Wooing chemical plants during a crisis
In the recipe that was supposed to remake Appalachia into a new petrochemical hub, two ingredients have grown scarce during the COVID-19 pandemic: money and momentum.
That everything has stopped — the location scoping, the engineering studies, the negotiations — is worrisome but understandable to people like Denise Brinley, who heads the Pennsylvania Office of Energy, a yearold agency that lives inside the state’s Department of Community and Economic Development.
“Pre-COVID, we were in the opportunity phase where companies were scouting and looking for sites and looking at the region’s infrastructure,” Ms. Brinley said. “That has changed. Now that COVID is here, we’re not experiencing the same level of interest.”
It makes sense. Capital is frozen. No one knows where the pandemic is headed or when the economy will rebound.
What everyone expected would be an imminent announcement by Thailand’s PTT Global Chemical America and South Korea’s Daelim Industrial about a second ethane cracker to be built in the region — following in the footsteps of Shell Chemical’s massive plant under construction in Potter Township — was dealt a massive blow by COVID-19 and another last week when Daelim abandoned the project.
Yet the region’s pitch to petrochemical makers before COVID-19 wasn’t all that different than it is now, Ms. Brinley said. The gas that powers manufacturing plants and serves as their feedstock is in Appalachia; most of the market for consumer goods made from plastic is within a day’s drive from Appalachia; with labor costs going up in China, why not relocate manufacturing to Appalachia?
The pandemic, she said, has shifted the timetable but also the urgency. “What it’s done is shine a spotlight on the global supply chain.”
Depending on who’s doing the analysis, the petrochemical build-out in Pennsylvania either will be delayed by COVID-19, made financially impractical or may draw momentum from a push to bring manufacturing of crucial medical and personal protection equipment back to the U.S.
“The front line of defense for COVID-19 is chemical,” Tom Gellrich, president of TopLine Analytics, preached during a webinar in early April. “The sanitizers, the soaps, the ventilators, the masks … it’s remarkable how COVID-19 has changed our perception,” he said.
For some, the idea of more plastic — especially more single-use plastic — is philosophically anathema to a sustainable, let alone desirable, vision for the state. But it has been a consequence of the pandemic that demand for single-use plastic bags, takeout containers and packaging is on the rise.
Cassie Bradley, sustainability and circular economy commercial manager for Aurora, Ill.-based Ineos Styrolution Americas — whose British parent company just agreed to pay BP $5 billion for its petrochemical business — told trade publication Rigzone last month single-use items are on the rise “both voluntarily and via rollbacks of pre-COVID19 single-use bans.
“We see this as our society recognizing the benefits of single-use items that provide convenient, hygienic and safe solutions for front-line essential workers, as well as common trips to the supermarket,” she said.
On Thursday, during the annual and newly virtual Northeast Petrochemical Update conference, Chris Jahn, president and CEO of the American Chemistry Council, offered the following “industry health check”: By any metric, 2020 will be a loss.
But then it picks up. “We are cautiously optimistic that the downturn has bottomed out,” he said. “Let’s all hope that that’s true.”
More specifically, Mr. Jahn said projects worth more than $200 billion have been announced over the past 10 years because of shale gas. Of those, 40% are still in the planning stages.
For Mr. Jahn, that indicates a strong pipeline of future projects. For skeptics, it might signal the magnitude of delayed or possibly canceled investment in light of COVID-19.
Believing in Shell
When waiting on a multibillion-dollar investment, time can stretch like Silly Putty. It took Shell five years from its first wink at Appalachia to make the financial commitment to build a plant in Beaver County — one that will crack the ethane extracted from the region’s wet natural gas and turn it into plastic pellets.
Even more than a year after construction had begun, Shell designed an entire campaign around beating back the skeptics, Ms. Brinley said. Its slogan was “start believing.”
The new message debuted in 2018 at a huge industry conference in Orlando, Fla., known as The Plastics Show, an event that takes place once every three years and gathers chemical-makers from around the world.
One night, Shell rented out Sea World and wooed potential new customers — Shell was new to the plastic pellet business and would have to take away market share from established competitors — with a private Duran Duran concert. Its employees wore T-shirts that read: “Start believing in what’s next.”
Economic development officials across Appalachia have been working for years on what’s next after Shell. What is supposed to come next, they said, is a bevy of manufacturers downstream — those that would use Shell’s pellets and make products out of them. And bring jobs.
So far, Ms. Brinley said she’s not aware of any companies that have relocated or expanded here in anticipation of Shell starting to operate — which the company has vaguely timed to be “in the early 2020s.”
It’s too early for that, she said. “Shell needs to get to the finish line for that to happen.”
There’s no reason to expect any such announcements until pellets start pumping out of Shell’s new facility, said Charlie Schliebs, a managing director at Downtown-based Stone Pier Capital Advisors. He said he has talked to several firms that have vowed to build in the region, “but they said they don’t need to be in that big a hurry.”
At the Shell construction site in Beaver County, all major structures have been built and some 3,700 workers are now focused on laying 300 miles of pipelines to ferry various chemicals around the plant, as well as expanding its electrical infrastructure.
The project had more than 8,000 workers on-site before the pandemic hit. Now, it’s bringing back workers gradually and will have a COVID-19 testing lab on-site that will deliver results within four hours.
Because the finish date has been kept murky, the company hasn’t moved it.
In a financial analysis of Shell’s project released last month, the Institute for Energy Economics and Financial Analysis painted a dim picture of the world into which Shell’s cracker will start producing its new products. The Ohio-based institute says its mission is “to accelerate the transition to a diverse, sustainable and profitable energy economy.”
The analysis lays out the risk factors for Shell, but more broadly, for the whole petrochemical industry: A recent build-out of petrochemical plants spurred by low-priced shale gas caused an oversupply, and the pandemic market disruption has thrown a serious curveball into current and future demand.
Shell spokesman Michael Marr said in a statement that “while it’s true the short-term outlook for this business is challenging given global macro conditions, it remains our view that long-term demand for the wide variety of products derived from petrochemicals will continue to grow and provide attractive returns.”
Ms. Brinley’s reaction to the institute’s report was “there are a lot of opinions for what this region’s future will look like, and that’s one of them.”
First came the gas
Those who are skeptical about the region’s allure for petrochemical companies — or those who wish to dim it to prevent an expansion of another heavy industry in the state — have made similar arguments about the shale gas business.
There are parallels: lots of product, not a lot of capital and, at least for the short term, insufficient demand to soak it all up.
It has been said of both shale gas and the petrochemical work that if it must be done somewhere, better here where the region can keep an eye on the industrial activity and benefit from the jobs.
With the arrival of COVID-19, the idea that producing plastic material in the U.S. is a national security interest has gained a foothold, just as “energy independence” did a decade ago.
Both industries expect fossil fuels to be viable for decades in the future.
“Carbon is the savior of humanity,” Nick DeIuliis, CEO of CNX Resources, declared on Thursday during a defiant speech where he warned against listening to “elites” and “Ph.D.s” and said supporting renewables was tantamount to voting for the Chinese Communist party.
Mr. DeIuliis had a unique interpretation of the current state of the natural gas industry, too. All those bankruptcies and low prices, the debt, the consolidation — “this is what success looks like.”