US ethane demand may prevent a repeat of Grangemouth deal

By Al Greenwood

HOUSTON (ICIS)–The wave of new ethylene plants being built in the US could tighten ethane supplies in the country, preventing future deals similar to the one that INEOS struck for its complex at Grangemouth, Scotland, according to petrochemical consultants.

INEOS plans to import ethane from the US to feed its Grangemouth cracker as part of a survival plan to keep the complex running.

Under the plan, the union agreed to concessions, while the UK and Scottish governments agreed to help fund upgrades that would allow the complex to import and store ethane from the US.

INEOS has already reached a 15-year agreement to ship ethane from the US east coast to its European crackers. Italy-based Versalis and Austria’s Borealis are also considering ethane imports.

However, the US might not have the ethane to spare.

On the east coast, much of it is already committed, said Dan Lippe, president of Petral Consulting.

NOVA Chemical has supply contracts to take up to 50,000 bbl/day of ethane from the Marcellus and Utica shale, Lippe said.

In addition, Enterprise Products is developing the Appalachia to Texas (ATEX) pipeline, which will take up to 190,000 bbl/day of ethane from the eastern US to the Gulf Coast by the first quarter of 2014.

Meanwhile, Williams and Boardwalk are building a natural-gas-liquids (NGL) pipeline from the Marcellus. It will have a capacity of 200,000 bbl/day. 

The carrying capacity of these pipelines greatly exceeds the current ethane production in the eastern US, Lippe said.

More demand could come from Shell, which is considering plans for a petrochemical complex in Pennsylvania. If built, the complex would use ethane from the Marcellus.

“I am sceptical that gas production in Marcellus/Utica will ever support enough ethane recovery to support a major increase in ethane exports to Europe,” Lippe said.

For the US as a whole, producers plan to build at least 12bn lbs (5.4m tonnes) of new capacity by 2018, Lippe said. These plants will increase ethane demand by at least 350,000 bbl/day, he said.

“North America may not have any ethane for new export projects by 2018, beyond what producers have already committed to supply,” Lippe said.

“Maybe the only way to get an ethane export deal done is to do some linkage and get European petrochemical companies to commit to taking LNG imports from North America to get ethane,” he added.

If European producers want to obtain US ethane, they will have a small window to do so − between now and the start-up of the new US crackers, said Peter Fasullo, principal at En*Vantage.

If the US were to export more ethane, then additional supplies could come from a terminal being developed by Enterprise, Fasullo said.

Enterprise plans to build a second liquefied petroleum gas (LPG) export terminal on the Gulf Coast, and it could have the flexibility to export ethane, the company said.

However, once the new US crackers start consuming ethane, then the prospects for ethane exports become cloudier, since they would depend on both consumption from the nation’s ethylene plants and on production from its new shale reserves.

Regardless of the size of the future ethane balance in the US, companies will unlikely export ethane overseas unless they have dedicated customers, Fasullo said.

Companies exporting ethane need to make sure customers can receive the shipments from overseas and can crack it to produce ethylene.

Unlike other petrochemicals, ethane is used for little beyond making ethylene. It is much easier just to crack the ethane on site and export the derivatives.

“It is not shipped around the world like propane is or like naphtha is or like diesel or gasoline,” Fasullo said. “It has never been that way.”

As such, if US companies develop ethane export facilities, it will be after securing long-term contracts from foreign customers. Whether foreign customers pursue such ethane deals will depend on conditions at home.

Ethylene producers will have to justify the costs of converting their crackers for ethane feeds as well as building the infrastructure to receive ethane shipments. That rules out crackers that are too far inland and plants that are too small to justify costly infrastructure changes.

Despite these expenses, some producers may still consider importing ethane for their crackers − if they can secure help from government.

“This is just not an economic decision by some of these European petrochemical companies,” Fasullo said. “It’s a social issue, too.”

Governments do not want plants shutting down and laying off workers.

The cracker shutdowns could also have large ripple effects, since they would deny feedstock for ethylene derivatives, which then could squeeze manufacturers that use those derivatives for raw materials.

Governments, therefore, could provide the producers with financial help to pay for the improvements, something that is already happening with Grangemouth.

Lippe warned that such assistance is not a cure-all for Europe’s chemical industry.

“These funds are better allocated for other projects that help business grow and create more durable jobs,” he said.

Countries do have a third option. Instead of developing shale gas or importing ethane, they could import propane and use that as a feedstock.

Propane is already widely traded, and some crackers in Europe already use it as a feedstock.

In 2012, Dow Chemical brought up the possibility of shipping US propane to its flexi-crackers in Terneuzen in the Netherlands.

During the second quarter of this year, more than a third of LyondellBasell’s ethylene production in Europe came from cracking propane and butane.

Propane, though, comes with its own challenges. It is not as cheap as ethane. In addition, propane cracking results in by-products, Fasullo said. As a result, companies need to evaluate the market for those by-products as well as that for ethylene.

Additional reporting by Tom Brown and Joseph Chang

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