Ethane production up 19% in first half; Lake Charles cost overrun blamed on rain, wages

Petrochemicals news you need to know

Ethane production up 18.9% in first half of year

The United States produced 230.99 million barrels of ethane at a rate of 1.27 million b/d in the first half of 2016, an 18.9% increase on the corresponding period last year, according to the Energy Information Administration (EIA).

Ethane stocks reached 51.57 million barrels on June 30, 2016, 60.5% higher than a year earlier, the EIA said. The U.S. exported 15.35 million barrels of ethane between January and June 2016, up from 12.2 million barrels the previous year.

The EIA expects U.S. ethane consumption to increase by 60,000 b/d, or 5.6% in 2016, as expansion projects at ethylene-producing petrochemical plants increase feedstock demand for ethane. It is forecasting an additional 7.5% jump the following year as five new petrochemical plants and a previously deactivated plant begin operations.

Propane production rose 5.9% in the first half of the year to 1.16 million b/d.

Lake Charles cost overrun blamed on rain, wages

Poor weather, high contractor rates, and a conscious decision to utilize higher-skilled labor all contributed to a $2.1 billion cost overrun in the Lake Charles Chemical Project, according to owner Sasol.

Sasol began front-end engineering design on the 1.5 million ton-per-annum ethane cracker in 2012, and at that time it estimated project costs would land between $5 billion and $7 billion. It raised this figure to $8.9 billion at the time of final investment decision (FID) in October 2014. Following this latest update, estimated capital expenditure including contingencies now stands at $11 billion, of which $4.8 billion has been spent.

Additional site and civil costs are responsible for $750 million of the overrun. This includes further groundwork due to poorer-than-anticipated subsurface conditions and a conscious decision to avoid schedule delays. Sasol blamed poor weather for obstructing work, noting the area has seen around 50% more rain days than the 10-year average.

Increased costs associated with engineering, procurement and construction management have added another $680 million to the cost estimate. This includes an increase in contractor wage rates compared to the FID estimate, and increase in contractor engineering hours due to higher-than-expected material quantities.

Lastly, increases in total labor costs are to blame for $670 million in additional costs. Sasol said it had made a conscious decision to utilize higher-skilled labor to improve productivity, and that lump-sum contracts were placed at higher labor rates.

Beneficial operation of the entire complex is now scheduled for the second half of 2019, with around 85% of engineering and 15% of construction completed, according to Sasol. Procurement of equipment has almost been completed, and procurement of bulk materials is around two-thirds committed, which Sasol said gives it a high degree of certainty that costs will not exceed $11 billion.

In addition to polyethylene, Lake Charles will add to Ziegler alcohol and ethoxylates capacity (Image credit: Sasol)

EPA several years overdue on biofuels-impact reports

The Environmental Protection Agency (EPA) has failed to comply with statutory requirements to report on the impact of the Renewable Fuel Standard (RFS) program on the environment, according to the EPA watchdog.

The RFS requires refiners to blend a certain amount of renewable fuels into the fuel they present to the market. A group of 10 refinery owners survey by Reuters spent at least $1.1 billion in the first half of 2016 on complying with the renewable-fuel volume requirement, which the EPA set at 18.11 billion gallons for the 2016 calendar year and is proposing to set at 18.8 billion gallons – or roughly 10.44% of the entire fuel mix – in 2017.

In its evaluation, the EPA’s Inspector General found the agency had not provided a report to Congress on the impact of biofuels since December 2011, nor had it provided reason for not doing so, even though it is required by law to provide a report every three years. According to the Energy Independence and Security Act (EISA) 2007, the triennial report must assess the environmental and resource conservation impacts of the RFS program, including air and water quality, soil quality and conservation, water availability, ecosystem health and biodiversity, invasive species, and international impacts.

The EPA is also more than seven years overdue on an “anti-backsliding study” to determine whether the required renewable-fuel volumes will adversely impact air quality as a result of changes in vehicle and engine emissions of air pollutants, the watchdog found. Under the EISA, the agency should have filed an anti-backsliding study in 2009 and then implemented appropriate mitigation measures by December 2010. This requirement has also not been met and no timeframe has been set for planning and initiating the anti-backsliding study, according to the Inspector General.

The EPA said in response that it plans to complete the triennial report by the first quarter of 2018, and that it would include the anti-backsliding study in its 2018 budget.