INSIGHT: Seeking the big shale gas opportunities

01 November 2010 16:45  [Source: ICIS news]

LONDON (ICIS)--Shale gas opportunities for players in the North American chemicals sector are beginning to be given some substance, but firm projects have yet to materialise.

Pressed last week on what those opportunities might be, at least two of the big players in the business, Dow Chemical and LyondellBasell, were circumspect.

Asked about the possibility of someone in the industry building a cracker in the Appalachians, LyondellBasell CEO John Gallogly reckoned that it was too soon to say.

Consultants had mulled the idea and economic analysis had been run, Gallogly said.

“There has been a little bit of discussion about some cracker capacity additions, but it’s so early on that it’s hard to call that credible," he added.

“We do think there is an ongoing ethane advantage, but at this time the market doesn’t need the capacity,” he said.

How sector firms build on the new shale gas advantage, apart from the expected obvious ethane price advantage, largely remains to be seen and there are clearly some big hurdles to be overcome.

Shale gas is often very rich in NGLs (natural gas liquids), and there is the question of just who separates gas from liquids.

Shale gas from the important Marcellus field in the northeast of the US is just too rich in liquids to transport through the existing pipeline system. That begs the question of who is going to separate out the gas.

A couple of the important gas fields look as though they might extend across the border into Canada, suggesting that advantage may be taken of extraction and liquids separation there.

North America does not yet need more domestic ethylene capacity, but in some parts ethane supply is becoming tight.

Propylene generally also is tight - because of the overwhelming cost advantage for petrochemical producers to crack ethane - so possibly the opportunities lie more in that direction.

Dow Chemical CEO Andrew Liveris pointed to the propylene opportunities in an earnings conference call on Thursday.

"You can expect us to be more and more active on alternative ways to get propane into the mix," Liveris said when talking about the shale gas advantage.

Dow has taken its first shipment of propylene from PetroLogistics’ new 554,000 tonne/year propane dehydrogenation (PDH) unit in Houston, Texas. This is the world’s largest and is expected to be running at capacity 30 days from start-up - which was on 22 October.

Dow will eventually take half of the unit's output. The propylene is widely used within its expanded - and more specialty focused - materials portfolio.

"That will help us a lot on sourcing propylene that is back-integrated - so to speak - into the NGL mix versus tied to the refining pool," Liveris said. "It will give us an advantage that we didn't have before."

PDH units may be capital intensive - and notoriously difficult to run efficiently when the feedstock is not priced competitively - but consultants believe that they can produce more-than-worthwhile returns given the disparity between crude and natural gas prices.

Propylene prices over the past few years have run up much closer to ethylene - above ethylene at some points in the US - making the economics of propylene production more attractive.

PetroLogistics says its plant is flexible and can produce varying rations of chemical grade and polymer grade propylene (CGP and PCG).

Shale gas is definitely the game changer in the US market but just how the advantage plays out has yet to be seen.

To discuss issues facing the chemical industry go to ICIS connect

By: Nigel Davis
+44 20 8652 3214

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