Shell´s start up at Pennsylvania polyethylene complex slower than expected, to take rest of 2023

Shell officials said during the company earnings discussion on May 8, 2023 that the start up of the ethylene and polyethylene complex with 1.6 million tonnes of annual capacity of polyethylene where construction was completed last year has proceeded in a way that was slower than expected. Separately, local media reported a pause in operations didn´t satisfy environment-concerned neighbors.

Image courtesy of MM - Shell´s plant during construction

“We continue to be hopeful that through the course of this year, we should bring it up to the levels that we had anticipated in the plan,” Wael Sawan, CEO of Shell since Jan. 1, 2023 after replacing former chief executive Ben Van Beurden, said during the earnings call discussion on May 8, 2023.

“It's been slower than we would have hoped for, but the team is doing a great job battling with some of the obvious technical niggles that startups typically have,” he added.

Separately, a report by KDKA News in late April said that a pause of operations at the plant, as well as a meeting with town residents, has not quelled concern from neighbors related to the complex where construction lasted about five years, and was estimated by third parties to have demanded an investment of anywhere from $6 billion to $10 billion.

Environment-related opposition to the plant has included the threat of lawsuits.

$1-billion earnings per year

Once the plant is fully up and running it will contribute about $1 billion annually to the company earnings, Sawen said.

Sawen said he expects the Pennsylvania complex to be a “robust asset going forward.”

“I don't know if we disclosed the numbers, but I think this is a healthy asset in the $1-plus billion earnings range is what we would expect in a normal year. And I suspect, of course, a lot of it is tied to what the macro looks like,” he said.

Sawen reiterated what Shell has said would be a key advantage for this asset that is unique as it is the first large scale ethylene and polyethylene project to tap the Marcellus shale formation for its ethane feedstock.

“Roughly two-thirds of industry is around that specific asset. So we can get there from an advantage perspective compared to some of the competitors in the Gulf Coast,” he said, referring to the fact that the western Pennsylvania location is closer to the biggest industrial hubs in the U.S. located in the Northeast.

“And of course, we have access to nicely priced gas in that area,” he added, referring to the ethane to be obtained from the nearby Marcellus formation. "So by and large, this is an asset that should be able to outcompete and is well positioned to do so," he said.

Environment concerns

According to a report on April 26, 2023 by Chris Hoffman from KDKA News titled “Shell pauses operations to address malfunctions after public meeting,” the company faces some neighbor concerns that it has tried to address.

The night of Thursday, April 27, during a meeting “the company said it wanted to address some malfunctions, and the community said it was also the first time they've had a public meeting since the plant opened,” according to the report. 

“The meeting lasted about an hour and a half. For some, they feel the company didn't give them any complete answers on their questions,” the report added.

The report re-published a statement from the Pennsylvania Department of Environmental Protection that said that Shell had notified the authority on April 6, 2023 “that it had shut down production facilities at the plant while it made repairs.” 

“DEP did not order a shutdown of operations. During the shutdown, Shell is obligated to comply with its permits and the environmental laws and regulations. DEP continues to have personnel available, is regularly conducting inspections and responding to incidents and public complaints, and will take compliance actions as appropriate,” the statement added.

According to KDKA News, “there have been multiple flare-ups” since first trials an there was also an “odor incident” earlier in April.

The slower-than-anticipated entry into full-capacity of polyethylene projects has provided some relief to North American resin producers that have this year faced excess inventories as well as slower demand, leading to narrower margins.

Shell had announced in Nov. 2022 the start of operations of the complex.

The company had announced the completion of construction in Aug. 2022.

By Renzo Pipoli