INEOS plans to make a killing with shale gas

It was in the INSIDER last November that we reported on the Ineos Grangemouth refinery and petrochemical plant labour problems, which arose from the turndown in the oil quantity being delivered from the North Sea via the BP Forties pipeline. Because of that uncertain supply, and the ethane feedstock supply contract which runs out in 2017, the petrochemical plant had an uncertain future.

So Ineos have said that they will look to import ethane from the USA, and are conducting studies for the construction of a receiving terminal in Grangemouth. Meanwhile, the company have other European cracker complexes, some of which also require with ethane feedstock supplies, to produce ethylene for the European market as a whole. First priority has been to gain ethane supplies for the Rafnes (Norway) cracker, and one 15 year contract has been signed with Range Resources (USA) for 400,000 tpa ethane, to be delivered via the Mariner East pipeline to Marcus Hook in Philadelphia. From there it will be shipped in three new custom-built (by Evergas) ethane tankers, to Rafnes. At the Rafnes facility, TGE Gas Engineering of Germany is constructing a new ethane storage tank of 17,000 tonnes capacity, with a completion date of December 2014, bringing total site storage to 30,000 tonnes. US shipments are expected to start in earnest in early 2015.

The cost savings are significant

The drive behind this project is the cost savings achievable with US shale gas. Already Rafnes produces ethylene at a cost of $950/tonne, ie quoted as well below the European average. Ineos Olefins and Polymers Europe expects the Rafnes costs to drop to near $500/tonne, with the access to low cost US shale-gas derived feedstocks.

So Ineos is looking at further expansion plans: FEED for a 33,000 tonne storage unit at Grangemouth is being quoted by Babcock International, in competition with TGE, and another tanker build project is being brought forward, with two further in consideration. At Rafnes an expansion of the cracker capacity to 50,000 tpa will be completed by end 2015. A further ethane supply contract has been signed with Consol Energy, and there are discussions with other suppliers continuing.

David Thompson, Ineos procurement and supply chain director, commented “This [Consol] 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 ethylene production in Europe.”

The future for Grangemouth

The options for Grangemouth are still open, and could involve trans-shipment from Rafnes. Plant modifications costing GBP300m would be needed to prepare the Grangemouth site to change the feedstock to shale gas-derived ethane. Ineos has four crackers, with further plants in France and Germany as well, giving a quoted total production capacity of 3 million tpa (although this sounds a very high figure), sourced from both oil and gas feedstocks. So there is a large market demand for efficient low cost plant operations.

Natural shale gas and oil shale reserves occur in hard dense deposits of shale, which were formed from ancient sea basins millions of years ago. Shale is more than just natural gas: the Energy Information Agency (EIA) reports: “Shale plays known primarily for natural gas production – or where horizontal drilling initially targeted natural gas – are also seeing accelerating oil-focused drilling.” In the North Dakota (USA) shale gas area “total oil production has approximately tripled since 2005”. Shale gas is sought in geographic areas where there can be natural gas, and shale oil reserves, in shale rock.

The history tells a story

From 1860, Young’s Paraffin Light and Mineral Oil Company Limited produced oil from shale or coal by “treating bituminous coals to obtain paraffine therefrom”. This company was based in Boghead, near Bathgate in Scotland – the centre of the shale oil industry in the UK that continued until 1920, when the six surviving shale oil companies were purchased by the forerunner of BP. In 1924 the Grangemouth refinery was positioned there, largely because of the large local pool of skilled workers, trained in refining in the Scottish shale oil industry. A map of the shale oil pits and mines can be seen on www.scottishshale.co.uk, and they are spread across the lowlands from Dundee to East Kilbride, with Grangemouth in the middle. Production from 1880 to 1940 totalled around 2m tpa.

So you might be forgiven for thinking that Ineos might be sitting in the middle of an area where shale gas, equivalent to that being processed into ethane for them in the USA, might be right under their feet, associated with the already proven shale oil deposits. Ineos are very forward thinking, so maybe this might come into their planning some time.

  • The US Energy Department has approved exports of liquefied natural gas (LNG) from the Cameron LNG project of Sempra Energy. This approval of up to 1.7 billion cubic feet/day from the Louisiana terminal to countries with which the US does not have a free-trade agreement is the sixth such approval from the US since 2011. The total allowed LNG export level has reached a potential 8.5 billion cubic feet/day.
  • The Nexen Buzzard field, 60 miles northeast of Aberdeen, is the UK’s highest producing oilfield, sending 160,000 barrels of oil equivalent per day via the Forties pipeline to the Kinneal terminal for processing at Grangemouth. It began production in 2007. ABB has recently won a service contract to support the Integrated Control and Safety System (ICSS) on-board the Nexen Buzzard platform. The contract offers a number of new advanced services such as ServicePort (system and process optimisation) and ServicePro (asset management) and includes a maintenance management package with an associated KPI reporting tool. ABB will also host a full scale replica of Nexen’s offshore control network in their Aberdeen office, to perform configuration management and comprehensive testing of all software changes prior to installation on site.
  • The Ineos plans have had a spin-off benefit for their main competitor in Europe, Borealis AG, who have just negotiated a new 7 year supply contract for ethane supplies from Statoil’s gas plant at Karsto in Norway, at much reduced prices. Borealis ceo Mark Garrett said “We think it’s great Ineos is doing it, as it’s helped us in our other negotiations.”

CCS and Government funding for innovation

The UK Government has announced that it will provide GBP100m ($160m) for FEED work on two Carbon Capture and Storage (CCS) projects, which by 2015 will be submitted for review in a GBP1Bn commercialization competition, which will lead to support for the design and construction of commercial scale CCS. The two initial projects supported are at the Peterhead natural gas driven CCGT power station, in Scotland, and at the Drax solid fuel power station, in England.

Peterhead CCGT CCS Project

All initial press coverage was devoted to the Scottish investment, as the London-based UK Government is trying to show how they support Scotland, in the face of a possible Scottish devolution vote in September. Here Shell and Scottish and Southern Electricity plan to capture up to 10m tonnes of CO2 over 10 years, ie over 85% of the CO2 emissions, and transport this by pipeline offshore to the depleted Goldeneye gas reservoir, 100km away under the North Sea. The gas could then potentially be used for enhanced oil recovery projects in other North Sea oil wells. The CO2 capture process here is based on the use of amine solvents to treat the exhaust gases.

White Rose CCS Project

The second FEED project financed is the White Rose CCS Project, run by Capture Power Ltd, a consortium of Alstom, Drax Power and BOC. The project will involve the creation of a new oxy-fuel combustion plant, where coal is burnt in pure oxygen to produce a stream of 2m tonnes a year of pure CO2: it would be based at Drax power station, which is a coal and biomass fuelled plant, located inland at Selby, Yorkshire. A new 17m tonnes pa pipeline by the Yorkshire Humber CCS Trunkline would transport the gas to storage offshorein saline aquifers – this is being developed by National Grid Carbon Ltd, and would serve a cluster of CCS plants around the Humber estuary.

Other CCS Projects by Shell

Shell is already participating in a number of CCS projects worldwide including the largest CO2 capture demonstration facility in the world, the European CO2 Technology Centre in Mongstad, Norway.  In January 2013, Cansolv Technologies Inc (a Shell group company), working in partnership with RWE npower, successfully captured the first tonne of CO2 at the Aberthaw Power Station in South Wales, the world’s first integrated sulphur dioxide and CO2 capture plant. Cansolv Technologies is also providing the CO2 capture technology for the SaskPower Boundary Dam project. This C$1.35Bn development will see the integration of a rebuilt coal-fired 110MW power generation unit with carbon capture technology. The facility will be fully commercial by the summer of 2014, reducing greenhouse gas emissions by 1m tonnes of carbon dioxide (CO2) per annum. Also in Canada, Shell announced plans in 2012 to progress with the Quest CCS project.

Different approaches between the UK and USA over funding

In the UK, the Government-funded Technology Strategy Board suggests which areas of technology and innovation should receive encouragement: for each identified major subject area, a ‘Knowledge Transfer Network’ is established, to facilitate the relevant UK innovation communities of manufacturers, users and researchers to connect, collaborate and find out about new opportunities in key research and technology sectors. Priority areas are established where seed funding is made available to promote further projects. Typical relevant areas are advanced materials; the digital economy; high value manufacturing; energy and greenhouse gases; electronics, sensors and photonics.  The EU runs similar schemes, for example on robots, and Carbon capture/storage (CCS).

Last Month the INSIDER reported on a visit by President Obama to Vacon Drives in North Carolina, where he started the second manufacturing innovation hub, concentrating on energy efficient electronic systems. In another presentation he has announced that four new US hubs are planned this year. A hub in Detroit, Michigan will concentrate on advanced lightweight materials, and a major hub in Chicago, started with $70m of Dept of Defense funding, but supplemented by $250m of State and private funding, will concentrate on ‘Digital Manufacturing design and Innovation’ taking advantage of digital technology and data management. This already involves 40 companies, 23 Universities and 200 small businesses. Obama believes Germany has over 60 such hubs, which develop the ideas, then the production, and then train the workers: so why should the USA not learn from this model, to re-invigorate US manufacturing industry? Obama hopes that Congress will follow his lead.