Fontana Discusses New Shell Energy Facility in PA

Being from western Pennsylvania, I understand what a great region is it to live in and I’m always looking for new ways to attract and entice businesses to set up shop here. As many of us may remember, our area was once a thriving coal and steel industry. However, due to the demand diminishing for coal and steel, western PA has experienced an economic decline over the past several decades. With that being said, I believe our ideal location can serve us great pride in the near future.

Recently, Governor Corbett made headlines with the announcement that Shell, an energy and petrochemical company, is looking to build a new ethylene “cracker” facility to process wet gases from the Marcellus Shale in Beaver County. An agreement was signed that would use the location of the current Horsehead Corp., a 300-acre zinc smelter property along the Ohio River in Potter Township near Monaca, which is moving its operations to North Carolina in 2013.

Petrochemical facilities use heat and pressure to “crack” wet gases such as ethane, propane and butane to produce things like ethylene, which is one of the basic building blocks of a variety of petrochemicals-based products like plastics, tires and shoe bottoms. The facility would be the first cracker in the Appalachian region, where the production of gas from Marcellus Shale has boomed in recent years. Currently, almost all of the cracker facilities operating in the United State are located near oil and gas fields on the Gulf Coast.

The Beaver County site will be Shell’s fifth domestic cracker plant. It has seven others around the world. Due to fierce competition with Ohio and West Virginia for the cracker facility, the Pennsylvania Legislature authorized, in March, the future site as a 15-year tax-free Keystone Opportunity Zone. To qualify as a Keystone Opportunity Expansion Zone, the cracker plant and its affiliates would have to invest a combined $1 billion in plant facilities and employ 400 full-time workers. Although Shell would pay some sales tax, the company would not have to pay any income or property tax.

Now, Governor Corbett wants to further the deal by granting Shell $1.65 billion in tax credits over 25 years to build this facility in Pennsylvania. Specifically, the Governor’s proposal would give $66 million in annual transferable tax credits for the next 25 years, starting in 2017. The tax credit would be a nickel per gallon of ethane with up to 20 percent of the eligible tax liability. This would cover the purchase of about 3.4 million gallons or 85,000 barrels of ethane a day making it a “world class” cracker.

The Pennsylvania Department of Community and Economic Development said the credit would be available not only to Shell, but to other potential petrochemical plants that could be sited here as well. It is believed that Shell’s facility would take two years for construction of the actual cracker to begin and then an additional four years to build. However, the Governor would like to see this tax credit approved as a part of the 2012-13 budget negotiations to try and expedite a commitment from Shell.

Estimates on cost of the project range from $2 billion all the way to $4 billion. However, experts have stated that we cannot get a more exact figure until construction on the facility actually begins.

More importantly, this project is believed to bring in thousands of jobs, making it the biggest economic development effort aimed at one company the state of Pennsylvania has ever seen. Estimates say that 10,000 to 20,000 jobs could be generated during construction and several hundred permanent workers would be needed to operate the plant. Furthermore, job creation will also spur from spin off industries for purchasing things like equipment and supplies as well as for unrelated businesses like restaurants.

Pennsylvania has the potential to become a booming state once again. However, we must ensure that this deal does not shortchange the citizens of Pennsylvania much in the way the Administration shortchanged our state with the giveaways for the Marcellus Shale Industry.

Shell’s parent company is Royal Dutch Shell, which is the second largest company in the world. In addition, Royal Dutch Shell pocketed $7.3 billion in profits just in the first three months of 2012. Obviously, a company of this size can afford a project this big. While I understand the importance of offering tax incentives to attract Shell to Pennsylvania and not a competitor state, we have to remember at the same time that this enticement would be Pennsylvania’s largest financial incentive package ever. The tax credits over 25 years and making the Beaver County site a Keystone Opportunity Zone is a sure win for the cracker, but provisions need to be put in place to make sure this is a win for our state as well.

One of the biggest ways we can make sure the cracker is a success for Pennsylvania is through permanent good paying jobs. Job estimates range from a couple hundred to a couple thousand and depend on a lot of factors. We need to demand job numbers and make sure those numbers are tied to the tax credits Shell receives. If the company can’t give us the promised jobs, then we can’t give them more money.

Furthermore, the future site of the cracker is about eight miles from the border with Ohio and West Virginia. We have people in Pennsylvania who are ready and more than willing to start working, however, there should be requirements that guarantee these permanent jobs go to Pennsylvanians and not to out-of-state workers. After all, Pennsylvania would be the one giving this company the tax incentives.

In closing, negotiations between Shell and the governor have been going on for months. However, we are less than two weeks away from the 2012-13 budget being enacted and the Governor is just now bringing these tax credits to the table, in a manner that lacks transparency. Perhaps what is most troubling in my mind is how the Governor is using the cracker deal as leverage in these last days of budget negotiations. As we have witnessed here once again, the Governor is looking out for big businesses instead of funding for essential things like basic education. We cannot continue to use children and the health and well being of taxpayers to push the Governor’s agenda.

Senator Wayne D. Fontana

42nd Senatorial District

www.senatorfontana.com