Corbett Says He's Confident Shell Will Build Cracker
PITTSBURGH – Pa. Gov. Tom Corbett says that he hopes by next year, Royal Dutch Shell will put "a shovel in the ground" and start construction of a multi-billion dollar "cracker" plant near Monaca, Pa., at a site just 40 miles from Mahoning County.
"They asked for an extension on their lease to work out some final details," Corbett said of the project after he addressed an audience at the Hart Energy Marcellus-Utica Midstream Conference at the David L. Lawrence Convention Center Wednesday. "They've got a couple major decisions coming up this year, and I'm hoping that they go positively."
Shell has tentatively selected a site that once housed the former Horsehead zinc smelting operation near the Ohio River to construct a $2 billion- to $4 billion cracker plant, a facility that processes "wet" ethane gas into ethylene, a primary ingredient used in plastics and other materials.
Pennsylvania put up "creative" tax incentives to win the project, Corbett said, but did not divulge any details. Some reports have placed these incentives around $1 billion.
"If you want tax breaks, process Pennsylvania natural gas in Pennsylvania," Corbett told the Hart Energy audience. "We don't just want rigs on our land, we want to see the headquarters being built here in Pennsylvania."
Horeshead Corp. agreed in December to extend Shell's lease for another six months as the oil and gas giant performs its due diligence on the site.
Although Shell is taking its time, and previously shopped other locations in Ohio and West Virginia, Corbett believes that the company is committed to building at the Beaver County site and nowhere else.
"If they're going to build it, they're going to build it here," he told reporters.
Should the plant be built, it would provide "tens and tens of thousands of jobs, either direct or indirect," the governor remarked.
Construction work alone at the site would employ 10,000 tradesmen, while he projects another 10,000 or so jobs would be created as a result of manufacturers locating near the plant.
But John Cutler, CEO of Appalachian Resins, said later during the conference that a cracker processor doesn't need to be a large, world-scale operation to accommodate processing demand in the Marcellus and Utica. Appalachian Resins is in the process of developing a smaller scale cracker plant somewhere in the Marcellus shale region, he said.
Cutler suspects that one reason Shell is moving slowly on the project is that the company is concerned about what might happen should the plant shut down while there are 60,000 barrels of ethane a day being shipped to it.
"What do you do with all that ethane?" he asked, noting that the region doesn't have adequate storage reservoirs like the processing plants on the Gulf Coast hsbr.
Instead, a larger number of smaller plants would be able to handle a shutdown more efficiently without taking too much ethane production offline. "The market supports it," he told conference attendees.
Corbett, a Republican who took office in 2011 succeeding two-term Democrat Ed Rendell, called oil and gas exploration in the Marcellus shale has been nothing short of transformational to the commonwealth's economy.
"It's an industry that's spun off other industries and continues to grow," Corbett said.
In the last two years, for example, more than 110,000 private-sector jobs were created in Pennsylvania, Corbett said. About 25% of those jobs were directly created by the oil and gas industry, he estimated.
"It's provided a stimulus to the economy, but it's also the creation of a new reindustrialization of the Northeast."
Communities all across the state have also reaped benefits in the form of new revenue streams in their coffers, Corbett added.
The governor signed into law last year a measure that allows counties where large corporations are actively drilling to assess an impact fee on each well that is drilled. The state saw more than $200 million in new revenue during 2012 as a result of the assessments.
Corbett explained that the difference between the impact fee and an extraction tax, which former Gov. Rendell advocated, is that 70% of the revenue raised stays in the communities where the drilling occurs. "The counties are involved in natural gas and development, and they get to share it with the municipalities when they're involved," he said. The money can then be used for, libraries, matching funds or safety services that have direct benefits to the community, he said.
That means poorer communities that have an abundance of oil and gas exploration are able to receive their fair share of these impact fees, Corbett elaborated.
"It doesn't all go to Harrisburg," Corbett said. The state collects about 30% to fund the Pennsylvania Department of Environmental Protection, training for the commonwealth's emergency management agency, and police.
At the same time, the abundance of gas produced in the Marcellus shale, mostly methane, has helped lower the overall cost of energy and gas usage throughout the United States and especially Pennsylvania.
Pennsylvania has also emerged as a major exporter of natural gas for the first time in more than a century, when the first commercial oil well was sunk in 1859 on the Drake property in the northwestern part of the state.
"It's made Pennsylvania and energy exporter," he said. "We haven't been an energy exporter since Titusville."
Copyright 2013 The Business Journal, Youngstown, Ohio.
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