Shell to build billion-dollar petrochemical 'cracker' in Pa.

Shell Oil Co. announced it will build a massive petrochemical "cracker" plant in Potter, Beaver County, making Pennsylvania the winner in a tri-state competition for the billion-dollar industrial operation.

The decision caps a months-long courting by state and national officials for the plant, which promises thousands of jobs and is expected to bring billions of dollars in investment to the region.

The cracker plant will break down gas compounds extracted from the Marcellus Shale into other elements. The facilities can cover hundreds of acres.

Shell has signed an agreement with the Horsehead Corporation, whose operation is located 28 miles north of Pittsburgh and once operated as a zinc smelter.

Construction on the plant could be about two years away due to permit procedures and Shell's desire to expand rail access to the site, U.S. Rep. Mark Critz, D-Johnstown, said.

The state's bundling of tax incentives -- including the expansion of the Keystone Opportunity Zone program to include projects worth more than $1 billion -- adds up to "in the neighborhood of tens in millions of dollars" in breaks for Shell, Mr. Critz said.

Similar ethane plants have created more than 10,000 permanent jobs elsewhere.

The location will be Shell's fifth cracker plant. The firm owns four plants at two locations in Texas and Louisiana.

"We are very pleased to have signed this site option agreement," Dan Carlson, Shell Chemical's general manager for new business development, said in a written statement. "This is an important step for the project, and we look forward to working with the communities in Pennsylvania, and gas producers across Appalachia, as we continue our efforts to develop a petrochemical complex."

Pennsylvania's new regulatory and impact fee law on shale drilling earmarks $20 million over the next three years to encourage oil and gas refinery projects. Sen. Bob Casey, D-Pa., wrote a letter in January to Shell officials urging the company to consider Pennsylvania.

"Having Shell build their new cracker plant in southwest Pennsylvania will mark our state as the country's natural gas leader -- that's why I fought hard to bring the plant to our state," said Sen. Casey in a statement today.

Gov. Tom Corbett hailed the announcement, calling it "the single biggest industrial project in the state's southwest in a generation."

Much work is yet to be done, he warned, calling it "the first pitch in a nine-inning game."

He said there are number of steps to go before construction could start, beginning with private talks between Shell and Horsehead, as well as analyzing the site, assessing the local ethane supply and weighing the long-term economic viability of the plans.

A confidentiality agreement barred him from discussing many details about those steps, he said, or the incentives the state offered to land the project.

"We probably won't see anything for a while," he said.

The governor was deeply involved in the pitch to Shell, meeting four or five times with the company's CEO -- including one last meeting this morning. He spent hours on his personal computer in the governor's mansion looking at development sites on Google Maps.

The Beaver County site was especially good for its access to rivers, rail and highways, the governor said, and Pittsburgh's cultural and educational amenities were another great draw for the company.

The plant site sits above the Marcellus formation's "wet gas" region, meaning it comes out of the ground loaded with valuable natural gas liquids like ethane.

With natural gas prices dropping to record lows on Wall Street, liquids have become more desirable since they tend to follow oil prices and have stayed afloat.

The Horsehead Corporation has to vacate the site by April 30, 2014, the subsidiary of Horsehead Holding Corp. said this afternoon.

"We are moving our zinc production operations to our new plant which is under construction in North Carolina and expected to startup during the third quarter of 2013," Jim Hensler, Horsehead's president and chief executive officer, said in a written statement. "We believe this option provides the best value proposition for Horsehead among the several alternatives we are considering for this site."

Shell's Appalachian headquarters is in Warrendale. The Houston-based firm has 185 employees in Pennsylvania.

Shell owns about 700,000 Marcellus acres.

The company moved into Marcellus development in May 2010 when it paid $4.7 billion for East Resources Inc., a Marshall-based energy producer.

The move was the first major foray into natural gas for a company that made its billions on oil.

Shell saw North American gas production rise 62 percent from 2008 to 2009. The company added about 1.3 million acres of gas acreage in North America in 2010.

The East Resources purchase brought the Shell presence in the North American gas market to 3.6 million acres.