This investment increases the chances for additional ethylene crackers in the region. It validates the two primary reasons for locating in the region. Due to the phenomenal rise of shale gas – this region has ample ethane supplies at cost among the lowest in the world.  The region is within 500 miles of half the North American demand for the end product the plastic polyethylene. With a Gulf Coast facility Shell would have to pay to have ethane shipped down and the polyethylene back up to the customers. With an Appalachian basin location they avoid those costs. Closer proximity allows them to respond faster to customer requests and carry less inventory.

This investment also bodes well for additional investment in the region. Shell will prove the concept; the investment community will follow the decision and see reduced risk for others to invest. Shell will also create an ecosystem of the highly skilled suppliers of products and services needed to run the modern high technology petrochemical complex. Shell will work with local institutions of higher education to create a pool of qualified workers. The community will see the benefits of the Shell complex and become more accepting of additional investments. The Shell investment greatly lowers the risk and barriers for additional ethylene crackers in the region.

Shell would even welcome additional ethylene crackers in the region to act as backup for their own cracker. The Shell complex does not just produce ethylene it converts the ethylene to polyethylene plastic, and in previous announcements Shell discussed production of other ethylene derivatives such as ethylene glycol an antifreeze. From time to time Shell will need to stop ethylene production for routine maintenance and inspections. During that time period the polyethylene and ethylene plant could keep producing if they had a source of ethylene supply – which could come from a competing complex nearby. This is routinely how the industry maintains high operation rates necessary to maintain profitability from their multi-billion dollar assets.

Tom Gellrich is the founder of Topline Analytics, focused on helping organizations leverage the profound downstream changes of the shale gas revolution. He can be reached at    267.205.1263