Ineos – A fight for survival?


North Sea gas is landed at the St Fergus gas terminal, North of Peterhead. St Fergus removes ethane, propane and other natural gas liquids (NGLs) from the landed gas piped in from both the UK & Norwegian sectors of the North Sea. The separated gas is delivered to the national grid, while the NGLs are piped South to the Mossmorran natural gas liquids plant in Fifeshire, which is shared by ExxonMobil and Shell. The process plant at Mossmorran separates natural gasoline, ethane, propane and butane from the NGLs  

The ethane is transferred as feedstock to the ExxonMobil ethylene plant located at Mossmorrran (1) Some ethane is piped from Mossmorran to the Ineos petrochemical plant at Grangemouth, where it is also used as feedstock for ethylene manufacture. The ExxonMobil ethylene and the propane, butane and gasoline are pipelined to the Braefoot Bay marine loading terminal on the Northern shore of the Firth of Forth for shipping to the markets.

The problem for Ineos, and most likely also for ExxonMobil is the reduction in the North Sea oil and gas production, so that there is insufficient ethane for the Grangemouth plant from Mossmorran where it is supplied to its competitor, ExxonMobil. The St Fergus gas terminal processes wet gas from the FLAGs Pipeline and Fulmar Gas Line from which the NGLs are separated and pipelined to Mossmorran. It may be that the recently drilled wells in the UK North Sea sector are small and the gas content in the oil is too low to justify a pipeline connection and it is just flared. The gas arriving at St Fergus from the Norwegian North Sea sector is "dry" and makes little contribution to the NGLs arriving.

In February 2010 Ineos made a plea to the Scottish government to assist it with an upgrade of the ethane pipeline from Mossmorran to provide an alternative to ethane of heavier hydrocarbons such as propane, which would then be subject to cracking at the Grangemouth plant. (2),(3) and (4)

It can be assumed that this initiative failed because Ineos has decided to import ethane from the US (and possibly elsewhere) for its two petrochemical plants in Hafnes in Norway and Grangemouth in Scotland. For transport ethane has to refrigerated down to -89°C to be liquefied and carried in special LNG tankships, six of which have been ordered by Evergas, each with a capacity of 27,600 cubic metres.. The capacity of each is around 15,000 tonnes of ethane and arrangements to offload it in Norway are underway for completion by 2015. The vessels are flexible multigas carriers providing Ineos's ethane supplies, while able to transport LNG, LPG as well as petrochemical gases including ethylene to other users.

Similar facilities to off-load the liquefied ethane are under construction in Grangemouth. Ineos has costed the project at £300 million. It must be assumed that the reduction in the staff costs will give a breathing space to Ineos before the new supplies of ethane arrive. Ethylene can be produced from naphtha from the Ineos Grangemouth refinery, but there are presumably insufficient quantities and it is more expensive. 

For ethane to be available in Norway and Scotland it has first to be separated from the natural gas and piped to the US East coast where it will be liquefied and pumped into the gas tankships. Sunoco Logistics's Mariner East pipeline is under construction from Houston, Pa to Marcus Hook, Pa where it will be liquefied. (Also Enterprise Products Partners plans to build a fully refrigerated ethane export facility on the Texas Gulf Coast. This additional export facility is expected to begin operations in 2016.) 

There will be off-loading and re-gasifying provisions at Hafnes and Grangemouth. Ineos will be able to source its ethane from elsewhere, such as Qatar where NGLs are separated from its natural gas.

Ethane from fracking

The shale gas in the US is of varying qualities, of which the so-called “wet” gas contains the most natural gas liquids (NGLs) which can be separated to provide a source of ethane, propane and butane. There are doubts about the availability of “wet” shale gas in the US, as the occurrences are not universal and most is “dry” gas. The ethane has found a ready internal market for the US petrochemicals industry and additional capital plant will be needed for its export. Nova in Canada has arranged for an ethane pipeline to be built to import ethane from the US Bakken play for its ethylene plant at Joffre and in the Mexican Gulf ethane will displace naphtha for ethylene manufacture.

Also drilling for gas is in decline and the prospectors have moved the drilling rigs to the Bakken and Eagle Ford oil shales. The frackers were given a "holiday" from regulation with consequences for water resources and public health. This relaxation of the Clean Water Act 1974 is known as the "Halliburton Loophole" as it was brokered by Dick Cheney then Vice President in the George W Bush administration. (6) More stringent regulation in the UK may well make fracking for gas uneconomic.

The oil obtained by fracking contains some gas and NGLs. The oil can be transported in road and rail tankers, but pipeline connections are needed to make use of the gas and NGLs. Many wells are so connected, but many have to resort to flaring. Further investment is needed in separation plant and pipelines, which in some cases is underway, as for the pipeline to Nova in Canada. The pipeline and liquefaction plant for Ineos takes ethane from the Marcellus shales.

Ineos has bought the rights to explore for fracking for shale gas in a 329 square kilometre area around Grangemouth and the Firth of Forth. The BGS survey of the Midland Valley shales estimated that with a recovery factor of 5% around 4 bcf of gas from the entire field might be produced, but just where "wet" gas with NGLs could be found is yet to be located. The ethane imported from the US will carry the costs of its pipelining, liquefaction and shipping and if a local source could be found it would be beneficial for Ineos, which has announced that it will invest £630 million in prospecting in its licensed area.

Grangemouth's survival

Ineos has signed a supply contract for its ethane for Hafnes and ordered tankships to carry it and a tank to receive it to enable the pipeline and liquefaction plant on the US East Coast to be funded. Presumably the contract can be extended to cover the supplies to Grangemouth. The decline in North Sea gas production leading to the shortage of ethane must also be of concern to ExxonMobil and rather than invest in an LNG supplementary provision it may be better for it to invest in a new ethylene plant in the US, where the ethane from fracked "wet" gas is likely to arise. Without adequate gas supplies it is likely that the Mossmorran processing plant and the Braefoot Bay terminal will close.

The drama in October 2013 has shown how the terminal state of the UK’s North Sea oil and gas production can be problematic for petroleum related industries. It is hoped for Scotland’s sake that its plans will allow it to survive. 

A question?

Although the UK North Sea gas passed its production peak in 2000, gas production from the Norwegian sector has yet to pass its peak, but the prior need to ship ethane into Hafnes may mean that the gas from the Norwegian sector is lean in NGLs  Ethane from the US will not be cheap as the costs of pipelining to the US East coast, processing and liquefaction, the costs of special tankships, the ethane reception terminals and storage tanks and the regasification facility will add to feedstock costs at both Hafnes and Grangemouth.

In the US fracking is increasingly concentrating on extracting "wet" gas and tight oil as in some plays "dry" gas production is peaking. The question is whether ethane users will eventually move to the US to be near its source and will close their European ventures. Or, in a short time, shales producing "wet" gas in the US will fail to be found in sufficiency.

John Busby 22 November 2014





(5) See flaring at Mossmorran