Why some financial analysts are questioning viability of the Appalachian plastics hub

Julie Grant/The Allegheny Front

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Julie Grant got her start in public radio at age 19 while at Miami University in Ohio. After studying land ethics in graduate school at Kent State University, Julie covered environmental issues in the Great Lakes region for Michigan Radio’s Environment Report and North Country Public Radio in New York. She’s won many awards, including an Edward R. Murrow Award in New York, and was named “Best Reporter” in Ohio by the Society of Professional Journalists. Her stories have aired on NPR’s Morning Edition , The Splendid Table and Studio 360. Julie loves covering agricultural issues for the Allegheny Front—exploring what we eat, who produces it and how it’s related to the natural environment.

Reid R. Frazier / StateImpact Pennsylvania

Shell's ethane cracker under construction in June 2019 in Beaver County, Pa.

April 3, 2020 | 6:47 AM

Shell has suspended construction of its ethane cracker plant in Beaver County, Pennsylvania to protect the health and safety of the thousands of workers on site from the coronavirus. Even before the collapsing economy due to the pandemic, analysts were concerned about the viability of a larger Appalachian petrochemical hub for the region.

The Allegheny Front’s Kara Holsopple and Julie Grant discuss what analysts are saying.

Listen to their conversation:

It starts with fracking. When drillers frack for natural gas, it also brings up ethane and other byproducts from deep underground. Ethane can be processed into ethylene and polyethylene, which are the building blocks of the plastic products we use everyday. When the Shell plant in Beaver County is up and running, it’s expected to produce 1.6 million metric tonnes of polyethylene each year.

Two years ago, market analysts at IHS Markit were among those forecasting as many as five ethane crackers in the region, and the Trump administration, along with the chemical industry, were promoting the development of a new plastics manufacturing industry in the Ohio, Pennsylvania, West Virginia and Kentucky region. This would include cracker plants and places to store the ethane underground. All of those projects jointly are sometimes referred to as the Appalachian petrochemical hub.

Why are some questioning the viability of a regional petrochemical hub?

The Shell plant outside of Pittsburgh has started construction, but it’s been reported that plans for an ethane cracker in West Virginia fell through last year.

In Ohio, a state permit for Mountaineer NGL Storage (also called the Powhatan Salt Company in permit application materials), expired recently. That permit is for an underground ethane storage facility and is related to another ethane cracker, a multi-billion dollar plant proposed five years ago along the Ohio River by PTT Global Chemical of Thailand. The company is now partnering with Daelim Chemical, of South Korea.

What’s the significance of the permit expiration for Mountaineer LNG Storage to store ethane in the region?

The PTTGC and Daelim have not made a final investment decision on whether to build the plant in Ohio. According to Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis, a nonprofit think tank that works toward a sustainable energy economy, without the commitment from PTTGC, there’s no need for a storage facility yet.

“They typically need an anchor tenant. Otherwise, you’re just building it for with no customer base And so there is no anchor tenant right now,” Sanzillo said. “There is a promise of PTTGC being the anchor tenant, but the company has delayed their decisions since 2016. And those delays now seem to be causing some problems.”

Mountaineer NGL Storage did not respond to phone calls. The Ohio Department of Natural Resources provided a copy of the company’s application to renew the expired permit.

What’s the status of the Ohio cracker plant?

Dan Williamson, spokesperson for PTTGC, said in an email that it is still the company’s goal to make a final investment decision this summer. According to an email sent by Matt Englehart, spokesperson for JobsOhio, a private economic development corporation that’s in discussions with the company, this is “very much an active project.”

Local officials where the facility would be built just approved tax incentives to offer PTTGC and Daelim on March 26. The Times Leader newspaper reports that Belmont County Commissioners, Mead Township trustees and the Shadyside Board of Education all approved new tax agreements, which according to Williamson, were requested by the companies.

The local government entities created an Ohio Enterprise Zone agreement, giving the project a 15-year property tax exemption. They’re expecting PTTGC and Daelim to pay $38 million to the school district, and $9.5 million to Mead Township, over the 15-year life of the agreement.

Why are there still doubts swirling around about its future?

Sanzillo said right now, the plant just doesn’t look like a good investment. In February, Moody’s bond credit rating businesses, which is used by investors to decide where to put their money, raised doubts about the project. Moody’s predicted that this year PTTGC would, quote, “not embark on any new capacity expansion plan until margins improve on a sustained basis.” And our partners at InsideClimate News reported that IHS Markit had removed the proposed plant from its long-range plastics supply forecast.

Is this a problem just with this one company?

No. According to Sanzillo, these industries just aren’t doing well right now, and that was happening even before the coronavirus pandemic was a factor.

Natural gas prices were depressed last year, and the warm winter further reduced demand, which is not good news for frackers.

Sanzillo said there’s also been an oversupply of plastics on the market, which hasn’t been good for plastics pricing.

“The companies that are involved in the plastic industry, all had a rough 2019,” he said. “If you look at ExxonMobil, if you look at Dow Chemical, if you look at Chevron, if you look at those companies, their returns, in their petrochemical divisions, were very low. Exxon’s was the worst in five years.”

Whether plastics manufacturing in Appalachia is limited to Shell’s plant, or actually becomes a full scale hub to rival those in Louisiana and Texas, depends on other ethane crackers being built. But as Sanzillo points out, when the PTTGC plant in Ohio was first proposed, the price of plastic was significantly higher than it is today.

“And that presents all kinds of new challenges for the investment. These are long term investments, and so they take a long time to get in the ground,” Sanzillo said. “But the market has shifted substantially, and in the current environment, it’s difficult to see how they are sustained.”

It’s also unclear how the severe economic consequences as a result of the coronavirus pandemic will play into the future of PTTGC’s plant, and larger Appalachian petrochemical vision.