tax changes that might impact this," he said Thursday, making a veiled reference to Pennsylvania. "We're actually reducing taxes, not increasing them."

Dennis Yablonsky, CEO of the Allegheny Conference on Community Development, which represents the southwestern part of the state, said he thinks Pennsylvania is competitive.

"I believe that we have sites that work, I believe we have the right work force, I believe we have access to water, so I think we have some of the basic characteristics that are required to make this work," Yablonsky said.

Hounshell noted that with the current economy, Shell is in a very powerful position to play the states off each other, to get the best tax and permitting options.

Shell is also considering building several specialized crackers at a future site, op de Weegh said, to produce chemicals such as polyethylene, used in plastic bags, and ethylene glycol, used in antifreeze.

Bayer said it believes that that the possibility of this new plant in the region shows U.S. manufacturing is at a very significant crossroads.

"We have a few really key advantages over the rest of the world," Iams said. "First, we have the highest productivity of any country. We have a great university network that makes us the most innovative country in the world. With Marcellus Shale, we now have a domestic energy supply that allows us to be competitive on a global level."

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