Since 2010, I’ve been reporting on hydraulic fracturing of petroleum wells and the impact on the American petrochemical industry, particularly the laboratories. The topic is especially interesting because it has fundamentally changed the global petrochemical industry. The impact in the U.S.A. is the greatest, since we have gone from being the largest importer of petroleum to a leading exporter.
Around 2014, the trade press was reporting that petrochemical firms were starting to build new plants along the navigable rivers in the Midwest and along the gulf coast. The particular plants involved energy-intensive products such as ethylene, propylene, fertilizers, and cement. Naively, I’d expected that these plants would be new. However, when I look around in late 2018, I could find only one new greenfield site—Shell’s new ethylene cracker plant near Pittsburgh, PA.
However, I was curious to find out how the business expansion due to shale gas might affect the laboratories, including staff. I jumped at an opportunity to interview Ajay Badhwar, Global Director of the Oil, Gas and Chemicals business for Thermo Fisher Scientific. If you search for him online, you will find that he has extensive experience in this segment.
RLS: What in your mind is the resurgence of natural gas, shale gas, and shale oil in North America?
AB: First it might be good to define a few terms. For those less familiar, the U.S. Energy Information Administration (EIA) has some useful learning tools available. There are three types of gas production:
- Dry gas, which has a low/no liquid content
- Wet/rich gas, which has high natural gas liquid content
- Associated gas, where gas is produced with oil.
Liquids are not water in this case. Natural gas liquids (NGLs) are components such as ethane (C2), propane (C3), and butane (C4), to name a few. To complicate matters, there are also fractions called condensate and natural gasoline, referring to liquid products from natural gas production. Regardless of the terminology, natural gas production economics is dictated by all components and their respective value combined. For example, the histogram in Figure 1 shows that natural gas (methane) prices dropped dramatically due to excess production capacity from 2008 to 2012. Low-priced methane caused drillers to favor more NGL-rich or wet gas strata. The result was a drop in C2 and C3 pricing around 2014 due to excess production.
Figure 1 – Historical comparison of prices for natural gas: methane (black) and propane (red). The histogram is broken into the following segments—Period 1998–2007: natural gas and propane pricing move in lock step (note significant impact of Hurricane Katrina, 2005), shows significance of offshore and USGC production. Period 2008–2013: Excess natural gas production reduces price; drillers respond by favoring liquids-rich development. Period 2013–2016: drillers increase supply of liquids, resulting in declining propane price. Period 2017–onward: Propane price increases as processing capacity (demand) expands (note limited impact of Hurricane Harvey, 2017), shows significance of non-USGC production. (Figure courtesy of A. Badhwar; see www.eia.gov.)
Methane found demand in power generation, ammonia production, and heat-intensive applications (such as cement calcination and refining mining/minerals), which are classified as industrial users. C5+ components were consumed as blend stock for liquid transportation fuels. C2–C4 alkanes found demand in petrochemical and chemical production. Overall, substantial supply increases have supported expansion of North America’s petrochemical and chemical industry.
RLS: You mention the expansion in North America’s petrochemical and chemical industry. What is going on with the expected reshoring of America’s petrochemical industry?
AB: The short answer is the expansion has been quiet and massive. The investment has been predominantly by large multinational companies converting the C2–C4 streams into high-value-added products to satisfy global demand. The U.S. is now in a trade surplus situation, meaning we make more than we consume, and therefore exporting is key. New construction is located near export (transport) facilities. The petrochemical industry along the gulf coast, which extends inland about 300 miles, is expanding rapidly to respond to the new economics of plentiful fuel (methane) and associated C2–C4 feedstocks. Also, some C2–C4 feedstock is directly exported, but the vast majority is being converted domestically into high-value-added products such as plastics. Each facility is different in the aspect of how “downstream” they go with products. This means that the complexity of lab requirements varies dramatically.
RLS: It seems that expansion is the key word. I’ve found only one new greenfield start-up. Can you explain?
AB: There are several important facts favoring expansion of existing sites. The permitting process for a plant expansion is several years shorter. Most U.S. petrochemical and chemical plants have the capability to expand operations at their existing facilities; some were able to restart idled assets with comparatively minimal investment. Transportation and logistics support is also available with sufficient capacity at these sites. If more is required, this can be added at small incremental expense. So, despite the relative lack of new greenfield projects, investment has been significant, in the range of $12 billion/year for this industry since 2015 (see Figure 2).
Chemical plants are complex, highly integrated operations. Raw materials often come in by pipeline, and just a small inventory is kept onsite. Material is processed to produce one or more finished products. Side-stream products are often intermediates for other unit operations. Typically, the scale is so large that inventory is minimized and therefore all products must find a home in other unit operations, or sold. Storage/disposal is not a feasible option economically, especially for gases or liquids. Integration of all these considerations means that composition information and quality product documentation must be shared across unit operations of at least the same facility and even across company fence lines.
RLS: Sounds interesting. Can you give a more detailed example?
AB: Let’s look at ethylene, which is produced in megatons per year by a cracking process converting ethane to ethylene + hydrogen. The process is highly endothermic and requires significant heat to drive the reaction, which means fuel. One report lists 17 ethylene crackers under construction in the U.S.A., with an additional nine in the planning stage.1
Ethylene is produced in a thermal cracker by heating small alkanes to ~800 °C. Unreacted feedstock is recycled. Co-products are separated and sent to other unit operations. After purification, ethylene is ready for sale or further processing to other products such as polyethylene, which is produced in railcar quantities and shipped all around the world. Thus, ideal locations for a facility are where energy (methane) and feedstock (ethane) are abundant and bulk transportation is available.
Economics dominate site selection for expansion. Low-cost feedstocks, shipping, and inventory management mean more cash flow for the petrochemical producers and processors. This means that analytical data—both process and finished product data—needs to be generated in vast quantities, quickly, and shared between unit and commercial operations easily. Integration of the analytical lab with the rest of the facility is key.
RLS: I understand that data integration from a variety of sources and sites can make management of the individual unit processes in a site much easier. How does Thermo Fisher Scientific help in this effort?
AB: Turning data into information and then integrating that into plant operations, business metrics, and sharing through a global network is a key area of growth as new plant or built or existing plants expand. Thermo Fisher is uniquely positioned in the industry to deliver solutions for these challenges through our Thermo Scientific Lab Information Management System (LIMS) platform, Sample Manager LIMS, and our instrument data platforms like Thermo Scientific Chromeleon Chromatography Data System, our CDS product. From the instrument bench, Chromeleon CDS provides driver support not only for our GCs, ICs, and HPLCs, but also many other of our competitors’ instruments. This allows the laboratory to reduce the total number of instrument software programs required, saving valuable time in training and support. With Chromeleon CDS Enterprise, we can expand that performance boost globally, allowing the entire laboratory network to be connected through this same platform. Methods, data, trend reports, etc., can easily be shared between laboratories all over the globe.
Sample Manager LIMS has a seamless integration with Chromeleon CDS and our other instrument platforms. Our implementation teams can engineer this same type of connection to other data streams. Not only is lab data available across your network, but all plant data can be integrated into the LIMS, providing real-time information to help run the business.
Let’s start with the data integration and work back to the measurement site or bench. Sample Manager LIMS is designed for large, data-intensive operations such as petrochemical plants. Plant managers need to control their processes through rigorous testing and real-time monitoring of feeds, conditions, and product quality and quantity. When combined with Thermo Fisher instruments, our company-wide communication and control protocols provide bug-free communication to and from the instruments. We know that there is no such thing as a “minor software problem.”
A typical petrochemical operation will have tens of our Thermo Scientific TRACE 1300 Gas Chromatographs. Each will be dedicated to one assay. When one needs more throughput, it is easy to add up to three more channels to the TRACE 1300 GC. This provides up to a fourfold range in capacity. We are very interested in helping our customers maximize utilization of their instruments, and our software routinely provides reports on utilization, downtime, and pending needs for calibration or preventive maintenance.
Sulfur is all too ubiquitous in petrochemical streams. The Thermo Scientific SOLA Sulfur Analyzers are used to monitor sulfur content, which protects expensive catalysts and maximizes uptime. Our ion chromatographs, such as the Thermo Scientific Dionex Integrion HPIC system, are used in a variety of settings to monitor ionic contaminants in order to prevent corrosion or scaling within the plant. ICs also assure that waste streams, particularly process water, are within specification and comply with use permits for the facility.
I see the tremendous product range of Thermo Fisher as one of our many strengths. Seamless integration is our responsibility. We spend countless hours on designing the human interface for our LIMS and analytical instruments. We keep the sophistication behind the panel. Yes, each technique requires some fit-for-purpose controls, but we strive to stratify the screens to match the capabilities and needs of the operators; however, subject-matter experts can quickly get to the sophisticated control settings in case of an unusual event.
RLS: I’d expected that the new expansion plants or greenfield plants would need new labs, instruments, and lab staff. What is happening?
AB: Expansion of existing plants is usually the option of choice for large-scale producers. Growing incrementally is often more controllable and profitable than building a new plant. The labs are an interesting case that illustrates the economics of expansion in contrast to a greenfield startup.
Labs in existing facilities are usually running lean, but the support functions such as data processing and communication in IT, human resources, inventory management, and waste disposal are much less when added incrementally than creating new functions in a new facility.
Look at instruments, for example. A new facility will have requirements for new instruments and test methods required for each new unit process. There will be a high need for gas chromatographs, a few with MS, but much fewer ICPs, sulfur analyzers, etc. One example of an ethylene cracker showed 16 different control points employing gas chromatographs. Adding capacity, de-bottlenecking existing capacity, or expanding lab capability to match the needs for a unit process allows for optimization of instrument work time to fit the purpose. A GC that is dedicated to a particular assay, but is underutilized, can more than double capacity by adding a second, third, or even fourth injector, column, and detector. Running parallel modules and detectors is usually more cost-effective than expanding lab space and purchasing new equipment.
Other investments that are improved by expanding instead of building a new plant include management overhead and staffing. A doubling of span of responsibility usually increases costs 20% or less. Of course, this means working smarter with data, enabling controls in software, and ensuring seamless reporting to a LIMS. This efficiency trend applies to many support departments such as quality functions, shipping, and supply chain that contribute and use the data, not just the laboratory personnel.
Another factor is that laboratory operations become more efficient with time. Management always asks the lab to do more with less. Part of this requires instrumentation to be able to continuously operate, improving sample throughput and sample turnaround time.
These new facilities are instrument-intensive operations. Integration, startup, and troubleshooting times need to be minimized. All too often variety leads to confusion. Thus, it is beneficial to minimize the number of vendors, which usually entails different communication protocols and human factors. Additionally, there is a trend for at-site analyzers, which provide immediate, actionable data, sending data to a similar LIMS. Fast response is often very valuable while slow response is often expensive, perhaps even dangerous.
Another factor is that data quality from one lab is easier to manage than two independent labs, since interlaboratory effects and costs are avoided. However, there will be multiple labs at the same site, or parallel unit operations at different sites that need to share information for quality of products.
There are a few specialized tests that are best farmed out to labs with special expertise. Prices are often dependent upon the number of samples. Larger sample loads often are rewarded with larger percentage discounts; however, the ability to integrate into the same data system can be a challenge.
RLS: What about tariffs?
AB: Tariffs are part of the business decision, but seldom dominant. Investing requires a consideration of many business factors; international trade is just one of the factors. In contrast, a plant has a design life measured in decades. A lot can change in 10 years. Just look at the impact of shale gas on the U.S.A.
RLS: Okay, I see that the petrochemical plants are highly integrated internally and also externally with their customers, especially local customers. This integration favors incremental expansion. What about the future?
AB: Globalization is a reality. Most main geographies have abundant natural resources such as natural gas and natural gas liquids. Combined with consumption of value-added products in various geographies, it is logical that expansion of large-scale petrochemical complexes is underway. An interesting phenomenon is that the plants being established are often in cooperation or directly done by large multinational companies. As a result, there is a trend of 1) complex operations with various analytical needs, 2) a comparatively high instrument intensity, and 3) the need to share data across various sites and unit operations. All three trends are pointing to the need for a holistic lab solution, including instrumentation in the lab and in the field tied together with software and LIMS. It is not just a function of shale gas production but instead the need for upgrading natural resources to match global demand. It will take place because there is a financial motivation to do so. Where it is suitable, the new grass roots facilities will be justified only when there is a large sustained need and market for the products being gasoline, polyethylene or fertilizers, etc. Some examples include the Middle East to supply Southeast Asia, China to satisfy domestic demand, and Russia to capitalize on abundant feedstocks. Where upgrading to chemicals is not possible, there are export options, including liquefying natural gas and natural gas liquids products. These multibillion-dollar capital projects also require a holistic lab solution.
For the U.S.A., I see the direct advantage of shale gas is fueling resurgence in natural gas-intensive industries, including the petrochemical and chemical industry. There have been countless jobs created. The U.S. is back to being a world-scale producer of hydrocarbons and value-added products.
- Castaneda, G. Advances in ethane cracking; slides 4 and 5. Accessed 9-18-2018.
Robert L. Stevenson, Ph.D., is Editor Emeritus, American Laboratory/Labcompare; e-mail: [email protected]