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.”
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