Shell’s Pennsylvania petrochemical plant is unlikely to meet financial targets

Shell’s petrochemical plant in western Pennsylvania faces challenges to meet its financial goals, in another example of the risky finances behind petrochemical plants. A new briefing note from the Institute for Energy Economics and Financial Analysis (IEEFA) shows how Shell is unlikely to meet its estimated earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2026.

Shell has already acknowledged that it won’t meet its initial target of $1 billion to $1.5 billion of EBITDA from the plant until 2025, at the earliest. However, by reviewing the numbers, IEEFA has found that even reaching its goals in 2026 might not be possible.

“Given the unfavorable market dynamics, declining margins, and projected return on investment, Shell’s Monaca facility is at risk of becoming a value-destroying project,” said Abhishek Sinha, IEEFA energy analyst and co-author of the briefing note. “Investors in Shell should expect a more detailed explanation concerning this project. Residents of Beaver County in Pennsylvania and the state of Pennsylvania have provided incentives to Shell to come to Pennsylvania. They, too, are entitled to a better explanation.”

Petrochemical plants are facing increasing challenges as credit rating agencies note their riskiness, communities push back on having these facilities in their neighborhoods, and the global market becomes oversupplied. Petrochemical plants in Louisiana are facing delays, showing the weak performance permeating the industry.

The Monaca facility in Pennsylvania is unlikely to generate enough returns to justify the capital outlay, and the prolonged payback period further emphasizes the inefficiency of the project. Shell’s decision to avoid further mega-projects like Monaca is a reflection of the uncertainties and risks associated with large-scale capital expenditures in an increasingly oversupplied and competitive petrochemical market.