Fracking in Scotland Is One Solution to Higher Gas Costs – Bloomberg

Expanded Factories

Meanwhile, across the Atlantic, “excellent economics” are attracting investors for new ethylene plants in the U.S., which when ready in about three years will increase competition for manufacturers in Europe, Nadtotchi said.

Investors plan to spend $124 billion on new and expanded petrochemical factories in the U.S., according to the American Chemistry Council.

“With output that far outstrips demand growth in the U.S., huge amounts are going to be targeted for export,” said Ineos’s Crotty. “Where is it going to export to? Well, Europe is looking pretty attractive.”

To keep up with the competition, Ineos, which uses ethane as its feedstock, signed a series of 15- to 20-year contracts to ship the gas from Pennsylvania’s Marcellus field to its facilities in Europe. The first shipment is expected to arrive at the company’s Rafnes plant in Norway next year, cutting ethylene production costs there by about half, Moody’s estimated in an April 15 report. Grangemouth is scheduled to get its first Pennsylvania ethane in 2016, Crotty said.

Into Fracking

Ineos moved into the fracking business by buying a 51 percent stake in a shale license from Reading, England-based BG Group Plc. Dart Energy Ltd. (DTE), a Brisbane, Australia-based driller, owns the rest of the claim.

Ineos said it will poke around for gas in the 329 square kilometers (127 square miles) around its Grangemouth refinery. The facility almost closed last year as a shortage of feedstock meant its cracker, which processes ethane to make ethylene, had been running at less than 50 percent of capacity for the past two years, Crotty said.

“The issue we faced was a straightforward one of lack of supply,” he said. “Had Grangemouth closed last October, it would have had a massive impact. We’ve got 800 jobs in the petrochemicals site, but you are probably talking about five to 10 times that number of jobs in the community.”

There’s no sufficient data from U.K. test wells to determine how much shale gas can be recovered and at what cost, according to a July report by the National Grid Plc, which operates the country’s energy system. Without production from shale rock, the U.K. may need to boost its dependence on gas imports to 91 percent from 56 percent by 2035, exposing the nation to global prices for the fuel, the report said.

Tougher Regulations

Europe will take longer than the U.S. to develop its shale gas resources because of tougher structural and regulatory conditions, Fitch Ratings said in a report last month.

“We anticipate five or more years of exploration are required to identify the economically viable reserves if any, following which we expect another five to eight years before production actually takes place,” Stephane Buemi and Josef Pospisil, analysts at Fitch in London, said in an Aug. 26 report.

Chemical makers in Europe have found alternative energy sources. While Vienna-based Borealis said it’s not currently considering fracking, it signed a 10-year agreement with Denver-based Antero Resources Corp. to ship 240,000 tons a year of ethane from the Marcellus and Utica fields in the U.S. to its facility in Stenungsund, Sweden, starting in 2016, said Markku Korvenranta, executive vice president of base chemicals.

Sabic, based in Riyadh, will convert its facility in Teesside, England, to shale gas as feedstock, with changes ready by 2016, the company said Aug. 21.

“Borealis for sure, and I believe the same for all of the industry, will have to take some measures to remain globally competitive,” Korvenranta said. “It’s surprising that the politicians and the EU are not more pronouncedly in favor of shale gas exploration. It will be one way of addressing the decline in natural gas production.”

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To contact the editors responsible for this story: Lars Paulsson at Bob Ivry

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