US shale: shaping chemicals and plastics

Materials World magazine
12 Jun 2014
Grangemouth oil refinery

The effect of the US shale gas boom is not limited to the nation’s energy prices. It is also shaking up the global chemicals and plastics markets, with implications for several industries. Melanie Rutherford looks at the latest developments.

Since the turn of the century, the economic success of hydraulic fracturing in the USA has reduced the country’s energy costs, not only for domestic users but also for the chemicals industry. The shale gas boom of the last decade has led to a surge in the use of ethane – a product of extraction from shale – as a primary feedstock to replace the more traditionally used naphtha – a derivative of crude oil – to produce ethylene, an important polymer in both engineering and consumer applications.

Dr Adrian Higson, Head of Biobased Products at UK bioeconomy consultancy NNFCC, explains, ‘While the primary impact of the US shale boom has been a reduction in energy costs for the chemical industry, in the future the industry will make increasing use of cheap shale gas as a feedstock for chemical production. This includes ambitious plans for the construction of new ethane cracker plants, using natural gas liquids (NGLs) to produce ethylene.’ Over the last six years, the US fracking movement has had significant impact on chemical feedstock prices and, as a result, that of plastics such as polyethylene, polypropylene and polystyrene. With deals recently signed to build ethane cracking units in Europe and planning permission granted for a new ethane storage facility at Grangemouth, in Scotland, the issue is now slowly bubbling to the surface this side of the Atlantic.

Ethane vs naphtha – the story so far
The issue boils down to ethylene, an important petrochemical feedstock for polyethylene production when ethane is passed through natural gas crackers. Traditionally, naphtha crackers processing crude oil have been the primary source of ethylene for the plastics industry, but the US shale boom has for the first time made it cheaper to produce ethylene from ethane than from naphtha, by around two-thirds.

Higson explains, ‘Naphtha crackers produce a mixture of compounds – predominantly ethylene (a C2 compound), along with some propylene (C3) and a mixture of C4 compounds, including butadiene. NGLs from shale are predominantly ethane based, with lower quantities of high-carbon alkanes, so produce a much higher proportion of ethylene relative to C4 compounds when compared with naphtha.’

The US shale boom has led to a string of new ethane crackers being built across the country, converting NGLs from domestic shale into ethylene. ‘As more crackers are built in the USA, much more ethylene will be produced, which will stabilise prices,’ says Higson. While the cost to produce ethylene has already dropped significantly – by 40% per tonne between 2008–2013 – Higson explains that the flipside will be a decreased availability of propylene, and C4 compounds. With these heavier engineering polymers vital to industries such as aerospace and automotive, industry will be forced to look for alternative technologies. ‘Plants are now being built in the USA specifically for production of polypropylene from propane. Propylene derivatives (such as acrylic acid), butanol and other molecules (such as butadiene), could all have their own deliberate production – and that might be bio-based,’ he explains. While bioplastics currently represent just 1% of the total plastics market, industry experts predict this to grow rapidly over the next few years. In 2012, Morgan Stanley predicted a 4% year-on-year market growth by 2020, while a more recent NanoMarkets report forecasts market share to increase to 7% by 2020.

Indeed, since the US shale boom began, the country’s bioplastics market has seen investment from major chemical companies including BASF, Dow, Lanxess, Mitsubishi Chemical and Solvay. But with the cost of bioplastics currently two to three times that of its fossil-based counterpart, to make any significant market growth and become truly competitive, there must be an equally significant price drop – which can only come through use of cheaper feedstocks. Brazilian chemical company Braskem put sugarcane feedstock on the map back in 2010 in the production of polyethylene for cosmetics packaging and container closures. The company has further plans to expand ethylene and PE operations to Mexico, where it has announced a major complex in Coatzacoalcos due to open in 2015. In 2013, Italian company Versalis entered a technology joint venture with Genomatics for bio-based butadiene production.

‘Anyone who is making bio-based polyethylene is probably a little bit concerned right now, because all these plants in the USA will be focusing on polyethylene,’ says Higson. ‘Not only does this create a lot more competition, but if their prices stay low while those of everything else increases, it’s going to be difficult to move into the market.’

Most C4 compounds are mainly used in engineering applications – such as butadiene used in rubber compounds, which would theoretically be more expensive, says Higson. Applications such as packaging use the lighter polymers, which conversely look set to benefit. ‘As the majority of packaging is polyethylene based, such as rigid trays and most films, fracking will probably work to the industry’s advantage,’ says Higson, but he warns, ‘it’s probably not the case that prices will come down, more that prices won’t go up’.

Meanwhile, the polystyrene packaging sector, which has suffered over the last decade, could see moderate growth as a result, for ethylbenzene applications such as styrene, ink solvents, paper, rubber adhesives and wood varnishes, the benefits are more limited.

Global impact
The European bulk chemicals market, says Higson, is under pressure from North America and the Middle East due to its high energy, feedstock and general business costs. ‘Many see shale gas production as the best means of reducing energy and feedstock costs. Alternatively, infrastructure investment is required to allow importation of NGLs from the USA.’

While the USA’s ethane capacity peaked at 1.23 million b/d in 2013, it in fact extracted just one million b/d. Nevertheless, in 2014 the country has plans in place for 10 new ethane plants and a further 10 expansions of existing plants, which would see capacity increase by a further 33%. In a bid to fulfil its potential production capacity, US petrochemicals companies have started looking to the export market, where post-recession demand is gradually increasing.

But it’s not that easy for the rest of the world to take advantage of the US shale boom. To ship ethane it must first be liquefied to -260°C – an expensive process that has led to large fluctuations in the global prices of the feedstock. In Japan and South Korea, for instance, the cost of ethane is almost double that in Europe and four times that in USA. Importation also requires storage facilities, unloading docks and coastal-based ethane cracking plants. Currently only 15 of Europe’s 43 ethane cracking plants sit on the coast, equivalent to just 150,000b/d ethylene production at best. To build new facilities to increase this capacity calls for significant investment, and the question of ROI is still under debate.

However, some industry players have already taken steps in a bid to cash in on low-cost US ethane imports. Earlier in 2014, German engineering major Linde signed a 10-year enterprise framework agreement with Shell to design and build global ethane cracking facilities. The trend is even catching on in Asia, which has traditionally used naphtha feedstock from oil imported from the Middle East and Africa. In 2013, China embarked on several ethylene-specific building projects, such as the joint venture of Sinopec with BP and BASF.

One of the latest additions to the list sits on UK soil. Following on-going speculation over closure of Swiss company Ineos’s Grangemouth petrochemical plant, in Scotland, in May 2014 the company announced that planning permission had been secured for construction of a 60,000m3 ethane storage tank and import facility, set to be the biggest in Europe. The site is due to receive its first US ethane import in 2016.

While Grangemouth represents the first stamp of the US shale gas revolution in Britain, ever since the UK Government gave the go-ahead for exploratory fracking in 2012, simmering beneath louder discussions around environmental concerns and energy prices have been questions over the impact on the chemicals market. Only time will tell whether shale gas will revolutionise the UK plastics and chemicals markets as it has in the USA.