The abundance of shale gas being produced in the Marcellus and Eagle Ford shales has led Dow Chemical Co. to launch an ambitious plan to increase ethylene and propylene production, as well as integrate U.S. operations into feedstock “opportunities” now available from the increasing gas supplies.

To that end the largest U.S. chemical manufacturer and a subsidiary of Range Resources Corp. have signed a memorandum of understanding (MOU) for Range to deliver ethane supplied from the Marcellus Shale in Pennsylvania to Dow’s existing chemical operations in Louisiana.

“The improved outlook for U.S. natural gas supply from shale brings the prospect of competitively priced ethane and propane feedstocks to Dow — and the promise of new manufacturing jobs to America,” said Dow Chemical’s Jim Fitterling, president of Corporate Development & Hydrocarbons.

Dow Chemical is the largest consumer of propylene in North America, Fitterling noted, which gives it “a unique opportunity to invest aggressively for on-purpose propylene production from propane. Additionally, Dow is the largest producer of ethylene in North America, which provides capabilities to increase our use of ethane in existing ethylene production units — and to grow.

“All of these investments, combined with Dow’s planned agreement with Range Resources, will dramatically increase our capability to consume ethane, while maintaining our industry-leading feedstock flexibility.” Details of the long-term supply agreement were not disclosed. A few days ago Range said it had signed two MOUs to sell ethane from the Marcellus region (see Daily GPI, April 20).

The shift to lighter feedstocks has been under way for months. For the past year producers operating in the prolific Marcellus Shale have been struggling to manage ethane output, and several pipelines have been proposed to move natural gas liquids products to Canada and other U.S. regions (see Shale Daily, March 28; March 24; Dec. 23, 2010).

However, with the largest petroleum/petrochemical area in the United States, Dow’s decision to process gas liquids along the Texas and Louisiana Gulf Coast would appear to be a given.

“Our plan is to further integrate Dow’s businesses with the advantaged feedstocks, based on shale gas deposits and long-term ethane and propane supply agreements,” said Fitterling. “These actions will strengthen the competitiveness of our Performance Plastics, Performance Products and Advanced Materials businesses…as we continue to capture growth in the Americas.”

At existing Gulf Coast facilities Dow is finalizing plans to:

The chemical giant also is completing plans to increase propylene supply, with an eye to construct an on-purpose production facility at its Texas operations for start-up in 2015. It also is exploring options to commercialize its technology produce propylene from propane, with a potential start-up of a new production unit in 2018.

In addition to the proposed supply arrangement with Range Resources for Marcellus Shale gas, Dow plans to supply the required ethane and propane for its projects “through a variety of supply arrangements,” that include “a possible joint venture fractionator in Texas, supply from existing fractionators, supply from future new fractionators to be built within the industry, and potential supply deals from various shale gas opportunities such as the Eagle Ford and Marcellus shale regions.”

Dow Chemical said it already has signed ethane and propane supply contracts for Eagle Ford Shale gas and “is pursuing several more agreements from this area.” No additional details were disclosed.

After decades of favoring overseas locations for new facilities because of high feedstock prices in the United States, Dow Chemical’s plans for major investments in Gulf Coast facilities is seen as a major bet on a continued reliable, low cost, supply of feedstock.

The chemical manufacturer may be the biggest, but it’s not the only company that is eyeing projects to take advantage of the growth in shale gas. The decision by Dow Chemical comes less than a month after Chevron Phillips Chemical Co. LP said it was evaluating plans to site a “world-class” ethane cracker and ethylene derivatives facility — fed by shale gas reserves — in the Gulf Coast region (see Shale Daily, March 29).

Earlier this month Houston-based Westlake Chemical Corp. said it would expand each of two light feedstock ethylene crackers at its Lake Charles, LA, facility (see Shale Daily, April 7). And Williams last month signed a long-term agreement to produce up to 17,000 b/d of ethane and ethylene from oilsands off-gas for Canadian chemical giant NOVA Chemicals Corp. (Daily GPI, March 29).

The growth in U.S. chemical manufacturing has been in a relatively short period. Five years ago the run-up in U.S. natural gas prices hit the chemical industry particularly hard, and many manufacturers, including Dow Chemical, began to shutter U.S. facilities and move to the Middle East, where feedstock prices were lower.

By 2008, feeling the pinch as feedstock and transportation costs continued to rise, Dow Chemical said it would raise the price of all of its products by up to 20% and would review all terms to all customers (see Daily GPI, May 29, 2008). A month later it idled some plants and reduced production, including ethylene oxide output, which was cut 25% worldwide (see Daily GPI, June 25, 2008). One of the facilities shuttered three years ago, the ethylene cracker near Hahnville, LA, is on the list to be restarted.

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