Cracker plant won’t bring petrochemical jobs boom to Ohio, experts warn

With the price of plastic plummeting and a global oversaturation of ethane-ethylene cracker plants and plastics manufacturing, experts are cautioning Ohio about moving forward with an ethylene cracker plant along the Ohio River in Belmont County.

State officials have touted the multibillion-dollar project, saying it would be Ohio’s largest economic development project ever. The plant would provide thousands of temporary construction jobs and a couple hundred permanent jobs.

But a group of eight economists, engineers, public policy analysts, and former policymakers — including researchers from Ohio State University and the University of Akron — have written a letter dated Monday warning the governors of Ohio, Pennsylvania, and West Virginia that they are not likely to see a major petrochemical industry expansion in the region or the jobs they promoted.

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The governors risk “squandering” hundreds of millions of dollars, they warn.

“From a financial standpoint, I don't think it's prudent for them to move forward. I don't know that (elected and state development officials will) necessarily agree with that,” said Kathy Hipple, a financial analyst with the Institute for Energy Economics and Financial Analysis who analyzed petrochemical plants across the country and co-authored a report about the feasibility of the project in March.

“You've got the input costs, which are low feedstock prices, but then you have plastic resins much lower on a price per pound than they were perhaps when they began thinking about this project. And there's a tremendous oversupply of plastic,” Hipple said.

The price of plastics from 2012 through 2016 was in the $1 per pound range. The Belmont County project originally was planned in 2015, when the price was higher.

Five years later, plastics prices are now in the 40 cents to 60 cents per pound range, Hipple said. Competition among natural gas producers and plastics manufacturers in a constrained market is more likely to produce lower profits, according to the report.

JobsOhio, a nonprofit created by Gov. John Kasich’s administration to replace the state Department of Development, has spent $70 million on the proposed project.

A final investment decision for the multibillion dollar project still hasn’t been made by Thailand-based PTT Global Chemical and Daelim of South Korea, the partnership which was to spend more than $100 million on a detailed engineering design and other costs for the proposed plant.

When asked if the state tax dollars spent could be potentially recouped, a JobsOhio spokesman, Matt Englehart, responded: “We are still working closely with the PTTGCA and Daelim on the Belmont County project. We do not share project discussions that we have with companies.”

The letter pointed to several recent developments to argue that “an economic renaissance driven by an expansion of petrochemicals and plastics manufacturing is an economic non-starter.” They cite another planned project that had been scrapped in West Virginia, a lack of investment in the proposed Appalachian Storage Hub and a financial commitment from China that never materialized.

PTTGC issued a statement earlier this month saying it could be early 2021 before the company makes a decision.

“While the pandemic has prevented us from moving as quickly as we would like within our previous timeline, our best estimate is for a final investment decision by the end of this year or in the first quarter of next year,” PTTGC of America president and CEO Toasaporn Boonyapipat said in a released statement.

Mike Chadsey, director of public relations for the Ohio Oil and Gas Association, told The Dispatch the project is still viable.

“We have to think long term when looking at the price of plastics. Those prices will no doubt be different in the next five or 10 years than they are today,” he said. “Furthermore, I have no doubt that the anti-oil and gas foundations that have funded IEEFA ... and thus this report, are trying to sow doubt regarding this project with the dire hopes of killing it and the thousands of jobs that will go away along with it.”

Moody’s Investors Service reported this month that the company is studying a number of projects including the Belmont County site. If the project goes through, it would be the company’s first investment in the U.S.

“The project cost has not been established at this stage. We believe such projects reflect an increase in PTTGC’s risk tolerance and appetite for growth,” Moody’s said in the report. ”Such a large-scale project into a new geographical market where it has no existing operations, operating track record and a lack of strategic working partners will significantly heighten execution risks during construction and operating risks when completed.”

Ethane from the Marcellus and Utica fields in Ohio do not contain aromatics and other chemicals, which are needed to manufacture many products.

“Most of the ethylene and polyethylene produced in this region is, therefore, likely to be shipped elsewhere — primarily China — for manufacturing, which severely undercuts prospects for manufacturing job growth here,” according to the letter.

There’s also more to consider than just the market aspects.

“In Ohio, we first need to eliminate the burdensome regulations and fees we’ve placed on sustainability and alternative energy industries,” said Amanda Weinstein, associate professor of economics at the University of Akron, who signed the letter. “Ohio should utilize its higher education institutions to fund research and development into sustainability and fund job training so Ohio workers have the skills needed in the green economy.

“We need to invest more in conservation and pollution mitigation to improve the quality of life in the state which likely has the greatest ability to produce jobs and promote economic success by making Ohio a nicer place to live and work,” she said.

The letter goes on to say that petrochemical and plastics manufacturing produce large amount of emissions and warned that there’s mounting pressure to develop carbon taxes and caps.

Ethane cracker plants, processing facilities, and downstream manufacturers emit fine particulate matter as well as volatile organic compounds which can cause respiratory and other health problems.

“Residents in our region already suffer higher than average rates of cancer, cardiovascular disease, upper respiratory disease, obesity, diabetes, and other conditions that make our region’s population among the nation’s most vulnerable to adverse health consequences from these substances,” according to the letter.

Instead, experts are encouraging the states to build capacity in the clean energy economy.

“The clean energy economy offers large-scale, high-visibility opportunities, like the Lordstown Motors electric truck plant in Ohio as well as new opportunities for existing businesses in communities all over our region in fields like lighting, HVAC, construction, building maintenance, and energy efficiency retrofits,” the letter said. “We ask you to help stop the squandering of public funds and resources in pursuit of an imagined petrochemical boom. Instead our region’s efforts should be focused on alternative economic development strategies.”

bburger@dispatch.com

@ByBethBurger

Letter sent to governors of Ohio, West Virginia and Pennsylvania

June 15, 2020

Dear Governors DeWine, Justice, and Wolf,

In Ohio, Pennsylvania, and West Virginia, our goals for economic growth and job creation are being undermined by the mistaken belief that the region’s petrochemical and plastics manufacturing industries are poised to greatly expand and, in the process, generate large numbers of new jobs. In fact, no such expansion and jobs boom is likely. And, unless we adopt new and better development strategies, we risk squandering hundreds of millions of dollars in public funds in pursuit of a vision that will not materialize.

The recent cancellation of the ASCENT ethane cracker in Wood County, West Virginia, the indefinite postponement of a final investment decision on the proposed Belmont County, Ohio cracker, the failure of the proposed Appalachian Storage Hub (ASH) to attract private investors, and the failure by China to follow through on an announced investment of $84 billion in in the region are just the most visible signs that the vision of an economic renaissance driven by an expansion of petrochemicals and plastics manufacturing is an economic non-starter.

That is why we — a group of economists, engineers, public policy analysts, and former policymakers who are affiliated with some of the region’s leading institutions — have concluded that regional leaders need to explore more feasible and sustainable economic development strategies. Some of the reasons are contained in a recent study from the Institute for Energy Economics and Financial Analysis (IEEFA), which determined that a proposed cracker in Belmont County, Ohio has become too risky an investment to go forward. IEEFA has been joined in that conclusion by Moody’s, Fitch’s, and IHS Markit.

We also see additional economic and technological barriers, which are likely to outlast the current economic crisis and make the construction of more crackers in the Ohio Valley and Southwestern Pennsylvania highly unlikely. Consequently, projects that depend on a buildout of four to five crackers, including development of large natural gas liquids storage facilities such as the proposed ASH and a major expansion of the downstream plastics manufacturing sector, are also unlikely to be realized as are the jobs they are expected to provide.

At the same time that prospects in our region are dwindling, competition is growing rapidly elsewhere. In just the past two years, ethylene and polyethylene production capacity in the US has increased by 50 percent, principally along the Gulf Coast, creating a condition of oversupply that the IEEFA analysis doesn’t see closing until 2026. The global buildout is even greater, with Wood Mackenzie forecasting a “meteoric expansion” of ethylene capacity in China over the next five years. As a result, IHS Markit forecasts an imminent plunge in global cracker utilization rates.

Another discouraging factor is that, even before the recent coronavirus crisis and the associated economic slowdown, the financial condition of the region’s gas drilling industry was dire. And the best cure for the industry’s condition — a rise in natural gas prices — would further reduce the competitiveness of petrochemicals from the region by driving up the cost of the ethane feedstocks. Additional barriers are presented by questions about the speed of general economic recovery and whether global and domestic demand for plastics and chemicals will meet pre-crisis expectations.

These are just the economic conditions that are creating intolerable risks for prospective investors. There are additional factors as well. Petrochemical and plastics manufacturing are emissions-intensive activities that are vulnerable to government actions to reduce greenhouse gases, such as carbon taxes and caps, for which pressure is growing in the United States and globally. At the same time, the pace of growth in the plastics market is being thrown into question as national, regional, and local governments, including recently China, enact measures designed to reduce plastics consumption and pollution.

Meanwhile, the vision of our region becoming a petrochemical hub comparable to the Gulf Coast also faces severe technological challenges. Ethane from the Marcellus/Utica fields does not contain aromatics and other chemicals, which are essential components in the manufacture of many products. Most of the ethylene and polyethylene produced in this region is, therefore, likely to be shipped elsewhere — primarily China — for manufacturing, which severely undercuts prospects for manufacturing job growth here.

Finally, health and environmental risks associated with a petrochemical buildout, can’t be overlooked. In addition to being major emitters of greenhouse gases, ethane cracker plants, processing facilities, and downstream manufacturers are also emitters of fine particulate matter as well as volatile organic compounds (VOCs). Residents in our region already suffer higher than average rates of cancer, cardiovascular disease, upper respiratory disease, obesity, diabetes, and other conditions that make our region’s population among the nation’s most vulnerable to adverse health consequences from these substances.

For these many economic, technological, environmental, and health reasons, we believe our states need more viable, just, and sustainable development strategies that create jobs and provide the tools and resources needed by workers and communities, especially those that have been disproportionately affected by deindustrialization, to successfully transition. One area of special promise is the clean energy economy — electric vehicles, energy storage, wind power, solar power, and energy efficiency — which already employs more than 175,000 workers in Ohio, Pennsylvania, and West Virginia, three quarters of them in manufacturing and construction.

The clean energy economy offers large-scale, high-visibility opportunities, like the Lordstown Motors electric truck plant in Ohio as well as new opportunities for existing businesses in communities all over our region in fields like lighting, HVAC, construction, building maintenance, and energy efficiency retrofits. The construction of high-efficiency buildings and the retrofitting of existing buildings and homes generates knock-on benefits, including reduced demand for electricity, lower utility bills for ratepayers, greater comfort for workers and residents, and fewer greenhouse gas emissions.

We ask you to help stop the squandering of public funds and resources in pursuit of an imagined petrochemical boom. Instead our region’s efforts should be focused on alternative economic development strategies, which can attract new businesses and expand opportunities for existing ones while creating new jobs up and down the skills ladder in communities throughout our region.

Thank you for your consideration.

Sincerely,

Ted Boettner, Executive Director of West Virginia Center on Budget and Policy

Wilfrid Csaplar, Jr. PhD, Professor of Economics at Bethany College

John Hanger, J.D. of Hanger Consulting, LLC, Former Pennsylvania Secretary of Environmental Protection

Nicholas Z. Muller, PhD, Associate Professor of Economics, Engineering, and Public Policy, Lester and Judith Lave Development Chair in Economics, Engineering, and Public Policy at Carnegie Mellon University

Mark Partridge, PhD, president Regional Science Association International Swank Chair in Rural-Urban Policy/Prof., AED Economics, The Ohio State University, Adjunct Professor, School of Economics, Jinan Univ. Guangzhou, China, Social Sciences Dept., Gran Sasso Science Institute, L’Aquila, Italy, Coordinating Editor Springer Briefs in Regional Science

John B. Russo, EdD, Founder and former director Center for Working-Class Studies at Youngstown State University

James Van Nostrand, J.D., LLM, MA in economics, Associate Professor Director, Center for Energy and Sustainable Development West Virginia University College of Law

Amanda Weinstein, PhD, Assistant Professor of Economics at the University of Akron