August 24, 2016, RBN Energy, Housley Carr- NOVA Chemicals’ 1.8-billion-pound/year ethylene plant in Sarnia, ON already is one of the largest consumers of Marcellus/Utica-sourced ethane, and plans are in the works to significantly increase the steam cracker’s ethane consumption. In 2018, NOVA will complete a project that will enable the cracker to be fed 100% ethane; the petrochemical company also is mulling a cracker expansion –– again with ethane as the feedstock –– and a new polyethylene plant next door. All these plans are driven in large part by the availability of low-cost ethane piped from the U.S. Northeast. Today, we continue our review of southwestern Ontario’s NGL, petchem and refining infrastructure with a look at the big effects of NOVA’s plans.
From the beginning of the hydrocarbon era in North America, Sarnia has played an outsized role in crude oil, refining and petrochemicals, in large part due to that essential truth of real estate: Location, location, location. First, it was its local oil resource. As we said in Part 1 of this series, an 1858 oil well in nearby Oil Springs, ON is said to have been the first on the continent. Over time, oil-production, refining and petchem infrastructure was developed in southwestern Ontario (as were railroads and pipelines); that infrastructure made Sarnia a refining/petchem center, a position that continues to this day, decades after most oil production in southwestern Ontario dried up. In Part 2, we looked at the crude oil side of things, describing the three refineries in Chemical Valley, the oil pipelines that supply them, and the petroleum-products pipelines that help move the refineries’ output to market. Then, in Part 3, we turned to Sarnia’s increasingly important natural gas liquids (NGLs) sector –– the pipelines that transport purity ethane and mixed propane/butane to Chemical Valley, the fractionator that separates the propane/butane mix into purity products, the NGL storage facilities, and the big NOVA ethylene plant that “cracks” ethane, propane and butane into petrochemical products, with the star of the show being ethylene –– a critically important petchem building block.
Today we zero in on ethylene and polyethylene production, particularly on NOVA’s ambitious plan to capitalize on its advantageous location in Sarnia –– near the Marcellus/Utica’s vast supply of ethane, atop salt formations that provide ideal ethane storage, close by several polyethylene plants that consume ethylene, and within a day’s drive of half of North America’s demand for ethylene/polyethylene-based products –– by retooling its Sarnia cracker (photo below) so it can consume up to 100% ethane (instead of its current combination of about two-thirds ethane and one-third propane/butane) and then (possibly) expanding its cracker to further increase its ethane use and ethylene production, and building a new polyethylene plant nearby.
The Sarnia cracker came online in 1977, was purchased by NOVA in 1988, and relied on oil-based naphtha (from a crude/condensate topping unit at the NOVA site) as its primary feedstock until 2006 and its partial feedstock source until 2014. Like other ethylene producers, NOVA has been adjusting to the changing dynamics of cracker feedstocks by moving away from naphtha and toward liquefied petroleum gases (LPGs/propane, butane) and ethane (see RBN’s Drill Down report on steam cracking and cracker economics, What’s Crackin’ With Steam Crackers?, for an in-depth look), and revamping its ethylene plant as it went along. First it reworked some of its cracker furnaces to allow a feedstock switch from naphtha to propane and butane (in 2006), and then, when Marcellus/Utica ethane became available with the completion of Energy Transfer Partners/Sunoco Logistics Partners’ 50-Mb/d Mariner West ethane pipeline, NOVA upgraded its feedstock capabilities again to allow a switch to roughly two-thirds ethane in November 2014. Today, NOVA’s Sarnia cracker consumes about 37 Mb/d of ethane (all of it from Mariner West) and 17 Mb/d of propane and butane (some of it piped in from Alberta and fractionated at the Plains All America/Pembina Corp. fractionator in Sarnia, some railed in.) The cracker’s feedstock transition from naphtha to NGLs was facilitated by the availability of salt-cavern storage capacity (by far the cheapest, most efficient way to stockpile ethane, propane and butane) in southwestern Ontario and (across the St. Clair River) in southeastern Michigan. Producing, fractionating and delivering NGLs is challenging enough, but they also need to be stored nearby, both to ensure the continued availability of cracker feedstocks in the event of supply interruptions (an offline pipeline or fractionator, for example) and to allow the “staging” (or timed delivery) of feedstock to the cracker’s furnaces. Nearby salt-cavern storage is especially important for a cracker that depends in part or in whole on ethane, which cannot be easily transported by rail or stored above ground.
NOVA’s Sarnia steam cracker (large kelly green rectangle in Figure 1) has the capacity to produce 1.8 billion pounds/year of ethylene (and 700 million pounds/year of by-products like propylene, hydrogen and butadiene). The ethylene produced at the cracker is transported by pipeline to NOVA’s three nearby polyethylene plants: Two units (one producing low-density polyethylene, or LDPE, and the other producing high-density polyethylene, or HDPE) with a combined capacity of 840 million pounds/year at its Moore facility in Mooretown, ON (medium kelly green rectangle at bottom center), and NOVA’s 395-million-pound/year St. Clair River plant in Corunna, ON (small kelly green rectangle near Shell refinery, the red rectangle). The St. Clair River unit uses a proprietary technology called SCLAIRTECH (for “St. Clair technology,” we assume) that can be used to make a variety of products, from linear LDHE to HDPE; HDPE is the primary product. A second, older (and less efficient) polyethylene unit at St. Clair was shut down in 2004.
With so much working in its favor (an existing steam cracker, ethane availability, salt-cavern storage, nearby polyethylene plants), NOVA earlier this year committed to a (Canadian) $400 million ($310 million in U.S. dollars) project that in 2018 will enable its Sarnia cracker to be fed up to 100% ethane, which would likely increase its ethane consumption to at least 50 Mb/d. The ethylene plant’s furnaces will retain the ability to use at least some propane and butane as feedstocks, whenever it makes more economic sense to use those feeds instead of ethane.
In North America, ethane is typically the go-to cracker feedstock, assuming that it’s reliably available at relatively low cost. As we explained in our What’s Crackin’ Drill Down report, cracking different feedstocks results in significantly different product mixes; one of the main reasons ethane is preferred is that about 78% of its output is ethylene (frequently the highest margin cracker product), compared to only 40-42% ethylene output at crackers that are fed LPGs and a dismal 30% ethylene output at naphtha-fed crackers. The key takeaway is that when NOVA’s Sarnia cracker is retooled to allow up to 100% ethane, it will be a fearsome ethylene-production machine, and –– assuming the cracking margin (the margin from processing ethane into ethylene) remains robust (with low Marcellus/Utica ethane prices and high prices for ethylene –– the way things stand right now, by the way), a profitable machine at that.
When its Sarnia steam cracker redo is completed in 2018, NOVA will need an additional source of Marcellus/Utica ethane supply beyond the 50-Mb/d Mariner West pipeline –– not only for the incremental ethane volumes it will require when the cracker switches to 100% ethane but for diversity and reliability’s sake. In other words, don’t put all your ethane in one pipeline, especially when you depend on a steady supply not only to run a huge cracker but to supply ethylene to NOVA’s three nearby polyethylene plants. NOVA therefore has signed on as anchor shipper on the 50-Mb/d Utopia East Pipeline (Utopia being an acronym for Utica-To-Ontario-Pipeline-Access), a 215-mile, 12-inch-diameter facility planned by Kinder Morgan (and the pipeline project’s new investor, Riverstone Investment Group, which in June 2016 agreed to take a 50% stake) that will run from the heart of the Utica production area in Harrison County, OH to the Michigan state line in Fulton County, OH. There Utopia East will connect to the easternmost segment of Kinder Morgan’s existing 12-inch-diameter Cochin Pipeline, which runs to Windsor, ON; from there, ethane will flow through Plains All American’s 12-inch-diameter Windsor-to-Sarnia Pipeline (WSP; blue line in lower right of Figure 1). A new connector pipeline built by NOVA will link WSP to NOVA’s Sarnia cracker and the nearby Pembina Corunna (salt-cavern) NGL storage site (orange square next to NOVA’s cracker), much of which NOVA has under contract. Utopia East continues to seek various required federal and state approvals, and the developer is negotiating right-of-way agreements with landowners along the pipeline’s route. Kinder Morgan plans to begin construction of Utopia East next year and complete the project in 2018.
The conversion of NOVA’s Sarnia steam cracker to 100% ethane is only part of the company’s larger plan to boost ethylene (and polyethylene) production in southwestern Ontario. NOVA in 2017-18 will decide whether to expand the capacity of the cracker by another 50% or more and to build a new polyethylene plant that would use an advanced version of the SCLAIRTECH process. If those related projects are a “go” they would come online in 2022. That means that in six years NOVA’s Sarnia complex could be consuming as much as 75 Mb/d of ethane, twice what it uses today. Ironically (considering the big investment NOVA is making), that would make NOVA/Sarnia only the second-largest in-region consumer of Marcellus/Utica ethane. Shell Chemicals recently confirmed its plan to build a (U.S.) $3 billion ethylene/polyethylene complex in Beaver County, PA (near Pittsburgh) that will consume 90 Mb/d of ethane when it starts up in the early 2020s (see Ain’t Wastin’ Time No More and Only Time Will (Sh)ell). All that local/regional cracker demand for ethane, along with rising demand for ethane from ethane-only or flexible crackers on the Gulf Coast (and ethane exports via the Mariner East pipeline to the Marcus Hook, PA marine terminal), will surely have an effect on future ethane prices (see the RBN Drill Down report It’s Not Supposed To Be That Way).