INSIGHT: Shell US cracker raises questions on ethane, PE partner

21 March 2012 16:24 Source:ICIS News

By Al Greenwood

HOUSTON (ICIS)--Shell has identified a possible site for its proposed cracker in the northeast US, but several key details about the project remain unclear, from feedstock prices to possible partners for developing downstream units.

Shell said it is evaluating a site in Pennsylvania for a possible ethane cracker. The company is also considering polyethylene (PE) and monoethylene glycol (MEG) units.

"I think Shell is taking a closer step to finalising their plans to build a new cracker," said Peter Fasullo, a principle at En*Vantage, a consulting firm. However, the company still has some issues it will need to resolve.

Shell is not in the PE business, so it may seek out a partner to build the unit, said Bob Bauman, president of Polymer Consulting International.

Shell, in fact, discussed the possibility of a partner last year at the annual meeting of the American Chemistry Council (ACC).

Other questions concern the cost of the feedstock ethane.

Right now, the ethane in the Marcellus is stranded, but that will soon change as several projects come on line.

NOVA Chemical is converting its Corunna cracker in Canada so it can use ethane.

Enterprise is developing a pipeline that would connect the Marcellus to the US Gulf coast. The so-called Appalachia-to-Texas pipeline (ATEX Express), could carry up to 190,000 bbl/day of ethane.

Markwest's Mariner East project would develop an ethane pipeline connecting the Marcellus to terminals on the east coast.

"I can see a lot of market competition for that Marcellus Shale," Fasullo said.

"It won't be stranded ethane," he said. "It is not going to be cheap as some people thought it was going to be."

Shell will also need to address ethane storage, Fasullo said.

If built, Shell's cracker would ultimately need to go down for maintenance. Plus, there could be unscheduled outages either at the cracker or at any downstream units.

During that downtime, Shell's suppliers will continue to produce ethane, and that ethane will need to go somewhere.

That could be a problem in the northeast US, given the region's small amount of storage and cracking capacity, Fasullo said. "How is Shell going to handle the swings?"

Nor is Shell the only company considering an ethane cracker in the US. Others include Dow Chemical, Chevron Phillips Chemical, Sasol and Formosa – and those producers are considering sites on the Gulf coast. Indorama is also considering a cracker, although it has not announced a region.

Shell needs to determine that it would have an advantage being in the northeast, Bauman said.

Plus, Shell needs to decide if a cracker in the northeast US is the best way to spend billions of dollars, Bauman said.

Still, a northeast site will give Shell two key advantages, Bauman said. The complex will be close to feedstock, and it will be close to end markets for derivatives.

Shell's cracker should also benefit from the same trends that are encouraging other petrochemical producers to expand capacity in the US.

Much of the world relies on oil-based naphtha as a feedstock for ethylene. Right now, crude oil is trading at a large premium to natural gas, giving US producers a cost advantage.

"What I'm seeing is we have a very, very viable petrochemical industry that is just taking off in this country," Fasullo said. "It is going to be quite competitive for the feedstock."

The US petrochemical industry already has much of the infrastructure, technology and regulations to take advantage of the new source of feedstock, he said.

"We can react so much quicker than the rest of the world," Fasullo said. "That's why we are seeing such aggressive activity by US petrochemical companies."

By Al Greenwood