GRANGEMOUTH, UK (ICIS)--The import of shale-derived ethane from the US could reduce petrochemicals production costs to half the European average, the director of Switzerland-headquartered producer INEOS said on Monday.
Even accounting for the cost of importing the gas stocks from the US - a process involving freezing it and transporting it via specialised liquefied natural gas (LNG) tankers - the cost of production using those feedstocks is likely to be a fraction of using European equivalents, according to INEOS director Tom Crotty, speaking on the sidelines of a press briefing at Grangemouth.
According to Crotty, INEOS has mitigated against potential volatility of US ethane prices by pursuing fixed-price long-term contracts.
INEOS Petrochemicals UK chief Calum MacLean said that the company has locked down a 15-year contract with Range Resources for supply of 400,000 tonnes/year of US ethane, intended for use at its site in Rafnes, Norway.
He told ICIS that one other contract was agreed last week, although the name of the supplier was not disclosed, and discussions are ongoing for several other agreements.
According to MacLean, the company is not paying a significant premium on the US gas price in the Range contract.
Crotty added that the current cash cost of European ethylene is around $1,200/tonne (€888/tonne) and the current cash cost of US ethylene is around $500/tonne, and the company is aiming to get closer to the US price.
According to MacLean, Grangemouth’s petrochemicals division has lost over £60m/year ($98m/year) for the last two years, a significant multiple on the division’s losses for 2010 and 2011, which it attributes to dwindling supplies from the North Sea and uncompetitive site costs. The company estimates site losses of close to £160m in 2012 and slightly over £140m in 2013.
INEOS estimates that less than 50% of necessary raw materials are available from the North Sea. Grangemouth’s key KG cracker is currently running at half capacity, with one unit train mothballed since 2008.
The company won an industrial battle to alter operations at the site, securing the promise of £125m in loan guarantees from the UK government and a £9m grant from the Scottish government, as well as reducing the presence of union Unite at the site and updating pension arrangements at the site.
Due diligence reports related to the government loan and loan guarantee finished this week confirm the numbers in the company’s survival plan, INEOS said, adding that discussions are ongoing with the UK and Scottish governments.
Grangemouth will remain loss-making until the arrival of US ethane, MacLean added.
($1 = €0.74, $1 = £0.61)