Cheap energy and feedstocks have quickly reset the competitive balance for US ..... company calls the Appalachian Shale
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November 18/25, 2013
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Shale brings petrochemical investment back to US
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Shale sparks US petchem renaissance The US unconventional oil and gas supply surge is moving downstream as investments ramp up, providing a boon for US chemical makers. The margin benefit is already being felt. The supply impact is modest today but will accelerate as projects come onstream the next few years.
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heap energy and feedstocks have quickly reset the competitive balance for US petrochemical makers. With natural gas available at a fraction of the cost of its oil equivalent, the United States is again one of the world’s lowest-cost petrochemical producers. “Manufacturers can make ethylene in the United States for less than half of what it costs in Europe, Asia, and Latin America,” says Stephen Pryor, president of ExxonMobil Chemical. The advantage has reversed the fortunes of US chemical makers, he says. Although petrochemicals, particularly ethane-based ethylene and its derivatives, are some of the strongest beneficiaries, the impact will be felt across the US economy. The impact of unconventional energy, in the form of new supplies of shale oil and gas, is expected to add 2.0–3.2%/year to US GDP through 2025, ac-
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cording to a study from IHS. The rate of GDP increase builds rapidly and peaks at 3.2% in 2016. In the context of a $13–15-trillion US economy, this 2016 peak equates to an increase in GDP of $500–600 billion, IHS estimates. While the GDP growth rates and capital investment peak early, gains in chemical production and broader industrial production will continue unabated through the forecast period. By 2015, lower natural gas prices and higher activity will lift industrial production by 2.8%. By 2025, industrial production will be 3.9% higher, according to IHS. Chemicals will outperform thanks to their energy intensity and use of natural gas feedstocks. IHS estimates that unconventional energy lifted organic chemical production by 1.5% in 2012. That figure ramps up to 4.9% in 2015, 7.1% in 2020, and 9.5% in 2025. The figures for resins are 1.7% in 2012,
4.4% in 2015, 7.1% in 2020, and 8.1% in 2025. A massive wave of new petrochemical capacity—with investment exceeding more than $100 billion—will support this growth. “Chemicals investment activity is expected to peak in 2017 and will represent one of the largest expansions to ever occur in North America,” says Russell Heinen, senior director/chemical technology and analytics at IHS Chemical. Direct petrochemical investment between 2013 and 2030 for a group of 20 products impacted by shale will total $123 billion, Heinen says. The figure in constant 2012 dollars is roughly $90 billion. US spending peaks near $10 billion in 2017. Ethylene investment alone accounts for 34% of the spending over the period. While the US has not added a cracker since 2000, industry has continued to build elsewhere. Between 2008 and 2013, global ethylIHS Chemical Week, November 18/25, 2013 |
cover story ene capacity increased by about 25 million m.t./ 2010. “It was over three years ago that we start- right in our back yard.” year, mostly in the Mideast and Asia, bringing ed to get a sense that this was real,” says James CPChem and the US chemical industry had the total to 154 million m.t./year. For 2013– Fitterling, executive v.p./feedstocks and perfor- been hit hard by the 2008–09 recession, and 18, IHS Chemical projects another 37 million mance plastics for Dow Chemical. “At that time, the company had idled some capacity, includm.t./year of ethylene production capacity will there was enough information to know that gas ing a smaller ethylene unit at Sweeny, TX. be installed. “There’s continued growth in the would be available [from Marcellus and on the Hurricanes in 2008 and 2009 were also seMiddle East, although not at the same rate as in US Gulf Coast], and people were starting to talk verely harmful and set the United States back. the past,” Nick Vafiadis, senior director/global about activating pipelines.” Since those initial By summer 2010, however, it was clear that polyolefins and plastics at IHS Chemical says. considerations, and Dow’s announcement of a fortunes were shifting in the United States “If you look at Asia, we’re seeing more and more planned cracker in April 2011, other shale pro- even though industry was still coping with the impacts of the recession. of that capacity being skewed toward US ethane-based capacity was the coal-to-olefins technology. But the competitive again, and the combig change here is the return of North pany decided to restart an ethAmerica to the scene.” ylene plant at Sweeny that had Total US capacity added because of been idled. “It had a pretty sizshale is close to 100 million m.t. for the able advantage even though it 20 products tracked, Heinen says. The was our highest-cost and smalllikely peak, now estimated in 2018, is est cracker,” Corn says. “We 18 million m.t. of additional capacity, far started thinking, ‘Maybe this is exceeding the previous peak in North the next place to build.’” Corn America, Heinen says. notes that ethane was 70–80 Upstream and midstream investPRYOR: US production FITTERLING: Confident Corn: Started reevaluating cts/gal, well above the mid-20ments are also surging, so feedstock costs very competitive. in US advantage. US prospects in 2010. ct range today. “The scale of the supply should not be a constraint, with US natural gas liquids (NGLs) supply set to duction areas such as Bakken in North Dakota advantage wasn’t yet obvious from a pricing double by 2020. Since 2008, US NGLs produc- and rest of the “liquids fairway” down the US standpoint,” Corn says. “You could see what tion from natural gas processing has increased Rocky Mountains through Eagle Ford in south was coming, however, because of what US midstream activity was starting to look like. by over 500,000 bbl/day, reaching about 1.8 Texas proven more productive than expected. million bbl/day, according to IHS. “Because “The US sits today with a propane export Sooner or later, it would affect NGLs’” supply of the ongoing development of shale gas and terminal in operation, gas prices have dropped and pricing in a more substantial way. CPChem tight oil resources, US NGL production is ex- below $4/million Btu, and ethane is in com- also notes activity in its own midstream busipected to continue expanding rapidly over plete rejection,” Fitterling says. “You add all ness, including a pipeline that gathers and colthe next decade,” IHS says. “By 2020, total of those dynamics together and it is clear that lects NGLs in western Texas and New Mexico. unconventional NGL production from natural this real,” Fitterling says. “We are very con- “In 2005 and 2006, we had trouble keeping it gas processing is expected to reach about 3.8 fident in these investments and it is all sys- full,” Corn says. “By 2009, it was full.” The decision to build a cracker now looks million bbl/day, which represents an increase tems go.” The company expects to secure final of 100% over current levels.” permitting in first-half 2014 for a planned so simple, but it was pretty radical at the Shale has created an abundance of indus- 1.5-million m.t./year Freeport, TX cracker time given the turmoil industry had just been try’s principal feedstocks in the United States and meet an expected first-half 2017 start through, Corn says. “One of the questions I and has quickly reset competitiveness, Pryor up. “Everything looks like it is falling right in asked my boss [in 2010] was, ‘Do you think we’ll get fired if we suggest this?’” The prosays. “Just five years ago, the United States line,” he adds. was losing ground in the export market. The Ron Corn, currently v.p./corporate plan- posed cracker project received strong immedicountry was on the verge of becoming a net ning and development for Chevron Phillips ate support all the way to the CPChem board. Corn says it is difficult to assess just how importer of chemicals. But today, chemicals Chemical (CPChem), says company officials are once again America’s single biggest ex- started “noodling around with the idea” of a long the United States will be advantaged, but it the advantage is likely to be durable. port—larger than agriculture, automobiles, US cracker in July 2010. and aerospace.” Since 2000, CPChem’s spending had been “Many have been humbled trying to predict ExxonMobil Chemical has announced plans focused on the Mideast, where the company the future in energy,” Corn says. “If you look to build a 1.5-million m.t./year cracker at its built three major projects. The final proj- at current trends and hydrocarbon potential, Baytown, TX, site and two 650,000-m.t./year ect came online in early 2013. As planning however, you have to be encouraged.” The United States likely has a long runway polyethylene (PE) plants. “We’re confident started to wind down on Mideast projects in in positive permit decisions and expect con- 2008–09, Corn says CPChem looked around on shale development, he adds. “Developstruction to begin 2014, with target comple- the world for the next big project. “We ment of competing resources is not advancing tion late 2016,” Pryor says. looked at the Middle East, South America, as rapidly,” Corn says. “There is a variety of There are now nine announced crackers in the and Asia, but we didn’t come up with any- reasons for that, including issues around land United States, with several more under consid- thing that fully met our standards,” Corn rights, water availability, and trickier geology. eration (p. 23). The trend is now undeniable, but says. “We kept looking, however, and, lo and But, even in some high-profile areas, such as the idea just started to form in the second-half of behold, one of the best opportunities was Poland and China, shale exploration efforts
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IHS Chemical Week, November 18/25, 2013
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cover story are not proceeding as quickly.” Corn says that CPChem sees some possible potential in aromatics—but that assessment more complex. There is likely to be a supply of C6s through C10s needed to support an aromatics project from regions such as Eagle Ford, but a decision on aromatics is much more complex than ethane and ethylene. “Do you take the higher cuts to a splitter for export, use in [fuels], or do you think about taking it though benzene, styrene, and para-xylene projects in the US? The big markets are in Asia, so almost output would have to be exported unlike ethylene in the US. It’s a bigger mystery, but we are intrigued and watching very closely.”
Mitigating resource constraints Companies say they are focusing on careful planning and execution to mitigate any possible impact. Fitterling says that the company is carefully phasing projects to manage potential constraints in labor. Dow’s plans include the Freeport cracker; two propane dehydrogenation (PDH) units; and PE, elastomer, and derivative investments spread across sites in Louisiana and Texas. The company has started constructing its Freeport PDH unit. “As we start up PDH, we can then roll resources over to the cracker,” says Fitterling. “We have also split the PE investment between sites in Louisiana and Texas. We are taking a strategic and long-term approach,” Fitterling says. CPChem is also investing heavily in recruiting and workforce development to attract and retain the needed talent. Producers and analysts expect the timing of some projects to slip as activity peaks and constraints materialize. “It is fairly clear that six to seven US projects cannot be completed in a 12–18 month time frame,” Corn says. The experience of the Mideast in the 2000s, where costs escalating and timing slipped, underscores the importance of being first. “It is definitely better to be first,” Corn says. “We covet our first-mover position.” The situation also reflects a broader demographics challenge that CPChem and other chemical makers are facing. US chemical industry employment peaked in the early 1980s and has generally been in decline since, according to US Department of Labor statistics. Shale is reversing that trend, and industry employment will increase over the next few years, according to ACC forecasts. CPChem currently has 5,000 employees and expects to need to hire 2,800 people over the next 10 years to support growth as well as replace rechemweek.com
tirees, Corn says. “We have to make sure we have a skilled workforce,” Corn says. Richard Meserole, v.p./construction for Fluor’s energy and chemicals business group, says US petrochemical projects will require companies to maximize local labor resources
US chemical capex to surge (spending in billions of constant 2012 dollars)* $12
US: $81 billion Mexico: $4 billion Canada: $4 billion
10 8 6 United States
4 2 Mexico Canada
0
‘03 ‘05 ‘07 ‘09 ‘11 ‘13 ‘15 ‘17 ‘19 ‘21 ‘23 ‘25 ‘27 ‘29 *Spending includes 20 products tracked with direct impact from unconventional gas. Source: IHS Chemical.
Petrochemical capacity swells (in millions of m.t.)* 300
US Mexico Canada
250
52% increase forecast in US
200 150 100 50 0 ‘2000
‘05
‘10
‘15
‘20
‘25
‘30
*Spending includes 20 products tracked with direct impact from unconventional gas. Source: IHS Chemical.
as well as draw in from other regions of the United States. Extensive recruiting and training will also be needed. He draws parallels with 2006–10, when Fluor was responsible for several megaprojects as part of a US refinery construction boom. The company was able to attract 25,000 craft workers to five megaprojects it was involved in, he says. “We’re confident we can do it again.” Fluor, which is involved in several of the US cracker projects, is encouraging off-site prefabrication and modularization where possible. Off-site fabrication can achieve significant time and cost savings, support fast-track project schedules, and reduce risks related to weather conditions and labor shortages. “It can remove labor from [tight] local markets and also helps provide some cost certainty,” Meserole adds.
Growing exports Dow’s Fitterling says that Dow expects
most of its output will remain in the Americas, including exports to Latin America. The need to export to Asia should be fairly small. “Even though the US advantage will allow us to export anywhere in the world, supply chain efficiencies are best if we export to Asia and Europe from the Middle East,” he says. Americas demand should soak up most US output from Dow’s projects. The last increment that leaves the Americas will be relatively small, Fitterling adds. “It is likely below 10%, and maybe even 5%. It’s not going to be a big issue.” There is some concern about trade barriers. “As US petrochemical exports are ramped up, these lower-cost American exports will put pressure on local producers in Latin America, Asia, and Europe—regions that rely on more expensive, oil-based feedstocks,” Pryor says. Countries are becoming more insular, and there is some pull back on globalization, Fitterling says. “As in the US, political issues drive and sometimes overwhelm trade issues, which is not a surprising development in a slow-growth environment,” Fitterling says. The case for trade liberalization is a difficult sell in a tough economic environment with high unemployment, producers acknowledge. “There is a period of time here that we that we will have to get through,” Fitterling says. “A little bit more GDP growth would take some of the wind out of the sails and help even this out.” ACC says it expects additional supply to boost US chemical consumption. ACC’s current forecast calls growth of 3.5%/year growth through 2017, says Martha Moore, economist with ACC. The council has tracked more than 170 downstream plastics processing projects across the United States, an indication of confidence in US markets. Specialty makers are also encouraged. “The impact is not just limited to what is happening in petrochemicals,” says PPG Industries chairman and CEO Charles Bunch. “We’re a low-cost manufacturing region. Energy costs and chemical manufacturing are such important components of our industrial base that I see this shale revolution as a boon to our economy. “There are obvious impacts; oil and gas are certainly strong markets for our coatings right now,” Bunch adds. “But I’m more excited about the rebirth of manufacturing that I see gradually coming. That benefits all markets that PPG plays in and is going to be paying dividends for our region for years to —Robert Westervelt come.” IHS Chemical Week, November 18/25, 2013 |
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New North American crackers come online beginning in 2015
ethylene capacity—aim to start up in 2017. Dow Chemical was another early mover, in April 2011 presenting plans for a 1.5-million m.t./year ethane cracker as part of its $4-billion US Gulf Coast investment plan. Both the or the first decade of this century, it was from TCEQ in August. The project includes cracker and a propane dehydrogenation (PDH) easy to say how many ethylene projects a 1.5-million m.t./year ethane cracker at its unit are to be built at Freeport, TX. Dow says it were under development in North Amer- Cedar Bayou facility, at Baytown, TX, and two is in the final stages of permitting and expects ica because there were none. Now, however, it 500,000-m.t./year PE units at Old Ocean, TX. to begin construction in the second quarter of is easy to lose track. The number could change CPChem committed financing in October. In 2014. Fluor is managing construction. at any moment, as the recent announcement July, the company hired a joint venture beIn February 2012, Formosa Plastics comby Odebrecht shows. tween JGC and Fluor to handle the engineer- mitted to a $2-billion project for Point On 14 November, the Brazilian engineer- ing, procurement, and construction (EPC) of Comfort, TX, that includes a roughly 1.2ing and construction firm said that it may million m.t./year ethane cracker, a PDH build an ethane cracker and three polyethylplant and a low-density PE plant. PermitNorth America’s advantage ene (PE) plants in West Virginia, a project the ting is still in process with both TCEQ and (Ethylene cash cost, in $/m.t.) US Gulf Coast - purity ethane Southeast Asia - naphtha company calls the Appalachian Shale Cracker EPA, says a spokesperson. The company Western Europe - naphtha Enterprise, or Ascent. Odebrecht would op- $1,600 hopes to begin construction in late 2014, erate the utilities, while its affiliate Braskem 1,400 and to begin operations in early 2017. would manage production and sales. At CW 1,200 OxyChem and Mexichem (Tlalnepantla, press time, Hanhwa Chemical confirmed that 1,000 Mexico) began studying a 550,000-m.t./ it plans to participate in a US cracker. Hanwha year cracker project in early 2012. On 31 800 Chemical brings to ten the number of anOctober, they announced a 50-50 jv, Ingle600 nounced cracker projects in North America. side Ethylene, to build the plant at Oxy400 Several others are under consideration. Chem’s Ingleside, TX, facility. OxyChem has 200 Behind this surge in capacity is, of course, completed front-end engineering and design 0 the shale gas revolution. With ethane prices (FEED), received draft permits from TCEQ, Jan. Jan.Jan.Jan.Jan.Jan. Jan.Jan. Jan.Jan.Jan.Jan. Jan.Jan.Jan.Jan.Jan. 2000 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 in North America at historic lows, margins and applied for permits from EPA. The comSource: IHS Chemical. for ethane crackers have risen to record pany expects to award EPC by year’s end, highs, notes Nick Vafiadis, senior director/ with construction to begin in mid-2014 and global polyolefins and plastics at IHS Chemi- the ethane cracker, and, in September, CP- operations in the first quarter of 2017. Oxycal. “Right now, if you’re using ethane, it costs Chem hired Gulf Coast Partners, a partner- Chem will run the cracker, and Mexichem about 12–13 cents/lb to make a pound of eth- ship between Technip and Zachry Industrial, will use the product to make vinyl chloride ylene—very, very low,” Vafiadis says. Only the to manage EPC for the PE facilities. monomer at existing facilities. ExxonMobil aims to build a 1.5-million Mideast has lower costs. Sasol is in the FEED stage of a $5–7-bilWith so many new ethane crackers com- m.t./year ethane cracker in Baytown that will lion cracker project that will be built at Lake ing online, the cost of production in North feed two new 650,000-m.t./year PE lines at Charles, LA. The 1.5-million m.t./year ethylAmerica will increase considerably, but the its nearby Mont Belvieu Plastics Plant. The ene plant will be part of a mammoth $16–21 region’s advantage over Asia and Eubillion investment that includes not rope will remain significant and sus- New cracker projects in North America only the downstream production of tainable, says Vafiadis (graph). ethylene oxide, alcohols, ethoxylates, in thousands of m.t./year Company Location Capacity Onstream octene, hexene, and PE, but also a Braskem Idesa Coatzacoalcos 1,050 2015 The project slate world-scale gas-to-li quids facility. Baytown, TX 1,500 2017 Ironically, cheap feedstock will be CPChem All of these crackers are destined Freeport, TX 1,500 2017 a windfall for North America’s first Dow Chemical for the US Gulf Coast, but the produc1,500 2016 new ethylene plant, Braskem Idesa’s ExxonMobil Chemical Baytown, TX tivity of the Marcellus Shale region Point Comfort, TX 1,200 H1 2017 Etileno XXI. The $3.2-billion proj- Formosa Plastics in the Northeast has created unusual 1,500 NA ect, which includes a 1.05-million Odebrecht/Braskem Parkersburg, WV opportunities for investment. The OxyChem/Mexichem Ingleside, TX 550 Q1 2017 m.t./year ethane cracker and three Odebrecht project, set squarely atop Sasol Lake Charles, LA 1,500 2017 PE plants, was approved in 2008, bethe Marcellus Shale, is one example, but Monaca, PA 1,500 NA Shell Chemicals fore the shale gale struck. Construcit follows in the footsteps of Shell’s projNA: not announced Source: Companies, Chemical Week tion began at Coatzacoalcos in 2012. ect, a 1.5-million m.t./year cracker and Braskem says the project is about 50% com- company filed for permits from EPA and TCEQ three 500,000-m.t./year PE units announced in in May 2012 and hopes for a positive decision 2011. Shell has chosen a site at Monaca, PA, and plete, with production to begin in 2015. Other projects have not yet broken ground. by early 2014. Assuming all goes well, the begun taking bids for ethane supply. The comChevron Phillips Chemical (CPChem) is company will begin construction in 2014 and pany has hired a Linde-Bechtel alliance for FEED, well along, having received its greenhouse gas start the plant up in 2016. which is expected to begin in early 2014. —CLAY BOSWELL Six projects—6.25 million m.t./year of permit from EPA in January and air permits
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