Ethane imports to Europe: An option with challenges
11:20 AM MDT | March 21, 2014 | —Francinia Protti-Alvarez
Europe’s cost-competitiveness handicap in petrochemicals continues to grow in comparison with other regions. The continent’s petrochemicals sector operates in an environment where key production costslabor, energy, and feedstock—are high, and demand for commodity chemicals is sluggish. Naphtha is Europe’s main raw material, so expanding the use of less-costly ethane as feedstock, be it sourced locally or imported, remains the best chance for the region’s petrochemicals industry to regain some competitiveness.
The United Kingdom is the Western European country that has made the most progress in developing a shale-based energy industry. The UK government has offered incentives, and companies including Cuadrilla Resources (Lichfield, UK) and Total have announced plans this year to explore for shale gas at sites in England. However, while there is much debate about the role that shale gas could potentially play in helping Europe balance its energy mix, much more needs to be done to determine its potential. And, fracking remains banned in France, another Western European country with potentially sizeable shale reserves.
“We need more exploration. Until we know how much is actually commercially viable, most conversations about the impact shale gas will have on the UK energy mix and the rest of Europe will remain speculative,” says Marcus Pepperell at Shale Gas Europe (Brussels), a resource center supported by leading multinational energy companies.
As Europe assesses and figures out the how and the when of developing its own shale gas capabilities, imports of cheap ethane from the United States offer the best alternative to the region’s high-priced energy and feedstock slate. The viability and feasibility of converting Europe’s steam crackers to consume US ethane is contingent on their locations and designs. Crackers at coastal locations in Europe are the most suitable, given the complicated logistics of transporting and storing ethane, analysts say. “This is a pretty sensitive topic, and it is not easy to say who can do what; there are many challenges to making these conversions,” says Matthew Thoelke, director/olefins at IHS Chemical. “The level of costs required is very broad but would be equivalent on a dollars-per-tonne of capacity basis to a significant portion of a new cracker’s cost—10s of percent. Investment time would be in the order of 1830 months versus five to six years for a completely new-build cracker. Europe could agree on ethane volumes, but it would depend on the contract terms that could be agreed with US suppliers as to how secure it would be.”
Supply is the point of origin for any feedstock outlook analysis. Technology has, over the last couple of decades, allowed cracker operators to run their plants on a wider range of feedstocks, increasing their operating flexibility. As a result, the operators of certain coastal crackers in Western Europe have invested in technology that enables the plants to crack alternatives to naphtha, such as butane and, more recently, propane, IHS Chemical says (map, p. 30).
“In Europe, steam crackers have evolved along two paths. The dominant approach requires finding the feedstock to satisfy the demand of a cracker that is located to supply the regional market. These are demand-driven investments. The other approach has been for a cracker to be associated with feedstocks that are by-products from North Sea oil and gas production. These crackers run on a combination of ethane, propane, butane, and naphtha,” Thoelke says.
Borealis announced in late 2012 that it was looking at the possibility of importing ethane from North America to feed the company’s crackers at Stenungsund, Sweden; and Porvoo, Finland. Each plant is flexible and can already crack ethane. However, in February this year, Borealis renewed its contract to source ethane for the Stenungsund cracker from Statoil’s (Stavanger, Norway) gas plant at Kårstø, Norway. The new contract will start in October 2015 and last for seven years. “For us in our set up in [Stenugsund], we are already taking ethane from Statoil, [but] these are smaller ships that are going back and forth from the North Sea. We recognize that the shale gas play will impact Europe. [For operators] who have the flexibility to crack ethane, it does not really matter where that ethane comes from,” Daniel Shook, CFO of Borealis, tells CW.
Transporting ethane over long distances is far from easy. Ethane is not commonly transported by tanker because the gas’s high volatility and vapor pressure require specially designed vessels rather than refrigerated liquefied petroleum gas carriers, according to the IHS Chemicals Economics Handbook. Intercontinental ethane tankers need to be much bigger, and they require a bigger investment than those regularly used in the North Sea. “The tankers that you need are of a different scale, since large shipments are required for the economics to work,” Shook says.
But, the economics of shipping ethane in such vessels from the US East Coast to Europe could still be favorable. A virtual, transatlantic pipeline needs to be established, to enable the shipment of ethane in sufficiently high quantities. “[Ethane imports] require investments on both sides of the Atlantic—on the US side, export terminals... liquefaction facilities, etc. It is the same with natural gas,” Shook says. Liquefied natural gas import terminals can be converted to export ethane.
Ineos is the only cracker operator in Europe to have taken steps toward establishing a virtual, transatlantic ethane pipeline, and the company is scheduled to start importing US ethane into Europe from 2015. Ineos has agreed to long-term deals with Range Resources Appalachia (Fort Worth, TX) for lifting ethane from the Marcus Hook, PA, industrial complex from 2015. Ineos has also finalized a 15-year, pipeline-transportation deal and a 15-year, terminal-services agreement for shipments of ethane from Houston, PA, to Marcus Hook via the Sunoco-operated Mariner East pipeline and terminal system. Ethane from the Mariner East project will become available from 2015.
The pipeline and terminal agreement is complemented by a 15-year shipping agreement with Evergas (Copenhagen) for the transportation of ethane to Europe. Evergas, to deliver the services, entered into contracts for the construction of four state-of-the-art customized vessels that will be dedicated to these shipments. Ethane will be shipped from Marcus Hook to Ineos’s Rafnes, Norway, cracker complex. Delivery of the vessels, each 27,500 cubic meters in size, is also scheduled for 2015.
Ineos announced in February a separate ethane-purchase agreement with Consol Energy (Pittsburgh). Feedstock from Consol will also be transported through the Mariner East infrastructure, and supplies to Europe will start in 2015. “This contract adds to our supply portfolio providing for long-term sourcing of advantageously priced US ethane for our European crackers. It will allow us to continue to consolidate the competitiveness of Ineos’s ethylene production in Europe,” said David Thompson, director/procurement and supply chain at Ineos, when announcing the company’s deal with Consol.
Construction of a new ethane tank at the Rafnes site started in the first quarter of 2013 and is slated to be completed in early 2015. The tank will be capable of storing its first ethane loads from the second quarter of 2015, Ineos says. Ineos, meanwhile, is studying constructing an ethane terminal at the company’s Grangemouth, UK, complex that would handle imports from the United States for consumption at the site’s larger cracker.
“[Steam cracker operators] who have flexible cracking—like Borealis, like Ineos, and a few others who have coastal crackers—will help Europe stay a bit more competitive,” Shook says. “[For those that] have a pure naphtha cracker, to convert over to ethane is a more expensive activity. The cracker that [Ineos is] utilizing [at Rafnes] requires very little changes because it was already a gas cracker. They are just increasing the amount of ethane that is going through it. For operators that already have light-feed capabilities, like Borealis, the investments would also not be too dramatic from the standpoint of converting the equipment.”
Versalis (Milan) announced in May 2013 that it plans to assess the ethane-imports option to improve the company’s profitability. The Versalis cracker at Brindisi, Italy, is capable of using gas feedstock and, with minor adjustments, Versalis’s Dunkirk, France, facility could also gain the flexibility to use gas, the company says.
Timing is the main challenge for future cracker modification projects in Europe. The olefins industry in the United States is expected to develop in the next decade to sufficient steam-cracking capacity to consume any excess ethane, rendering ethane exports less attractive for US upstream and midstream companies, IHS Chemical says. “For any [European cracker] investments to achieve satisfactory return, the operation will have to get underway quickly, giving a window of four to five years to cover the investments,” Thoelke says.
Connect with IHS Chemical Week
Our related sites