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Researched by Industrial Info Resources (Sugar Land, Texas)--A couple of news items this week demonstrate the promises and potential pitfalls of U.S. ethylene projects seeking to take advantage of low-cost ethane feedstock. Shell Chemical Appalachia LLC, part of Royal Dutch Shell plc (NYSE:RDS-A) (The Hague, Netherlands), announced it had the green light to proceed with a grassroot ethylene/polyethylene complex near Pittsburgh, Pennsylvania. Sasol Limited (NYSE:SSL) (Johannesburg, South Africa) announced the price tag of its own ethane-driven complex in Louisiana could run as high as $11 billion, some $2 billion more than previous estimates.
On Wednesday, Shell Chemical Appalachia announced it has made a final investment decision to build an ethylene unit with a polyethylene derivatives unit, near Pittsburgh, Pennsylvania, with main construction to begin in 18 months. Using ethane from shale gas producers in the Marcellus and Utica basins, the complex will produce 1.6 million tons of polyethylene per year, Shell said. According to the company, "As a result of its close proximity to gas feedstock, the complex, and its customers, will benefit from shorter and more dependable supply chains, compared to supply from the Gulf Coast."
Located on a former zinc smelter site on the banks of the Ohio River about 30 miles from Pittsburgh, the facility is expected to begin operations early in the next decade, Shell said, adding such complexes typically take five years or more to complete. Industrial info is tracking five projects that are tied to the planned complex, including the ethylene unit, a 500,000 ton-per-year Slurry High Density Polyethylene (HDPE) Unit, a 500,000 ton-per-year gas-phased, high density polyethylene unit, a 500,000 ton-per-year linear low density polyethylene (LLDPE) unit and a 250 kilowatt (kW) cogeneration unit.
Shell announced in 2011 that it planned to build an ethane cracker in the U.S. northeast, sparking competition between states such as Pennsylvania, Ohio and West Virginia for the project and the jobs that would come with it. Shell estimates up to 6,000 construction workers will be involved in the project, and expects the completed complex to have 600 permanent employees.
Prior to Wednesday's announcement, Shell's plan had sparked some naysaying from analysts and other industry observers, who said the Northeast did not have the necessary infrastructure the make such a project feasible. Developing such an infrastructure to turn ethylene into downstream products and move them to market would be cost-prohibitive, they said, especially given the fact that the U.S. Gulf Coast region already had such an infrastructure in place, including major port facilities and an extensive ethylene pipeline network.
According to Shell, however, "As a result of its close proximity to gas feedstock, the complex, and its customers, will benefit from shorter and more dependable supply chains, compared to supply from the Gulf Coast. The location is also ideal because more than 70% of North American polyethylene customers are within a 700-mile radius of Pittsburgh."
The complex will also benefit from a massive tax incentives package offered by Pennsylvania, including a $2.1 credit for each barrel of ethane the facility buys from local oil and gas operators, along with a host of other tax cuts and benefits, according to news accounts. The ethane credit could amount to $1.65 billion, according to news accounts.
Shell Chief Executive Officer Ben van Beurden during the company's Capital Markets 2016 event this week that the company has made chemicals production one of its growth priorities, along with deep water oil production. Shell's global ethylene capacity should reach around 8 million metric tons per year early in the next decade, he said, compared with 6.2 million metric tons today.
As part of its plan to rein in capital costs, Shell expects to keep its overall annual capital expenditures in a range of $25 billion to $30 million for 2017 and 2018, compared with roughly $29 billion for this year. However, its annual chemical expenditures will run between $3 billion and $4 billion for 2017 and 2018, compared with $3 billion for 2016. In a related move, it plans to increase annual shale production development to $3 billion from the current $2 billion.
Sasol Struggles with Ballooning Costs
Just a day before Shell's announcement, Sasol announced the expected capital expenditure for the Lake Charles Chemicals Project (LCCP) could increase up to $11 billion, including site infrastructure and utility improvements. Previous estimates had put the price tag at less than $9 billion. The new number was a preliminary finding in an ongoing project review, which is expected to be released in September.
The planned complex at Sasol's 400-acre Lake Charles site includes a 1.5 million metric ton-per-year ethylene unit, a low density polyethylene unit and a linear low density polyethylene unit, as well as an ethylene oxide/ethylene glycol unit addition, among others. The polymer units will consume about two thirds of the ethylene produced by the cracker.
During a conference call with investment analysts on Tuesday, Sasol executives stressed the potential $11 billion capex was a worst case scenario. They said the company was working to pare down the dollar total, to be divulged in September. "Eleven billion dollars is an extremely comfortable number for us and we are pushing it in a downward direction," said Sasol Chief Executive Officer David Constable.
Construction delays caused by rainy weather, higher labor costs and the need to purchase more materials such as concrete, pilings, steel and cable were some of the factors leading to the increase, said Sasol Chief Executive Officer David Constable. The project is 40% complete, he said, and the company has been able to get a better estimate on potential costs as it has progressed.
Constable added the ethylene unit is still expected to be operational in the second half of 2018, with the other units to come on line in 2019. Earlier this year, Sasol announced it had pushed back the timing of parts of the project in response to a steep plunge in the company's profits, the result of lower oil prices. For related information, see April 15, 2016, article - Sasol Maintains Timing for New Louisiana Ethane Cracker, Pushes Back Some Derivatives Units.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
On Wednesday, Shell Chemical Appalachia announced it has made a final investment decision to build an ethylene unit with a polyethylene derivatives unit, near Pittsburgh, Pennsylvania, with main construction to begin in 18 months. Using ethane from shale gas producers in the Marcellus and Utica basins, the complex will produce 1.6 million tons of polyethylene per year, Shell said. According to the company, "As a result of its close proximity to gas feedstock, the complex, and its customers, will benefit from shorter and more dependable supply chains, compared to supply from the Gulf Coast."
Located on a former zinc smelter site on the banks of the Ohio River about 30 miles from Pittsburgh, the facility is expected to begin operations early in the next decade, Shell said, adding such complexes typically take five years or more to complete. Industrial info is tracking five projects that are tied to the planned complex, including the ethylene unit, a 500,000 ton-per-year Slurry High Density Polyethylene (HDPE) Unit, a 500,000 ton-per-year gas-phased, high density polyethylene unit, a 500,000 ton-per-year linear low density polyethylene (LLDPE) unit and a 250 kilowatt (kW) cogeneration unit.
Shell announced in 2011 that it planned to build an ethane cracker in the U.S. northeast, sparking competition between states such as Pennsylvania, Ohio and West Virginia for the project and the jobs that would come with it. Shell estimates up to 6,000 construction workers will be involved in the project, and expects the completed complex to have 600 permanent employees.
Prior to Wednesday's announcement, Shell's plan had sparked some naysaying from analysts and other industry observers, who said the Northeast did not have the necessary infrastructure the make such a project feasible. Developing such an infrastructure to turn ethylene into downstream products and move them to market would be cost-prohibitive, they said, especially given the fact that the U.S. Gulf Coast region already had such an infrastructure in place, including major port facilities and an extensive ethylene pipeline network.
According to Shell, however, "As a result of its close proximity to gas feedstock, the complex, and its customers, will benefit from shorter and more dependable supply chains, compared to supply from the Gulf Coast. The location is also ideal because more than 70% of North American polyethylene customers are within a 700-mile radius of Pittsburgh."
The complex will also benefit from a massive tax incentives package offered by Pennsylvania, including a $2.1 credit for each barrel of ethane the facility buys from local oil and gas operators, along with a host of other tax cuts and benefits, according to news accounts. The ethane credit could amount to $1.65 billion, according to news accounts.
Shell Chief Executive Officer Ben van Beurden during the company's Capital Markets 2016 event this week that the company has made chemicals production one of its growth priorities, along with deep water oil production. Shell's global ethylene capacity should reach around 8 million metric tons per year early in the next decade, he said, compared with 6.2 million metric tons today.
As part of its plan to rein in capital costs, Shell expects to keep its overall annual capital expenditures in a range of $25 billion to $30 million for 2017 and 2018, compared with roughly $29 billion for this year. However, its annual chemical expenditures will run between $3 billion and $4 billion for 2017 and 2018, compared with $3 billion for 2016. In a related move, it plans to increase annual shale production development to $3 billion from the current $2 billion.
Sasol Struggles with Ballooning Costs
Just a day before Shell's announcement, Sasol announced the expected capital expenditure for the Lake Charles Chemicals Project (LCCP) could increase up to $11 billion, including site infrastructure and utility improvements. Previous estimates had put the price tag at less than $9 billion. The new number was a preliminary finding in an ongoing project review, which is expected to be released in September.
The planned complex at Sasol's 400-acre Lake Charles site includes a 1.5 million metric ton-per-year ethylene unit, a low density polyethylene unit and a linear low density polyethylene unit, as well as an ethylene oxide/ethylene glycol unit addition, among others. The polymer units will consume about two thirds of the ethylene produced by the cracker.
During a conference call with investment analysts on Tuesday, Sasol executives stressed the potential $11 billion capex was a worst case scenario. They said the company was working to pare down the dollar total, to be divulged in September. "Eleven billion dollars is an extremely comfortable number for us and we are pushing it in a downward direction," said Sasol Chief Executive Officer David Constable.
Construction delays caused by rainy weather, higher labor costs and the need to purchase more materials such as concrete, pilings, steel and cable were some of the factors leading to the increase, said Sasol Chief Executive Officer David Constable. The project is 40% complete, he said, and the company has been able to get a better estimate on potential costs as it has progressed.
Constable added the ethylene unit is still expected to be operational in the second half of 2018, with the other units to come on line in 2019. Earlier this year, Sasol announced it had pushed back the timing of parts of the project in response to a steep plunge in the company's profits, the result of lower oil prices. For related information, see April 15, 2016, article - Sasol Maintains Timing for New Louisiana Ethane Cracker, Pushes Back Some Derivatives Units.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
