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The Gulf Coast's chemical industry bounces back with natural gas cracker plants

Written by Reid R. Frazier | Allegheny Front | Oct 21, 2013 8:19 AM
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Photo by Reid R. Fraiser / The Allegheny Front

The BASF petrochemical plant in Port Arthur, Texas, was recently renovated so it could use shale gas to make plastic.

Standing beneath a tangle of pipes, ductwork, and grated catwalks at BASF’s massive ethylene unit in this small refining city on the Gulf Coast, Andy Miller pointed to a large metal box a few feet above his head. Inside, a fire burning at 2,000 degrees Fahrenheit produced an industrial-scale whine.

“If you look up into this little peephole, you’ll be able to see some of the firing,” Miller said.

The orange glow is just one sign of an historic transformation occurring in the U.S. chemical industry and stretching from Western Pennsylvania to the Texas coast. The plant was recently modified to pipe ethane—a key component found in natural gas, especially in shale formations—through its furnaces.

The plant can make more than two billion of pounds a year of ethylene, a key component of plastic that’s used in everything from diapers to antifreeze to plastic bags.

This is where the building blocks for those products begin, said Miller, a manager for BASF. “It starts here.”

Miller’s plant is one of several around the country that have expanded to take advantage of shale gas. In addition, six brand new “world-scale” crackers -- where ethane is ‘cracked’ to make ethylene -- are slated for construction in Texas and Louisiana.

Royal Dutch Shell has proposed building a cracker plant in Western Pennsylvania, in the heart of the ethane-rich Marcellus Shale. It would be the first ethane cracker of its size in the Appalachian region. The company has a land option for a property in Monaca, Pa., in Beaver County and has recently solicited bids for contracts from local ethane producers while it evaluates the site.

The state has promised more than $1 billion in tax breaks over 25 years to the project, which Shell said could provide up to 10,000 jobs at the height of construction.

A key switch

It wasn’t so long ago that Miller’s employer, BASF, couldn’t have used any natural gas here. The plant was built in the 1990s to convert naptha—a crude oil byproduct—into ethylene. It was one of the biggest such facilities in the world, capable of making 2.45 billion pounds of ethylene, enough to make a quarter trillion of plastic bags a year.

But in the late 2000s, the “shale gale” flipped the script for the U.S. chemical industry. Once $12 per thousand cubic feet, natural gas dropped to between $3 and $4. Almost overnight, the shale gas revolution made the U.S. one of the cheapest places in the world to make plastic. The industry took note, and went on its current building boom.

Fracking, the horizontal drilling process used to extract natural gas from shale, has completely revived the prospects of the American chemical industry, experts say.

“It is a huge deal,” says Joe Chang, global editor of ICIS Chemical Business, a trade weekly. “It’s a great amount of expansion, all based on the premise that you’re going to have these low-cost natural gas feedstocks for a long time.”

ICIS estimates that the U.S. capacity to make ethylene—the “big daddy” of petrochemicals—will expand by a whopping 38 percent in the next few years, with plants planned from Freeport, Texas, to Louisiana to Beaver County, Pa.

“It really has changed everything for the U.S. chemical sector,” Chang said.

From bust to boom

Until recently, petrochemical plants were closing in the U.S. Dow Chemical mothballed a plant in St. Charles, La., in 2009.

Chang said companies trying to take advantage of lower cost fuels simply overbuilt. “You had incredible overcapacity,” he said. Companies were flooding the market with ethylene. “It was probably the worst industry downturn in history.”

The shale gas revolution changed all that. That’s because most of the world makes ethylene out of crude oil. In the U.S., natural gas usage has climbed in recent years from 50 percent to 80 percent of the chemical industry’s raw material.

There is so much ethane flowing out of wells from shale formations like the Marcellus in Pennsylvania and the Eagle Ford in Texas that the chemical industry can’t use it all right now, Chang said.

“It just creates a huge margin opportunity,” said Russell Crockett, an industry veteran. The margin—or difference in cost of plastic made in the United States compared with Europe or Asia--is “advantage North America,” Crockett said. “That margin opportunity today is unprecedented.”

Other chemical makers that depend on natural gas—like producers of fertilizer—also are building new plants. In the next five years, the industry expects to build or refit about a dozen plants.

An industry-funded study from research firm IHS estimates that the chemical industry will make $129 billion in new investments nationwide as a direct result of shale gas, adding more than 50,000 permanent jobs to a workforce of around 800,000.

Shell’s cracker in Beaver County could include separate units that further refine the ethylene into products that go into packaging, fibers and other chemicals. Costs have been estimated at around $2 or $3 billion, though Kimberly Windon, Shell’s spokeswoman, said the company is not disclosing the exact amount.

The project could add 10,000 jobs during construction and 17,000 indirect jobs as other chemical companies and suppliers come into the area once it’s completed, said Steve Kratz, spokesman for the state’s Department of Community and Economic Development. The Shell plant could attract companies that make rubber, sealants or PVC pipes.

“The goal would be to bring in an entire new industry cluster to that region,” Katz said.

A typical “world-scale” ethane cracker costs in the neighborhood of $5 billion to build, and creates about 10,000 jobs during construction. But since plant operations are heavily automated, they only create between 350 and 1,200 permanent jobs.

Dan Borne of the Louisiana Chemical Association, echoed Katz’s point about the multiplier effect of the plants.

“If you would take a rock and drop it in a pond, that rock would make a splash and then there would be ripples,” Borne said. “That’s what happens with these chemical plants. One job … creates five others working for contractors, suppliers, the people who make the pumps and valves needed to make those plants run.”

DeBusk Services Group, which cleans out pipes in refineries and chemical plants in Port Arthur, is an example of a business that’s benefitted from the expansion of the chemical industry.

“There’s more equipment to clean now,” said Randall Delahoussaye, safety director for the company’s Port Arthur facility. “It’s helped everybody.”

Delahoussaye said the Port Arthur region suffered after the BP oil spill cooled off drilling in the Gulf. That meant less work at refineries in the area. But the expansion of nearby petrochemical plants in nearby Beaumont and Orange, and the return of offshore drilling have kept his shop humming.

”There’s a whole lot of motels in the area, the businesses stay packed, so the area around here’s been booming pretty good,” said Delahoussaye,

The rebound in the region’s chemical sector means more work for his crew of 50 or so.

But not everyone in Port Arthur has felt the economic boom.

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Photo by Reid R. Fraiser / The Allegheny Front

Jason Warrior, 28, with his daughter Makayla, came to Port Arthur, Texas, to find a job in one of the city’s many refineries and chemical plants. Thus far he has been unsuccessful.

Jason Warrior, 28, came to Port Arthur from Houston three years ago to look for work at one of the plants. Warrior said he got his security clearances and criminal background papers to find work. But, he said, he’s come up empty so far.

“I applied at every place I heard—I couldn’t get a job.”

Reid Frazier is a reporter with The Allegheny Front, a radio program covering the environment in Pennsylvania. Find more stories at alleghenyfront.org. This work was funded in part by the Fund for Investigative Journalism. Next Week: How Houston Struggled to Clean its Air.

PublicSource is an independent investigative news organization that collaborates with newspapers and radio stations throughout Pennsylvania.

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