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Mar-2013

Shale gas feeds petrochemical expansion

North American ethylene capacity is set to increase significantly with new crackers coming online after 2016, plus higher production of propylene and other derivatives

René Gonzalez

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Article Summary

Capital investment for petrochemical projects now on the books will bring petrochemical project activity in North America to a level not seen since the 1960s. These process investments are primarily related to ethane-based steam crackers and other olefins-producing assets. Other major investments include propane dehydrogenation (PDH) units, gas-to-liquids (GTL) plants, methanol and aromatics production facilities. In parallel, the 500 or so midstream gas processing, gas treating and fractionation facilities in the continental US will need to be upgraded or expanded to meet pipeline specifications (with reference to corrosive CO2, H2S, nitrogen, water and so on) in the transport of shale-based natural gas (as well as conventional gas) to new steam crackers and planned LNG export facilities.  

Since the 1970s, several generations of high natural gas prices in North America have led to an overseas exodus of the petrochemical industry. Actually, it was not only petrochemical processors that left North America — alumina, fertilizer, cement, steel mills and other energy-intensive manufacturing industries also found other countries with lower fixed and variable costs. However, energy costs based on $3.50/MMBtu (or less) for natural gas are bringing these industries back to the US. Natural gas prices in Europe and Asia are expected to remain relatively high (>$12 MMBtu) in the long term.

Since it costs, on average, $8.0 to $10.0 million to bring a new shale well into commercial production, upstream drillers are challenged to turn a profit with natural gas prices at their current low levels. Shale liquids production (crude oil and condensate) is currently the profit driver for the upstream drilling business. But beyond 2016, the onus is on leveraging the plentiful and cheap suppliers of natural gas (“wet” and “dry” gas) in the US for LNG export and as feedstock (primarily ethane) for at least seven world-scale steam crackers announced in the US. In addition, about 15 licences had been submitted to US authorities as of December 2012 for construction of LNG liquefaction facilities and export terminals. However, most experts doubt that all 15 LNG projects will come to fruition due to political factors, environmental opposition and shifting global market dynamics.
   
Variability complicates gas treatment
While there are close to 500 gas processing plants in North America, older low-volume processing plants are being replaced with new plants that are more efficient. In addition, these plants are large-volume operations, increasing overall daily processing capacity, according to James Tobin, Natural Gas Industry Analyst for EIA. It also appears, he says, that more gas treatment plants are being built because many unconventional gas wells yield fewer natural gas liquids. This leads Tobin to conclude that the gas treating market is growing faster than the processing segment.
There is a lot of variability in shale gas quality relative to conventional gas, according to experts. For example, Keith Bullin, Senior Consulting Engineer for Bryan Research & Engineering (BR&E), recently noted that the Antrim Shale has a high nitrogen concentration, whereas New Albany shale wells show high CO2 concentrations. Economically treating and processing these gases requires the ability to handle a great deal of variability in the same field.

Treatment often begins at t he well-head, offers Bob Dunn, President of the Gas Processors Association (GPA). Contaminants such as highly corrosive CO2 and H2S are removed at a treatment facility near the field or at a gas processing plant. “Removing the CO2 near the field is often done for pipeline protection,” he remarks.

Pipeline quality standards limit the amount of CO2, nitrogen, oxygen and water vapour in the gas stream, in addition to a heating value limit of about 1035 Btu per cubic foot. In some cases, when plants are not yet available, waivers are granted for a limited time, according to Dunn. This enables producers to begin marketing gas from new fields as the processing plant is built.

If the gas is not pipeline quality, it typically is processed at a refrigeration or cryogenic plant. In refrigeration units, the gas is cooled and the NGLs precipitate out, explains Bullin, removing more than 90% of the propane and about 40% of the ethane. Other heavier components are almost entirely removed.

In cryogenic units, gas temperature is reduced to -120 to -150°F, he explains. The temperature drop causes the ethane and other heavier hydrocarbons to condense, removing more of the natural gas liquids and 90-95% of the ethane.

As previously noted, there were more than 500 gas processing plants in the US before 2005. Most of these were small, relative to the size of a typical crude oil refinery, and were in remote areas of the US Southwest and the Rocky Mountains. Since that time, additional plants have been added at least in part to address demand in unconventional gas plays. This has resulted in the need to build modular facilities in areas where gas processing and gas treating facilities previously did not exist, such as in North Dakota. Other shale plays, including Niobrara, Woodford, Eagle Ford, Marcellus and Barnett, are ramping up natural gas plant capacity. When a horizontally drilled shale gas well starts flowing, there is often a tremendous increase in volume, making it critical that the infrastructure is in place to process the gas and move it to market.

Prior to the 1990s, most processing operations were owned by the pipeline or gas production companies. When a producer planned to develop new fields, the processors were fully informed and could build capacity to match production. There are now many independent midstream processors, which relieves pipelines and/or producers of the capital requirements for processing, but also raises coordination issues that are a big challenge for emerging shale markets, making coordination between service providers and producers one of the biggest business challenges in the industry.

Ethane-based steam cracking
Competitive economics that could not have been foreseen only three years ago now make ethane-based steam cracking projects in the US competitive against other ethane and naphtha/gas oil steam crackers in Asia and Europe. For example, Westlake Chemical in Houston will perform planned maintenance and an expansion of the Petro 2 ethylene unit at the company’s complex in Lake Charles, Louisiana, in Q1 2013. This expansion will increase ethane-based ethylene capacity by about 104 000-109 000 tonnes/year (tpy). In 2011, Westlake Chemical said the expansion plans were in response to new low-cost ethane and other light NGLs becoming available as a result of shale gas production. Expansion of Petro 1, originally set for year-end 2014, is scheduled for 2015. Before the projects were announced, cracker capacity was 567 000 tpy and 522 000 tpy, respectively.


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