22 March 2013 13:42 [Source: ICB]
While the shale gas development has provided the US petrochemical industry with an abundance of natural gas liquids (NGL) as an alternative to more expensive naphtha, the cracking of lighter feedstock is resulting in constrained supplies of co-products such as butadiene (BD).
BD is typically extracted from a four-carbon (C4) mixture that is produced along with ethylene and other olefins in the steam cracking process. A naphtha cracker produces about 18lb (8kg) of BD per 100 lb of ethylene, whereas an ethane cracker produces only about 2.5lb of BD as a co-product, says Mike McDonnell, CEO of US butadiene producer TPC Group.
Over time, the US has shifted from cracking naphtha to lighter feedstock, he adds, and the current feed slate in the US is roughly 60% ethane. "Since 2007 to about 2012, generation from ethylene production in the US has dropped by about 20-25%," McDonnell explains. "So it's been a dramatic drop."
He adds that most of the change occurred in 2007-2009. But now, "we believe that most of the lightening has occurred. C4 supply is now relatively stable and any further lightening will be offset by ethylene debottlenecking and new ethylene crackers in the future."
Despite the constrained but stable supply, demand remains strong as BD is a "mission-critical" product for a variety of end-markets such as tyres, nylons and plastics, McDonnell says. "While BD supply is governed by cracker feed slate and operating rate, demand is driven by end-markets. Supply and demand tend to be balanced through price mechanism since there is no way to store the BD in pure form for very long."
As a result, BD market conditions can be affected by price volatility and period shortages of the product. "North American demand is met by increasing levels of imports to help balance demand with supply," McDonnell says.
That growing supply crunch could be met by on-purpose BD production, using the NGL feedstock found in shale - particularly ethane and butane. Using its proprietary Oxo-D technology, TPC would convert butylenes from a variety of sources into BD. TPC used the process between the 1960s and 1980s and is planning on bringing back on-purpose BD production, using a combination of existing and new assets, to make up to 600m lb/year (270,000 tonnes/year).
The preliminary engineering study has been conducted, and TPC hopes to have the engineering design optimisation completed by the end of the third quarter of 2013. Start-up is targeted for 2016.
"We're going to bring this project on," McDonnell says. "So what do we do in the meantime? The challenge is ensuring there are adequate C4s for the North American market over the next few years, and managing the volatility of BD." TPC says it will continue to drive the efficiency of aggregation, processing, storage and distribution capabilities, while it accesses additional C4 sources globally to import into the US.
While TPC has growth strategies that target markets with favourable, long-term fundamentals, it will continue to capitalise on the supply of products that are critically short but mission-critical, including utilising idled dehydrogenation units and excess capacity in C4 extraction, McDonnell says. "C4 is core to TPC," McDonnell adds. "We will continue to strengthen our C4 processing foundation to better serve our suppliers, business partners and customers."
TPC's recent acquisition by private equity firms SK Capital and First Reserve will help it achieve those goals by providing access to capital to grow, as well as the networks of skills and experience to support growth initiatives.
McDonnell adds that other challenges facing the industry include managing a growth phase of large capital investments amid a tight market for skilled workers and other project resources, as well as ensuring there is adequate investment in infrastructure to process, store and transport NGLs.
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