NATURAL GAS

Brazilian cracker project could land in Marcellus-Utica region

The prospects for downstream petrochemicals production in the Marcellus-Utica shale gas region have brightened with last week's announcement that two global Brazilian industrial and energy firms are considering constructing an olefin cracker and three polyethylene manufacturing plants in West Virginia.

Odebrecht, an engineering and construction firm with 2012 sales of $41 billion, announced Thursday it has a purchase option on an anticipated project site in Parkersburg, W.Va. That lies in the center of an expanding natural gas liquids processing hub along the Ohio River in West Virginia, Ohio and Pennsylvania.

Odebrecht would lead the financing of the project and build the cracker and polyethylene plants for a second Brazilian firm, Braskem SA, the largest producer of polyethylene and other resins in the Americas. The privately held Odebrecht owns 51 percent of Braskem stock.

"Although we realize much work remains to be done, this announcement of a potential project is tremendous news for our state and our region," Gov. Earl Ray Tomblin said last week in announcing the development.

Two weeks ago, Royal Dutch Shell PLC deflated hopes that it would be first to build an ethylene cracker, providing a locally centered plastics manufacturing capacity for the extensive ethane resources in the Utica and Marcellus plays. Shell said that for budgetary reasons, it could not go forward simultaneously with three major North American capital projects on its drawing board, including a proposed cracker near Monaca, Pa.

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"We cannot afford to take all three together at once, and if we could, I am not sure we have the engineers and the project managers to do so. So we will need to make choices which go forward," said Shell CEO Peter Voser. The company hasn't disclosed whether the cracker was likely to make the cut (EnergyWire, Nov. 4).

The West Virginia project -- called Ascent, for Appalachian Shale Cracker Enterprise -- depends on several developments, including securing long-term ethane supply contracts from Marcellus and Utica producers, regulatory and financing approvals, and "appropriate government support," the companies said.

"This is really just the first step in a several-year process," said Braskem spokesman Chuck Glazer in Philadelphia. "We don't have a timetable set yet. The companies are just starting to discuss with state officials possible incentives and infrastructure support.

"We have to see what the state can provide, and we certainly would like some help with the infrastructure incentives," he said.

A decision to proceed by Braskem would mark another major step in its expansion in the U.S. In 2010, it purchased from Sunoco Inc. a headquarters in Philadelphia, a technology center in Pittsburgh, a polypropylene plant in Neal, W.Va., and another in Texas. The next year, it bought two Texas polypropylene production plants from Dow Chemical Co.

Growing production

Wells Fargo analysts this spring estimated that Northeastern natural gas liquids would jump from 281,000 barrels a day on average in 2013 to 484,000 next year and 903,000 in 2017.

The first new pipeline networks to take away the natural gas liquids production from the region are beginning operation, led by the Mariner West project, which will deliver Marcellus and Utica gas liquids to the Sarnia, Ontario, refining center and the ATEX (Appalachia to Texas Express) connection to the Mont Belvieu, Texas, petrochemical and refining complex. The Mariner East pipeline to the Delaware River is to begin serving ethane export markets in 2015.

By 2017, the oversupply of gas liquids in the Northeast could rise to 251,000 barrels a day on average, Wells Fargo estimated, and if the whole ethane component were processed, there would be enough supply to justify another major pipeline or a world-class cracker in the region. Officials of all three states in the Appalachian shale play have pinned their hopes on retaining a substantial amount of ethane, propane and other gas liquids in the region to spark expansion of petrochemical and plastic manufacturing there.

After Shell's announcement, Tom Gellrich, an executive with TopLine Analytics, said the Marcellus-Utica boosters should not lose heart. "If Shell doesn't do this, will somebody else step in?" he asked in an interview last week. "Absolutely. Why not?"

"We will have surplus ethane even if everything gets built," he said of the planned pipeline projects to take gas liquids out of the region. "The percentages of ethane [in the gas production] are higher than anyone previously thought. The amount of ethane coming onto the market continues to increase."

He was also confident that in time, the supply of competitively priced polymers from cheap U.S. gas liquids would bring about a plastics manufacturing revival in the U.S. "There will be whole market sectors that will switch.

"Almost all the toothpaste tubes and sunscreen tubes, for example, come from China. Now we can make those cheaper in the U.S. than China can make them, and not by a little but a lot. IV bags, ballpoint pens, all those things that can be made on high-speed production lines with U.S. plastics are going to be far cheaper in the U.S. than anywhere else in the world."

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