Will the US lead the next olefins wave?

By Malini Hariharan

A few weeks back after a post on the rise of shale gas the blog was asked a question about new petrochemical investments in North Americas. Were they feasible? Would ethane prices remain attractive for the long term especially considering the recent run up in spot prices.

Well, companies are certainly confident, or at least confident enough to start planning new cracker projects.

The most recent announcement is by Dow Chemical which said late last week that it plans to build a new cracker on the US Gulf Coast for start-up in 2017, restart a mothballed cracker at St. Charles by end-2012, improve ethane flexibility at a cracker in Paquemine in 2014, and at another cracker in Texas in 2016.

Interestingly, Dow also said that it plans to increase propylene supply by constructing a new on-purpose propylene facility for start-up in 2015 and also explore commercialization of its own technology for production of propylene from propane with potential start-up of a new plant in 2018.

As for feedstocks ethane and propane, Dow appears to have plenty of choices on hand. It is exploring a joint venture for a fractionator in Texas, supply from existing fractionators or new fractionators and deals with shale gas operators at Eagle Ford and Marcellus fields. It has already signed a MoU for long-term supply of ethane from the Marcellus region to Louisiana.

The list of US companies planning new cracker investments or expansions to capacity is steadily growing. It includes Chevron Philip Chemical which announced last month that it was conducting a feasibility study on a 1m tonnes/year ethane cracker at an existing US site.

Westlake and Ineos have plans for cracker expansions. Braskem said recently that it was considering investing in a new cracker in the US. And a Taiwanese paper reported last week that Formosa Plastics has planned to invest $2.1bn to expand its crackers in the US.

However, Formosa declined to confirm the report and would only say that it was still in the ‘consideration and planning stage, seeking opportunities to ensure raw material availability and increase operational flexibility”.

The shale gas-based ethane opportunity is hard to ignore and the interest in new projects and expansions is understandable. But how many of these projects will be completed?

Al Greenwood, the blog’s colleague on ICIS news posed this question to industry analyst Bob Bauman of Polymer Consulting International.

Bauman believes some of the projects will fail to take off. But when companies announce that they are going to build then there is a good chance for the project to be completed as such announcments have an impact on share prices, he said.

What is probably very important in today’s environment in the US is to be out with an announcement that would deter competitors from pursuing their own plans.

“For me, announcing is an absolutely prime strategy,” he said. “You may stop someone else from going forward, “said Bauman.

And he expected more announcements to emerge in the future.

As highlighted by the blog earlier, there are still a few challenges surrounding shale gas. The environmental issues need to be sorted out and companies will have to gamble on sustained demand growth from Asian and Latin American markets.

On the plus side, crude oil prices are projected to remain high for the foreseeable future giving gas-based producers a strong advantage. And with the project pipeline in the Middle East drying out the US is well positioned to bridge the emerging demand supply gap.

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