Shale drives $2bn INEOS petrochemical investment in Europe

The $2bn investments announced by INEOS match the company’s strategy to develop gas-based units which, in the long run, could be boosted by its own domestic shale gas production.

The company announced on 12 June plans to develop a propane dehydrogenation (PDH) unit in Europe and ramp up capacity at two crackers in the region equivalent to the construction of a “worldscale” cracker.

INEOS director Tom Crotty confirmed to ICIS on 12 June that the company expects to invest $1bn in the 750,000 tonne/year PDH plant, most likely in Antwerp, Belgium. Expansions at the company’s crackers in Grangemouth, UK, and Rafnes, Norway, are expected to cost the company $500m apiece, he added.

The duration of each of the projects is expected to be three years, the company said. However it declined to disclose when each is expected to begin.

Crotty explained that INEOS suffers a chronic shortage of propylene and ethylene in Europe, a shortage which had become “too big” and prompted it to build the PDH unit to produce propylene and expand its two crackers to obtain ethylene.

INEOS runs a shortage of 1m tonnes/year in propylene, so the planned PDH plant would not completely make up the shortfall.

ANTWERP LIKELY FOR PDH

“The shortage is certainly larger than the amount [of propylene] we’ll produce [in the new PDH unit]. We will still need to purchase some propylene,” said Crotty, who added that the company’s decision on location was tilting towards Antwerp.

“It is the most preferred location for us. We have got land, it has good export and import facilities, and a lot of our propylene demand is in that area – so all indicators point there. We are not closing our mind to other locations, like Cologne (Germany), but Antwerp seems to be the place,” he added.

The plant would create between 60 and 70 job positions, he said. Antwerp sits in the Antwerp-Rotterdam-Amsterdam (ARA) chemical hub, one of the largest production and distribution centres in Europe.

CRACKER EXPANSIONS

The cracker expansions at Grangemouth and Rafnes are expected to bring capacity for both units to over 1m tonnes/year. This would bring capacity at the Grangemouth site to around the levels it had stood at before INEOS moved to close the smaller G4 cracker at the complex, citing poor economics and difficulties in sourcing feedstocks.

INEOS
INEOS is targeting Antwerp, Belgium for its next new plant

Further investments in Rafnes would also secure the economics of shale gas continue paying off for INEOS, he said, after the company said it has already invested $2bn in vessels able to transport ethane from the US into Europe.

“The economics on the import side are pretty simple,” said Crotty.

“For us, it is not an issue of gas versus crude oil, because if you have a gas-based cracker the important comparison is gas to gas. And the price of ethane [gas derivative] in Europe, if you can get any, is higher than the one you can bring in [with vessels].”

“At Grangemouth, for instance, we were running [the cracker] at 40% of its output because we couldn’t get hold of the ethane,” he added.

After the investment in upstream assets the company has undertaken in the last months – with the acquisition of a pipeline system in the North Sea from UK energy major BP and the acquisition of the oil and gas business from Denmark’s DONG Energy – Crotty said the company continues looking at upstream assets.

UK SHALE GAS AND POLITICS

The company also hopes to develop shale gas production in the UK in the coming year. Crotty said he hopes a diminished majority for the Conservative Party – supporter of shale gas production – after the 8 June general election would not endanger plans to develop the technology in the country.

The opposition Labour Party opposes hydraulic fracturing (fracking), which is used to extract shale gas.

“Clearly, there is opposition [to shale gas] – no question of that. Our view is that the best way to prove this technology is start using it so people can see it’s not the nightmare the opposition [parties] have spoken about,” said Crotty, adding INEOS is hoping to commercialise gas from fracking in the UK within three years.

“We are a long way away from [Labour leader] Jeremy Corbyn running the country.

The party stance, pre-Corbyn, was pro-shale and some Labour MPs [members of parliament] are very vocal on being pro-shale. I wouldn’t write off shale on that basis – there is too much benefit for the country.”

Another outcome from the election was a fall in the value of the UK’s pound sterling, as a minority government made investors wary of political instability as the country enters talks with the EU to negotiate its exit, planned for 2019.

However, a fall in the pound’s value would not affect INEOS greatly, the executive said.

“We don’t care that much, to be honest. We are fairly pound-insulated. The dollar/euro exchange rate is much more important for us, because we buy a lot of material in dollars and we sells it in euros, and we also account in euros.”

PHOTO: INEOS Grangemouth, Scotland site. Credit: INEOS