INSIGHT: Global companies can grab a piece of the US shale boom

29 March 2013 16:00  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS)--Some chemical companies may feel like they’re on the outside looking in on the US shale gas party, where upstream producers are popping the champagne corks and toasting cheap feedstocks for years to come. But there is a major opportunity for non-US firms to take advantage of cheap shale gas feedstocks – through downstream partnerships.

This is likely to the next big trend in global petrochemicals. Look for more of these US-foreign link-ups downstream, and potentially upstream in the US as well.

There are already plans to build seven new world-scale crackers in the US. That combined with expansions of existing facilities could add more than 10m tonnes/year or 37% to existing US ethylene capacity, providing plenty of feedstock to make intermediates and polymers.

Japan-based Idemitsu and Mitsui have already signed an ethylene offtake agreement with US-based Dow Chemical as Dow builds its 1.5m tonne/year cracker in Freeport, Texas, by 2017.

Idemitsu and Mitsui will build a linear alpha olefins (LAO) plant and take ethylene from Dow’s new cracker. In turn, Dow will buy some of the LAO for use in its performance plastics business.

Dow itself will build polyethylene (PE), ethylene propylene diene monomer (EPDM) and elastomers plants downstream.

And MEGlobal, a 50:50 joint venture between Dow and Kuwait’s Petrochemical Industries Company (PIC), is looking to build a new integrated ethylene oxide/ethylene glycol (EO/EG) facility in the US, ICIS learned at the International Petrochemical Conference (IPC) hosted by the American Fuel & Petrochemical Manufacturers (AFPM) in San Antonio, Texas.

“Following Dow’s announcement about building a new ethane cracker in Freeport, Texas, MEGlobal is seeking board approval to build an EO/EG facility,” said Frank Hanraets, executive vice president, commercial and supply chain at MEGlobal. He made his comments on the sidelines of the IPC.

Dow is quickly filling out its downstream plans. But most other companies building new crackers have yet to fully define theirs. Herein lies the opportunity for foreign and domestic players to partner up to build downstream facilities.

The list of companies building crackers and expanding existing ethylene plants in the US is predominantly made up of US companies or those already with significant US operations such as the Netherlands-based LyondellBasell.

South Africa-based Sasol is building a $5bn-7bn (€3.9bn-5.5bn) cracker complex in Lake Charles, Louisiana, next to its existing operations. Downstream from its 1.5m tonne/year cracker, the company just announced plans to build a 420,000 tonne/year low density polyethylene (LDPE) plant by late 2016.

Sasol will license US-based ExxonMobil's tubular process technology for the LDPE plant.

Scanning the list of companies that have said they are considering the construction of crackers in the US, you can see that most reside outside the US. They include South Korea’s Hanwha Chemical, Thailand’s Indorama Ventures and PTT Chemical, Saudi Arabia’s SABIC and Brazil’s Braskem.

SABIC is actually still exploring a new cracker project in the US with a partner, sources said at the IPC.

But there is more than one way to skin a shale cat. Instead of building a new cracker, joining the burgeoning multi-billion dollar project slate, why not take a less capital-intensive route and partner downstream for higher value added products instead?

($1 = €0.78)

Additional reporting by Feliza Mirasol from San Antonio

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By: Joseph Chang
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