DOE, Institute Reports Provide Differing Views of Petrochemical Industry
A U.S. Department of Energy report commissioned in 2019 by President Trump concluded that the region is “on the cusp of an energy and petrochemical renaissance” due to the abundant amount of natural gas and accompanying liquids in the Marcellus and Utica shale gas being produced here.
Titled “The Appalachian Energy and Petrochemical Renaissance: An Assessment of Economic Progress and Opportunities,” the report released last week determined that there is great potential for job creation and economic opportunity but that the public and private sectors must work together to address some challenges. The report was released amid the economic fallout of the COVID-19 pandemic but noted that “a major component of the United States economic recovery will be the abundance of reliable, affordable energy to enable United States manufacturing and other sectors of the economy to reignite the pre-pandemic boom. Appalachia’s economic viability during this recovery will serve as a key indicator of the prospects for, and overall health of United States economic recovery.”
Natural gas liquids (NGLs), such as ethane, propane, and butane, are the feedstocks for petrochemical plants that produce plastic products and chemicals.
“Building on the foundation of the shale gas revolution, Appalachia has an opportunity to realize unprecedented long-term economic growth. Abundant, low-cost natural gas and co-produced NGLs, along with private investment capital, can be an engine for unprecedented growth in the energy, petrochemical, and manufacturing sectors,” the report states.
It suggests that the public sector needs to work in “close alignment” with the private sector to attract capital investment to petrochemical and manufacturing projects in the Appalachian region by developing a pro-growth business climate in the areas of taxes, regulation and permitting and investing in infrastructure, workforce development and innovation, particularly early-stage research and development.
The Trump administration has long supported building the region’s petrochemical industry, and the DOE has been working to help provide financing for an Appalachia Storage and Trading Hub, where natural gas needed for feedstock would be stored in underground caverns. The president also toured the Shell ethane cracker plant that is now under construction in Beaver County last year. That plant is the first petrochemical plant to be built in the region.
However, other reports don’t point to a robust petrochemical industry developing here. A recent report examining the economics behind the $6 billion Shell petrochemical complex indicates that it will face financial headwinds from a combination of factors as it begins production in the early 2020s.
“This complex will not be as profitable as originally presented. This was true even before the coronavirus pandemic and has significant implications for jobs, taxes and economic spinoffs,” said Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis, which promotes a sustainable energy economy, in a press release.
The study found that from the time the plant was approved for construction in 2016, the price of plastics has fallen about 40 percent. It also points to an oversupply of petrochemical products due to a recent buildout of cracker plants by a number of companies and said that Shell can expect stiff competition for business. However, many of those plants are in the south, and one of Shell’s reasons for building in this area was that it is at the center of the U.S. market for polyethylene, making it less expensive to ship to customers and reducing wait times.
In addition, an economic slowdown that began even before the COVID-19 pandemic and its effects both the natural gas market and the chemical industry will also contribute to the plant’s challenges.
Shell spokesman Curtis Smith responded to the report in an email, saying “The chemicals business enjoys strong fundamentals and the Pennsylvania Chemicals project is an important part of our global effort to build-out new business models that will allow Shell to participate and thrive in the energy transition. The project is particularly advantaged given its proximity to customers, inexpensive feedstock, and unique application of technology. We look forward to being operational in the early 2020s.
“Indeed, the short-term outlook for this business is challenging given global macro conditions but it remains our view that long-term demand for the wide variety of products derived from petrochemicals will continue to grow and provide attractive returns,” he continued.
Questions about the economic viability of another cracker plant proposed to be built in Belmont County, Ohio, have also been raised by the same organization. A final investment decision had been expected this month, but the developer pushed back the timeline to early next year, citing the pandemic.