ASC: Shale ethane drives US ethylene surge

The rapid growth of shale oil and gas in the US is having a big impact on ethylene and propylene production, with implications for customers in downstream industries

It has started to become a cliché, but the impact of shale oil and gas in the North American manufacturing sector will soon be seen in petrochemicals. A number of new steam cracker projects are beginning to move into the construction phase and will come into operation over the second half of this decade.

The impact of changing feedstocks to shale oil and gas also impacts the other major half of the process industries – petroleum refining.

Ethylene expansion gets underway at ExxonMobil Chemical’s Baytown, Texas, site: 1.5m tonne/year of ethylene capacity will be added by 2017

Ethylene comes primarily from on-purpose manufacture by way of steam cracking hydrocarbon feedstocks. The olefins industry has come full circle over many decades from ethane feedstock, to flexible heavy liquids (ethane/propane/butane/naphtha/distillates), and now back to ethane.

The same type of dynamic is also underway in refining, where facilities in the 1970s and 1980s ran light sweet crude oils. Then investment was made to process heavy, high sulphur crude oils, and now the industry is learning to go back to light sweet crudes again.

Propylene, on the other hand, has been either a by-product or co-product from both industries. In the refinery, propylene comes from thermal and catalytic conversion processes such as coking or fluid catalytic cracking. Propylene is a co-product of steam cracking – the heavier the feed, the more propylene produced.

What makes the US steam cracking sector different from the rest of the world is that elsewhere, steam crackers depend on the refining sector to provide feedstock (naphtha predominantly). The US has two separate feedstock sources – the refining industry and the natural gas processing industry. US steam crackers can swing sourcing based on the relative economics of natural gas versus oil.

Since 1990, the ethylene sector has seen boom and bust times. The top chart opposite shows the annualised growth in capacity, production and consumption for US crackers. The last major wave of cracker expansions ended in 2001.

Due to the global financial crisis and other changes (such as vast expansions in the Middle East and Asia of new petrochemical capacity), the US petrochemicals sector has since seen rationalisation, with older crackers being shut down and idled.

A similar pattern has been played out in terms of propylene supply and demand. Available capacity declined as some refineries and steam crackers were permanently idled.

The shale phenomenon has changed all of this, at least for ethylene. As the above-mentioned chart also shows, we will see annualised capacity growth well above the peaks of the early 1990s out to the 2015-2020 period.

ICIS has its own expectations of which plants will be built and when they will fully come on line. Most of the units should reach full operating rates by 2018, assuming the majority of them reach mechanical completion and undergo performance testing in 2017.

PROPYLENE SHORTAGE
For propylene, the future looks entirely different. As propylene is not an on-purpose product (at least today), its availability depends on how existing refineries and steam crackers are operated. The pie charts on the right show how important the refining sector is to US propylene supply compared to the mix globally.

As refiners reconfigure to process light sweet shale oil, those conversion units will run less feed or at lower conversion rates, resulting in less propylene from the refining sector. The change is even more startling when the feed slate for a steam cracker changes.

As the bottom bar chart shows, the amount of co-products drops substantially the lighter the feed is. When a cracker processing naphtha, for example, shifts to ethane-only cracking, we see a 95% reduction in the amount of propylene produced. That has significant implications for propylene supply and demand.

The only way the imbalance created by less supply and more demand can be rectified is by construction of on-purpose propylene manufacturing – using propane dehydrogenation units (PDH). Today only one PDH plant is in operation in the US – the former Petrologistics unit acquired by FHR this summer. A number of projects are on the books, with as many as nine plants announced to be in operation by 2019.

As critical as the feedstock picture for olefins has become, the demand side “pull” is just as critical to note. New potential entrants in the US market are looking for ways to monetise shale resources by building steam crackers then polymers – polyethylene (PE) and polypropylene (PP) – capacity, on the assumption that much can be exported.

Current projections by ICIS show increased export growth of PE by 2020, assuming that only expected ethylene supply is added. If all of the potential entrants were to build, however, we will see a greater than 65% increase of ethylene supply over the period 2013 to 2020.

Then the real question becomes, where will all the polymers go?

Karl Barthlomew is a consultant with ICIS Consulting, based in the Houston, Texas, office. He is providing a keynote speech on the first day of the ASC Fall Convention in Greenville