By Paul J. Gough – Reporter, Pittsburgh Business Times
Jul 14, 2020, 2:56pm EDT
Two weeks ago, a report by the Trump administration on the future of the Appalachian energy industry hailed the region’s unfolding petrochemical renaissance that included the ethane cracker under development in Belmont County, Ohio, by PTT Global Chemicals America. Tuesday’s news that an equity partner, Daelim, is leaving the project has thrown PTT’s project into some doubt.
It’s no secret that PTT’s plans for the Belmont cracker — an investment government and private sources say would be $10 billion all told — have not proceeded as smoothly as a similar $6 billion project under construction by Shell in Beaver County. Since PTT and Ohio began talking in 2013, tens of millions of dollars have been spent by public and private sources to develop the site along the Ohio River south of Pittsburgh. But PTT’s time line for a final investment decision has proved elusive.
PTT, which is based in Thailand, has seen rating downgrades from both S&P Global Ratings and Fitch Ratings after disappointing earnings. Fitch on March 31, in the early days of the Covid-19 crisis, had expected PTT to scale back on capital projects until earnings improve and the weak market for petrochemicals.
PTT said in a statement that it still was committed to the project and believes it has a strong economic foundation. It won’t make a final investment decision until late 2020 or early 2021, a date that was pushed back in June. Advocates for the plant say the fundamentals — for either PTT or another company that would build a second polyethylene plant outside of Shell’s in Beaver County — remain the same and may have actually improved with a renewed emphasis on single-use plastics during Covid-19.
Charlie Schliebs, chairman of the Northeast Petrochemical Conference and managing director of Stone Pier Capital Advisors in Pittsburgh, said it will be 2026 before the Belmont County cracker would be completed and online in any event. He said that renders current supply/demand trends meaningless but that the access to the cheapest ethane in the world and a proximity to most of the markets remain.
“And no one is moving the 70% of North American plastics manufacturing that is within a day away from the Pittsburgh region,” Schliebs said. “Even if there is oversupply overseas, or even in the Gulf, for a period, the advantages here are compelling.”
J.P. Dutton, chairman of the Belmont County Commission that has worked closely with the project managers, said he remains optimistic that the cracker will come to fruition.
Dutton pointed to the recent agreement for an Ohio Enterprise Zone that will benefit the local school district and said the pandemic has impacted the decision timeline but not the close relationship between the project team.
“I think our relationship and our communications between local leaders and the project team really hasn’t changed since I took office in January of 2017,” Dutton said. “I remain very optimistic about the hard work that the project team is doing.”
The Belmont County plant, whether it’s built by PTT or anyone else, is considered a critical part of the buildout of the petrochemical industry in Appalachia. That was led by Shell and PTT but, according to the June 30 Department of Energy report, could also include other plants between 2025 and 2030 based on an adequate supply of ethane from natural gas production. An earlier report commissioned by Team PA and the Pennsylvania Department of Economic Development predicted the Appalachian region could have enough ethane for five cracker plants in total.
Kathryn Z. Klaber, principal of The Klaber Group and coordinator of the Tri-State Infrastructure Council, said that more plants would solidify the energy industry.
“Shell Polymers is a wonderful anchor for a petrochemical industry here, but at least one more plant would bring synergies to the region all along the energy value chain,” Klaber said Tuesday.
PTT has said it’s trying to get another equity partner to replace Daelim. That could happen or the project could be taken over entirely by another company that would finance the project and see it through to completion.
“That’s not out of the question, at all,” said Schliebs.
The Department of Energy report acknowledges securing capital is a major challenge for new projects in the petrochemical industry, something that was an issue before Covid-19 as well as now.
“The key will be not only securing equity but securing the feedstock ethane from area upstream providers and securing either multiple pipelines or underground storage,” said Bryce Custer, a chemist by training who is a commercial real estate professional and industrial development specialist at NAI Ohio River Corridor in Bolivar, Ohio.
Daelim’s withdrawal, to be sure, is another blow to the natural gas-fueled petrochemical industry that economic development officials and advocates had hoped would be deeply in development by now. Work on Shell’s polyethylene plant in Beaver County, despite a temporary Covid-related pause in construction earlier this year, is continuing to be built. But a year ago development was halted on another ethane cracker, by Brazil’s Braskem near Parkersburg, West Virginia. A group of academics in June sent letters to the governors of Pennsylvania, Ohio and West Virginia questioning whether the public investment in the petrochemical industry was worth it.
And now Daelim’s decision on the PTT cracker.
“This is a market signal that suggests that the project is financially risky and that the market and the participants are aware of how risky it is in this climate,” said Kathy Hipple, a financial analyst for the Institute for Energy Economics and Financial Analysis and a professor at Bard College’s sustainability MBA program. “It was risky before Covid and it has become increasingly risky.” IEEFA, which is dedicated to a transition to a sustainable energy economy, has been critical of the Ohio plant.
Hipple said PTT has put up disappointing financials lately, the global market for petrochemicals is under stress and there’s the recent buildout of cracker plants in the Gulf Coast.
“It is in a sense an oversaturated market,” Hipple said. “It seems hard to see how it would make sense.”
But Schliebs and others say that the plastics industry has become even more important with the Covid-19 pandemic.
“Before Covid, there was a movement away from single-use plastics, but even that has changed with the pandemic, and the pandemic has made it crystal clear how important plastics are for PPE equipment and sophisticated medical devices,” Schliebs said.
JobsOhio, the economic development agency in Ohio, has spent about $70 million to aid in the project and for the redevelopment of the site of the former power plant. That included a $20 million revitalization grant in January and a $30 million revitalization grant in June 2019, among others.
“JobsOhio continues working closely with PTTGCA to bring the project to a successful final investment decision,” said JobsOhio spokesman Matt Englehart. “PTTGCA has expressed its belief in the long-term strategic importance of this transformational project, which would bring billions of investment while creating thousands of construction jobs and hundreds of permanent jobs.”
“The economic development professionals and local and state leaders haven’t left anything on the field for this project, which is commendable given the benefits that would accrue from it for decades to come,” Klaber said.
Steve Hedrick, CEO of the Mid-Atlantic Technology, Research and Innovation Center (MATRIC), said the news was a response to the unpredictability in the economy.
“I do, however, remain confident in the strategic future of the petrochem industry in Appalachia,” Hedrick told the Business Times.
But others aren’t so sure.
Jacquelyn Bonomo, president and CEO of PennFuture, said that Daelim’s move away from the cracker shows that petrochemical projects are inherently unstable for economic development.
“It’s clear these projects cannot materialize without taxpayer dollars,” Bonomo said. “Almost daily, we are provided more evidence that the fracked gas and petrochemical industries are in poor financial shape, that they need big public handouts and in the end, will not bring about the jobs and prosperity promised by industry boosters.”