Employment Impact of the Cracker Plant

Employment Impact of the Cracker Plant

As mentioned in previous posts, it will be difficult to accurately predict the impact of Royal Dutch Shell’s Ethane Cracker Plant. Let’s start with what we do know. Shell predicts that 6,000 construction jobs will be needed to complete the plant and that 400-500 full-time jobs will be created once the plant is operational. We’ll separate the short and long-term impact on jobs since they’ll be largely be driven by different causes.

Short-Term

The initial construction of the plant is a massive undertaking. Allegheny County Executive, Rich Fitzgerald compared the project to building about 25 stadiums and noted that building the last two stadiums was a very big deal for the region.

While the construction is not yet in full swing, there is already a noticeable impact in the immediate area around the plant. One Monaca resident who lives near the site has already noticed an increase in traffic due to a combination of increased workforce in the area and road construction.

“In Beaver County, we had one hotel forever,” said Beaver County Building and Construction Trade Council President Michael McDonald. “Now, they’ve built six of them in Monaca and they’re all booked, seven days a week, 24 hours a day since they’ve been built.”

Tejas Gosai, who is in the hotel business, has reconsidered his bearish position on his hotels between the lows of the drilling decline to the projected boom caused by the cracker plant.

Council President McDonald also indicated that unlike the beginning of the Marcellus shale drilling boom, local workers have the necessary skills to complete the project and therefore expects most of the construction workers to be local and unionized.

While these construction jobs would be greatly reduced when the project is completed, there is the potential for a considerable amount of additional construction work if predictions are correct and related jobs move to the Pittsburgh area.  The increase of 6,000 at the height of plant construction however, will very likely not be sustained beyond the short term.

Long-Term

In my last post, I mentioned that Texas’s Petrochemical Cluster had 100,000 jobs and Louisiana’s had 23,000. Certainly those numbers aren’t realistic to expect in the Pittsburgh region considering that the industry started developing there during World War II and is largely connected with the Gulf Coast’s oil and gas production and refining hub. Still many are bullish on the impact of the new plant in the Pittsburgh region.

Government officials predict big things to follow the plant. Beaver County Commissioner Tony Amadio predicted “we’ll see an economic explosion we haven’t seen around here since the early 1900s.” Governor Tom Wolf described the plant as a game changer. Former Governor Tom Corbett predicts the start of a new industry with a multi-generational impact. Officials in Washington and Green Counties predicted that the impact with industrial and manufacturing companies would also impact their local economies and hope to capture a larger piece of the action. “It’s in the supply chain that the opportunities lie,” said Robbie Matesic, executive director of Greene County Department of Economic Development.

Industry leaders also predicted an increase in related businesses such as natural gas production and manufacturing. “This is going to cement Pittsburgh as a petrochemical destination with all of the commensurate services related to that. I think it will have a near-immediate impact, and the local business community will do well, including banks” stated Pat McCune, president and CEO of Community Bank. Pennsylvania Manufacturers’ Association President David N. Taylor said "this is so huge, it's going to manifest itself in ways we can't envision right now." Marcellus Shale Coalition President David Spigelmyer stated that “manufacturing’s potential is near limitless thanks to our abundant and stable energy supplies from natural gas.”

In terms of predictions, chemical industry estimates ranged anywhere between 8,000 to 20,000 new jobs, including those working at the plant, directly related manufacturing jobs and jobs resulting from the economic uptick related to the cracker plant. Other estimates predict an estimated 16,000 to 18,000 regional supply chain jobs in the area, plus jobs from new industries.

Still, it remains to be seen which businesses will physically expand or relocate to the region. Shell cited the presence of necessary natural resources as well as proximity to consumers as some of the major reasons to choose the site. It would make sense for manufacturers that will use Shell’s polyethylene to add locations that are closer to their raw material and their consumers in the Northeast to save on logistics. Another favorable factor pointing to a substantial new petrochemical industry in the region is that these types of companies tend to cluster in order to save on costs. Cleveland State University, executive in residence at their Energy Policy Center, Andrew Thomas predicts that Shell’s decision to build the Beaver County plant bodes well for a potential plant in Ohio’s Belmont County. Thomas also feels that chemical and plastics companies who move to the area will also experience a huge savings on shipping costs.

While we might not see the birth of a petrochemical industry on the scale of the Gulf Coast, it does seem likely that a completed plant will result in a regional petrochemical industry that is eager to serve consumers in the Northeast. The rising tide of a new industry with the increase in jobs and new businesses to the area should lift all ships of the existing local economy including manufacturing, supply chain, construction, banking, hospitality and energy production.

Chris Harkins is a Senior Commercial Real Estate Energy Sector expert at Found Advisors with a legal background in real estate, energy, oil and gas based in Pittsburgh, PA.

Sources:
http://www.wtae.com/news/shell-commits-to-beaver-county-ethane-cracker-plant/39935906

http://www.alleghenyfront.org/shell-announces-plans-to-build-ethane-cracker-near-pittsburgh/

http://www.observerreporter.com/20160607/business_leaders_see_broad_impact_from_shell_cracker_decision

http://www.observer-reporter.com/apps/pbcs.dll/article AID=/20150808/NEWS01/150809526

http://articles.philly.com/2016-06-09/business/73647273_1_ethane-shell-plant-cracker

https://stateimpact.npr.org/pennsylvania/2012/06/19/shell-tax-break-american-chemistry-council-conducted-jobs-study-for-eight-other-states-too/

http://www.ohio.com/news/local/shell-s-6-billion-ethane-cracker-in-western-pennsylvania-will-also-impact-ohio-west-virginia-1.688842

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