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Shell chooses Pennsylvania, not Ohio, for a multi-billion dollar refinery

DRILLING_CHESAPEAKED_11719841.JPGDrill crews like this one in Carroll County have struck not only dry natural gas in the Utica shale but also wet gas like ethane, a discovery that could have helped lure a huge chemical plant to Ohio. On Thursday, Shell Oil Co. announced it has chosen a site near Pittsburgh for a world-scale refinery.

The biggest prize to date in the emerging shale gas play will be going to Pennsylvania, not Ohio, but Ohioans are expected to enjoy some of the fruits of a major new manufacturer just over the border.

In a much anticipated announcement, Shell Oil Co. said Thursday it had chosen an industrial site near Pittsburgh for a world-scale petrochemical refinery. The oil company may eventually invest billions into a complex that could create hundreds of jobs and spark new industries.

Dan Carlson, Shell’s General Manager of New Business Development, said the company signed a land option agreement with Horsehead Corp. to evaluate its fading zinc smelter near Monaca, about 35 miles northwest of Pittsburgh.

Ohio, West Virginia and Pennsylvania had all sought the refinery and offered Shell major tax incentives. Monaca is just 20 miles from both Ohio and West Virginia, so workers and industries in all three states could benefit.

Carlson said the Monaca site, along the Ohio River, had the right mix of resource and transportation strengths “to accommodate facilities for a world scale petrochemical complex and potential future expansions.”

Ohio Governor John Kasich said his office worked hard for the plant but that the deck was stacked in Pennsylvania’s favor.

“This wasn’t a surprise,” Kasich said Thursday afternoon. “We pitched hard and are disappointed, of course, but always understood that Shell leaned toward building where they owned the gas and liquids. They own 700,00 acres of leases over there that they don’t have here. The added cost of a pipeline to ship their gas and liquids over here wasn’t something they wanted to do.”

Tom Waltermire, chief executive officer of Team Northeast Ohio, said Ohio does not come away empty handed. Shell’s decision puts lucrative chemical ingredients “right in our neighborhood” and that should strengthen the state’s chemical industry.

“Most of this stuff is made down in Texas and Louisiana,” he noted. “This is another sign of the significance of our gas play.”

The so-called ethylene cracker would convert natural gas liquids into other, more profitable chemicals, which then go into everything from plastics to tires to antifreeze. The plants are called crackers because they crack ethane molecules into smaller chemical components.

A cracker resembles a gasoline refinery, with miles of pipes and large storage tanks. The final complex could cover several hundred acres.

“They made it clear to me yesterday that there is still no guarantee that they will build this — that decision will come over the next two years,” Kasich said.

If the cracker rises, other manufacturers will want to build nearby, Kasich said.

“A lot of those plants will make plastics,” he added, “and our 100-year leadership in plastics will give Ohio an enormous edge in competing for those facilities and jobs.”

Shell’s choice may signal how strongly the industry feels about the vast gas reserves in the region’s shale formations. Any plant must be competitive with existing plants in Louisiana, Texas and overseas, Carlson told the Associated Press.

The Marcellus and Utica shale formations have attracted a rush of major oil companies, who have drilled almost 5,000 new wells in the last five years. The ancient shale beds lie deep beneath large parts of Pennsylvania, Ohio and West Virginia.

The three states made all-out efforts to attract the refinery. West Virginia offered to slash property tax rates for 25 years while Pennsylvania offered 15 years of tax breaks.

Governor Kasich visited with Shell executives in Houston and delivered support letters from Ohio’s legislative leadership. Shell executives also came to Ohio and toured sites with officials of JobsOhio.

The preferred site in Ohio was the Belmont County community of Dille’s Bottom, near the Ohio River, south of Shadyside, The Plain Dealer has learned. The state reportedly offered Shell assistance with infrastructure preparation, tax incentives related to job creation, and worker training.

“We knew we were at a disadvantaged position from the beginning,” Ohio Senate President Tom Niehaus said in an interview in Columbus Thursday, after addressing a crowd of 1,500 at the winter conference of the Ohio Oil & Gas Association.

“Shell owns a pipeline and feeder stations in Pennsylvania,” said Niehaus, a New Richmond Republican. “That gave Pennsylvania an inherent advantage, but there will be spinoffs. Other companies will locate nearby in Ohio.”

Thomas Stewart, executive vice president of the oil and gas association, said Shell chose an area rich in wet gas, a mixture of gases including ethane.

Drillers are also finding wet gas in Ohio’s Utica shale.

“We all needed the cracker,” Stewart said.

Plain Dealer reporters John Funk and Reginald Fields and the Associated Press contributed to this story.