CERAWeek: Unconventional gas lifts US petrochemicals

Bob Tippee
OGJ Editor

HOUSTON, Mar. 9 -- Rapid growth in gas supply from shales and other unconventional reservoirs inverts expectations for North American petrochemicals and underscores the importance of feedstock flexibility in an integrated business strategy, says the leader a major US petrochemical manufacturer.

The brightened business outlook shows the importance of integrating petrochemicals not only with refining but also with upstream operations, according to Stephen Pryor, president of ExxonMobil Chemical Co. and vice-president of ExxonMobil Corp.

A 20% surge in gas supply from unconventional resources during the past 5 years has boosted ethane production by 25% and lowered the cost of an important feedstock, Pryor told an IHS-CERA Week conference session.

“We see ethane reemerging as an advantage feedstock in North America, reflecting the growing production of unconventional natural gas and the increasing importance of gas in the world energy mix,” he said.

In the US last year, the growing supply of relatively low-cost ethane strengthened margins for ethylene and derivatives, lightened the feed slate, and increased US exports.

“The current strength of the US petrochemical market contrasts with conventional wisdom of just a few years ago when it was believed that US petrochemical production would decline, feed slates would get heavier, and the US by 2010 would flip into a net import position,” Pryor said. “Actually, exports grew by about 28% last year.”

Capacity gains?
The ExxonMobil Chemical chief doubts that the improved outlook for North American petrochemicals will lead to an early surge in grassroots construction of ethane crackers.

At least in the near term, he said, capacity growth will be incremental, resulting from debottlenecking of existing light-feed capacity and limited conversion of heavy-feed crackers.

Capacity investment will depend on the pace and pattern of North American ethane supply growth, which in turn will depend on the location and rate of unconventional gas development, liquids content across geologic plays, and construction of equipment able to strip, transport, and store NGLs.

“Just as in refining, incremental investment in feed flexibility and capacity creep are the most efficient ways to meeting growing demand in a mature market like North America, major investments at full grassroots costs would be subject to significant risks relative to long-term oil and gas prices, export economics, and gas developments around the world that could provide feedstocks for competitors overseas,” Pryor said.

Integration strategy
Feedstock flexibility is central to what Pryor described as the “site-wide optimization” ExxonMobil Chemical applies in its integration strategy.

It involves “having the flexibility to process a wide variety of feedstocks and selecting the feed slate that generates the highest value for the integrated complex,” he said. “It entails adjusting the process conditions and product slates in real time so that you extract maximum value from every molecule processed.”

Integration is “more than simply collocating refineries with petrochemical plants,” Pryor said.

It involves optimization not only of feedstocks but also of products, costs, capital, and people. Pryor said 90% of his company’s petrochemical capacity is integrated with refining or gas processing capacity.

The process is continuous and oriented to long-term outcomes. Managing through the “turbulence” of modern markets requires a “disciplined, long-term approach that does not change with short-term changes in commodity prices and profits,” he said.

Contact Bob Tippee at bobt@ogjonline.com.

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