Low natural gas prices and increased supplies are reviving the chemical manufacturing industry within the United States as evidenced by the news last week that Dow Chemical Co. has authorized final engineering and lead-time equipment spending for a world-scale propylene production facility in Texas to take advantage of increasing supplies of U.S. shale gas as a feedstock.
The decision to authorize spending comes less than a year after the Midland, MI-based chemical giant launched an ambitious plan to increase ethylene and propylene production, as well as integrate U.S. operations, into feedstock “opportunities” because of robust shale gas supplies (see NGI, April 25, 2011).
“This authorization marks yet another significant milestone in Dow’s comprehensive plan to create competitive advantage for our downstream performance materials and advanced materials businesses by further connecting our U.S. operations with cost-advantaged feedstocks,” said Jim Fitterling, president of Feedstocks and Energy, and corporate development. “This investment directly supports Dow’s transformational strategy to enhance its feedstock flexibility and integration strength, and positions the company for growth in attractive markets and geographies.”
Basic engineering work for the on-purpose propylene production facility at the Dow Texas operations has begun; the project is on track for production start-up in 2015.
In December Dow and UOP LLC, a Honeywell company, signed a technology licensing agreement to enable on-purpose propylene production at the facility. Under the terms of this agreement, Dow would license UOP’s proprietary UOP C3 Oleflex process technology to manufacture on-purpose propylene from propane. Dow also signed catalyst supply and performance guarantee agreements with UOP. On-purpose propylene production from propane would create better economic value for Dow, compared with high-priced purchased propylene.
“The availability of cost-advantaged feedstocks from U.S. shale gas developments represents a value-creating opportunity for our downstream businesses, and Dow is capitalizing on this,” said Brian Ames, vice president of Olefins, Aromatics and Alternatives. “Our company was among the first in our industry to declare a comprehensive plan to take advantage of the increasing supplies of U.S. natural gas liquids, and we remain on track to implement that plan, which will create thousands of domestic jobs.”
At its construction peak the project is expected to create 1,300 jobs, according to Dow. A total of 40 contractor jobs and 80 direct new jobs are expected to be created to operate and maintain the facilities. Dow estimated that this project, together with all other planned projects announced as part of its comprehensive U.S. investment plan would create up to 35,000 indirect jobs in the United States.
The expanding U.S. supply of natural gas is “an unbelievable opportunity” for chemicals producers, their suppliers and customers, said Enterprise Products Partners COO Jim Teague. He spoke last week at IHS CERAWeek 2012 in Houston.
“The United States has an infrastructure advantage that has been joined with a resource advantage…The next 10 years are going to be pretty exciting,” Teague said. The company invested $4 billion last year in infrastructure and is planning to spend another $4 billion.
In the Eagle Ford Shale in South Texas, Teague said Enterprise plans to spend up to $4 billion on pipeline and processing infrastructure with three-quarters of the total investment involving gas (1 Bcf) and liquids (100,000 b/d), including one or two processing facilities.
Gary Adams, who is the IHS chief adviser for chemicals, noted that low U.S. gas prices have allowed U.S.-based chemicals to become competitive with those in the Middle East, which long has been the global leader. Mark Lashier, executive vice president with Chevron Phillips Chemical Co., noted before the shale boom his company was looking overseas for its growth — particularly in the Middle East — but the focus has shifted back to the United States.
“There is shale gas all over the world, but there is no place like North America with the infrastructure to take advantage of the resources.”
Representing end-users of ethane and ethylene raw materials, Jim Morris, vice president with Heritage Bag Co. said a few years ago no new polymer plants were anticipated for the United States; they were expected to be built in the Middle East. However, with the advent of shale that has changed. “Now we have a new dynamic, and it is a very exciting one for us.”
There are some clouds on the horizon, however. Panel members noted that growing buildup in chemical production capacity will require more U.S. exports. Domestic demand is only about half of what it was 20 years ago.
“As we look at the supplies, and we look at the need for more [hydraulic fracturing], we’re seeing that we are going to have to be exporting,” Teague said.
At the same time, the shale boom and low gas prices are creating what Morris called “re-shoring” in which manufacturing to some extent is returning to the United States, and this bodes well for both the domestic energy and chemicals sectors.
DCP Midstream LLC, the Denver-based infrastructure and natural gas liquids (NGL) operator, also is buoyed by the resurgence of U.S.-based chemical companies, according to DCP President Bill Waldheim, who recently spoke with NGI. The privately held firm, which is jointly owned by ConocoPhillips and Spectra Energy, is considering nearly $4 billion in new infrastructure investments, mostly in the south-central energy center of the United States.
Waldheim told NGI that another $2 billion is probably in the cards over the next three to five years. The NGL operator has an eye on moving into the Bakken, Utica and Marcellus shale plays, about the only unconventional fields beyond DCP’s reach these days.
DCP has two major NGL pipelines under construction — Southern Hills and Sand Hills — to relieve bottlenecks out of Texas and Oklahoma production basins to Gulf of Mexico coastal markets. However, Waldheim said the midstream player is also looking north to developing shale plays in Michigan, including the Collingwood and A-1 Carbonate where DCP owns an existing underground liquids storage facility strategically placed near an expanding chemicals company.
The storage facility in Marysville, MI, handles propane and butane, and Waldheim said DCP hopes to add ethane as well when the nearby Nova Chemical plant completes an expansion of its Sarnia facility across the border in Canada.
“That facility provides downstream NGL services, and we hope to build on that if we get more involved in that area,” Waldheim said.
Because shale plays have proven to be “the real deal,” he said “the chemical companies on the consuming side of equation are comfortable that they have a competitive advantage in the international marketplace to expand their facilities because the chemical business usually runs on naphtha and gas oils internationally. Having low gas prices and high crude oil prices has really advantaged the chemical business. They are now embarking on a building program, expanding for the first time in many, many years new chemical crackers here in the United States.”
DCP and others in the midstream business are the “service providers linking the producers and the chemical companies. The increasing production of liquids-rich gas then allows us to expand the infrastructure to serve the chemical companies and to make sure the exploration and production companies have the takeaway capacity from the production they are drilling.”
Expanding from Michigan, DCP Midstream could make its entrance in Utica and Marcellus shales. “Our footprint is all throughout the central United States, north to south. We are not in the Marcellus yet, but that is an area we would like to get into. And we are not in the Bakken.” It is likely the company will soon expand into both, he added.
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