Companies reconsider ethane cracker in West Virginia amid low oil prices

Chemical plant
Source: DollarPhotoClub

Two Brazilian companies: a construction firm Odebrecht SA and petrochemical company Braskem SA, have announced that they are reconsidering a previously agreed construction of a multibillion-dollar natural-gas refining complex in West Virginia.

When the Appalachian Shale Cracker Enterprise, or ASCENT project, consisting of an ethane cracker and three plants to produce polyethylene, was announced in November 2013, Democratic Gov. Earl Ray Tomblin called it a “game changer” for the state that has seen its mines close down, pushed out of the market by the flourishing gas industry.

Now, Odebrecht and its subsidiary, Braskem, have confirmed that they intend to re-evaluate plans to build the cracker, though they have not officially cancelled the project.

“From the beginning, we have taken a deliberate approach to Project ASCENT. Under the current energy scenarios, the original configuration of Project ASCENT needs to be revaluated and a final investment decision on the Project will require more diligence,” Odebrecht said in a statement.

“We have already begun our re-analysis and will continue to take a prudent, deliberative approach to ensure that ASCENT’s business will be successful and sustainable for the region, our shareholders, team members, industry partners, and clients,” they concluded.

The abundance of natural gas from shale drilling in the U.S. has created a boom in the petrochemical industry on a scale not seen for years.

Speaking at the Shale World UK conference in Birmingham last week, Chris Faulkner of Breitling Energy was upbeat about the U.S. downstream: “I can tell you that two years ago, there were eight projects that were under way as far as manufacturing plants, petrochemicals coming to the United States. Today there’s 225 of those plants, or over about a $100 billion investments, and about 50,000 new jobs that’s going to be created by the fact that the manufacturing is moving back.”

But the sun is no longer shining on natural gas consuming plants. Back in the day when natural gas was cheap and oil was expensive, petrochemicals produced ethylene from ethane, but now, with the oil price low the companies find that it is more advantageous to produce ethylene from naphtha. This is the reason why Braskem and Odebrecht have decided to re-evaluate the Wood County ASCENT project.

“The problem has nothing to do with anything that we can fix,” Chris Stadelman, a spokesman for Mr. Tomblin, said. “It’s just watching how this worldwide market evolves.”

The future of the plant is held in the balance, weighing the potential advantage in using ethane derived from regionally sourced shale gas and comparing it to building in Europe and using oil-derived ethane. According to Fernando Musa, CEO of Braskem America, this advantage had been around $600 per metric ton. It’s now about $150 per metric ton. Still, he said there is a compelling case for a West Virginia facility because of the ethane supplies and because the plant would sit within 500 miles of 40 percent of the market.

Musa also said the company may entertain reconfiguring the plant to crack both ethane and propane as opposed to ethane only, although he said he believed that in the end, the plant would crack only ethane if it’s built.

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