Shell Ethane Cracker: Dawn of a New Era

On June 7, 2016, Royal Dutch Shell announced final confirmation of their long-awaited multibillion-dollar petrochemical manufacturing facility in Monaca, Beaver County – an ethane cracker that will revolutionize industry in Pennsylvania. Construction will start in 2018 with production to begin early in the next decade. The arrival of this facility is so consequential it's going to manifest itself in ways we can't envision right now.

Using the natural gas byproduct ethane from the Marcellus Shale, the facility will "crack" a hydrogen molecule from the ethane to turn it into ethylene. Ethylene is the feed stock – the primary manufacturing input – of every kind of paint, glaze, solvent, adhesive, coating, plastic, Styrofoam, and rubber that goes into every kind of consumer good that you and I purchase, handle, and use every day. Every level of processing towards those end uses adds value. Chemical companies have dubbed ethylene, "the most important basic chemical product in the world." Soon, we will make one million six hundred thousand metric tons of that "most important basic chemical product in the world" every year, right here in Pennsylvania.

There is nothing like this in the entire northeast United States. In fact, there are no ethylene facilities in the United States north of Baton Rouge, Louisiana. With this important chemical - this building block of modern manufacturing – right here at home, transmission costs to our manufacturers will be lower. Will make Pennsylvania more economically competitive, which means a revitalized plastics industry in north-west Pennsylvania, more steel production throughout our commonwealth for gas extraction and infrastructure development, and more refining and export opportunities in our ports in Philadelphia and Pittsburgh. The opportunities for economic growth are limitless.

PMA was part of the broad bipartisan, bicameral, business-labor coalition that supported the Pennsylvania Resource Manufacturing Tax Credit needed to make this project possible. While we would prefer not to depend on credits to attract a private sector investment of this size, there was no other way to fix Pennsylvania's baseline costs of doing business in time. Just in 2012, the American Chemistry Council concluded that the natural gas industry could have a potential gain of 2.2 million family sustaining jobs nationwide in downstream-related activity. We want to develop as much of that economic gain here in the commonwealth as we possibly can.

The up-front private-sector investment by Shell to build the Beaver County plant will be $4 billion and because the credit is production-based it will only be awarded if and when industrial production occurs. If the credit is fully utilized over the next quarter-century, it would total $1.6 billion. So think of the credit as a discount on future tax collections that wouldn't have existed if we hadn't succeeded in landing the plant in the first place. Because the credit can only be used against Pennsylvania tax liability, we should be able to capture almost all of the manufacturing activity that results from this new petrochemical manufacturing sector. If built as planned, it will be the only petrochemical facility of its kind in the northeast United States; the synergy from co-location by manufacturers using the feedstock produced there is almost beyond imagining. It is the exceptionally rare situation where there is no downside.

This pro-production, results driven incentive has landed the biggest private investment in Pennsylvania since the Second World War. Obtaining the tax credits are conditional of job creation and the production of barrels of ethylene. Pennsylvania gets an estimated four billion dollar investment and the credit is only awarded when people are hired and a product with an unfathomable multiplier effect is created. The ethylene produced will revitalize our economy by growing our economic output in the form of manufactured goods, and new people will be employed in the manufacturing sector to produce those goods, transport those goods, and sell those goods throughout the world.

Construction and investment is happening now, but in total there will be a minimum of 6,000 construction jobs on site in Beaver County and 600 permanent, family sustaining, jobs on the plant floor. But again, the multiplier effect of this project is simply incalculable. Had this project not be pursued by the Corbett administration in 2012, the easiest outcome – and the likeliest – would have been for our natural gas and gas byproducts to be piped to the Gulf Coast, processed there, and have manufacturers in those states derive the value-added from using this Pennsylvania resource. Those states have Right to Work, lower business taxes, less lawsuit abuse, and better regulatory environments.

With that said, this is the beginning – not the end. We must optimize the conditions for that manufacturing growth to occur here and that means right-sizing state government and getting our fiscal house in order. Let's lower the overall tax and regulatory burdens for job creators throughout Pennsylvania; lowering the cost of creating and maintaining jobs here as opposed to our competitor states.

We need to build the pipeline infrastructure that will connect Pennsylvania energy production with the industrial, commercial, and residential consumers who can benefit from it

Pennsylvania's natural gas, manufacturing, and petrochemical industries can resurrect our existing brownfield sites, develop new manufacturing facilities, revitalize our legacy freight rail systems and capable ports on both ends of the commonwealth, and, most importantly, provide new career opportunities and long-term employment for our skilled and adaptable workforce. The energy and the will are in place, but we must improve Pennsylvania's uncompetitive business tax structure.

The best news of all is this: where one of these facilities is found, others follow. If we optimize conditions for growth, if we build the infrastructure to connect production to consumers, if we show the petrochemical manufacturing industry that Pennsylvania is willing to earn the investment, there should be additional "crackers" to turn butane into butylene, propane into propylene, methane into methylene – a cascade of value-added, wealth-creation, jobs, and prosperity.

Shell just proved this opportunity is REAL – now it's time for Pennsylvania to claim it.

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