Ending the Ethane Cracker Myth?

An Ethane Cracker for Marshall County?

From the Wetzel Chronicle article by Casey Junkins, February 20, 2013

According to published reports, Appalachian Resins Chief Executive Officer James Cutler believes construction of an “ethane cracker” will begin by the end of this year, with the plant going online before the end of 2015. “In addition to good economics, we believe that the Appalachian Resins business model-regional-sized petrochemical production facilities-supports a resilient supply chain,” Cutler added in those reports.

An ethane cracker should bring about $500 million worth of investment and as many as 125 permanent, full-time jobs to West Virginia’s Northern Panhandle, local officials said February 13th.

“It is not a done deal, but it is moving very quickly,” said Don Rigby, executive director of the Wheeling-based Regional Economic Development Partnership. “We have been working with Appalachian Resins for a while now. This is a very nice project.” In addition to the permanent jobs, Rigby said the cracker project would bring an undetermined number of temporary construction jobs to the area and related economic activity.

Rigby has worked to bring an ethane cracker to West Virginia for roughly three years, dealing with companies such as Royal Dutch Shell and Aither Chemical. Ultimately, Shell announced plans last year to construct its cracker at a site in Monaca, Pa., though Shell has yet to acquire the land for this facility from Horsehead Corp. Although not confirming the exact location, Rigby said Appalachian Resins considered a variety of sites before looking at Marshall County.

Although she declined to confirm the precise location of the planned facility, Marshall County Administrator Betsy Frohnapfel said Houston-based Appalachian Resins has been looking to build in her county. The site likely would be along the Ohio River, as the petrochemical plant would have easy access to water, river transportation, CSX railroad lines, and state Route 2-as well as the steady supply of ethane coming from local Marcellus and Utica shale natural gas operations. “The project is not finalized, but it is very exciting for Marshall County,” Frohnapfel said.

Marshall County’s collective property value already has increased by $577.2 million from the 2012 to 2013 tax years, largely because of oil and gas drilling and processing plants built by Dominion Resources, Williams Partners, and MarkWest Energy.

According to the firm’s website, Appalachian Resins is a “start-up company” that plans a facility that will produce about 508 million pounds of ethylene and 500 million pounds of polyethylene each year. Unlike the planned Shell facility, it states, this cracker would not be “world scale,” meaning it would not need as much space to operate.

The liquids-rich Marcellus and Utica shale natural gas in northern West Virginia and eastern Ohio makes the Upper Ohio Valley a prime location for an ethane cracker, according to industry officials. In addition to ethane, other natural gas liquids produced from the wet Marcellus and Utica shale gas include propane, butane, and pentane. All of these elements must be stripped away from the dry methane natural gas at processing plants-such as the soon-to-open Dominion Resources Natrium facility-so the methane can be sold by utility companies.

Because there is no ethane cracker in the Utica and Marcellus regions, some companies are now shipping the product for cracking at facilities in Canada or along the Gulf Coast. Others are simply burning it off via flaring, according to Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association.

“We would like to be able to use this resource for something more than making smoke in the air. We are flaring off enough ethane already that we could probably supply an ethane cracker,” said DeMarco. “I do not think there is any lack of supply.”

Ethane Molecule

Chemical Revolution Underway Sparked by Shale Gas Production

Based upon an article by Ed Crookes, The Financial Times, December 17, 2012

The international chemicals industry is undergoing its most profound upheaval for 75 years, according to Kevin Swift of the American Chemistry Council, a group funded by the chemical industry. Not since the years before the second world war, when there was a flood of discoveries including nylon, synthetic rubber, PVC plastic and polystyrene, has there been technological change with such far-reaching consequences.

Cheap feedstocks from fracking activities in the oil and gas industry are reshaping the global competitive landscape for petrochemicals. Anton Ticktin of the Valence Group, a specialist investment bank working in the chemical industry, says the US now has “a quite phenomenal advantage”. Costs are already lower in the US than in Europe, Latin America or China. In the future, they are likely to be lower even than in the Middle East.

Only three years ago, it looked as though the US bulk chemicals business was in long-term decline. Companies such as Dow Chemical saw their future in investing in the Middle East and moving downstream into more specialized products. The shale revolution has turned that round, encouraging dozens of companies to make plans to invest in new US chemicals production capacity.

The ACC, an industry group, has counted 17 separate projects, either planned or under consideration, to increase capacity in just one process: “cracking” ethane to make ethylene, the building block for plastics such as polyethylene.

US companies including Dow, ExxonMobil and CPChem – a joint venture of Chevron and Phillips 66 – have been joined by international groups including Royal Dutch Shell and LyondellBasell, both based in the Netherlands, Formosa Plastics of Taiwan, Sasol of South Africa, PTT Global and Indorama of Thailand, and Braskem of Brazil in looking at investments in ethane cracking in the US, and several have already made commitments.

If all of those proposed projects go ahead, US ethane cracking capacity could rise by up to 40 per cent by 2018. Ethylene, which accounts for 40 per cent of world trade in chemicals by volume, is a useful yardstick for the industry as a whole, according to Hassan Ahmed of Alembic, an investment research group.

About half the world’s production is based on naphtha, a light liquid hydrocarbon, with the remainder based on ethane and other gases. Because naphtha is produced from oil, its price is tied to crude. It is today about $100 a barrel, and has risen slightly over the past year.

The price of ethane in the US, by contrast, has collapsed from about 80 cents per gallon a year ago to less than 23 cents today, as new processing capacity has come on stream and US gas producers have shifted the focus of their drilling towards natural gas liquids. Andrew Liveris, chief executive of Dow, suggests ethane in the “high 30s” of cents per gallon would be a reasonable long-term price.

Still, even with ethane at 40-50 cents a gallon, ethylene will cost about $400-$500 a tonne to produce in the US, Mr Ahmed says, compared with $1,200 a tonne in Europe. European chemicals companies have been sounding the alarm about the impact of the US cost advantage on their competitive position.

They have also begun to think about US investments of their own. Bayer of Germany in June announced an agreement with Aither Chemicals of the US to look at a possible ethane cracker in West Virginia. Mr Ticktin believes the shale revolution will drive similar shifts in the chemicals industry for years to come. “We’re going to see a lot of merger and acquisition activity, a lot of investment into the US, and a lot of European companies seeking to move downstream,” he says.

Even Saudi Basic Industries Corp, the world’s largest petrochemical company, is in talks about a possible investment in the US. Although until 2006 chemicals manufacturers in Saudi Arabia were able to sign contracts for very cheap ethane, enabling them to produce ethylene for only about $200 a tonne, it appears that all of the kingdom’s production has now been committed.

In the US, environmental concerns about hydraulic fracturing may hit gas supplies, and the long-term production possible from shale reserves may be lower than the industry expects. Dow and other chemicals companies also worry that allowing increased US exports of liquefied natural gas could push up prices. A report funded by the US energy department, however, argued this month that even if LNG exports were unlimited, the rise in US gas prices would be relatively modest.

For now, the world-wide competitive advantage of the US looks secure. It won’t last forever, but the US has a significant head start. It could be 10 years, it could be 20 years. It could be longer, according to the article in The Financial Times.

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Chemical boom hit by construction costs

From an article by Ed Crookes, The Financial Times,  December 17, 2012

One consequence of the rising surge of investment in US petrochemical plants looks like being an increase in construction costs.

Sasol of South Africa this month announced plans to build an ethane “cracker” and a plant to produce diesel fuel from natural gas in Louisiana, at a total cost of up to $21 billion; a figure about 50 per cent higher than earlier estimates. It has not yet made a final investment decision on the plants but is already starting purchasing of costly long lead-time equipment such as metal vessels.

David Constable, Sasol’s chief executive, said: “Some of the quotes on cracking equipment are totally surprising us.” He said: “I think a few of the proposed ethane crackers may shake out and not come to fruition. We believe there is a first-mover advantage here, and we think it is very important to be in the first couple of crackers to be built.”

Andrew Liveris, chief executive of Dow Chemical, said recently that building a greenfield cracker, as Royal Dutch Shell is considering in Pennsylvania, required a “huge capital spend”: much greater than for the brownfield capacity expansions that Dow is making.

Data on petrochemical construction costs compiled by IHS Cera, the research group, show some signs of inflation: while price rises in the past 18 months have been strongest in the developing world, costs are falling in Europe but “flat to slightly up” in the US.

However, Anton Ticktin of the Valence Group, the investment bank, said he did not expect rising construction costs to jeopardise the case for chemicals companies to invest in the US. “Capital cost inflation always happens when you have an investment boom,” he said. “But that’s not the main driver of the economics. The cost advantage we are seeing in the US even now is pretty staggering.”