The ongoing North American shale gas boom was on the minds of executives at many materials companies at NPE2012.
Newfound supplies of natural gas from shale deposits throughout the region have altered the dynamics of polyethylene and other plastics that use ethylene as a feedstock. Natural gas can be used to make ethane, which is converted into ethylene and then into PE and other resins.
Proved shale gas deposits in the U.S. alone jumped 75 percent between 2008 and 2009.
The discoveries have prompted several firms — including Dow Chemical Co. and Shell Oil — to announce plans to build new North American ethylene crackers, with Shell making the almost-unheard-of decision to place its new cracker in western Pennsylvania, near the gas-rich Marcellus Shale.
Other companies, including Chevron Phillips Chemical Co. LLC and Formosa Plastics Corp. USA, have announced plans to increase their North American PE output as a result of the shale gas wave.
“It's like the gold rush,” Dow executive Mauro Gregorio said of the shale boom in an interview at NPE2012, held April 1-5 in Orlando. “The discovery of shale gas is one of the most important events in the U.S. in a long time.
“It will be a winner for North America as a region,” added Gregorio, commercial vice president for Dow's Performance Plastics unit in North America.
Dow officials confirmed April 19 that their new ethylene cracker will be built at the company's massive site in Freeport, Texas. The cracker is expected to open in 2017 and will have annual production of 3.3 billion pounds.
The new cracker is part of a $4 billion investment for Midland, Mich.-based Dow that will include increasing capacity of other products, including on-purpose production of propylene. Dow officials have yet to announce any increase in North American PE production as a result of shale gas.
ExxonMobil Chemical Co. is another firm that could have a lot at stake with natural gas on the rise. The Houston-based firm ranks as one of the world's largest PE and ethylene makers, but has yet to make any shale-related announcements.
The North American natural gas picture “has been a dramatic turnaround,” polyolefins Vice President John Verity said at NPE. But Verity added that ExxonMobil “usually studies a situation, and doesn't make an announcement until we're ready with a project.”
The new discoveries could have an impact that goes far beyond ethylene supplies. “The question is: Does shale gas change the dynamic?” Verity asked. “With cheap gas and cheap electricity, does it have a beneficial effect on the economy in general?”
Additional on-purpose propylene production could benefit Braskem SA and other North American PP makers. The material has been in short supply, which has caused tremendous volatility in PP pricing. Market watchers have said that on-purpose propylene is needed because natural gas-based ethane feedstocks produce less propylene than crude oil-based naphtha feeds do.
The North American propylene situation recently was worsened by the shutdown of a Sunoco Inc. gasoline refinery in Marcus Hook, Pa. The refinery made propylene as an off-product, but was no longer profitable for Sunoco. São Paulo-based Braskem bought a PP plant in Marcus Hook from Sunoco in late 2010. The nearby refinery had been the PP plant's main source of propylene.
At NPE, Braskem America CEO Fernando Musa said North American on-purpose propylene production “should increase dramatically in just the next three years.” That increase “should improve the supply situation and hopefully reduce price volatility,” he added, although Braskem itself currently has no plans to enter the on-purpose propylene business.
ExxonMobil's Verity added that on-purpose propylene “could fill in the gap” for the North American PP market within three to five years.
North American compounding leader PolyOne Corp. — and many other firms that process PE, PVC or other materials that consume ethylene — also can benefit from the shale wave. At the very least, new natural gas supplies should keep production of PE and related materials in North America for the foreseeable future. Just a few short years ago, market consultants were predicting North America soon would be a net importer of PE.
Shale discoveries “have given North America really inexpensive access to raw materials,” said PolyOne Chairman, President and CEO Stephen Newlin. “It's made us more competitive.
“Low natural gas pricing also is healthy for our industry because it keeps power costs down,” he added. “The only concern might be that if natural gas prices get too low, suppliers might not want to produce as much.”
Dow's Gregorio added that all of the region's new natural gas “is giving North America the opportunity to position ourselves for the future.”