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The future of a second petrochemical plant in the Appalachian Basin became murkier this week when a major investor pulled out of the project.
PTTGC, based in Thailand, and Daelim Chemical, a South Korean company, issued a joint statement announcing that Daelim was withdrawing as an equity partner in the cracker plant proposed to be built along the Ohio River in Belmont County, Ohio. The $6 billion projects, if undertaken, would be similar to the Shell cracker plant now being constructed in Beaver County.
A cracker plant converts molecules of ethane, a natural gas byproduct, into ethylene and polyethylene, from which plastics, resins, solvents, and other industrial products are made.
The joint statement cited the economic fallout from the COVID-19 pandemic and oil price volatility as reasons for the decision.
“Under this market situation, PTTGC and DCA have been assessing the impact for major investment projects to ensure that our portfolio is well-positioned for the future of the petrochemical Industry. While we continue to believe in the long-term strategic importance of this project, DCA has taken the difficult but necessary decision to withdraw as an equity partner,” it states.
PTTGC said it remains committed to the project. “The Ohio petrochemical facility continues to be a top priority for PTTGC America. We are in the process of seeking a new partner whilst working toward a final investment decision. We look forward to making an announcement by the end of this year or early next year on this transformative project for the Ohio Valley Region,” PTTGC America President and CEO Toasaporn Boonyapipat said.
The company had announced a delay in making a final investment decision on the plant soon after the pandemic began.
JobsOhio, the state’s private economic development organization, has given the developer $50 million in grants for the Belmont County project. The first phase of site preparation has already been completed and environmental permits have been obtained.
Daelim’s withdrawal comes on the heels of several reports indicating that the plant and the petrochemical industry in this region could face significant headwinds.
A recent study by the Institute for Energy Economics and Financial Analysis determined that the project faces significant risks and said the financial outlook is dim. The IEEFA conducts global research and analyses on financial and economic issues related to energy and the environment in order to accelerate the transition to a sustainable energy economy.
The study found that the biggest risks are plastic prices that are 40 percent below what they were in 2012-13 when the project was planned; oversupply from a global plastics buildout; stiff competition from large companies with existing domestic relationships, and unstable federal government policies.
While record-low natural gas prices are an incentive for petrochemical expansion, they will not result in a rising demand for plastic end products. “In late 2019, as new capacity was being added in the U.S. and around the world, plastics prices remained depressed,” the study states. “Although new capacity was being added, the markets were not growing at a rate sufficient to absorb the new facilities.”
The same group also conducted a study finding similar financial risks for the Shell plant as well as challenging market conditions when it comes online in the next few years.
However, a recent report from the U.S. Department of Energy was bullish on the prospect of a buildout of the petrochemical industry in this region. The report found great potential for job creation and economic opportunity due to the abundant supply of low-cost natural gas if the public and private sectors must work together to address some challenges.