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Local cracker project at heart of Shell’s massive investment in chemicals industry

Royal Dutch Shell is pursuing a massive shift in its business model by focusing heavily on the petrochemical business, something that has its roots right here in Beaver County.

Shell, the multi-national oil and gas giant that is one of the largest companies in the world, will have three new petrochemical projects come online early next decade. In addition to the local cracker project, Shell is making other chemical-sector investments in Louisiana and another in China.

During an hour-long presentation to investors last week in London, two high-level Shell executives spoke about the company’s intense focus on the petrochemical industry, and how that segment will help lead Shell in a new direction in the future.

Specifically, those executives said the global demand for petrochemicals is expected to grow by about 50 percent by the end of this decade, making it a “growth priority for Shell,” according to John Abbott, Shell’s downstream director.

Abbott, who only spoke briefly, went on to say the petrochemical industry has “strong market fundamentals, high growth rates, and attractive returns” on investments.

In addition, Shell predicted it can nearly double its earnings in the chemicals business to $3.5 to $4 billion by the end of the decade as the new petrochemical projects come online.

Graham van’t Hoff, the executive vice president for Shell’s chemicals division, specifically mentioned the Beaver County project as one that will help the company realize its ambitions of moving in a new direction.

During the investor presentation, van’t Hoff made it clear that Shell decided to invest in Beaver County only because it made perfect business sense to do so.

“If you look at the investment we make, we only make final investment decisions on investments where we can see a fundamental basis for competitive advantage,” he said.

That “fundamental basis for competitive advantage” was easy to see in Beaver County, he said, mostly because of the Marcellus and Utica shale formations that sit under western Pennsylvania.

Shell won’t have to ship its ethane very far to get to the cracker plant in Potter Township, which is in stark contrast to shipping ethane all the way down to the Gulf Coast.

In addition, he mentioned a statistic oft-repeated by Shell officials when explaining the decision to invest here: More than 70 percent of North America’s polyethylene customers are within a 700-mile radius of Pittsburgh.

“That’s why we like this project so much in terms of the basis for competitive advantage,” van’t Hoff said. “Prospective customers like it a lot as well … they are extremely interested to see a player like Shell, with our reputation, coming into the market.”

Finally, van’t Hoff said the local Beaver County project is in “extremely good shape” as Shell moves closer and closer to main works construction at the site. Company officials have repeatedly maintained construction of the actual cracker plant will start by the end of this year.

The Shell executive admitted that, to the outside eye, a tremendous amount of work has been at the site without much to see above-ground. He reiterated that’s about to change.

“What you would see in terms of the readiness to start main works construction, most project directors would not recognize because of the advanced nature of the project and our ability to hit the ground running as we go into main works,” he said.

In addition to the Potter Township project, Shell has made final investment decisions for new chemical plants at its existing facility in Geismar, La., and in Nanhai, China.

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