Pennsylvania proposes $1.65bn petchem tax credit for Shell, others

05 June 2012 21:03  [Source: ICIS news]

HOUSTON (ICIS)--The governor of Pennsylvania is proposing that Shell and any future ethylene producers in the state could each receive up to $66m/year (€53m/year) – for a total of $1.65bn – in tax credits, a spokesman for a government agency said on Tuesday.

The proposal comes as states in the northeast US compete to attract petrochemical producers, who, in turn, are attracted to the growing supplies of natural gas liquids (NGLs) in the Marcellus Shale and other formations in the region.

Already, West Virginia passed a bill in January giving incentives for the construction of an ethane plant in the state.

About a year ago, several inquired about developing an ethane cracker at a Bayer site in West Virginia.

However, the State of Pennsylvania has so far come the closest to securing an ethane cracker. Earlier this year, Shell said it was studying a site near Monaca, Pennsylvania, for an ethane cracker.

It was also considering building polyethylene (PE) and monoethylene glycol (MEG) units at the site.

If Shell goes ahead with the cracker project, it could apply for the tax-credit programme being proposed by Tom Corbett, governor of Pennsylvania.

Under the programme, Shell and any future ethylene producers can apply for a 5-cent tax credit for every gallon of wet natural gas purchased, said Steve Kratz, spokesman for the Pennsylvania Department of Community and Economic Development, an agency within the governor's office.

The tax credit would be capped at $66m/year, and the wet gas must be produced in Pennsylvania, he said.

If approved, the tax credit programme would start in 2017 and last for 25 years, making the programme worth up to $1.65bn, Kratz said.

Shell and other ethylene producers could also sell the tax credits to either downstream ethylene customers or upstream natural-gas producers in Pennsylvania, Kratz said. The state, however, would need to approve such sales.

The tax-credit programme is intended to develop a petrochemical industry in Pennsylvania, Kratz said. It would work by providing incentives to keep the state's ethane inside of Pennsylvania – instead of transporting it to other parts of the US.

"We're committed to growing this industry both responsibly while maximising economic growth and job creation," he said. "This initiative is a great tool that Pennsylvania can use to compete for multiple projects."

The governor could introduce the proposal to the state senate as early as this week, Kratz said.

In a statement, Shell said incentive programmes are among a number of factors that will determine whether it will build the cracker in Pennsylvania.

"Our approach to investing is to advance only those opportunities that are likely to provide long-term shareholder value," the company said. "Shell supports and endorses incentive programmes provided by state and local authorities that improve the business climate for capital investment, economic expansion and job growth."

The governor's tax package would come on top of a broader incentive programme being considered by Shell.

Under the Keystone Opportunity Zone and Keystone Opportunity Expansion Zone programmes, Pennsylvania would expand tax benefits for a total of 15 years for businesses in designated zones that invest at least $1bn and create at least 400 full-time, permanent jobs within seven years.

Depending on the situation, the tax burden may be reduced to zero through exemptions, deductions, abatements and credits. The Keystone programme is broad, in that it is not limited to one particular industry.

To qualify for the Keystone programmes, Shell would need to meet job and investment targets.

Plus, local governments would need to agree to forego the taxes, and the state would need to approve the deal.

($1 = €0.80)

By: Al Greenwood
+1 713 525 2645

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