Waiting game as low oil prices have chemical cracker developers sitting tight

ethylene-crackersPower Source

By Anya Litvak

In the long run, low oil prices will create more demand for chemicals, which will make it easier for companies like Royal Dutch Shell and Odebrecht to pump billions of dollars into new ethylene crackers.

In the short run, such projects may be delayed while crude oil prices, which have dropped by 50 percent since the summer, feel around for a new normal.

To understand why several proposed petrochemical crackers recently announced delays or hesitations about going forward, it’s necessary to separate the oil from the gas.

“The reason everybody was betting on building ethane crackers is because there was a very large difference between oil and natural gas prices,” said Maria Mejia, a natural gas liquids analyst with Bentek Energy, which is headquartered in Colorado.

Ethane crackers turn hydrocarbons into ethylene, a starting point for a variety of chemical products. As feedstock, these plants can use either naphtha, a crude oil-based product, or ethane, a natural gas liquid. Where ethane is significantly cheaper than naphtha — such as in swaths of the Marcellus and Utica shales where wet gas is plentiful — crackers using the natural gas liquid have a significant upper hand.

At least three ethane crackers have been proposed in the Appalachia Basin, which contains the Marcellus and Utica shales, and each is a multibillion dollar proposition. The biggest guessing game has been around Shell’s plans for the former Horsehead Industries site in Beaver County, where the Dutch energy and chemical giant already has spent three years and millions of dollars to demolish the site and buy adjacent properties. Just last month, it purchased another Potter Township parcel for $5 million in order to reroute and widen a highway ramp.

Despite all the money and work already embedded in the venture, Shell has not made a final decision to build or not. It expects to decide sometime this year or next, according to its investor guidance.

Read more

Comments are closed.