At issue is the construction of a refinery known as an ethane cracker, which "cracks" or converts ethane, a component of natural gas, into ethylene, one of the basic building blocks of petrochemicals. Ethylene is used in a wide range of plastics and chemicals, and most of it is now produced on the Gulf Coast in Texas and Louisiana. But the growing production of natural gas in the Marcellus Shale has created opportunities in Appalachia.
Exactly how much investment and how many jobs are involved is a mushy target. The state says Shell would invest $4 billion, creating 10,000 construction jobs and up to 20,000 permanent jobs. Shell will say only that a typical ethylene cracker requires an investment of "several billion dollars."
An April report by the American Chemistry Council said a world-class ethane cracker and several additional units to make derivative products would require a $3.2 billion investment and create more than 17,000 permanent jobs — 2,400 directly in the chemical industry, 8,200 with suppliers, and 6,900 spin-off jobs. The council's estimates were formulated using IMPLAN, a widely deployed economic-modeling tool.
Some are skeptical about the rosy economic projections. The Pennsylvania Budget and Policy Center, a liberal lobbying group that has questioned the value of the tax break, says that only 400 people would be employed at the ethane cracker itself.
"While proponents have claimed this project will create tens of thousands of jobs, much of those are estimates of jobs that might be created in spin-off industries or in unrelated businesses, like restaurants and shops," the policy center said in a recent report. "The job numbers are speculative and dependent on the decisions of other companies that are not receiving this special tax credit."
But the Corbett administration says Pennsylvania can ill afford to lose a bidding war with rival states.
Independent gas producers and organized labor — not allies on many issues — last week were united in supporting the proposed Pennsylvania Resource Manufacturing Tax Credit and urged partisans to set aside criticism.
"It is clear that West Virginia and Ohio remain interested in creating their own incentive packages to attract what is likely the largest investment seen in this region in more than a generation, and the Commonwealth needs to stay ahead of our neighboring states," said Louis D. D'Amico, president of the Pennsylvania Independent Oil and Gas Association.
"We need to look past the election-year rhetoric and realize that the issue here is not tax credits," said leaders of the United Steelworkers Union, which represents refinery workers. "The issue is jobs — and union jobs at that."
In March, Shell signed an option to acquire a 300-acre industrial site on the Ohio River in Beaver County now occupied by a zinc plant that is moving operations to North Carolina in 2013. The cracker facility would take three years to build and start operations in 2017, so the current state budget would not be affected.
The site is about eight miles from the border with Ohio and West Virginia. The budget and policy center noted that employees could well be residents of neighboring states, "but only the Commonwealth's taxpayers will be paying for Shell's tax breaks."
The tax credit would come on top of a 15-year tax exemption the General Assembly approved for the Shell site in March. 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. They would pay no income or property taxes and some sales tax.
The proposed tax credit would apply to 20 percent of the company's qualified state-tax liabilities, but since Shell would have few tax liabilities for 15 years because of the Keystone Opportunity exemption, it could sell those tax credits to ethane-producing companies or to manufacturers that produce materials derived from the ethane cracker. State officials say "dozens of new manufacturers" could locate to the region.
The tax credit would amount to 5 cents per gallon of ethane consumed, capped at about a daily limit of 3.6 million gallons, about the capacity of a "world-class" cracker. If the plant consumed less ethane, the tax credit would be smaller.
The American Chemistry Council estimated that construction of the petrochemical complex would support 6,000 direct jobs, even though most of the $3.2 billion cost would go toward purchasing equipment and supplies from outside the state.
A larger cumulative local impact would occur once the petrochemical complex was operating, said Kevin Swift, the chemistry council's economist. One cracker could generate $4.8 billion in annual chemical-industry activity in Pennsylvania, $7.9 billion in broader economic activity .
Shell is exploring adding units that would convert the ethylene into polyethylene, a plastic resin, and ethylene glycol, a liquid chemical that is a raw material in polyester and antifreeze. Swift said his economic projections made no attempt to calculate a "spillover effect" if manufacturers who use the ethylene by-products moved to the region.
The new production from shale gas represents "a complete sea change," Swift said, reversing a long-term trend to move petrochemical production offshore.
According to the chemistry council's calculations, the complex and related activity would generate $241 million in federal taxes a year and $141 million in state and local taxes — not counting any reductions for tax credits.
Contact Andrew Maykuth at 215-854-2947 or email@example.com or follow on Twitter @Maykuth