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Shell reveals cracker plans at ACC Colorado Springs meeting
Posted on July 8th, 2016 by Matt Weber in Chemical Manufacturing Excellence
At the recent American Chemistry Council (ACC) meeting, Shell announced that they will build a new polyethylene complex in Pennsylvania. The decision, which is influenced by the cheap price of gas coming from the nearby Marcellus shale, reflects Shell’s confidence in the mid-term price “stability” of gas in North America and their increasing focus on the chemicals sector as a strategic complement to their global ethylene footprint.
The recent TSCA reform was also discussed at the ACC meeting, which has reflected 8+ years of effort by the ACC and other organizations to modernize the regulatory framework for the chemicals industry. Though implementation will take time, the reform should help to provide clarity to chemicals companies in navigating regulatory compliance requirements and give states a proper framework for chemical safety review.
By Joseph Chang, ICIS
A major highlight at the recent American Chemistry Council (ACC) annual meeting in Colorado Springs, Colorado, was Shell’s announcement that it has made a final investment decision (FID) to build a world-scale integrated polyethylene (PE) complex in Pennsylvania.
The US Senate’s passage of the modernisation of the Toxic Substances Control Act (TSCA) was another huge talking point, and industry milestone.
The Shell announcement surprised the many doubters of this project and underlined the continuing US shale gas advantage. Yet projects are not without challenges, evidenced by BASF’s decision to postpone the FID on its methane-to-propylene complex in Texas and Sasol’s cost overruns and delays at its Louisiana cracker project.
Anglo Dutch energy and chemicals producer Shell’s project will be in the second wave of US crackers based on shale gas feedstock as it will start up beyond 2020. It also marks a sharper pivot towards chemicals for the company.
The chemicals sector, including PE, will be a growth priority for Shell, said the head of its chemicals business. “We are pleased with the performance of the chemicals business in the last five years, generating around 15% return on capital,” said Graham van’t Hoff, executive vice president at Shell Chemicals, who spoke at a press conference at the ACC meeting.
“Philosophically, to get rewarded, you need competitive advantage which comes from feedstocks as well as a first class footprint in terms of scale,” he added.
Shell’s new cracker in Pennsylvania will use what it calls the cheapest gas in North America coming from the Marcellus shale.
Construction on the 1.5m tonne/year ethane cracker, along with three PE units totalling 1.6m tonnes/year of capacity in Monaca, Pennsylvania, is slated to start in 18 months, with start-up targeted in the early 2020s.
With Shell expanding its global footprint in ethylene, it could not strategically stay out of the market for its main derivative PE, which is around 65% of global ethylene consumption, noted van’t Hoff.
“We could not see ourselves continuing to grow ethylene without PE,” said van’t Hoff.
Expect more PE projects in the future from Shell in the US as it increases “derivatisation”.
Along with a second cracker of 1m tonnes/year in China being built with joint venture partner CNOOC, Shell will boost its ethylene capacity by 33% to around 8m tonnes/year in the next five years.
Dubbed “Project Franklin”, Shell’s cracker will be the first ever built in the Northeast US. Such a massive complex is likely to spur additional investment in the region in downstream and related businesses, bringing revitalisation to a region hard hit economically by the decline of coal as well as weakness in oil and gas prices.
But even cost advantaged gas-based projects are not without challenges. BASF on 6 June announced it will postpone the FID on its methane-to-propylene project in Texas, citing “the current volatility of raw material prices and the prevailing economic environment”. It would have been the largest investment in a single petrochemical project for BASF.
Also on 6 June, Sasol gave an update on its 1.5m tonne/year cracker and derivatives projects in Lake Charles, Louisiana – not a pretty picture. Capital spending on the project could balloon to $11bn, from its prior estimate of $8.1bn because of construction delays resulting from heavy rainfall, higher labour costs, higher construction costs and greater quantities of bulk materials being needed.
What it calls “beneficial operation” of the cracker is expected to be achieved by the second half of 2018, with 80% of output from the entire project reaching this stage later in 2018 and early 2019. It said remaining volumes from the other derivative units will reach this stage by the second half of 2019.
US regulatory changes
And the US regulatory landscape is about to change forever with the Senate passage of a new reformed Toxic Substances Control Act (TSCA), widely expected to be signed into law by President Barack Obama.
This marked the culmination of eight years of efforts to modernise the major regulations on chemicals safety in the US, a cornerstone of the ACC’s agenda.
ACC CEO Cal Dooley equated the process of getting TSCA legislation passed with “Charlie Brown trying to kick the football with Lucy snatching it away”, referring to the many times an imminent deal was scuttled.
“Today we’re finally kicking it through the uprights after an 8-year journey. It’s a remarkable accomplishment to be able to secure bipartisan support in the House and Senate,” said Dooley in an impromptu press gathering at the ACC Annual Meeting.
“It’s unprecedented for an environmental legislation of this complexity to have such bipartisan support with a group of diverse stakeholders,” he added.
Dooley and the ACC were able to harness the support of groups such as the Environmental Defense Fund (EDF) to push TSCA reform through, a feat unimaginable in years past.
“This modernised TSCA creates the framework for States to work with the EPA (Environmental Protection Agency) to ensure that chemicals are safe. There is a pre-emption of State activity, even before final action by the EPA. This encourages collaboration between the states and the EPA,” said Dooley.
US states would still be able to promulgate regulations but would be pre-empted by Federal law on certain substances, he said.
It will be a long road ahead, but this should provide much needed clarity for chemical producers and distributors in navigating the choppy waters of Federal and State regulations.
Workforce availability was a key theme at the ACC Annual Meeting, and several executives cited shortages of welders in particular for their projects.
Shell aims to de-risk its US cracker project as much as possible by lining up all the elements, from labour to infrastructure to site preparation and early works. It is taking its time on starting construction and said it will not be pressured on timing but would rather get the project right on costs.
Clearly the opportunities are still there to harness the advantage of US shale gas, but major projects are likely to take longer to plan, and to build.
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All opinions shared in this post are the author’s own.
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