FocusTight US propylene may lead to two more PDH plants

25 June 2012 21:36  [Source: ICIS news]

A PDH plantBy Al Greenwood

HOUSTON (ICIS)--At least two companies are considering building propane dehydrogenation (PDH) plants, as the new dynamics of shale gas makes both propylene supplies tight and propane prices cheap.

Already, companies have announced plans to build four such units, with Enterprise Products being the latest.

Companies are considering on-purpose plants because the US has lost several billions of pounds of propylene production.

Crackers have switched from naphtha to lighter natural gas liquids (NGL) feedstocks such as ethane and propane, made available by the advent of shale gas. Lighter feeds produce less propylene.

In 2005, the US crackers produced about 13bn lb (5.9m tonnes) of propylene, said Dan Lippe, president of Petral Consulting. In 2012, he expects those crackers will produce 7.6bn lb, down by 5.4bn lb or 2.4m tonnes from 2005.

Propylene production from crackers could fall even further, according to Bob Bauman, president of US-based consultancy Polymer Consulting International.

The ratio of NGLs-to-naphtha crackers, once at 70-30, now stands at 88-12, he said. Bauman expects more crackers will convert to lighter feeds, increasing the ratio to 95-5.

"At the end of the day, you have a propylene shortage in the United States. Period," he said.

Meanwhile, the same trend moving crackers towards lighter feeds is making PDH cost competitive.

The advent of shale gas has caused a US glut of propane, bringing prices near three-year lows.

More propane could hit the market as companies build natural-gas processing plants to accommodate new shale-gas production, said Peter Fasullo, a principle at En*Vantage, a consulting firm.

"You have a good marriage of more supply of feedstock and the demand to replace propylene that is no longer going to be produced by the traditional ethylene plant out there," Fasullo said.

Meanwhile, the other major source of US propylene, refineries, could become a less consistent source of the feedstock for the petrochemical industry, he said.

Refineries produce propylene in their fluid catalytic crackers (FCC), the unit primarily responsible for gasoline production.

Refiners, though, have undertaken expansion projects that favour distillates production over gasoline.

"I can see, over time, that cat crackers are used less," Fasullo said. "All of the new expansion in the US refinery industry, they are building cokers and hydrocrackers. They are not building cat crackers."

It is these dynamics ­– low-cost propane, falling propylene production from crackers and refinery economics ­– that contributed to the recent spate of PDH plant announcements.

Enterprise Products plans to build a 750,000 tonne/year PDH plant.

Dow Chemical plans to build a 750,000 tonne/year plant at its Freeport complex in Texas, and Formosa Plastics plans to build a 600,000 tonne/year plant at its Point Comfort site in Texas.

Dow plans to build another PDH unit at a site yet to be determined.

These new plants would join the sole operating PDH plant in the US, PetroLogistics's 544,000 tonnes/year unit.

Meanwhile, LyondellBasell is expanding the capacity of an existing metathesis unit, allowing it to consume an additional 500m bbl/year (227,000 tonnes/year) of ethylene to produce propylene.

Even with these latest projects, at least two additional companies are considering PDH plants, Bauman said.

Another producer is considering a methane-to-propylene (MTP) plant, which could add at least 500,000 tonnes/year, he said.

Fasullo expects that the derivatives produced from all of this new propylene will be targeted for export.

"I don't think our domestic demand can absorb all of this," he said.

"I would say the first markets that are probably going to be targeted is Latin America," he said. Producers could also hit Asia once the Panama Canal is widened.

Even Europe is a possibility if more refineries shut down there, which would limit propylene supplies, he said.

However, Lippe said that a sharp drop in oil prices could disrupt all of these plans for on-purpose propylene.

Such a decline – combined with an expected increase in natural gas prices – could make naphtha cracking profitable once more in the US, he said.

Earlier this month, Brent fell below $90/bbl.

"I think there is definitely downside risk because crude oil production in the US is growing like mad," Lippe said.

The new drilling techniques that increased natural gas production in the US is also increasing oil production.

In the first quarter, US crude oil production exceeded 6m bbl/day, the highest rate since the fourth quarter of 1998, according to the Energy Information Administration (EIA).

"The production growth has accelerated in the last year," Lippe said. "I think we are in for a long period of time where crude oil production in the United States is on the rise."

Enterprise could make producers ambivalent about pursuing on-purpose propylene, Lippe said.

Enterprise has access to a lot of propane, and it has a lot of experience starting projects on time and on budget, Lippe said. It will also start production first among the four announced plants.

Companies still considering on-purpose propylene plants may pause, given Enterprise's recent announcement, Lippe said.


By: Al Greenwood
+1 713 525 2645



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