Shale gas spurs optimism but questions remain

By Malini Hariharan

The mood at this year’s International Petrochemical Conference, hosted by the National Petrochemical and Refiners Association (NPRA) in San Antonio,US, is quite bullish and is evident in the reports being filed by the blog’s colleagues on ICIS news.

An improvement in profitability and increased availability of ethane has prompted companies such as Ineos Olefins & Polymers USA to plan expansions.

“We are undertaking engineering studies to debottleneck ethylene capacity at Chocolate Bayou in Texas, with a potential to add a further 115,000 tonnes/year,” said Dennis Seith, CEO of the company in an interview.

This would meet the needs of INEOS’s commitments to the US Gulf Coast merchant ethylene market, while also supporting the company’s high-density polyethylene (HDPE) unit at its La Porte, Texas, complex.

Seith believed the cost structure at the highly integrated site is at a good point for further investment.

INEOS operates two crackers at its Chocolate Bayou, complex, with combined capacity of 1.70m tonnes/year. Downstream it operates 950,000 tonnes/ year of HDPE capacity at La Porte and in its joint venture HDPE operation with Chevron- Phillips Chemical at Cedar Bayou, Texas.

“Today, the US cost position is very good, based on low cost ethane and highly productive capacity – surpassed only by the Middle East and Canada”, noted Seith. The low value of the dollar is also helping exports and he pointed out that the latest figures for 2010 showed the US exporting as much as 18% of its ethylene production as derivatives.

Government officials are also pushing more new investments.

“The consensus seems to be that there will be a new cracker somewhere in the Marcellus region; the only question is where,” said John Margeson, head of chemicals and plastics in the Resource Processing Industries Branch of Industry Canada.

Margeson said that the Canadian petrochemicals complex at Sarnia, Ontario is being promoted as a contender site for a new North American cracker. The existing complex already has two crackers that could accommodate additional feedstock from the Marcellus shale and, eventually, host a new cracker development.

The Pennsylvania state government also has become active in offering incentives for a new cracker to be sited in the state to take advantage of the Marcellus play that runs through much of the state’s territory.

But while shale gas has created room for expansions new government policies could create obstructions for future petrochemical development.

The first is the Clean Air Act which targets limiting and eventually reducing greenhouse gas emissions by major production facilities including petrochemical plants and refineries.

The second policy proposed by the country’s EPA is to lower national ambient air quality standards (NAAQS) for ozone and other pollutants.

NPRA and other industry representatives have complained that EPA is calling for ozone standards so low that they would in some cases be below the level of background ozone contamination in open country.

And even more worrying is the move to limit production of shale gas.

NPRA petrochemicals vice president Jim Cooper referred to a planned two-year study of the environmental impact of hydraulic fracturing by the EPA. He pointed out that the scientific panel assembled to frame the study lacked hands-on industry representation and could “stack the deck” against industry.

Charles Drevna, president of NPRA, warned that “without the ability to develop those shale gas resources, this could put this country back decades, perhaps never to recover.”

“We have been handed a gift in shale gas and abundant natural gas liquids. We simply must develop these resources or we will be set back for decades. I’m very confident that rational thought will prevail, but policy makers have been continually throwing artificial roadblocks to development,” he added.

“I hope rational thought will prevail, and I hope it will happen in a timely fashion,” he said.

The uncertainty around the long-term prospects for shale gas is one of the reasons why ExxonMobil Chemical is carefully evaluating any expansion in the US.

“We are not a great proponent of forecasting cycles. No-one was predicting the impact of shale gas just a few years ago. That’s why we take a long-term approach where we seek to outperform in good times and in bad,” said Stephen Pryor, president of the company.

Pryor pointed out that the key to success is feedstock flexibility.

“The question is not whether a project will be cost advantaged in the next three years, but ‘will it be attractive in the next 20-30 years?'” he said.

“When you know the market is growing in China, you have to take into account building in the US with US costs, logistics issues and the ability to compete with local China production. And Chinese producers may one day also use unconventional feedstocks,” Pryor added.

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