INSIGHT: NPRA ’11: Shale gas opens a host of chemicals opportunities

29 March 2011 21:39  [Source: ICIS news]

By Nigel Davis

SAN ANTONIO, Texas (ICIS)--Shale gas opportunities grab attention and helped lift spirits at this year’s NPRA International Petrochemical Conference (IPC).

Companies are expected to add incremental ethylene capacity to capitalise on more readily available ethane at relatively low prices. Consultants estimate that 1.2m tonnes of ethylene production capacity can be added in the US Gulf by 2015 in this way.

This is not a great amount of new capacity. The big plays in shale gas ethane are yet to come.

Chevron Phillips Chemical put its stake in the ground on Monday when it said it was doing a feasibility study on a world-scale ethane cracker and ethylene derivatives plant project at one of its existing facilities in the US Gulf.

The new facility would utilise the advantaged feed sources expected from development of shale gas reserves, the company said. "We are finalising our evaluation of potential sites and advancing discussions with... contractors," Chevron Phillips Chemical’s chief operating officer, Tim Taylor, said on Monday.

The pre-announcement of this project is the most significant signal from an industry player yet that it intends to take advantage of shale gas economics to produce ethylene.

INEOS said this week that it was looking at de-bottlenecking its Chocolate Bayou, Texas, cracker to add a possible 115,000 tonnes/year of capacity. INEOS Oxide had said earlier that it wanted to increase ethylene oxide capacity on the US Gulf coast by as much as 500,000 tonnes a year.

More ethylene will become available in North America as companies debottleneck and add more gas cracking capacity following the trend of the past two to three years.

Chemical Market Associated Inc (CMAI) president Gary Adams, however, told an IPC audience on Tuesday that another big unit was on the cards.

Companies will need to adopt a new mindset when they look at adding capacities of that size in a market where exports have been declining since 2004, he suggested.

Investment decisions have been made in the US based on domestic market growth. But the industry’s view is likely to change, Adams suggests, as export opportunities, based on competitively priced ethane, are run through pay-back calculations.

“We will see other investments come,” Adams said referring to the Chevron Phillips Chemicals news. Another sizeable plant will be built, he suggested.

The focus on shale gas has the potential to shift long-held feedstock and olefins balances.

Ethane extractors in Alberta, Canada, for instance are concerned that the province will be ‘locked in’ and lose more market share in the US if Gulf Coast and other chemicals producers turn more towards domestic resources.

The shift to shale gas also will have a clear impact on the availability of C3s and C4s.

Some firms will go for growth with ethane but the smart money may be invested in heavier molecules.

“The effect of shale gas on propylene has been huge, Probe Economics Fred Petersen says in the consultants’ latest newsletter.

“In 1990, Probe was calling the US ‘the OPEC of propylene,’ because it had so much propylene as a by-product of gasoline production and from the production of ethylene,” he says.

But how times have changed.

The volume of propylene coming out of refineries is flat or down and the price is way up. And, as Peterson notes, ethylene by-product supply is also drying up with the US using more shale-based ethane to make ethylene.

Probe believes that the squeeze on propylene buyer’s margins will lead to a shift in some materials markets towards polyethylene and polyvinyl chloride (PVC).

The US has to import more butadiene which is putting further pressure on the tyre and other segments of domestic industry.

And the shift to gas is reversing a 20-year trend in methanol and ammonia.

Eastman Chemical has sold a mothballed 850,000 tonne/year methanol plant in Beaumont, Texas, to a Swiss firm led by a former Methanex executive. Methanex is restarting its methanol plant in Medicine Hat, Alberta.

US producers, buoyed by the development of the country’s shale gas potential, have numerous new opportunities in the primary olefins and in methanol/ammonia. As (domestic) markets firm, and overseas demand continues to provide export opportunities, more project plans will emerge.

Hosted by the National Petrochemical & Refiners Association (NPRA), the IPC continues through Tuesday.

By: Nigel Davis
+44 20 8652 3214

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