BASF to invest in methane-to-propylene plant in the U.S.

BASF chemical plant, Germany
Source: DollarPhotoClub

The German chemical company BASF has announced that it is considering building a methane-to-propylene plant in the U.S. to capitalise on cheap American gas.

At a cost of 1.4 billion dollars, this would be BASF’s largest single-plant investment to date. Its previous largest investment was a 1 billion Euro plant in Ludwigshafen, Germany, producing toluene diisocyanate, or TDI, a component used in seating cushions and mattresses.

“The production of propylene would allow us to take advantage of low gas prices due to shale gas production, considerably improve our cost position and improve our backward integration in the U.S.,” Chief Executive Officer Kurt Bock said in today’s statement.

The boom in shale gas exploration made methane cheap and readily available, but it had a knock-on effect on the price and availability of propylene, used for the production of products such as coatings, polymers and detergents.
When ethylene is made from naphtha – a distillation product from petroleum – a significant fraction of the output is propylene. But when ethylene is made from ethane it yields a significantly lower amount of propylene. Therefore, a methane-to-propylene plant will benefit from low prices of methane to produce a much more expensive propylene.

The cost of methane in the U.S. is approximately three times lower than in Germany, thanks to the shale gas exploration boom. Germany, by contrast, put a ban on hydraulic fracturing – essential in exploiting shale gas deposits. German commitment to renewables is laudable from an environmental point of view, but it makes energy prices consistently high.

As a result, many foreign companies are looking to buy a stake in the U.S. shale gas industry. BASF has warned that in the future more than 50 per cent of its investments will occur outside Europe as a result of lower demand and higher energy costs there. Recently, the company has also converted a cracker at Port Arthur, Texas, to run on ethane, which is derived from shale gas.

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