INSIGHT: US shale boom - downstream picture starts to emerge

19 March 2013 17:44  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--A picture is slowly emerging of how petrochemical producers in North America intend to add value to their already significant local ethylene cost advantage through new derivatives capacities.

Dow Chemical on Monday released more details of how ethylene from its planned 1.5m tonne/year Texas cracker will be monetised in different product chains. Shell last week spoke of how it expects to add polyethylene capacity and other units in the US to derive greater value from petrochemicals and, in its case, ultimately, shale gas ethane.

“Taken on the whole, positive disruptive trends in US shale gas have led us to make different decisions about where and how we invest for global growth,” Dow CEO Andrew Liveris said in a statement on Monday.”

“Our comprehensive US Gulf Coast investments will enable our enterprise to deliver higher and more sustainable value from our existing premier US base to supply domestic and global growth,” he added.

Graham van’t Hoff, Shell’s new executive vice president for chemicals, said at a briefing on 14 March: “It’s more than probable that we will re-enter polyethylene.”

Shell will not re-create a core PE business – it sold its PE interests, a stake in the Basell polyolefins joint venture, in 2005. But it could add PE capacity to add value to the ethylene it plans to produce from ethane in the northeast of the US, close to its own exploration interests in the Marcellus shale.

“We look at polyethylene very much as a route to monetise ethylene,” van’t Hoff said. Shell has also talked of building monoethylene glyclol capacity associated with the cracker investment. The company has its own OMEGA monoethylene glycol process technology.

Van’t Hoff also said that Shell has a number of projects planned for the US Gulf coast to help it capture more value from advantaged natural gas liquids (NGLs) based feedstocks but he gave no details.

“We are looking to extend positions relative to our US Gulf portfolio,” he said. “We are working on a lot of things in the US Gulf.” Shell has capacities for olefins and first line derivatives in the area.

Canada’s Nova Chemicals, winner last year of the ICIS Company of the Year award (for financial performance in 2011), was one of the first companies in North America to talk in some detail about how it intended to capitalise on new sources of cost advantaged ethane.

The company starts taking delivery this year of ethane from the Marcellus field in the US north east and of ethane from the Bakken shale oil plays in North Dakota. Ethane from the east will feed its cracker at Corunna in Ontario and in the west its cracking capacity in Joffre, Alberta.

Nova is also planning to add polyethylene capacity in the two locations in plants using its own Novapol and Sclairtech technologies.

The amounts of money chemical companies are preparing to commit to the US shale bonanza vary widely. Nova has identified $1.75bn of additional capital spending over a seven year period on ethane conversion and the polyethylene additions. Much larger companies are in the process of committing a great deal more.

Dow spoke on Monday of its own capital spending plans on the US Gulf Coast, which include a 1.5m tonne/year ethane cracker and a propane dehydrogenation unit. The company uses ethylene to make ethylene polymers and other downstream chemicals and propylene in its performance materials businesses.

Investments by Dow downstream from the cracker include a previously announced metallocene ethylene propylene diene monomer (EPDM) plant; facilities to produce high melt index (HMI) elastomers for hot melt adhesives; polyethylene (PE); and specialty low density polyethylene (LDPE). The higher added-value products have applications in markets in hygiene, medical, and wire and cable applications,

Dow also agreed a long-term ethylene offtake deal from the cracker which is expected to be used to feed a 330,000 tonne/year linear alpha olefins plant likely to be built by Idemitsu and Mitsui & Co. Financial details of that deal have not been revealed.

The linear alpha olefins will provide important co-monomers for Dow's performance polymers business.

Creating value downstream from the planned ethane crackers in the US and from other olefins units will be the name of the game for producers as the plants come on-stream later this decade.

Downstream integration will be hugely important as well as timing – a factor that might have to change as strains and costs are put on engineering and construction resources as more plants are built.

The South African oil and chemicals company Sasol put the engineering challenge into some perspective recently as its planned $21bn capital spending programme in Louisiana into perspective. The investment represents around 73% of Sasol’s current market capitalisation.

The company said in an interview with Creamer Media’s Engineering News that it plans to construct some plant modules outside the US for its US projects. These include an ethane cracker and downstream ethylene consuming units – the 1.5m tonne/year cracker is due on-stream in 2017 – and a two-phase gas-to-liquids (GTL) plant which will generate 4m tonnes/year of products, from 2018.

Sasol is also considering building a GTL plant in Canada on a longer timescale.

And as regards timing, LyondellBasell said on 13 March that its cracker de-bottlenecking plans in the US Gulf would bring 839,000 tonnes/year of new ethylene capacity on-line by late 2015, possibly a year or more before its major rivals. Downstream it will de-bottleneck existing polyethylene capacity and possibly add more by 2016.

On the same day, ExxonMobil told financial analysts that permit applications had been filed for its planned 1.5m tonne/year US Gulf Coast cracker. It will be integrated downstream at least into two new high performance polyethylene production lines.

($1 = €0.77)

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By: Nigel Davis
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