FocusShale gas, rising oil drive flood of new US crackers

21 April 2011 21:26  [Source: ICIS news]

By Al Greenwood

HOUSTON (ICIS)--Growing supplies of shale gas and rising crude oil prices have encouraged several companies to announce studies and outright plans to build new ethane-based crackers in the US, a consultant said on Thursday.

"Everybody in the country is looking at new ethylene capacity, whether it is debottlenecking or a new cracker," said Bob Bauman, president of Polymer Consulting International, a US consultancy.

Dow Chemical became the latest producer to announce plans for a cracker. Dow also plans to build an on-purpose propylene plant.

Chemical companies are flush with cash, and they are now considering ways to invest the money, he said. "Companies are doing much, much better."

Unlike previous years, they are not considering investments outside of the chemical industry, Bauman said.

Instead, they are investing in their own fields - either by acquiring companies or by building new plants, he said. "Companies have come to the realisation that if you are going to invest, invest in what you do best."

Several factors are favouring new plants.

The growth in emerging economies is giving US producers strong export markets for chemicals, Bauman said. "The biggest percentage of demand for these new crackers will be the export market."

US demand also could increase once the economic recovery quickens, he said.

Any new crackers should have ready access to ethane feedstock because of the advent of shale gas. New technology has allowed US natural-gas producers to access previously cost-prohibitive reserves. Many of these reserves are rich in natural gas liquids (NGLs).

In fact, some companies are shifting their focus to NGLs because natural gas prices have been so low.

The NGL link is crucial, because the new projects will rely on ethane to produce ethylene.

That reliance on ethane brings another trend pushing the spate of new projects.

Crude prices could remain high for years, meaning that oil-based naphtha also will be high.

Crackers that rely on naphtha as a feedstock will be at a disadvantage against ethane-based plants.

If anything, the gap between naphtha and ethane could grow, Bauman said.

As more companies announce studies and cracker plans, they are creating their own dynamic, encouraging more producers to consider expansion plans. 

Companies such as Dow could fear that if they stand still, they could miss a unique opportunity.

"Dow can't afford to let others gain feedstock cost advantages," a source said.

"There is always the case that you strike when there's an opportunity. If you wait, that opportunity is gone," Bauman said.

"Companies really need to decide what they want to do with the money they have, how much they want to invest and where," Bauman said. "I don't see any single company standing still."

Additional reporting by William Lemos

For more on ethylene visit ICIS chemical intelligence

By: Al Greenwood
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