Steel tariffs could delay projects; Greenfield Nitrogen to build Ammonia plant; Shell forecasts possible LNG shortage; Chemical digital spending climbs
Our pick of the latest petrochemical news you need to know
Steel tariffs could delay new projects
New U.S. steel import tariffs could delay or reduce new pipeline projects as well as dent exports of liquefied natural gas (LNG) and other chemical products, industry trade groups said.
President Donald Trump said the U.S. will impose tariffs of 25% on steel imports and 10% on imported aluminum.
Although Trump initially wanted to apply the tariffs worldwide, carve-outs may be added for Canada, Mexico, and other countries. Canada is the leading supplier of imported steel and aluminum to the U.S., accounting for 16% of imported steel and 41% of imported aluminum, CNBC reported.
“For a chemical manufacturing industry that has invested $185 billion in new factories, expansions and restarts of facilities around the country, President Trump’s announcement comes at the worst possible time,” the American Chemistry Council (ACC) said in a statement.
“More than half of these investment projects are still in the planning stage, and market shifts caused by tariff increases may convince investors to do business elsewhere,” the ACC continued.
Since 2010, chemical producers have announced 317 new projects valued at $185 billion in new investment.
The projects are expected to yield $310 billion in new economic output per year and create 465,000 direct and indirect jobs – many in regions of the U.S. that need them the most.
“Chemical companies can’t grow as quickly or deliver the same innovative and affordable products if the facilities where those products are made suddenly become costly to build or maintain,” the ACC said.
DowDuPont said the steel tariffs may force new projects away from the U.S. and it is now considering Canada or Argentina in addition to U.S. Gulf, for its next major investment.
“The tariffs would add hundreds of million of dollars to Dow Dupont’s next wave of petrochemical expansion,” COO Jim Fitterling told the CERAWeek energy conference in Houston.
DowDupont last year completed $6 billion in construction of new factories along the Texas Gulf Coast which contained $1.2 billion worth of steel.
Trump’s 25% tariff on steel imports would have added $300 million in costs to the projects.
Bulk material costs for U.S. Gulf Coast construction projects rose by 20% in 2017 as tightening global steel, supply competition and squeezed U.S. labor markets continue to pressure prices, according to Petrochemical Update’s US Ethylene Complex Construction Costs Data 2018-2020 report.
Bulk material costs for a typical 1.5 million tons per annum (mtpa) ethane cracker on the U.S. Gulf Coast rose 20% in 2017, to $727 million.
Bulk material costs represent 29% of the total construction costs for a 1.5 mtpa ethane cracker and overall project costs rose 19% in 2017 to $2.5 billion. The official U.S. inflation rate average for 2017 was 2.1%.
The cost of piping systems-- which represent the highest bulk material cost component-- rose 20% year-on-year to $358.2 million, mainly driven by higher steel prices and a supply/demand imbalance.
U.S. Steel announced plans to restart one of two idle blast furnaces in Granite City, Ill., and call back some 500 workers.
While the news could boost the U.S. steel market, engineers are concerned that the type of pipe and steel used to make large diameter, thick-walled pipe used for interstate natural gas pipeline projects and chemical plants are niche products that are not available off the shelf or even from a wide variety of manufacturers.
Greenfield Nitrogen plans to build Iowa Ammonia plant
Greenfield Nitrogen plans to raise $120 million to build the first regional anhydrous ammonia plant through grass-roots ownership in Garner, Iowa.
The plant will cost an estimated $220 million and will produce 120,815 tons of ammonia annually. On-site storage will allow the company to sell and store up to 66,000 tons, or 50% of annual production for maximum profitability.
A seed capital round has already raised $4.7 million. The site is shovel-ready and permits are in hand. Construction is set to begin later this year and production is expected to begin in 2020.
Ownership will give farmers and agricultural retailers access to attractive manufacturers' margins.
"Greenfield Nitrogen has created a truly distinctive way to allow farmers and agricultural retailers to invest in the same facility so that all investors gain access to manufacturers' margins," said Karl Theis, Founder at Greenfield Nitrogen. "No other plant has invited participation from both groups."
Image: Greenfield NItrogen
In the last decade, abundant, low-cost natural gas made the U.S. one of the world's lowest-cost producers of nitrogen fertilizer. Still, the U.S. continues to import more than 6 million tons of nitrogen fertilizer, which is shipped long distances to reach the Midwest.
While many nitrogen facilities have increased production, they now produce urea, or other nitrogen products, leaving less net ammonia available.
It is projected that after 2018, the Midwest could see a decline of up to 390,000 tons in the domestic supply of anhydrous ammonia due to product upgrades.
Located in the heart of the Corn Belt, the Garner plant will serve the agricultural community within a 100-mile radius and produce enough ammonia to meet one third of the expected shortfall and approximately 1-2% of overall nitrogen imports.
Should the market change in the future, the plant will be able to upgrade to other nitrogen products.
Investment opportunities are open to accredited investors and early forecasts show a 16-20% return on investment.
Shell forecasts possible LNG supply shortage on rising demand
More than $200 billion of investment liquefied natural gas (LNG) is needed, or the world could be dealing with a supply shortage developing in the mid-2020s, according to the 2018 LNG Outlook created by Shell.
Following the wave of investment from 2011 to 2015, ¬investment decisions on LNG projects have nearly stopped as a result of weaker energy prices.
As LNG projects generally take more than four years to start production, new supply will not be ready until well into the next decade.
Final investment decisions on new LNG supply projects are required soon to avoid a supply shortage in the 2020’s, according to the Shell Outlook.
A mismatch in requirements between buyers and suppliers has emerged that needs to be resolved to enable project developers to make ¬final investment decisions needed to ensure enough future supply of this fuel, Shell said.
Most suppliers are still seeking long-term LNG sales to secure financing. But LNG buyers increasingly want shorter, smaller and more flexible contracts to remain competitive in the downstream power and gas markets in which they operate.
The global liquefied natural gas (LNG) market has continued to defy expectations, growing by 29 million tonnes in 2017, according to Shell's outlook.
The number of countries supplying LNG stands at 19, up from 12 at the start of the century.
Over the same period, the number of countries importing LNG has quadrupled, with LNG trade increasing from 100 million tonnes in 2000 to nearly 300 million tonnes in 2017.
Natural gas is expected to grow at an average of 2% per year over the next couple of decades; twice the rate of total global energy demand. Demand for LNG is set to increase at an average of 4% per year. Gas is expected to account for over 40% of total energy demand growth over the next two decades,
Chemical firms spending more on digital
80% of chemical companies are investing more in digital technologies for their plants, according to a survey by Accenture.
The survey of 360 chemical executives from 12 countries revealed 80% of respondents are investing more, or significantly more, in digital technologies for their plant environments, and 85% expect overall digital investment to increase in the next three years.
Moreover, 92% of chemical executives said they are satisfied with the benefits received from their digital investments, with effective plant management the top cited benefit, followed by improved product quality.
At least 95% of respondents are also seeing the tangible financial value of utilizing digital in their operations. Just under one-third saw an operating profit improvement in production/manufacturing operations of 10 to 20 %, with an additional 20% of respondents seeing gains of 20-40%.
Just under half of the respondents listed analytics in their top three digital investment areas over the next three years, as it provides a way to drive more value from the large amounts of generated data.
Accenture recently publish research stating that combining technologies like augmented reality/virtual reality, autonomous vehicles, big data analytics and digital twin to increase operational efficiency could realize initial savings of more than US$90,000 per chemical company employee.
Although many chemical companies have started pilot programs across their operations, full deployment of digital technologies remains limited however, according to Accenture’s survey.
Even for technologies where executives see more widespread adoption, including cloud, robotics, artificial intelligence, mobility/wearables and cybersecurity, less than one-third of respondents cited using each technology broadly.
By Heather Doyle