The latest chances for Shell’s groundbreaking ethane cracker in Appalachia

Shell Chemicals for nearly two years has said its final decision to construct a $4 billion ethane cracker near Pittsburgh wouldn’t come quickly.

Too much due diligence to perform, too much feedstock ethane to lock up in contracts, too many customers to sign for the ethylene the cracker produced.

And now, perhaps too much competition to make the region’s largest construction project in decades viable.

All the ethane production from the Appalachian Basin could be swallowed easily by the seven pipelines either operating, soon-to-flow or in various development/construction phases, consultants and analysts have said.

The total capacity of the seven proposed lines is 455,000 b/d, even before enhancements already announced. The Shell cracker is projected to consume 80,000-90,000 b/d of ethane.

Bentek Energy, a division of Platts, estimates ethane production to grow just to 310,000 b/d by 2019. “Shell certainly faces competition from pipeline projects,” Bentek’s Marissa Anderson said.

Competition, yes, but not annihilation, experts tell Platts.

Blog entry continues below…


Request a free trial of: Gas Daily Gas Daily
Gas Daily Gas Daily offers the most detailed coverage of natural gas prices at interstate and intrastate pipeline and pooling points in major U.S. markets. Gas Daily keeps you informed about complex state and federal regulations that affect competition in the gas industry.
Request a trial to Gas Daily

Roughly 90,000 b/d of ethane currently is being rejected in PADD 1, according to Bentek. Ethane rejection is actually a form of inclusion, as the market for free-standing ethane becomes so weak that the economics actually favor using it for its BTU content by keeping it in the natural gas stream. So the idea is that with a lot of ethane is getting stuck in natural gas, the economics of using it in petrochemicals could be an incentive to pry it loose.

“You can definitely do a cracker in Appalachia,” said Kelly Van Hull, an analyst with RBN Energy. “We’ll still be rejecting ethane even up to 2018, 2019.”

Taryn Slimm, lead analyst covering the US onshore for GlobalData, points out another positive piece in the Pennsylvania cracker puzzle. “As companies move toward liquids-rich production for optimum well economics, production from the wet gas windows is expected to continue to climb in the coming years,” she said.

Shell Chemicals has maintained an option on the property, owned by zinc manufacturer Horsehead Corp, since March 2012. The latest option extension was announced last month but, unlike previous extensions, this one wasn’t for six months; its length wasn’t revealed.

Also, in December, Horsehead announced, and Shell confirmed, that the two companies have agreed to raze some buildings on the site, with Shell paying the costs.

In addition, Shell has made public the names of four producers to supply ethane: Hilcorp Energy, Consol Energy, Seneca Resources and Noble Energy. The company last summer held an open season to sign for additional ethane.  Shell also formed a midstream joint venture with Williams to serve the Marcellus and Utica shales, including the cracker.

Experts said the long lag time between announcing a suitable site for the cracker until the facility becomes operational could actually help its viability.

“The jump in US ethane demand will come in 2017-2018 timeframe, when new crackers come online in the Gulf and when there will be a risk the ethane supply will become tight,” Bentek’s Anderson said. “After that we anticipate the US being long ethane, and will continue to reject in the Northeast. The timeframe of this cracker would be 2019, so building a cracker in the Northeast shifts the additional demand from the Gulf to the Northeast.”

“Moving forward with the project makes sense regionally,” GlobalData’s Slimm said. “Shell has given indications they are progressing with the evaluation of the project after extending their option … and Shell is likely to be successful in its current bid to secure additional feedstock supplies. If the plant is not commercially sanctioned, it will be because another competing Shell project was better aligned with the company’s objectives, not because it wasn’t commercially viable.”

One of those Shell projects that might have been a competitor for investment dollars recently bit the dust: a gas-to-liquids plant in Louisiana. That would have been a more than $10 billion project, and Shell said last month that costs were a key factor in a decision not to go ahead with it. So that is one less project competing for dollars in Shell’s capex budget.


Share this:
Facebook Twitter Email

All blog comments are moderated before being published.

Comments

  1. Randy Peterson at January 15, 2014 5:08 pm

    Another question is what will Shell do with the ethylene? Will it be PE, Eglycol or something else? Also, what about ethylene storage? It’s tough to develop something like this outside the “ethylene network” along the Louisiana & Texas coast. Eastman does it at Longview, so it’s not impossible. For a list of new Petrochemical Projects, send an email request to hcosite@bellsouth.net

     

Your Comment