Shell and Ineos Play US, China Shale Cards

24.10.2017 -

Multinational oil and petrochemicals group Shell is preparing to begin construction on its planned $10 billion petrochemicals site in the US state of Pennsylvania, close to Pittsburgh and the vast shale reserves of the Marcellus Basin. At the heart of the complex will be a shale gas-fed ethane cracker and a 1.6 m t/y polyethylene plant that will transform the feedstock into plastics for multifarious applications.

Fueled among other things by shale, Shell said it expects global demand for petrochemicals to grow by 50% up to the end of the current decade. It hopes to nearly double earnings on its chemical business over the next two years to $3.5-4 billion by adding three major refineries up to 2020. The group is also investing in a fourth alpha olefins unit at its Geismar, Louisiana, plant in the US. Start-up is scheduled for the second half of next year, along with a second major petrochemicals complex the group is building at Nanhai, China.

Switzerland-based Ineos, which has ambitions to be a major player in shale, is also keening eyeing the US and Chinese markets in addition to its heavy involvement in the UK’s burgeoning industry. Director, Tom Crotty said a large share of the increased demand for petrochemical products is now coming from China. The fact that the Chinese state has clamped down on polluting refineries due to air quality concerns is a major opportunity for European refiners to step in and fill the gap, he believes.

The olefins and polyolefins major currently sources liquefied ethane from the Marcellus Basin to feed its petrochemical production in Scotland and Norway. It is reportedly interested in an engagement in the Mariner East 2 pipeline, which ships the shale gas feedstock to Europe.

The largest holder of UK shale exploration licenses, with more than 1 million acres (405,000 hectares) to play with, Ineos is beginning to face unanticipated roadblocks to its fracking plans – foremostly Scotland’s decision to ban the technology altogether after a lengthy moratorium. Claiming that it has spent £50 million on preparing to frack north of the border the group, is thought to be mulling a court challenge.

Underscoring its resolve to carve out a berth for itself in the UK energy sector, the olefins and polyolefins group in September announced the appointment of Ron Coyle as CEO of its UK arm based Ineos Shale, replacing the retiring Gary Haywood. It said the appointment heralds a “significant step change" in its drive to open the country to exploration, despite  determined opposition. A chemical industry veteran, Coyle joined the Ineos Phenol business almost 20 years ago.

Flush with confidence from winning an anti-trespassing injunction against shale gas opponents in summer, Ineos has vowed to begin drilling test wells “shortly” and – following an analysis of the results – move quickly to full-scale production. Outside the usual protest scene, however, opposition appears to be mounting.

Sniffing a shift in public sentiment with elections approaching, both the UK Labour Party and Liberal Democrats have come out in favor of a fracking ban. Large owners of lands on which Ineos wants to frack are also becoming more vocal. The latest to voice opposition is Lord Howell, a former Tory Party energy minister who is also the father of George Osborne, chancellor of the exchequer under Prime Minister, David Cameron. Together, the two politicians overturned a UK-wide fracking moratorium and embraced shale.

In Howell’s view, it would be “unwise” and “uneconomic” to persist with fracking where developers are likely to face higher costs and local opposition.  “British fracking needs to be extremely efficient to compete with US imports,” he told the London newspaper Sunday Telegraph, asserting that project delays waste time, and “time means money.” The former secretary suggested that fracking could be undertaken “cleanly and safely” away from more densely populated areas, where property prices would not be put at risk.

Ineos’ shale drive is now also in danger of being stalled by local governments in England. Earlier this month, the Rotherham Council said it would not permit fracking on land it owns or controls, thereby rejecting the Swiss-headquartered group’s application to ­undertake seismic surveys of the local geology where it also has licenses.