As natural gas liquids (NGL) growth accelerates in the US, the feedstock advantage will likely fuel additional investment decisions for mega-projects along the Gulf Coast and Northeast, Phillips 66 executives said, Petrochemical Update reported.
U.S. Phillips 66 is considering a second ethane cracker in the U.S. for its joint venture Chevron Phillips Chemical (CP Chem), a joint venture with Chevron. A decision is not likely until next year, Phillips 66 executives said.
“We like the demand profile we see for global petrochemicals. I think it's going to be a pace that will support a new wave of cracker investments,” said Greg Garland, CEO during an investor presentation held by Credit Suisse.
Garland told investors listening to the presentation that Phillips 66 remains constructive on the second cracker at CP Chem, and has already begun initial work around it.
“We probably won't FID (make a final investment decision) on it until 2019, so that probably means heavy lifting becomes 2020, 2021 for us in terms of the capital,” he said.
Feedstock advantage
“US NGL production continues to grow. We think this is set to accelerate given the drilling activity that we see,” Garland said. “We believe that the US is going to remain advantaged in the global energy markets,” Garland said.
Abundant and cheap supply of U.S. NGLs, a group of hydrocarbons that includes ethane, propane, butane, isobutane, and pentane, from shale formations drove the first wave of petrochemical investments and created one of the biggest spending booms in history.
The greatest opportunity for petrochemical investment continues to be in cracker production, which uses NGLs such as ethane as a feedstock to create ethylene and polyethylene (PE), products that are traded globally and priced off crude oil. Making these products using cheap natural gas feedstock, and selling at prices based off higher oil prices has been a great cost advantage for the U.S.
At least 85% of U.S. petrochemical production is natural gas or NGL feedstock, while 75% of the world uses oil and naphtha based production, according to the American Chemistry Council (ACC).
But most product prices track crude oil, so a strong oil price is beneficial to U.S. producers making the same product using much cheaper NGLs as feedstock.
NGLs
NGLs are components of natural gas that are separated from the gas state in the form of liquids. This separation occurs in a field facility or in a gas processing plant through absorption, condensation or other methods.
Natural gas production in the US is rising. Natural gas production is expected to grow 6%/year from 2017 to 2020, which is greater than the 4%/year average growth rate from 2005 to 2015, according to the most recent EIA Energy Outlook estimates.
Midstream companies are aggressively building the infrastructure to process gas and ship it via pipeline to petrochemical plants.
ONEOK recently announced plans to invest approximately $2.3 billion between now and 2020 to construct: a new 400,000 barrel/day NGL pipeline that will create additional NGL transportation capacity between ONEOK's extensive Mid-Continent infrastructure in Oklahoma and the company's existing NGL facilities in Mont Belvieu, Texas.
ONEOK will also invest in a new 125,000 bpd NGL fractionator in Mont Belvieu, Texas, and related infrastructure; and a new 200-million cubic feet per day (MMcf/d) natural gas processing facility in the Williston Basin.
“We think given the NGLs we see coming at us on the US Gulf Coast, there's going to be plenty of NGLs to feed those new crackers,” Garland said. “We believe this advantage is going to continue, despite that significant new ethylene capacity will be coming online over the next few years.”
Plastics Demand
Garland believes that global demand can support more petrochemical production.
“Demand is growing faster than GDP, and billions of people are joining the middle class in India and China,” Garland said to Petrochemical Update.
This growing middle class will adopt buying habits that will result in more plastic consumption.
Most ethylene production goes toward polyethylene, a widely used plastic containing polymer.
Plastics top downstream uses are in construction, automotive and packaging markets.
Today’s average light vehicle contains 332 pounds of plastics and composites, or roughly 8% by weight, according to the ACC.
New wave
Other companies are also considering new plants in what is becoming another wave of new projects in the US.
The North American petrochemical industry will invest around $145 billion in industrial facilities as a result of low-cost and abundant shale gas by 2025, according to PLG Consulting.
In its Shale Gas Industrial Expansion Logistics Database (SHIELD), PLG estimates that at least 100 projects have been commissioned since 2011 valued at $51.1 billion. Another 76 projects will likely start up by the end of 2019, valued at $45.1 billion. And 48 2nd wave projects with likely start-up between 2020 and 2025 are valued at $48.5 billion.
Texas and Louisiana will dominate the buildout. Processed gas, ethylene, methanol, and resins will account for 80% of product volume output, according to PLG.
Cedar Bayou
Meanwhile, CP Chem is currently in the midst of rigorous commissioning activities, system checks and final certifications for its 1.5m tonne/year ethane cracker at Cedar Bayou, Texas.
It expects to start receiving feedstock this quarter, and be fully operational by the second quarter, Garland said.
The cracker’s startup was pushed from year-end 2017 to the first quarter of 2018 after flooding from Hurricane Harvey last August.
CP Chem announced that its world-scale ethane cracker achieved the major milestone of mechanical completion at the end of December.
At peak construction, approximately 5,000 workers were employed on this project, helping to spawn additional economic activity across the region.
“With the mechanical completion of Cedar Bayou’s ethane cracker, we are now on the cusp of completing the most transformative project in our company’s history, or U.S. Gulf petrochemical project,” said Mark Lashier, president and chief executive officer of Chevron Phillips Chemical.
The new ethane cracker will produce product for the company’s ethylene business and feedstock for its ethylene derivatives businesses.
The polyethylene (PE) fleet now includes the two new PE units at Old Ocean, Texas, which were also part of the U.S. Gulf Coast petrochemical project. These units started up in September 2017 and play a critical role in Chevron Phillips Chemical’s strategic expansion to meet the growing global demand for PE.
In addition to the cracker and PE units, the company has purchased nearly 3,000 newly built rail cars and constructed a state-of-the-art storage-in-transition facility to ship PE via rail to customers both domestically and to ports for export around the globe.
