The fortunes of the natural gas and chemicals industries are becoming increasingly intertwined, and they will be even more so if Royal Dutch Shell plc constructs a world-class ethane cracker in the heart of the Marcellus Shale. Such a plant would handle Shell’s equity ethane production and that of third parties. And it would be a Rust Belt job-creation engine.
“In our mind the ambition here is obviously to build a world-scale cracker, so that would be something that would be north of a million tons of ethylene production, which probably brackets the consumption of ethane in the 60,000-80,000 b/d range, potentially even higher…” Dan Carlson, Shell Chemicals general manager for new business development, told NGI.
How much of that ethane would come from Shell production remains to be seen. About 18 months ago Shell agreed to pay $4.7 billion to acquire subsidiaries of privately held East Resources Inc., giving the company a substantial foothold in the Marcellus Shale (see Daily GPI, June 1, 2010). “We’ve got about 800,000 acres now in Appalachia, close to 300 people up there working, and had an active drilling program in 2011, probably about 100 wells that will have been completed,” Carlson said.
“Shell is probably one of the few companies that is rather unique in that we would have both a significant upstream, which already exists, and an aspiration to develop our downstream chemicals operation.”
Shell is still deciding if the plant would fit best in Ohio, Pennsylvania or West Virginia. “…I think the relative differences between the locations that we’re looking at are probably less significant than for us being close to the rich gas production area, having good access to rail, road and water logistics, power stations, labor force, the right kind of regulatory environment,” Carlson said. “All of these things will play very heavily into the decision of where we site the cracker.”
Wherever the plant is sited, workers will be available but in need of some training. “…[T]here will be job-training efforts cooperatively between Shell and the state to provide the right kind of training…” Carlson said. “A big part of this is to try to encourage local job creation. The states are particularly interested in building up the skill level of the workers in the area.
“The communities in this area have a long history in manufacturing. They’ve seen a lot of it move away. They’ve been going through some pretty tough times over recent years and the communities, the local governments and the states have all been extremely encouraging about the willingness of the workforce…”
A decision on siting is expected by year-end. That would be followed by the plan to supply the plant with feedstock. “What will Shell be supplying; what will the other parties supply, and how much is available for how long, which will help us determine the ultimate size of the project,” Carlson said.
Then the company will decide on a final derivatives slate. The leading option, as Shell has said previously, is polyethylene, which is used in packaging, adhesives, automotive components and pipe. Demand for polyethylene is expected to grow, the company has said.
“We continue to look at the available market up there,” Carlson said from Houston. “I think the more we do, the more convinced we are that polyethylene is going to play a part in a project such as this. But we’ve also said that including a second type of chemical derivative, monoethylene glycol [MEG] is also under study. Shell is a major player in the MEG market. We have what we think is the best technology in the industry and I think this location would be well suited to putting MEG there as well.”
MEG is an ingredient in antifreeze, polyester and polyethylene terephthalate, which is used to make plastic bottles.
The U.S. Gulf Coast and Sarnia, ON, have been traditional petrochemical centers, but Appalachia will hold its own, Carlson said. The market is there.
“…[W]hat’s unique about [this project] is it’s being developed right in the middle of a very large petrochemicals market,” he said. “So while a lot of the basic chemicals, olefins and polymers, have migrated from being produced in that part of the world down to the Gulf Coast, actually the end-users of these products are sitting right there. A big percentage, nearly 50%, of all of the polyethylene that’s consumed in the United States is kind of within a 700-mile radius of the Pittsburgh market. So it’s a big feedstock play sitting in the middle of a big market for petrochemicals. That’s one of the main features of this whole thing.”
While Shell is targeting the domestic market for the plant’s output, export of some of the production is not out of the question, Carlson said. “We haven’t finalized the decisions around the ultimate destination of all the outputs,” he said.
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