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Plans to build a second ethane cracker plant in the Appalachian Basin continue to inch forward as the companies partnering on the project announced an economic development agreement with schools and local governments.
PTTGC, based in Thailand, and Daelim Industrial Co., a South Korean chemical company, have been studying the project in Belmont County, Ohio, since 2015. The partners have delayed a final investment decision but expect to make it by the end of June.
However, even as the economic development agreement was announced, some analysts are raising concerns about whether the Ohio plant will move forward, and whether the buildout of the petrochemical industry in Appalachia will occur, due to negative market conditions that have been exacerbated by the coronavirus pandemic.
The Ohio plant, which would be of a similar size as the one now under construction by Shell Chemical Appalachia in Beaver County, Pa., would represent an investment of almost $6 billion just across the border from West Virginia’s northern panhandle, could also mean a big boost for the Ohio Valley area, which has lost significant manufacturing jobs.
A cracker plant converts molecules of ethane, a natural gas byproduct, into ethylene and polyethylene, from which plastics, resins, solvents, and other industrial products are made.
The agreement announced in late March would pay the local school district and governments $47.5 million over 15 years through the Ohio Enterprise Zone Program.
Belmont County, Mead Township and Shadyside School District approved enterprise zone agreements, which will result in payments of $38 million to the school district over the 15 years, and Mead Township would receive $9.5 million. Meanwhile, Belmont County would receive an estimated $20 million to $24 million in sales tax from the purchases made during the construction of the plant. In return, the enterprise zone agreement will give the developers a 15-year property tax exemption.
JobsOhio, the state’s private economic development organization, has given the developer $50 million in grants for site preparation work.
However, a recent study by the Institute for Energy Economics and Financial Analysis, determined that the project faces significant risks and said the financial outlook is dim. The IEEFA is a philanthropically-funded group that conducts global research and analyses on financial and economic issues related to energy and the environment in order to accelerate the transition to a sustainable energy economy.
The study found that the biggest risks are plastic prices that are 40 percent below what they were in 2012-13 when the project was planned; oversupply from a global plastics buildout; stiff competition from large companies with existing domestic relationships, and unstable federal government policies.
While record-low natural gas prices are an incentive for petrochemical expansion, they will not result in a rising demand for plastic end products. “In late 2019, as new capacity was being added in the U.S. and around the world, plastics prices remained depressed,” the study states. “Although new capacity was being added, the markets were not growing at a rate sufficient to absorb the new facilities.”
The study also reasons that with many natural gas companies facing severe financial pressures, due to oversupply, low prices and a lack of capital, the risk for bankruptcies is rising, and could threaten PTTGC’s access to a ready supply of feedstock.
StateImpact reported that an Ohio state permit for the underground Mountaineer natural gas liquid storage field recently expired. That storage hub was expected to help supply the PTTGC plant. The company has applied to renew the permit, however.
How the continuing problems with financial pressures, oversupply and an uncertain economy in the wake of the coronavirus pandemic will play out is still to be seen. When the Shell plant in Beaver County, on which construction is now suspended, becomes operational, it may provide some insight into the region’s petrochemical future.
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