AFPM: NOVA prepares to reinvest

02 April 2012 00:00  [Source: ICB]

Renewed availability of feedstock for its ethylene production assets has revitalized NOVA Chemicals' business outlook and investment plans

By the end of 2013, ethane from the Marcellus Shale gas field will start flowing through NOVA Chemicals' cracker in Corunna, Canada, putting it in line to be the first to turn the basin's natural gas liquids (NGLs) into petrochemicals.

"We were quite early," says Grant Thomson, president of olefins and feedstock for NOVA Chemicals. "We are quite proud of the fact that we were the first in."

Grant ThomsonThe advent of shale gas has given NOVA and other North American producers the prospect of expanding capacity. Five years ago, they were facing quite a different set of options. "What we were saying then was that North America's petrochemical industry was in trouble; that there would never be another cracker built in North America," Thomson explains.

By the first quarter of 2010, operating rates for NOVA's western crackers in Joffre, Alberta, were constrained to 80-90% because of limited feedstock supplies. If this trend were to continue, noted one analyst, by 2015, Canada's industry could face a 70,000 bbl/day ethane gap. "We were seeing declining gas production in Alberta and declining gas flows to the province," Thomson says.

Although NOVA had taken several steps to make more feedstock available to its Joffre crackers ­- two of them can now use propane ­- utilization rates had still fallen.

In eastern Canada, NOVA's Corunna flexi-cracker was using significant amounts of crude-based feedstock. "We needed to fundamentally change the cost structure of that plant," Thomson says.

Fortunately, the Corunna cracker is relatively close to the Marcellus Shale basin, whose natural gas reserves are rich in liquids. Those NGLs could become a new source of feedstock for the Corunna cracker and NOVA began moving early and quickly.

In early 2010, NOVA signed a memorandum of understanding (MoU) to study building a mixed NGL pipeline that could provide feedstock from Pennsylvania. In September 2011, the company announced that it had reached a better deal. It would use an existing pipeline owned by Sunoco Pipeline that can ship ethane from the Marcellus Shale region. The Sunoco deal eliminated the need for a new pipeline and for fractionating the mixed NGL stream. NOVA had also reached two long-term ethane supply agreements with Caiman Energy and with Range Resources. The ethane supplies, the Sunoco pipeline and the upgrade at Corunna should come together before the end of 2013, allowing NOVA to start cracking feedstock from the Marcellus Shale.

While NOVA was lining up ethane supply agreements for its eastern cracker, it was also looking for more feedstock sources for its western ones in Alberta. NOVA's three crackers in Joffre were initially built to use ethane. For years, that ethane came from Canada's gas fields. However, natural gas - and hence ethane - production began to fall. .

As NOVA did for its eastern site, it began looking for unconventional sources for feedstock for its western complex. In February 2011, NOVA announced that it reached agreements to receive ethane produced from Hess's Tioga gas plant in North Dakota. Vantage Pipeline will build the pipeline to connect the gas plant to the Joffre complex. NOVA could receive up to 60,000 bbl/day of ethane under the deal, and the capacity could be further expanded.

In March 2011, NOVA announced a long-term agreement with Williams, under which the latter would supply it with ethylene and ethane off-gas produced from oil-sands plants at Fort McMurray and Redwater, Alberta. Under the agreement, NOVA could receive up to 17,000 bbl/day of ethane and ethylene.

"Obviously, with the growth in oil sands, it is one that could have some significant potential growth in the future," Thomson says. "What's nice is it's tied to oil production, which means, no matter what, this production is going to happen."

With the new supplies of feedstock, NOVA is now considering expansion projects. In June, the company said it was considering building two world-scale polyethylene (PE) lines in Alberta and Ontario. They would be based on the company's Advanced Sclairtech and Novapol technologies.

In addition, NOVA is considering a debottleneck project at its low-density PE (LDPE) plant in Mooretown, Ontario.

If it proceeds with the projects, start-up could happen in 2014-2017, but before the company embarks on any expansions, NOVA wants its crackers running at full utilization, Thomson says. "Once we get to that point, then I think, like any business, what you always do is look and say, 'OK where is our next most economical debottleneck'."

Now, instead of contending with tight feedstock, NOVA is dealing with growth. "If you had to describe this scenario to somebody five years ago and said, 'NOVA will be building derivative plants, they will be filling out their Joffre plant, companies on the Gulf coast will be building crackers', people would have looked at you and said, 'No, that's never going to happen'."

"It has truly been a game-changer, both for our business and for the industry as a whole," Thomson argues. "Those issues and challenges now are focused on how do we grow."

By: Al Greenwood
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