Last week Reuters reported that the Institute for Energy Economics and Financial Analysis (IEEFA) had released a study suggesting that the Shell Cracker plant, more formally known as the Pennsylvania Petrochemical Complex, in Beaver County faces “oversupply” and “a low price outlook for the materials” as it gears up for operationalizing in 2021 or 2022.
Specifically, IEEFA’s director of finance Tom Sanzillo described it as “too weak of a proposition” and “a questionable economic development choice.” Shell, owner and operator of the plant, had a spokesman quoted in the Reuters piece that acknowledged short term challenges but reiterated that long term demand for petrochemical products will grow and that the plant has a comparative advantage thanks to its proximity to abundant and inexpensive resources in the Marcellus and Utica Shale Formations.
This, of course, is a fair assessment. IEEFA is not discovering anything new here…the energy industry in its entirety has faced incredible challenges since the start of 2020 including a nosedive in demand, international price wars between Saudi and Russian oil producers, a brief ‘contango’ period, and more. But the industry now looks to be recovering.
Moreover, IEEFA’s report is a narrow interpretation of the value of the Shell Cracker and other petrochemical plants. Throughout the COVID – 19 pandemic these plants have been a lynchpin for the supply chains of personal protective equipment manufacturers by synthesizing polypropylene for masks, gowns, gloves, and more. A case highlighted by a recent national story titled, “More than 40 employees lived at their plant for 28 days to make material to protect health care workers.”
The Shell Cracker plant, which Reuters writes cost anywhere from $6 to $10 billion, is an investment in Pennsylvania for the long term meaning residents can expect it to be a part of the community for decades, through economic prosperity and tighter times, because of on the ground realities. While the energy market might not be at its height today, investments like this are based on where the market is likely to be in five, ten, fifteen years or more. Calls to rid ourselves of energy resources forget that many everyday products are manufactured from these types of resources; therefore demand is likely not going to subside anytime in the near future.
Because of this, Pennsylvania must continue investing in its energy infrastructure network. Its proximity to the Marcellus and Utica shale reserves that are among the largest on the continent, will only increase the Commonwealth’s opportunities to benefit from this industry. These factors alone mean the Shell Cracker plant can succeed.