The margin for producing ethylene by steam-cracking ethane has been less than a dime per pound since mid-March 2018, and less than a nickel for nearly nine of the past 15-and-a-half months. In fact, for two weeks last September, the ethylene-from-ethane margin fell below zero. And yet, a joint venture of two of the world’s savviest companies — energy giant ExxonMobil and petchem behemoth Saudi Basic Industries Corp., or SABIC — recently committed to building what will be the world’s largest ethane steam cracker: a 4-billion-pounds/year facility to be constructed near Corpus Christi by 2022. Is this a case of blind optimism? No, not when you factor in the cracker’s location, the JV’s concurrent plan to construct two polyethylene plants and a monoethylene glycol plant right next door, and the co-developers’ global market reach. Today, we discuss the thinking behind ExxonMobil and SABIC’s big investment in Texas’s San Patricio County.
The Shale Revolution and the resulting rise in U.S. production of crude oil, natural gas and natural gas liquids (NGLs) have been the catalyst for many things. Refinery retrofits to allow more light-sweet shale crude to be processed. Liquefaction plants and LNG export terminals — new crude and LPG export infrastructure too. A slew of new natural gas-fired power plants, accelerating the retirement of coal generators. And, as we’ve discussed at least a few times in the RBN blogosphere, a long list of new, mostly ethane-only steam crackers — almost all of them along the Gulf Coast — to take advantage of the humongous volumes of ethane and other NGLs emerging from wells in the Permian, Eagle Ford, SCOOP/STACK, Marcellus/Utica and other shale plays.
We’ve discussed the planning and buildout of a new generation of steam-cracking capacity in a number of blogs, including in our Ethane Asylum Revisited series. There, we explained that the now more than 40 stream crackers in the U.S. (capacity totaling 76 billion pounds/year as of May 2019) “crack” a variety of feedstocks (ethane, propane, butane, naphtha, gas oil) to produce ethylene as well as smaller volumes of propylene and other useful products. More than half of the plants are designed to crack specific feedstocks (mostly ethane or ethane and propane), while the others can switch between feedstocks to maximize their profitability — a function of the prices of feedstocks (ethane, propane, normal butane, etc.) and products (ethylene, propylene etc.), and the volumes of ethylene and other products that various feedstocks produce (see You're the One That I Want for more about petrochemical feedstock selection). All but a handful of these crackers are located along the Gulf Coast, in large part because of the region’s abundant and generally lower-cost sources of feedstocks and natural gas, its proximity to import and export terminals, and the fact that a number of key locations along the Gulf Coast sit above underground salt formations that could be — and in many cases have been — developed into huge storage tanks for both feedstocks and petchem products.
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