North American ethylene producers are shifting to light NGL feedstock, and it’s a massive and market-altering shift. That was the message imparted by Greg Haas, director, Stratas Advisors, to attendees at Hart Energy’s Marcellus-Utica Midstream Conference in Pittsburgh in late January.

Worldwide demand for ethylene/propylene was 204 million tonnes in 2015; Stratas Advisors forecasts that annual demand will grow to 253 million tonnes by 2030. And a bevy of new projects in the U.S. and Canada are aiming to satisfy that growing demand.

Stratas Advisors forecasts that some 12 million tonnes of new capacity will come online in North America between now and 2021. The first wave of expansion is focused on the Gulf Coast, where more than 90% of the new capacity is planned.

Source: Stratas Advisors A second wave of petrochemical expansions—totaling nearly 8 million tonnes a year—could follow the first wave. If all the first- and second-wave projects come to fruition, 20 million tonnes per year of new capacity would be added in North America alone.

This burst of investment is being fueled by the economics of ethane as a preferred feedstock. In Europe and Asia, naphtha crackers currently have higher costs for fuel and feedstock than those in the U.S., Canada and Saudi Arabia that use ethane.

“Ethane now has a five-fold advantage over naphtha for ethylene production,” said Haas. Ethane crackers need less feedstock, costs of the feedstock are lower, and they require less fuel. Additionally, plants that use naphtha are more complex and cost 50% more to construct than those that use ethane.

While these factors are now spurring petrochem manufacturers to shift to ethane, the reverse was true a few years ago. Before the rise of production from the North American shale plays, naphtha was the more economical alternative.

Appalachian Specifics

The incredible growth of unconventional production from the Marcellus and Utica plays in recent years has opened many opportunities for the Appalachian Basin, and the possibility of building out a significant petrochem manufacturing hub in the region is not the least of these.

The ability of Appalachia to pull this off is real, said Haas. Area producers offer abundant and low-cost ethane, low-cost propane and low-cost natural gas. And, some 70% of North American primary petrochemical demand is located within easy reach of the area.

Of particular interest is the Royal Dutch Shell cracker that is currently under construction in Beaver County, Pa. The Monaca facility is scheduled to come online in 2021 with a capacity of 1.5 million tonnes a year.

It will be a world-scale facility producing ethylene and polyethylene. It has water, rail and road access, giving it great flexibility for logistics.

“We know that Shell is going to be the first cracker in Appalachia,” said Haas. “And we believe Appalachia has room for another, based on our estimates of ethane production from the basin.”

Thai company PTT Global Chemical definitely appreciates the economic possibilities and it is currently investigating the possibility of building a cracker in Ohio. PTT expects to make a decision within a few months on whether it will move forward.

In other promising developments for local NGL producers, Nova Chemical has reconfigured its Corunna plant in Ontario to convert Appalachian ethane. The facility, located about 180 miles southwest of Toronto, supplies between 30% and 40% of Canada’s total demand for primary petrochemicals. Formerly, the plant used naphtha as a feedstock, which was sourced from a now-shuttered refinery on the site.

Several additional plants—in the U.S., Asia and Europe—have also switched feedstocks to the cheaper NGL from Appalachia.

“We see long-term positive economics, and we expect U.S. ethane advantages to persist through a recovery in oil prices,” said Haas. “This is good news for Marcellus and Utica producers and for the region.”