Up until a few years ago, propylene production was mostly a derivative of the petroleum refining and olefin cracking industries. But that is changing big time. Nowadays propylene demand in Asia is booming, US propane supplies are abundant and propylene output from refineries and olefin crackers is declining. Time to get serious about making propylene on purpose! As a result three new propane dehydrogenation (PDH) plants are expected online at the US Gulf Coast in 2015 and 2016 that will produce 4.3 billion pounds/year. These plants will help close the gap between increasing world propylene demand and declining “by-product” production from olefin crackers and refineries. They will also help soak up growing US propane supplies. Today we examine the recent rapid growth in PDH plant projects.
As regular RBN readers will know – propane is a purity product extracted from natural gas liquids (NGLs) or produced in refineries. It is a “light-end” NGL made up of 3 carbon and 8 hydrogen atoms (C3H8 - see NGL Trading and Pricing Part II – Propane). In our blog about propane earlier this week we described rapidly increasing US propane production and exports in the face of declining domestic demand for heating and cooking (see She Don’t Lie, She Don’t Lie, Propane. Exports Take Off!). Aside from heating, cooking and exports – the other major demand for propane is as a feedstock for petrochemicals. In fact about 40 percent of propane is consumed this way - with a good portion ending up as propylene.
Propylene (also known as propene) is chemically similar to propane – it just has two less hydrogen atoms (C3H6). On its own, propylene is fairly useless – it is a flammable, colorless gas. Without those two hydrogen atoms, the propylene molecule is much more reactive than propane, making it an ideal petrochemical building block to make a lot of materials, including: polypropylene; acrylonitrile (used for acrylic fibers and coatings); propylene oxide (polyurethane resins and other chemicals); oxo alcohols (used in PVC plasticizers and coatings); cumene (used to make epoxy resins and polycarbonate); and isopropyl alcohol (used as a solvent). About two thirds of propylene is used to make polypropylene - one of the best-selling plastics, second only to polyethylene. Polypropylene is used extensively in automobiles and in the manufacture of packaging films, bottle caps, fiber ropes as well as bicycle helmets and diapers.
Demand for propylene is increasing. A Nexant forecast put world demand in 2011 at 176 billion pounds/year, increasing by 3.8 percent a year to 290 billion pounds/year by 2025. Propylene demand is being driven by rapid growth in Asian polypropylene use. China’s propylene consumption accounts for more than 15 percent of worldwide demand and is growing at around 5 to 6 percent per year. The US market for propylene is about 14 billion pounds/year.
But even though it seems like everything we use these days is made from plastic, propylene production is still kind of an afterthought. Most if it is not made “on-purpose”. In fact, propylene is largely a by-product of two other processes. The first of these is petroleum refining – where propylene is derived primarily from the output of fluid cat cracking (FCC) units (see Complex Refining 101). FCC units produce off gases that are input to a propylene splitter to produce “refinery grade” propylene that is about 65 percent pure. The second process is olefin cracking to produce ethylene. Varying amounts of “chemical grade” propylene (92-96 percent propylene) are produced as a by-product from olefin steam cracking, depending on the NGL feedstock used. See Lets Get Cracking Part IV) and Let’s Get Cracking Part III) for more about petrochemical yields from NGL feedstocks..
Trouble is that here in the US, propylene production as a derivative of both these processes is declining. First because gasoline production from refineries is declining with US demand for that fuel and FCC throughput is down as a result (see No Apparent Demand). Second olefin crackers are increasingly using ethane as a feedstock because the shale gas revolution has made it cheap and abundant. Using ethane instead of other NGLs (like propane or natural gasoline) reduces the by-product output of propylene. With propylene demand growing and output from “by-product” processes declining – something had to give. So the petrochemical industry has had to throw caution to the wind and start building brand new plants to manufacture propylene “on-purpose”. Quite a few petchem traditionalists must be turning in their graves.
There are a number of ways to produce “on-purpose” propylene but the hot favorite in today’s market conditions is propane dehydrogenation (PDH). That is because the feedstock for this process – propane - is abundant and cheap particularly in the US. [Overseas PDH plants can also take advantage of growing US propane exports.] The economics of a PDH plant are pretty straight forward - propane in one end, propylene out the other. Profitability relies on the spread between propane and propylene prices. Since there has been a shortage of propylene in recent years prices have risen. At the same time, US propane prices have been low because of abundant shale related output, low demand, constrained exports, etc.. The chart below shows the Gulf Coast propylene spread (difference between polymer grade propylene (PGP – 99.5 percent propylene) and propane at Belvieu) over the past year. The average spread was 39 cnts/lb or 1.8 X the average price of propane. The trend (red line) increased throughout the period.