Shell Picks Beaver County for 'Cracker' Plant

Pittsburgh Post-Gazette
16 March 2012
By Erich Schwartzel

An 80-year-old zinc plant near Monaca became the latest addition to Shell Oil Co.'s billion-dollar Marcellus Shale portfolio Thursday, with the Houston-based energy giant selecting the 300 acres as the likely location for its coveted petrochemical "cracker" facility.

The announcement caps a months-long competition between Pennsylvania, West Virginia and Ohio for the facility that saw governors flying to Houston to personally court Shell executives and Pennsylvania Gov. Tom Corbett eyeing competitors on Google Maps.

The facility, signed over as a land option agreement with Horsehead Corp., will bring a massive operation designed to process natural gas compounds being extracted from the Marcellus Shale into plastics and other materials.

It's the second major step in two years for Marcellus development at Shell, which hasn't been afraid to spend billions of dollars in the Appalachian gas field at a time when low natural gas prices have forced other companies to scale back.

Construction on the plant is thought to be about two years away, but government officials Thursday wasted no time in taking credit for a successful campaign that included millions of dollars in tax breaks for Shell.

Pennsylvania's bundling of tax incentives -- including the expansion of the Keystone Opportunity Zone program to include projects worth more than $1 billion -- adds up to "in the neighborhood of tens of millions of dollars" in breaks for Shell, said U.S. Rep Mark Critz, D-Johnstown.

Mr. Corbett, a Republican, hailed the announcement, calling it "the single biggest industrial project in the state's southwest in a generation."

Still, much work is yet to be done, including environmental studies, the governor said. Thursday's announcement was "the first pitch in a nine-inning game," he said.

He said there are number of steps required before construction can start, beginning with private talks between Shell and Horsehead, as well as analyzing the site, assessing the local ethane supply and weighing the long-term economic viability of the project.

The announcement is a major coup for any elected official looking to improve the jobs outlook. Shell said it expects construction of the plant to employ up to 10,000 people. Once operational, the operation will need several hundred full-time employees.

The governor was deeply involved in the pitch to Shell, meeting four or five times with the company's CEO -- including a meeting Thursday morning. Mr. Corbett spent hours on his personal computer in the governor's mansion comparing development sites on Google Maps.

The Beaver County site was noteworthy for its access to rivers, rail and highways, the governor said, while Pittsburgh's cultural and educational amenities were another draw.

Cracker plants break down compounds extracted from the ground and process them for use in everyday products such as clothing or carpeting.

The site in Potter Township will be Shell's fifth domestic cracker plant. The company owns four plants at two locations in Texas and Louisiana, and experts say cracker facilities tend to multiply once one is built.

"Now that someone has begun to establish the position there, I wouldn't be surprised to see a second cracker announced," said John Stekla, director of ethylene studies at the IHS Chemical analysis firm in Houston, Texas.

That's certainly the hope of Ohio Gov. John Kasich, who said Thursday his state's locations required too much pipeline construction for the plant.

"We pitched hard and are disappointed, of course, but always understood that Shell leaned toward building where they owned the gas and liquids," Mr. Kasich said.

Construction in Pennsylvania probably won't start for two years due to permit procedures and Shell's desire to expand rail access to the site, said Mr. Critz.

Construction could take about four years, said Mr. Stekla.

Horsehead has to vacate the site by April 30, 2014, the subsidiary of Horsehead Holding Corp. said Thursday.

Horsehead has been regularly talking with Shell since late summer, when the zinc company was contacted by a real estate broker after announcing its move to North Carolina, said Ali Alavi, senior vice president at Horse-head.

Despite the excitement, Thursday's announcement was bittersweet for Bernie Hall, president of United Steelworkers Local Union 8183, who represents hundreds of workers who stand to lose their jobs with the closing of the Horsehead plant.

"Obviously, this is great news for the area," said Mr. Hall, who received dozens of phone calls in the hours after the announcement. "But we're still concerned with people losing 600 salary and hourly jobs at Horsehead."

In early 2011, Horsehead had been weighing whether to build an environmentally friendly zinc plant at the Monaca site before choosing instead to relocate to North Carolina. An explosion at the plant in July 2010 killed two workers.

The site, like much of Western Pennsylvania, sits above the Marcellus formation's "wet gas" region, meaning gas comes out of the ground loaded with valuable natural gas liquids such as ethane.

With natural gas prices dropping to record lows, liquids have become more desirable since they tend to follow oil prices and have stayed afloat. Other firms are scouting locations for petrochemical operations throughout the Marcellus region.

Shell's Appalachian headquarters is in Franklin Township. The Houston-based firm has 185 employees in Pennsylvania and moved into Marcellus development in May 2010 when it paid $4.7 billion for East Resources Inc., a Marshall-based energy producer.

At the time, the move was the first major foray into natural gas for a company that made its billions on oil.

Shell saw its North American gas production rise 62 percent from 2008 to 2009. The company added about 1.3 million acres of gas acreage in North America in 2010.

The East Resources purchase brought the Shell presence in the North American gas market to 3.6 million acres, but Thursday's announcement could prove more influential than the company's substantial acreage.

"Shell pushed a pile of money into the center of the poker table with this," said Mr. Stekla. "It's a big ante to get into this game."

Tim McNulty and Dan Majors contributed. Erich Schwartzel: eschwartzel@post-gazette.com or 412-263-1455.