By Ernest Scheyder
HOUSTON (Reuters) - Royal Dutch Shell Plc (L:RDSa) said on Tuesday it will build a chemical plant in Pennsylvania, planning to use an inexpensive and abundant supply of natural gas to make plastics for the northern United States.
The multibillion-dollar plant's construction will bring an infusion of cash and jobs to northern Appalachia, an area hard-hit by the collapse in the coal and steel industries. Personal and small business income in the region is roughly 25 percent lower than the rest of the United States.
The plant will help Shell capture a larger share of the U.S. market for polyethylene, more than half of which is concentrated in northern states from Maine to Minnesota. Polyethylene is used to make packaging, cushions and clothing.
The plant, which is being built on the site of a former zinc factory about 30 miles (48 km) north of Pittsburgh, will turn ethane from natural gas into at least 1.6 million tonnes of polyethylene per year.
Nearby Ohio and West Virginia had lobbied hard for the plant, but Pennsylvania offered tax incentives and the site is close to 700,000 acres of Shell's leased and owned Marcellus Shale land.
Shell laboured over the decision for more than five years, worried about oversupply in the market at a time when many peers had announced similar chemical plants. Most of those projects were aimed at the U.S. Gulf Coast.
Shipping plastics to market in the northern United States adds transportation costs, but they will be less for Shell.
The announcement comes a day after rival BASF (DE:BASFn) postponed plans to build a Texas propylene plant, citing "volatile" commodity prices..
At the same time as Shell announced the Pennsylvania plant, it also said it will exit operations in 10 countries to save cash.
Construction of the Shell plant will take at least four years and is expected to start by 2018.
As many as 6,000 temporary jobs should be created by construction with about 600 permanent jobs once the plant is online, Shell said.
Pennsylvania residents praised the decision, saying it should help guarantee a solid tax base for at least the next half century.
"The success of this project is part of a much-needed, longer-term plan to translate our abundant resources to make Pennsylvania a leader in downstream production," Governor Tom Wolf said in a statement.