He Smiles Knowing Shell’s Already Spent $500 Million

MONACA, Pa. – There is a segment of the Ohio River near this small industrial town where the topography flattens and reveals an anomaly of geography in this part of the country otherwise dominated by high, green hills.

Even more striking is that this area – in particular a 365-acre expanse on the southern bank of the Ohio and visible just off Interstate 376 – is today the focus of what could be the largest single private construction project in the history of the Beaver Valley. The site is just 30 miles southeast of Mahoning County, and the project could invigorate the economy of the region.

It’s here that Royal Dutch Shell, the world’s third-largest company, is weighing whether to spend as much as $4 billion to construct an ethane “cracker” plant – a petrochemicals complex that converts ethane gas into ethylene, a basic ingredient in countless plastics products and solvents.

“From my standpoint, the project has already started,” observes Jack Manning, president and executive director of the Beaver County Chamber of Commerce. “The question is: Are they going to complete it?”

Manning and other economic development leaders officials in this part of western Pennsylvania anxiously await some announcement from Shell as to whether the energy giant will finally decide to commit the investment necessary to finish the project. The company has pulled back from other initiatives on its books in the face of a depressed oil and gas market. But preliminary site work on the Pennsylvania cracker plant moves forward as if completing the project were a foregone conclusion.

On a warm morning in late May, hundreds of hardhats are busy at the site. Operating engineers prepare the ground and infrastructure, trucks stacked with dirt, supplies and materials maneuver in and out of the construction area, and large cranes tower into the sky. Temporary buildings the size of small aircraft hangars are at the west and east ends, a new bridge leading into the site was recently finished and a $60 million project to relocate a section of state Route 18 is underway.

And this is just scratching the surface, says Manning, who for 35 years worked in the petrochemicals industry, including for Shell Chemicals.In 2012, Shell announced that it had selected the former Horsehead Zinc Corp. site, as its preferred location for an ethane cracker plant. The major draw is the projected hundreds of trillions of cubic feet of recoverable natural gas in the Marcellus shale in Pennsylvania and the Utica shale in eastern Ohio. Some of this is natural gas liquid, which is separated into ethane and could be transported to a nearby cracker complex at less cost.

“When you look at what’s already taken place and the amount of money they’ve infused in demolition, remediation and redesign, the railroad, electrical power grids, improvement to major corridors – they’ve already pumped between $500 million and $750 million into the area,” Manning says.

The prep work alone has created an economic ripple effect in the region, Manning says, as evidenced by new hotels, local tradesmen at the site, and suppliers in a very early phase of the construction process.

When Shell selected the site, Manning says, it immediately galvanized all stakeholders to begin putting together proposals and plans intended to make it happen.

“I can tell you that there are multiple plans sitting on the shelf waiting for Shell to announce something,” Manning says. “Once that first domino falls, then a whole bunch of other things are going to fall in place behind that.”

In fact, development in and around the site began almost immediately after Shell’s announcement, recalls Jim Palmer, president of the Beaver County Corporation for Economic Development. “There’s been a lot of increase in activity, especially in Center Township,” he says, where five hotels at the I-376/state Route 18 interchange have either expanded or are newly constructed.

“Most local contractors are engaged as well, and that has since spun off to retail folks,” Palmer says. “The degree of investment that has taken place to date has trickled through the economy in different ways that we might not see.”

Shell has already committed sizeable financial resources to the project – how much exactly is anyone’s guess.

“They announced, for example, that they were relocating the Center Township water supply system – that was $70 million alone,” Palmer says. Another infrastructure project involves purchasing additional land around Route 18 and then relocating that road to accommodate the footprint of the cracker.

“That’s a $60 million project,” Palmer reports.

Initially, Shell said it would hold off on the road relocation until after a final decision was made, but several weeks ago it opted to move ahead on the project without the investment decision in hand.

“Those two pieces are big,” Palmer says, noting that more investment has occurred through demolition, earth moving and a new haul bridge that was constructed to move materials in and out of the site. “The dollars from that spin off to our local economy.”

Mike Bobroski, owner of Brew Ski’s Bar & Grille along Old Brodhead Road just two miles from the construction site, says he’s seen an increase in traffic and revenue since work began on the area’s infrastructure.

“In the last year or so, we’ve picked up,” Bobroski says. “Some are working on the road, the wires, and the other building projects going on. There was a nice influx when they built the bridge over 18.”

Should Shell decide to move forward, it could increase business tenfold at his establishment, Bobroski estimates. “It would be a game changer – not just for my business, but for all the businesses in the community and the nearby townships.”

Diane Wenzig, owner of Center Pizza, another nearby small business, says she’s witnessed sizeable development along the Route 18 corridor since the announcement four years ago. “The Fairfield Inn was just built and I think there’s more development slated for around the hotels.”

She would like to make more investment into her operation, but is hesitant to do so without Shell’s final commitment to the cracker project. “It’s hard to do when you don’t know what’s going to happen,” she says. “I’m afraid that if it doesn’t come, all of this will pull up and it’ll be a ghost town around here. All we can do is wait and see.”

Despite the preliminary activity, Shell has been shy to commit and fully move forward with an investment on the project. The collapse in global oil and gas prices that began in October 2014 is a big reason for this delay, evidenced by comments made in early May by Shell’s chief financial officer, Simon Henry.

“If it were not a $40 world [referring to the price of oil per barrel] it would probably be a very easy decision,” Henry told analysts during a conference call May 4. “It’s a very strong and robust project.”

Henry called the Pennsylvania cracker proposal “an excellent project. It’s got a diverse set of market exposures and risks associated with it and therefore provides quite some portfolio resilience relative to the rest of the opportunities.”

A decision on whether to move forward should be forthcoming this year, he added.

Palmer sees some encouraging indicators. “This project has survived a lot of cuts at Shell,” he says, “and the fact that they continue to do what they do here is a good sign.”

Construction of the complex could employ up to 10,000 tradesmen
during the five years it would take to construct. Once in operation, the plant would employ between 400 and 500.

Tradesmen from the Mahoning Valley already are working on the project, according to Don Crane, president of the Western Reserve Construction & Building Trades Council.

“I’d say there are between 75 and 100 of our local guys out there now,” Crane says. “Because we’re so mobile, we could have 100 or more.”

Members of Local 66 of the Operating Engineers, locals 125 and 809 of the Laborers union, Local 64 of the IBEW, Local 1090 of the Piledrivers union, and Local 179 of the Cement Masons union are on site, as are local contractors such as VEC in Girard, Crane says. “With its location so close to Youngstown, we’ll have a lot of our workforce there” if an affirmative decision is made.

Palmer emphasizes, however, that the real payoff for the region – and he means the tri-state region of Ohio, Pennsylvania and West Virginia – will come from the downstream opportunities that would emerge through the supply, chemical processing and manufacturing networks once the Shell petrochemicals plant is in operation.

Shortly after Shell made its announcement, Palmer and others from Beaver County traveled to Louisiana to assess the impact of cracker plants along the Mississippi River and the auxiliary businesses spawned as a result.

“It’s [the topography] flat as a board, and there were a variety of chemical companies, and they were built in linear slices off the river,” he says. On the other side of the road sat rows of industrial suppliers used to support the chemical processing operations and the cracker plants.

The hilly topography of western Pennsylvania makes such concentrated sprawl impossible, so that means future suppliers, manufacturers or processors would have to locate in flat brownfields or greenfields scattered throughout the Tri-State region.

“A good part of the land is in private hands that could accommodate downstream chemical companies,” Palmer says. “We have several hundred acres, and we’re in the process of going through a five-year plan that involves building new facilities,” he says. “We’re in the process of looking to buy more land and the intention is to build 150,000 square feet of space over the next five years.”

These properties are farther north, in the Chippewa Township area just seven miles from the Ohio line, Palmer says. “It’s difficult to find industrial property here between what Shell has acquired and the fact that the topography along the river makes it difficult.”

Meanwhile, developers are gearing up. Charles Betters is marketing the former Jones & Laughlin Steel Corp. brownfield site in Hopewell Township for warehouse and distribution operations, and the Pennsylvania Real Estate Investment Trust, which owns the Beaver Valley Mall, is under contract to sell two pieces of mall property to a nearby landowner to develop a hotel and office.

According to an economic impact analysis performed by Robert Morris University in Moon Township, Pa., the construction phase of the Shell project would, on average, create between 3,749 and 4,545 jobs annually over the five-year building period. While the cracker plant’s ongoing operations would employ 400 to 500 permanently, factoring industry multipliers from the operation stands to create between 5,367 and 6,776 jobs across the state.

Total labor income from the operations, assuming a 40-year life span of the plant, is projected between $8.9 billion and $11.4 billion across western Pennsylvania, the study shows. Total value of added income over the 40 years stands between $17.3 billion and $22 billion.

These numbers could be revised dramatically upward should other cracker plants envisioned for the region move forward, Palmer says, especially Thailand-based PTT Global’s proposal to build a plant similar in size to Shell’s on the Ohio River in Belmont County, Ohio.

“We’re hopeful that the project for Ohio hits, too,” Palmer says. “Having multiple facilities would be important for everybody, and it makes it better market for downstream activity.”

Plus, organizations are working with the manufacturing community to help prepare the workforce for more jobs in the industry as they become available, the Beaver County Chamber’s Manning says.

“It’s not going to replace the steel industry that everybody knew, but we’re also not putting all of our eggs in the Shell cracker basket,” he says.

Energy and advanced manufacturing are two segments that will flourish over the next decade, Manning adds, and he wants the Beaver County region workforce to be prepared.

A large petrochemicals plant would also likely lead to additional interest from companies that produce everything from garbage bags to diapers in this region because their feedstock of raw materials is close by and produced by the Shell facility.

“Shell has already done us a huge favor by putting us on the map,” Manning says. “We’re getting inquiries from all over the country, mentions in trade journals,” he adds. “We’re trying to take advantage of that by having all of the amenities, the skilled workforce, so when folks inquire they understand that we’re capable of
handling their needs.”

Pictured: The chamber’s Jack Manning estimates Shell has already invested $500 million.

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