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A Perfect Storm For Petrochemicals

One closely-watched project already under construction in western Pennsylvania faces heightened risk as well. Royal Dutch Shell is building a gargantuan ethane cracker in the heart of the Appalachian shale gas region… “The complex is likely to be less profitable than expected and face an extended period of financial distress.”

A Perfect Storm For Petrochemicals

The oil majors have made huge bets on plastics and petrochemicals in recent years, but those investments look increasingly shaky following the COVID-19 pandemic and economic downturn.

One closely-watched project already under construction in western Pennsylvania faces heightened risk as well. Royal Dutch Shell is building a gargantuan ethane cracker in the heart of the Appalachian shale gas region, and the project is expected to come online in 2021 or 2022, entering a market that is more “challenging than when the project was planned,” according to a report from the Institute for Energy Economics and Financial Analysis (IEEFA). “The complex is likely to be less profitable than expected and face an extended period of financial distress.”

When Shell designed the project nearly a decade ago, the plastic pellets the plant plans on producing cost $1 per pound. But today, those pellets sell for between 40 and 60 cents per pound. Futures prices for 2021 are as low as 20 cents per pound, a sign that traders expect the market to continue to deteriorate.

Shell will enter the market “amidst a plastics price war among formidable corporations with existing client bases that are reducing their prices to maintain their position in a constricted market” IEEFA analysts wrote. The state of Pennsylvania gave Shell a $1.65 billion subsidy to build the plant. Because of the public is on the hook, Shell “owes a more complete explanation to shareholders and the people of Pennsylvania of how it is managing risk,” IEEFA analysts said.

By Nick Cunningham of Oilprice.com

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