INSIGHT: More Europe operators want to take the US ethane advantage

15 August 2014 17:24 Source:ICIS News

By Nigel Davis

Borealis Stenungsund facility (source: Borealis)LONDON (ICIS)--Borealis CEO Mark Garrett is right to keep calling for some coherence to Europe’s energy policy. Some EU nations could be sitting on a knife-edge this winter if relationships with Russia deteriorate further and gas supplies are affected. Conflicting decisions on gas pipelines make little sense.

EU nation states’ attitudes to shale gas exploration also need to be clarified. There is a great deal of vocal public opposition to fracking in parts of Europe. The voice of energy intensive industries is not always well heard.

Europe’s cracker operators do not only have to contend with a difficult energy cost environment but they are faced now with critical questions about feedstock costs and the money they can expect to make from their cracker products slate.

Cracking more propane and condensate has made some sense this year. Strategically, the carrot of an over-abundance of ethane in the US is tempting.

Borealis has struck a 10-year agreement with Antero Resources to supply 240,000 tonnes/year of ethane from the US for its 625,000 tonne/year cracker in Stenungsund, Sweden. The company will need to build ethane storage capacity in Sweden and will spend some money on the cold section and the logistics of the cracker but the Stenungsund plant is flexible with capacity to crack naphtha, liquefied petroleum gas (LPG) and propane.

The new ethane supply – Borealis had earlier signed a long-term agreement with Norwegian oil and gas producer Statoil for ethane supply from the North Sea – will be from the Marcellus and Utica shale formations in the US.

Borealis has signed fractionation, pipeline and terminal service contracts to enable free on board (FOB) delivery to Marcus Hook in Pennsylvania at the terminal operated by Sunoco Logistics. The first delivery of ethane to Stenungsund is expected in 2016. It will be made via a shipping agreement with Navigator Holdings which is to build a 35,000 cubic metre gas carrier for the purpose.

"We need to take advantage of the significant shift in ethane availability triggered by the US shale gas boom," Garrett said on Thursday. "In an increasingly challenging environment in Europe this is an exciting opportunity to increase the competitiveness of our integrated polyolefins business."

Borealis is balancing its cracker feedstock slate and costs with the ethane investment. In Garret’s words, it helps balance “cost competitiveness and supply security”.

Stenungsund is an ideal place to make such an investment. It has considerable LPG storage capacity and can accept even very large gas carrying sea-going vessels.

Borealis is effectively re-optimising its cracker and downstream operations at Stenungsund. The opportunity to be more flexible with its cracker and with feedstock supplies, has to be balanced with the need downstream for cracker co-products and well as any excess ethylene. Borealis needs propylene and C4s in Stenungsund.

But the excess of ethane in the US, and the prospect of an attractive price, are driving the development of deep-sea ethane trade.

Saudi Arabia's SABIC said on Thursday that it would bring ethane from the US to its cracker at Wilton in the northeast of the UK. That 865,000 tonne/year cracker is fairly flexible with naphtha cracking capacity balanced by some LPG and propane capability.

The prospect of cracking a lighter feedstock has not been lost on the UK government which has given Sabic a £9m regional development grant to improve the viability of the Wilton site on Teesside.

SABIC has been coy and revealed little detail of its planned investment in the UK, or its ethane supply plans. But a spokesperson did say that as less feedstock would be required to produce ethylene so carbon dioxide (CO2) emissions from the Wilton site are expected to reduce as is total energy consumption.

The investment “is a very important step in securing the future for SABIC’s operations on Teesside and it will highly increase its competitiveness in the UK,” she added.

The investment at Wilton, and the INEOS investment in bringing ethane to its gas cracker at Grangemouth in Scotland, is just the boost that the UK chemical industry needs. Upstream investment in the industry is to be welcomed.

The UK government appears to recognise the significance of shale gas and has worked to encourage the development of fracking. It has also been supportive of chemical industry investments related to shale. INEOS has secured a loan guarantee from the UK government for its ethane investment at Grangemouth as well as small grant from the Scottish government.

Whether or not other producers in Europe will seize the opportunity to further optimise their cracker feedstock supplies and costs and say so publicly remain to be seen.

Versalis has expressed some interest in importing ethane to Europe but it’s product portfolio is being focused more towards C4s. Repsol is understood to have conducted ethane cracking trials in Spain.

As Garrett put it: “People with [a] 100% naphtha cracker might be scratching their heads”.

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By Nigel Davis