Boosted by the "shale gas revolution," Williams on Tuesday said it will spend up to $400 million to expand its Geismar olefins production facility near Baton Rouge, LA.
The Geismar facility is a light-end natural gas liquids (NGL) cracker with current volumes of 37,000 b/d of ethane and 3,000 b/d of propane. It produces about 1.35 billion pounds of ethylene a year, along with propylene, butadiene and debutanized aromatic concentrate.
"The shale gas revolution in the United States, coupled with continued strong crude oil prices, has given U.S.-based ethylene manufacturing a tremendous cost advantage over many other supply regions," said Rory Miller, president of Williams' midstream business. "The results are a revitalized North American petrochemical business and a U.S. ethylene market short of supply."
The expansion, expected to be in service in the second half of 2013, would increase the facility's ethylene production capacity by 600 million pounds/year to a new annual capacity of 1.95 billion pounds, the company said.
"This expansion will serve petrochemical companies by adding 600 million pounds per year of new ethylene supply to the market," Miller said. "It will also add to Williams' growing large-scale infrastructure serving the petrochemical industry in the Gulf Coast region and help balance our lengthening ethane position."
More details about the project were gleaned on Tuesday during a day-long company conference. Mac Hummel, vice president of midstream Canada and olefins, said the company had been working on the expansion project "for quite a period of time." Detailed engineering is scheduled to be completed by the end of the year. The expansion will take time because of the nature of the project, he said.
Expanding a cracker facility "takes time to develop," Hummel told the audience. "You just don't take down ethylene crackers. It takes significant effort to shut them down and significant effort to bring them back on." Geismar is scheduled for a regular turnaround in 2013, which will allow the company to complete tie-in work.
Expanding Geismar offers "very key advantages" to Williams, he said. "First and foremost, we are expanding from a cost-competitive position and building on a successful platform." Building a greenfield project would take much longer. "It's timing-advantaged," Hummel explained. "There are a lot of announcements out there...major announcements of large greenfield projects that are probably not scheduled to come on for years, and we have this one already in service."
Geismar's buildout is timed for "a market [that is] not only short of ethylene but it's also coming up in a time frame where there just is not going to be large sources of incremental ethylene available... "From a macro perspective, I've got to tell you that if you are an ethylene manufacturer using feedstock priced off crude, LPG [liquefied petroleum gas] or naphtha, you are very distressed. Your feedstock is increasingly uneconomic relative to ethane."
Petrochemical industry fundamentals "have changed dramatically and shale gas is key," Hummel said. "The crude-to-gas ratio has changed...U.S. ethane-based ethylene is cost advantaged and globally ethylene is short...Geismar's expansion capitalizes on both of these points."
The expansion is to begin in 2012 and the capital spending is included in Williams' 2012-2013 guidance, which is to be released in conjunction with 3Q2011 financial results. Williams operates and owns 83.3% of the plant; Saudi Basic Industries Corp., otherwise known as Sabic, owns the remaining stake.