According to the Pittsburgh Post-Gazette Shell Chemical Appalachia’s long-awaited decision on a multibillion-dollar ethane cracker plant arrived early Tuesday and it’s a go. The company plans to build the petrochemical complex on the site of the former Horsehead zinc smelter in Potter and Center townships, Beaver County, Pennsylvania.
The site will house the cracker; two units that will convert ethylene into polyethylene pellets; a natural gas-fired power plant; a loading dock; and a wastewater plant. Main construction will start in about 18 months, with commercial production expected to begin early in the next decade, the company said in a statement.
Shell has said constructing the plant would employ 6,000 workers, giving way to 600 permanent operational positions when it opens. Shell had previously put the number of permanent jobs at 400 or 500, but spokesman Ray Fisher said Tuesday that those were just “speculation”
Darrell Sapp/Post-Gazette An aerial view of the former Horsehead plant site in Beaver County in 2015. The plant has since been demolished.
Labor groups are beginning to launch recruitment and training programs to ensure a workforce is ready by the launch of full construction.
“If we can man it with everybody from here, it will be manned with everybody from here,” said Michael McDonald, president of Beaver County Building & Construction Trades Council and a business manager with the Laborers’ District Council of Western Pennsylvania Local 833.
Working conditions will be governed by a framework forged years ago when Shell first got serious about the project, said Mr. McDonald, whose union local has dealt directly with the multinational energy company.
Shell plans to top the entire former Horsehead smelter site in Monaca with a concrete cap to contain the extensive soil contamination present on site.
Shell, along with its contractors, established two labor agreements with the building trade unions for early site work — which has been underway for much of the last year — and for full construction, Mr. McDonald said.
The workforce will come mostly from unions and include a mix of both journeyman industrial workers and new apprentices, said Jason Fincke, executive director of the Builders Guild of Western Pennsylvania, Inc. Since Shell’s announcement, many of the 17 building trade unions — which each have their own apprenticeship school — have cautiously been growing their classes in anticipation.
Some workers have been able to train for an opportunity at the cracker plant without leaving their current job.
With the proposed plant in mind, the Iron Workers Local Union No. 3 created the Future Jobs Training Program, which offers evening courses geared toward people with day jobs, said Jim Gallik, apprenticeship coordinator for the Iron Workers. Traditional apprenticeships involve about eight weeks of intensive classes with on-the-job training through the year.
“This is a great opportunity for anybody who wants to get a family-sustaining career,” Mr. Gallik said. “We currently have 1,400 members, and our guys can pretty much stay busy for the most part,” though he did acknowledge maintenance work has declined as other industrial plants have shuttered.
The sheer scale of the planned cracker plant brings with it the challenge of accommodating workers. At its peak construction, the plant could end up involving more than 6,000 workers across all shifts, said Mr. McDonald, the Beaver County union official.
Market dynamics
The ethane cracker is intended to capitalize on the historic price spread between more expensive oil and less expensive natural gas, from which ethane molecules are extracted. Both can be “cracked” to produce ethylene — a building block of pharmaceuticals, industrial chemicals and consumer goods.
Production from the Marcellus and Utica shale formations, with their large reserves of natural gas liquids, has driven up supply and plunged the cost of ethane. On Tuesday, ethane was trading at a 30 percent of the price it was when Shell first announced its intentions to build a cracker in Beaver County. That was almost five years ago to the day.
Until about a year ago, ethane stood at a significant advantage to oil. But oil prices, too, plunged because U.S. shales unlocked a huge new source of supply and the advantage has since narrowed.
During a presentation to analysts Tuesday, Shell said it is expecting only minor improvements in oil prices and is basing its financial decisions on a long-term forecast of oil at $60 per barrel. It was trading at $51.41 per barrel Tuesday.
In that context, the Pennsylvania cracker decision caught Kendall Puig, senior analyst at Platts Analytics, by surprise. “I wasn’t expecting them to move forward,” she said.
By Ms. Puig’s estimates, there are eight ethane crackers in various stages of construction on the Gulf Coast now, with the first scheduled to come online in 2017. That will boost demand for ethane and raise the price of the ethane feedstock, she said.
Shell’s advantage will be its proximity to the so-called wet gas of the Marcellus and Utica shales, she said. Still, Ms. Puig expects it will be hard to compete with global crackers that use oil as a feedstock.
The Beaver County cracker will consume about 105,000 barrels of ethane per day. Shell said it has signed supply contracts with 10 operators — its anchors are Antero Resources, Ascent Resources Utica, Consol Energy, Eclipse Resources, Hilcorp Energy, Noble Energy and Penn Energy Resources.
Each year, the facility will pump out about 1.6 million tons of polyethylene in small balls or pellets that will be sold to clients to mold into products.
All along, Shell has been careful about not overpromising and officials explained that the company had delayed or canceled other projects that were further along than the Beaver County cracker.
In fact, company leaders said at an analyst conference in London on Tuesday that Shell is paring its spending and refocusing on the most advantageous opportunities.
It identified the chemicals business as one of two growth drivers for the company.
Anya Litvak: [email protected] or 412-263-1455.
