Today’s Pittsburgh Business Times had the front page dedicated to a story suggesting that the pipeline infrastructure investment underway was making the cracker plant in western PA unnecessary. Last weekend the Wall Street Journal published a small story suggesting the same thing (coincidence PBT?). Expect a bunch of piling on from other local and business media.
The essence of both stories is that so much pipeline capacity is being built that it makes more sense to just pipe the ethane to the Gulf to the existing cracker infrastructure. It’s important to remember that no sources with direct knowledge are quoted or anonymously cited and the use of the word “may” (as in may happen) is rampant in the writing.
I can’t argue the logic of the articles nor do I possess the experience in the petrochemical industry to comment on the feasibility. I do, however, talk to people involved with the project behind the scenes and a few things are worth noting:
1) The infrastructure being referenced was needed for the output that is coming, regardless of where the ethane goes. Moreover, the infrastructure isn’t going to the Gulf; it’s connecting to the existing infrastructure outside the region that goes to the Gulf, meaning it can easily serve the petrochemical industry in PA.
2) Engineering for the project is going on as we speak. While no contracts for EPC for the plant or the decommissioning of the Horseheads plant have been announced, preliminary pricing and sourcing is going on. Those involved say that the activity has accelerated in recent months rather than slowed.
3) The secondary pipeline infrastructure that is being built at the same time seems to be telling a different story. It’s pointing to Monaca. Tony Rosenberger from Chapman Properties was flying over a Washington Co. site recently and was stunned to see the amount of green pipe being laid out (a similar story is taking place in Beaver Co.), all going to the same spot on the Ohio River.
Shell may indeed be delaying the decision because they see less justification for the $2 billion investment. Remember that the reason that the cracker was proposed here in the first place was not just because the gas was here but more importantly because the consumers of the products made downstream were within 500 miles of here. There’s a cost associated with sending ethane 1,500 miles southwest and then shipping 60% of what is made with the ethylene that is cracked back to this region.
My bet is still for a thumbs up from Shell and sooner rather than later.
Jeff, as always, excellent insight. I especially enjoy when journalists and editors like yourself “call out” their colleagues for excessive, obvious speculation. Really a shame what passes for news these days.
Yeah, I’m trying to be the Jon Stewart of construction publishing. I’m just not sure why telling us what may happen is news. It’s OK to forecast but in the 24/7 news cycle something like this will be recycled ad nauseum. I may be wrong but I expect to see a bunch of outlets running stories like this for a few weeks. Perhaps Shell will say the word and shut us all up.
Great post and outlook. We would also second you for becoming the next, “Jon Stewart of construction publishing!”