Costs for ethylene projects in the U.S. on the rise: study
Costs for ethylene projects in the United States are on the rise both this year and next, data shows.
Actual and forecast costs for ethylene projects in the United States in 2019 and 2020 will rise by nearly 3% each year from the previous year, according to data from Compass International.
Costs in the U.S. Gulf Coast will rise by an average of 2.7% and 3.1% in 2019 and 2020, respectively. North East construction costs will rise by an average of 2.6% this year and by an average of 2.9% next year.
The costs changes are based on research focused on evaluating the anticipated cost of constructing a 1.5 million ton per annum (MTPA) ethylene facility in either the Gulf Coast or in the North East region of the United States.
Total project costs in the Gulf Coast in 2019 will come in at a maximum of $2.7 billion, which is up by 1.7% from 2018. Of that total, $2.3 billion, or 84%, will be derived from construction costs. Labor costs this year will account for 36% of the total project cost.
In the North East, total project costs this year will be a maximum of $2.9 billion, which is 1.2% higher than 2018. Of the total, 85%, or $2.5 billion, comes from total construction costs. Labor costs are slightly higher than the Gulf Coast, accounting for 37% of total project costs.
The reason labor costs are higher in the North East is because of the union labor. However, non-union, or “open-slot” craft labor in the Gulf Coast is in high demand because of the multitude of oil and petrochemical construction projects in progress, according to industry experts.
Bulk material costs for Gulf Coast cracker construction will rise by 2.5% in 2019 from the previous year to just under $778 million, according to the data.
Bulk material costs will represent 34% of the total Gulf Coast construction costs this year. Gulf Coast bulk material costs are forecast to rise by another 2.8% in 2020.
U.S. inflation rates averaged 2.4% in 2018, and are lower in 2019, averaging 1.7% during the first 10 months.
North East bulk material costs at a maximum of just over $892 million in 2019 will represent 36% of total construction costs. North East costs are also up by 2.5% from 2018. Bulk material costs in the North East are forecast to increase by another 2.8% in 2020.
U.S. Gulf Coast and North East ethylene projects include the same basic project components. Major equipment includes pumps, heat exchangers drums, furnaces. Under bulk materials, there is stone, concrete, timber, steel, piping, and electrical cables.
The materials category includes instrumentation and miscellaneous. The next project component is labor, which includes skilled and unskilled.
The 2019 cost of piping systems, which represent the highest bulk material cost component in the Gulf Coast and North East, rose by a maximum of 2.7% to nearly $384 million in the Gulf Coast year-on-year, and by 2.6% to nearly $445 million from the previous year in the North East.
Given the parameters of the data, only two of the eight ethane crackers coming online between the first half of 2019 and 2021and beyond were included in this study.
Sasol on Aug.28 of this year announced its world-scale ethane cracker reached beneficial operation the day before.
Sasol said that its new cracker, the heart of its Lake Charles Chemicals Project (LCCP), is the third and most significant of the seven LCCP facilities to come online, and will provide feedstock to its six new derivative units at the Lake Charles, Louisiana, multi-asset site.
The Sasol plant is taking advantage of cheap and plentiful shale gas, located in Texas, Louisiana and Arkansas. One industry expert said the shale gas from that region will last 20-30 years.
Shell Chemical’s 1,500 MTPA nameplate capacity ethane cracker in Monaca, Pennsylvania, is expected to be online in 2021 or after. Located a short distance from Pittsburgh, the site was selected because of its close proximity to Marcellus and Utica shale gas in Western Pennsylvania and Eastern Ohio.
Ethane, ethylene and derivatives
Ethane crackers break down ethane into several byproducts, including ethylene. Ethane is produced from NGLs, which are undergoing tremendous growth worldwide. Ethane is produced as a byproduct of drilling, but it must be run through a NGL fractionator in order to be used as feedstock for an ethane cracker. And there has been a dramatic drop in fractionator construction since 2017.
Ethylene supply, which was already long, has increased as new crackers have come online this year. Four other ethane crackers were targeted to begin operations between the first and third quarters of 2019. The crackers, all located in the US Gulf Coast, have capacities ranging from 420,000 MTPA to 1,000 MTPA.
Ethylene demand from downstream industries hit its peak in the second quarter. As a result, higher ethylene prices could lead to a reduction in operating rates at derivative units, which would reduce demand further. Also affecting demand is the continued US-China trade war and a poor economic forecast.
Data suggests that every aspect of ethylene facility construction will continue to escalate on an annual basis through at least 2020. In the US ethylene market, much will be determined within the next year or two years regarding the actual impact growing capacity is having on domestic and export markets.
There are several downstream projects not just in petrochemicals that are scheduled for construction in coming years.
By David Love