Royal Dutch Shell said Tuesday it will build a multibillion-dollar petrochemical complex near Pittsburgh to make base chemicals and plastics from the natural gas produced within the Marcellus and Utica shale basins.
But the project announcement comes as Shell is cutting costs and jobs during the oil downturn, which analysts said puts some of Shell’s other pending projects at risk, including the $12.3 billion Lake Charles LNG natural gas export project in Louisiana and the Vito deepwater project in the Gulf of Mexico.
It’s unlikely that more than one, if any, of those two projects will move forward because Shell can only afford so many mega-projects, the Houston-based investment banking firm Tudor, Pickering, Holt & Co. said Tuesday.
As such, Pennsylvania’s win could come at the expense of the Texas and Louisiana Gulf Coast. Shell specifically noted the Pittsburgh-area location benefits from “shorter and more dependable supply chains, compared to supply from the Gulf Coast.” Shell will still maintain its petrochemical and refining complex near Houston in Deer Park. Shell also announced last year it is expanding its chemical complex in Geismar, Louisiana.
Shell CEO Ben van Beurden on Tuesday specifically cited chemicals as a growth area for the energy giant.
Shell is currently in the midst of cutting 12,500 and more than $2 billion in capital spending by the end of the year after recently acquiring London-based BG Group for more than $50 billion.
The Lake Charles liquefied natural gas project was inherited by Shell through BG. The project is a partnership between Shell and Dallas-based pipeline giant Energy Transfer.
Energy Transfer would provide pipeline services to the plant and Shell would handle the liquefied gas. A final decision on the project is expected by the end of December, although it could be delayed. Shell noted Tuesday that the project remains in its pipeline and that no decisions have been made thus far.
Energy Transfer declined comment Tuesday, but pointed to comments a month ago by Chief Financial Officer Thomas Long that that project is on track and could begin construction as soon as Shell makes a final decision. The first LNG exports could ship out in mid-2021, he said.
If built to its capacity, the Lake Charles LNG project would be capable of exporting up to 2 billion cubic feet of natural gas per day, or about 15 million tons of LNG per year.
As for the Pennsylvania project, Shell will start construction near the end of 2017 on the ethylene cracker and a polyethylene derivatives unit. Ethylene is the primary building block of moth plastics, while polyethylene is the most common plastic used everywhere from food packaging to automotive components.
Shell is not revealing the full project costs. The Pennsylvania plant will bring 600 permanent jobs, not counting about 6,000 jobs during construction.