FEATURE: Shell's proposed Pennsylvania ethane cracker faces logistical hurdles

Houston (Platts)--30Aug2013/110 pm EDT/1710 GMT


Shell's recent announcement that it is seeking additional feedstock supplies for its proposed western Pennsylvania petrochemical facility is only one major roadblock that the facility needs to circumvent in the next few years, a Platts analysis showed.

Shell said Tuesday that it will start taking bids to secure ethane from Marcellus Shale gas producers for its proposed world-class petrochemical plant in Beaver County, Pennsylvania. The company has already secured supply commitments from Consol Energy, Hilcorp Energy, Noble Energy and Seneca Resources, Shell said.

However, most industry sources agree that the facility will face further obstacles moving forward.

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"If there is any suitable LPG storage in the vicinity of their proposed site, I'm not aware of it," said Rusty Braziel of the consulting firm RBN Energy. "That's one of the reasons why I think the project has problems."

Peter Fasullo, a consultant with EnVantage, said Shell has to find a way to provide swing services to producers in the event the ethylene plant goes down for unscheduled outages or for a planned turnaround.

"If you are a producer, you want to make sure that you will not have to throttle back gas production because the ethane can't be consumed by Shell's plant when it is down. If Shell can find a way to not disrupt the producer, then the project has jumped one major hurdle," Fasullo said.

A world-class cracker takes five years to build and produces about 1 million tons of ethylene from ethane annually, which requires up to 80,000 b/d of ethane, according to Shell. Plant turnarounds can last 30 to 45 days.

"[Maintenance] will be a nightmare, like in the Mideast... everything has to come down and back up together," a Gulf Coast petrochemical source said. "It makes way more sense to me to move [ethane] to the USGC where infrastructure (including salt dome storage) already exists."

Whether or not Shell has made supply and maintenance agreements with feedstock providers is still unknown and Shell was tight-lipped on such arrangements.

"There are many hurdles to clear before we can take an investment decision to build the proposed petrochemical complex," Shell spokeswoman Kimberly Windon said in an email. "It would be premature for me to speculate about any future potential maintenance if the proposed complex is built."

NGL TAKEAWAY ALREADY AVAILABLE

Current NGL production in the Northeast is 80,000 b/d, according to the Energy Information Administration's most recent monthly production report. However, about 670,000 b/d of fractionation capacity is anticipated to be in-service by the end of 2014 of which 300,000 b/d is expected to be ethane, according to Platts unit Bentek.

When Shell first announced interest in building a petrochemical cracker in the Northeast it was March 2012 and takeaway options were limited for NGL producers. However, Shell's proposed Beaver County plant is now one of many projects aiming to capitalize on surging ethane production from the liquids-rich Appalachian Basin.

Other announced NGL takeaways include pipeline projects proposed by Enterprise Products Partners, Kinder Morgan and MarkWest, Sunoco Logistics and a partnership between Williams and Boardwalk Pipeline Partners to take NGLs to petrochemical markets in the US Gulf Coast, the East Coast, and Sarnia, Ontario.

While the Gulf Coast petrochemical sector is a major target, other ethane outlets are designed to ship Marcellus supply to other markets.

Two such such projects are Sunoco Logistics' Mariner West and Mariner East projects. Mariner West has already started pumping ethane from Houston, Pennsylvania, to Sarnia, where petrochemical companies will consume the feedstock. The pipeline will have a total capacity of 50,000 b/d once the line is full later this year. In addition, the Mariner East project is slated to come online in 2015, shipping roughly 20,000 b/d of ethane from Houston to Philadelphia for export. However, both of those projects already have existing storage infrastructure associated with them.

"Shell needs to find a way to buy these committed barrels back," Fasullo said.

Not all market sources felt the Shell cracker project was out of the realm of possibility. "It will probably happen ...lots of cheap supply there," a Gulf Coast NGL trader said.

Consol Energy, an NGL producer which has already committed to selling Shell ethane felt Shell's recent announcement was promising and encouraging.

"This project would have global, market-changing implications and would further strengthen our regional economy by creating new jobs and economic benefits that will stay here to support a domestic, regional market for natural gas from the Marcellus Shale," said Consol spokesperson Lynn Seay in an email.

Shell also highlighted to positive side of the project as well.

"Based on our analysis to-date, we believe it may be more economical for gas producers, polyethylene and MEG (product) customers, and the communities in the Marcellus area to build a cracker in the region. A regional cracker would provide a reliable ethane solution to local upstream gas producers and unlock more gas production in the Marcellus region, thereby making more cracker feedstock available."

However, the general market sentiment for the cracker remains on the pessimistic side.

"If Shell finally commits to the project it will still be at least 2019 before it is built," Braziel said. "That's a long way down the road, and a lot can change. That's one reason why the project sounds doubtful to me.

Fasullo was bearish on the project as well, "Getting the liquids out is like booking an airplane ticket, and producers need to book it now, not wait until Shell makes a decision."

--Mike McCafferty, michael.mccafferty@platts.com
--Edited by Katharine Fraser, katharine.fraser@platts.com

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