CERAWeek: Unconventional Gas Lifts US Petrochemicals

by Bob Tippee, OGJ Editor, OGJ, Mar 9, 2011
Rapid growth in gas supply from shales and other unconventional reservoirs inverts expectations for North American petrochemicals and underscores the importance of feedstock flexibility in an integrated business strategy, says the leader a major US petrochemical manufacturer.

The brightened business outlook shows the importance of integrating petrochemicals not only with refining but also with upstream operations, according to Stephen Pryor, president of ExxonMobil Chemical Co. and vice-president of ExxonMobil Corp.

A 20% surge in gas supply from unconventional resources during the past 5 years [please see remarks below -- D.R.] has boosted ethane production by 25% and lowered the cost of an important feedstock, Pryor told an IHS-CERA Week conference session [please see remarks below -- D.R.].

“We see ethane reemerging as an advantage feedstock in North America, reflecting the growing production of unconventional natural gas and the increasing importance of gas in the world energy mix,” he said.

In the US last year, the growing supply of relatively low-cost ethane strengthened margins for ethylene and derivatives, lightened the feed slate, and increased US exports.

“The current strength of the US petrochemical market contrasts with conventional wisdom of just a few years ago when it was believed that US petrochemical production would decline, feed slates would get heavier, and the US by 2010 would flip into a net import position,” Pryor said. “Actually, exports grew by about 28% last year.”

Capacity gains?

The ExxonMobil Chemical chief doubts that the improved outlook for North American petrochemicals will lead to an early surge in grassroots construction of ethane crackers.

At least in the near term, he said, capacity growth will be incremental, resulting from debottlenecking of existing light-feed capacity and limited conversion of heavy-feed crackers.

Capacity investment will depend on the pace and pattern of North American ethane supply growth, which in turn will depend on the location and rate of unconventional gas development, liquids content across geologic plays, and construction of equipment able to strip, transport, and store NGLs.

“Just as in refining, incremental investment in feed flexibility and capacity creep are the most efficient ways to meeting growing demand in a mature market like North America, major investments at full grassroots costs would be subject to significant risks relative to long-term oil and gas prices, export economics, and gas developments around the world that could provide feedstocks for competitors overseas,” Pryor said.

Integration strategy

Feedstock flexibility is central to what Pryor described as the “site-wide optimization” ExxonMobil Chemical applies in its integration strategy.

It involves “having the flexibility to process a wide variety of feedstocks and selecting the feed slate that generates the highest value for the integrated complex,” he said. “It entails adjusting the process conditions and product slates in real time so that you extract maximum value from every molecule processed.”

Integration is “more than simply collocating refineries with petrochemical plants,” Pryor said.

It involves optimization not only of feedstocks but also of products, costs, capital, and people. Pryor said 90% of his company’s petrochemical capacity is integrated with refining or gas processing capacity.

The process is continuous and oriented to long-term outcomes. Managing through the “turbulence” of modern markets requires a “disciplined, long-term approach that does not change with short-term changes in commodity prices and profits,” he said. [Full story]

(According to the U.S. Energy Information Administration/EIA, in the past 10 years, U.S. shale gas production has increased more than 12-fold from 0.39 trillion cubic feet/tcf in 2000 to 4.87 tcf in 2010---please see my post > remarks > EIA data, here. In 2005, U.S. shale gas production stood at just over 0.5 tcf. After methane, ethane is the second-largest component of natural gas. The new natural gas/i.e., shale gas can provide ethane feedstock that can be converted into ethylene, a key plastic feedstock used to make commodity resins polyethylene and PVC and several specialty materials as well. For years, North American makers of plastics and petrochemicals had been looking for a way to remain competitive on the global market. Use of low-priced natural gas as a feedstock has allowed the North American market to use less ethylene based on higher-priced naphtha feedstock, which comes from price-volatile crude oil. Naturally, as the price of crude oil rises, so does the price of plastic. The Barnett shale basin in Texas, with 12,000 natural gas wells as of 2009, “is huge,” Alan Armstrong, CEO of Williams Cos. Inc., said. But the Marcellus shale basin---covering a large portion of Pennsylvania and parts of Ohio, New York and West Virginia, etc.---is expected to be many times larger---please see Plastics News, Apr 5, 2011, here. -- D.R.)