Chemical Plants for Converting Natural Gas or Ethane Problematic in the Near Term

by Duane Nichols on September 9, 2015

MATRIC, South Charleston, WV

Large petrochemical projects stymied by falling crude oil prices

From an Article by Anya Litvak, Pittsburgh Post Gazette (PowerSource), 9/8/15

For Aither Chemical, the company that strived to blanket Appalachia with small-scale ethane crackers, the past was prologue.

Technology that promised to drastically reduce the amount of energy required to turn natural gas liquids into a building block for chemical production was conceived in the 1980s at Union Carbide. The innovation was supposed to displace expensive crude oil with cheaper natural gas, but it was shelved after an oil glut sent the commodity’s price plunging.

Cut to 2010. Oil was around $80 a barrel and climbing. Development of the Marcellus Shale, with its pockets of natural gas liquids like ethane, was ramping up.

The rights to Union Carbide’s invention were transferred to a West Virginia technology nonprofit called Matric. There, scientists dusted it off, hired an executive team and began to gather attention and funding for their first cracker. They named the effort Aither.

But once again, an oil glut has dissolved both the promise and the company, a story that is repeating itself across the industry.

Crude oil dipped below $40 per barrel last month and while it has since recovered by a few dollars, the long-term outlook doesn’t forecast anything close to 2010 prices for another six years, according to the Energy Information Administration’s Annual Energy Outlook released in April before the most recent oil price collapse.

That makes the proposition of building new ethane crackers less compelling than feeding naphtha, a crude oil product, into existing crackers to make ethylene.

And Aither has joined the graveyard of other once-hyped projects vying to capitalize on the price spread between expensive oil and cheap gas before that spread narrowed to a sliver. All that’s left is some intellectual property that its overseer and largest investor, the West Virginia Jobs Investment Trust, is trying to either license or sell off.

The oil glut has also tempered the drive to build gas-to-liquids plants whose end products are meant to compete with traditional gasoline and diesel or oil-based lubricants.

Three such plants planned for Pennsylvania have been canceled.

In 2012, Calumet Specialty Products Partners, an Indianapolis chemical producer, said it would build a small gas-to-liquids plant at its Karns City refinery in Butler County to convert the region’s plentiful Marcellus bounty into lubricants and specialty liquids.

Calumet spokesman Noel Ryan said the company tabled the project two years ago, opting instead to buy into a gas-to-liquids joint venture in Louisiana where “the economics were more attractive.”

Marcellus GTL, a spinoff from an unrealized coal-to-liquids effort by Gilberton Coal Co. in Schuylkill County, made a splash by announcing a $200 million facility in Altoona that would manufacture gasoline and propane from natural gas. That, too, did not materialize.

Neither did an effort by Canadian company EmberClear to build a $1 billion gas-to-liquids near Reading, PA. That was scrapped earlier this year, according to the Reading Eagle.

Deeper pockets needed

As with all large projects, it isn’t just one turn of the market that scatters opportunity. Efforts that aim to bank on the volatility between oil and natural aren’t naïve to the general volatility of commodity arbitrage.

But while large multinationals such as Royal Dutch Shell, which has pumped millions of dollars into preparing a Beaver County site for a potential cracker that has yet to be greenlighted, can afford to ride out this wave, startups may not.

Aither was looking for somewhere between $200 million and $800 million for a small-scale plant, but it couldn’t secure even $12 million for a pilot facility, said Andy Zulauf, executive director of the West Virginia Jobs Investment Trust, the state’s Charleston-based venture capital arm. “We had a national energy company express an interest in acquiring the technology to the degree that a term sheet was issued,” he said.

But in the end, financing proved elusive.

“Economies of scale are really important in the ethylene production space,” said Steve Lewandowski, senior director at IHS Chemical. “Small crackers cost a lot more per ton of ethylene than large ones. “So whoever is financing the small crackers will need even more margins to cover higher capital cost and, in a lower margin market, this is much more risky.”

Large companies call the shots using their own pocketbooks, he said, while smaller projects depend on the confidence of investors. In today’s commodity environment, that confidence is wobbly at best.

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C. J. News -- 9/13/15 September 14, 2015 at 6:04 pm

Ethane Crackers Are Cropping Up —
Six Plants Are Currently Under Construction Along Gulf Coast

By Casey Junkins, Wheeling Intelligencer, September 13, 2015

Wheeling, WV — It remains to be seen if Belmont County will ultimately land the $5.7 billion PPT Global Chemical ethane cracker, but six similar projects already are under construction along the nation’s Gulf Coast, with Marcellus and Utica shale gas scheduled to provide at least a portion of their feedstock.

Industry leaders believe ethane yields from just the Marcellus and Utica fields could reach 590,000 barrels daily by 2020, which is up from none at all in 2012. That has led firms such as Exxon Mobil Chemical, Chevron Phillips Chemical, Dow Chemical and other industry giants to begin building their own ethane crackers in Texas and Louisiana.

Last week, officials with Thailand-based PTT Global Chemical said they would spend $100 million for engineering and design plans for the local ethane cracker, which they hope to build on about 500 acres of Dilles Bottom property along the Ohio River. While PTT leaders hope to make a final investment determination before the end of next year, other companies simply are not waiting.

“Shale development has provided U.S. chemical producers a double benefit as an energy source and as a key raw material to make plastics and other essential products, creating jobs and economic activity across the value chain,” Steve Pryor, president of Exxon Mobil Chemical, said.

According to Pryor, Exxon’s project at Baytown, Texas will ultimately employ about 10,000 construction workers; create 4,000 related jobs in nearby Houston communities; and create 350 permanent positions at the Baytown complex.

“These are high-paying jobs that lead to fulfilling and rewarding careers in an industry that’s vital to the American economy,” Pryor said, adding the project should generate about $90 million per year worth of tax revenue for the local areas.

Any new cracker complex would “crack” the ethane into ethylene, which is used as a basis for plastics and resins contained in items such as food packaging, textiles and pharmaceuticals.

Jennifer Scott is a spokeswoman for the Washington, D.C.-based American Chemistry Council, which is the trade group representing the chemical industry. She said there are now about 30 such cracker facilities in the U.S., with the most recent opening in 2001. “To our knowledge, a BASF/Total cracker at Port Arthur, Texas is the last new ethane cracker built in the U.S. It was started up in December 2001,” she said. “A Formosa Plastics at Point Comfort, Texas was completed in August 2001, but was shut down and restarted in early 2002.”

According to Scott, the following ethane crackers are under construction along the Gulf Coast, in addition to the Exxon project:

>>> Ethane Crackers Under Construction in U.S.
- Sasol ethane cracker complex at Westlake, La.
- Occidental Chemical/Mexichem ethane cracker at Ingleside, TX
- Formosa Plastics ethane cracker at Point Comfort, TX
- Dow Chemical ethane cracker at Freeport, TX
- Exxon Mobil Chemical ethane cracker at Baytown, TX
- Chevron Phillips Chemical ethane cracker at Baytown, TX
Source: American Chemistry Council

>>>>> Last Ethane Crackers to Open in U.S.
- BASF/Total facility in Port Arthur, Texas, – Opened in 2001
- Employs 250 workers, – Cost $1.5 billion to build
Sources: BASF Corp. and American Chemistry Council

“To our knowledge, none of the new ethane crackers is operational yet,” Scott said.

Due to the lack of an ethane cracker in the Marcellus and Utica region, many producers ship their ethane southward via the ATEX Express pipeline or similar conduits. The Sunoco Logistics Mariner East pipeline is pumping ethane eastward across Pennsylvania to the Marcus Hook Industry Complex, while the company’s Mariner West pipeline is sending the ethane across Ohio so it can go to Canada for cracking.

Scott said it usually takes about five years from the time a final investment decision to the point at which a cracker would open. She said this includes the time for the permitting process. Scott added the PTT project is “on our list of shale-related chemical industry investments.” However, Scott said her organization would decline to speculate about the viability of PTT’s plans.

“As of this month, our tally stands at 243 announced projects representing a cumulative investment of $147 billion,” she said. “Of the projects on our list, 37 percent have been completed or are currently under construction and another 54 percent are in the planning phase.”


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