Shell completes Pennsylvania ethane cracker, polyethylene plant construction

Shell has fully completed as of early Aug. 2022 construction of an ethane cracker and polyethylene plant complex near Pittsburgh, Pennsylvania that is different from other U.S. downstream investment in plastic resin capacity in that it will tap ethane from the Marcellus Shale.

Shell´s Pennsylvania plant construction as of mid-2020. Image courtesy of MM.

“So Pennsylvania, we're done building it,” said Shell´s Chief Executive Officer Ben van Beurden, referring to the complex with capacity to produce 1.6 million tonnes per year of polyethylene, according to a transcript of the call by Motley Fool.

Running rates closer to full capacity will be reached in the fourth quarter, he said

The company reported a “strong performance” in its LNG business in the second quarter whereas its chemical business performance for the same period wasn´t as good.

Plant startup

“Now, there's always a phase when you are completing construction and go into start-up mode,” van Beurden said while talking about the startup as part of the company´s earnings discussion.

While Shell hasn´t disclosed an actual budget, the spending had been estimated in a range of between $6 billion to $10 billion, when including related pipeline works, before Covid.

“We have, in a way, been starting up support systems and utilities already for many quarters. But over the summer, we will indeed start bringing production on gradually,” van Beurden said.

Near full capacity by year´s end

“It's very important we do that safely and reliably, and therefore we do not put pressures on our teams and say you have to have product done by x date. Everybody understands that today's environment is a good environment to start producing in,” van Beurden said.

“Somewhere in the fourth quarter, this will be running more or less at design capacity,” he said. By 2023 earnings from plastic sales should start to show in Shell´s overall results, he said.

“This is a very advantaged project because of its feedstock cost, but also because of the location, where it is, in the middle of the large plastics demand in northeast North America,” he added.

Market sources have in the past estimated the new plant output will change market dynamics around polyethylene by displacing other U.S.-made product consumed domestically that will now go for export.

As much as half of the U.S. polyethylene production has been exported in recent years. This is possible as the U.S. enjoys a price advantage thanks to plentiful ethane supplies from shale developments.

The plant is within a 700-mile distance of the biggest markets for plastic resins in the U.S. in regions that include the Northeast and Midwest.

Those regions currently get plastic resin needed for many products and for nearly all packaging shipped by railcar from plants in the U.S. Gulf Coast, by far the country´s biggest chemical hub.

Inflationary pressures

Shell´s chief financial officer, Sinead Gorman, said that capital spending for 2022 is within the $23 billion to $27 billion range that was previously announced.

As the company readies its 2023 capital spending plan, it is “seeing inflationary pressures coming through.”

“We're seeing things like steel being very much pressurized at the moment in terms of sort of 18% or so of inflation,” she said, according to the Motley Fool transcript.

Steel costs are a very important component of the price of petrochemical projects. Labor costs have also been on the rise in 2022.

LNG business “strong”

Shell had a very strong performance in the second quarter “in terms of the strength of our equity volumes, our own production volumes across the LNG plants,” Gorman said.

“We saw Peru and Trinidad and Tobago OK back again, all being able to produce where they should be. And of course, Colibri (project in Trinidad) has been added to that as well. What we do see, of course, is Nigeria and LNG still being impacted by some of the security issues,” Gorman added.

“We have taken out the Sakhalin (Russia) equity volumes from our predictions for Q3 and that's what you'll see in terms of the noise going forward there,” she said.

Shell, a world leading LNG supplier and trader, faced back in 2021 some production issues.

Chemicals not strong

“The chemicals results are not strong this quarter. That is because the chemical sector that we are exposed to is actually at still at a lower end, if not the bottom of the cycle,” van Beurden said.

“We will fix that, of course, once we have Pennsylvania on stream,” he added.

The new ethane cracker and polyethylene plant as well as other U.S. polyethylene capacity coming online this year is likely to find good demand, an industry executive said earlier in 2022.

There are about four million tonnes of new polyethylene capacity coming online in North America in 2022, including the Shell plant.

By Renzo Pipoli