INSIGHT: INEOS shale-based ‘centre of excellence’ plan for Grangemouth lifts UK chemicals

By Nigel Davis

LONDON (ICIS)–The announcement from INEOS this week that it will invest in additional ethyl acetate (etac) capacity in Hull in the UK shows how shale gas economics will help lift the petrochemical industry across the country. It is a welcome piece of post-Brexit vote news.

Expected by some in the market but a surprise to others, the company’s decision reflects the fact that it will have additional ethylene available from its cracker at Grangemouth in Scotland.

INEOS is not alone in investing for shale gas ethane in the UK. SABIC is close to finalising significant shale gas investment at its cracker site at Wilton in the northeast of England. Industry data indicate that the ethane storage tank for the cracker will be completed in the third quarter of this year with the cracker conversion project signed off in Q1 2017.

An agreement has been struck between INEOS, ExxonMobil and Shell to supply US ethane to the oil major’s joint venture cracker at Mossmorran in Scotland.

But INEOS has big plans for Grangemouth and is considering a chemical park concept that could make the Firth of Forth in Scotland, where Grangemouth is located, like Antwerp in Belgium, according to director Tom Crotty.

Grangemouth could become a “centre of excellence for the petrochemical sector” along the lines of the model INEOS has developed in Antwerp, a company spokesman said on Thursday. The Hull investment decision shows how the revitalised cracker might prompt further investments downstream.

The cracker will ramp up to full capacity as the new supply of ethane from the US is introduced to supplement and eventually replace gas that historically was available from the southern and central North Sea.

The first INEOS/Evergas ‘dragon ship’ is expected to deliver ethane to Grangemouth in September, Crotty told ICIS in an interview last week.

INEOS has been at the forefront of shale gas exploitation in Europe and it is actively pursuing the development of its own shale gas and offshore conventional gas business.

The ‘virtual pipeline’ it has established, running effectively from shale deposits in the US through coastal export terminals to storage facilities in Norway and Scotland, is helping it replace a dwindling, more local source of feedstock while giving it a chance to optimise cracker output.

A capacity expansion of the INEOS cracker at Rafnes in Norway has been agreed. Ethane was first delivered to the ethane storage tank at the Rafnes site in March this year.  

For Grangemouth, US ethane imports give it a new lease of life. It was highly likely that the gas cracker would have been forced to close had another supply of ethane not been found.

For INEOS, the agreements that put ethane imports in place give Grangemouth an additional 15 years. Beyond that, it depends on how the UK’s energy policy, particularly post-Brexit, plays out.

INEOS is currently doing a lot of seismic work on onshore shale in northern England and wants to be test drilling this autumn. Scotland’s’ government imposed a moratorium on unconventional oil and gas in January 2015 and INEOS has closed its shale operations there.

Crotty suggests that while other (exploration) companies are seeking to prove shale technology in the UK, INEOS is doing more. It wants to have several wells ready to roll, he said, and a system that works economically. It should be noted, however, that currently there are no fracking rigs in the UK.

The company has been working hard on the public’s perception of shale exploitation emphasising that it can bring regeneration to areas that were heavily industrialised. Local government support appears to have been growing. “I think people are recognising the potential benefits,” Crotty said. “That is even truer today because the UK has to stand on its own two feet on energy policy.”

Europe ethane investment decisions by INEOS, SABIC and Borealis were made when oil prices were over $100/bbl and in the current low oil price environment appear less attractive. But Crotty stressed that, for INEOS, the question in Grangemouth was never between oil and gas but between more gas and none. Cracker economics are also based on that gas cost comparison.

The steep fall in the value of sterling against the US dollar is not having a major impact, he said, because INEOS buys a huge amount of oil and gas in US dollars. Most sales are in euros so the euro/dollar exchange rate is most relevant.

INEOS firmly believes that the UK should be exploiting its new gas cracking capabilities, and developing a renaissance plan for the Grangemouth site – and investment at the pipeline-linked production site in Hull – is a manifestation of that belief.

Old assets have been cleared from the site and a new office block built. There is a combined heat and power plant on the site but a further investment of about £150m could be made on steam and power assets, Crotty said.

“We believe in British manufacturing and will support it whenever we can”, INEOS chairman, Jim Ratcliffe, said on Thursday. “This new investment in Hull, underpinned by our Scottish shale gas project, will enable us to significantly increase product for sale all over Europe and across the world.”