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Natural Gas: Fuel or Feedstock
H.E. Curry-Hydc and R.F. Howe (Editors), Natural Gas Conversion I1 0 1994 Elsevier Science B.V. All rights reserved.
93
NATURAL GAS: FUEL OR FEEDSTOCK Authors: M. G. Axelrod, A. M. Gaffney, R. Pitchai, and J. A. Sofranko* *Principal author. Responses to ARC0 Chemical Company, 3801 West Chester Pike, Newtown Square, PA 19073 U.S.A.
ABSTRACT Since 1980 a considerable amount of R&D activity has been focussed on the direct conversion of natural gas to transportable products. This has been driven by the assumption that low value gas is available in remote areas of the world. This paper examines the basic premise of the relationship between low value gas and the actual costs of upgrading this resource. Investment scenarios are discussed that indicate that low valued feedstocks attract investment into these regions. Increased investment in an area increases the manufacturing infrastructure and intends to lower construction costs. As capital-intensive investments move to these resource rich areas, the low valued natural gas begins to realize a more competitive price. Given these possible investment scenarios for remote gas conversion, suggestions are presented that might guide future R&D work in this area.
Since 1980, there has been an explosion in R&D efforts for the direct conversion of natural gas to higher value, transportable materials. Since that time, there have been no commercial examples of natural gas conversion based on any of these new technologies. The obvious reason for this lack of progress is the failure of these developing technologies to compete economically with known alternatives. There have been numerous publications that have compared the economics of known and developing processes (1). This paper will not reiterate this information but will attempt to give guidance for future efforts in natural gas conversion.
1. J.
M. Fox, Catal. Rev.-Sci. Eng. 1993, 35(2). 169-212
94
It is useful to review the reasons for the activity in gas conversion and look at some longterm trends that could help foresee the future. The distribution of worldwide remote natural gas is shown in Figure 1. By definition, remote natural gas is gas that has been discovered, possibly developed for production, but which has not found a market of worthwhile size. Thus remote gas is typically valued lower than industrialized world gas. Later in this paper, we will discuss the long-term validity of such economic assumptions. It is interesting to note that since 1980, the proven reserves in the Middle East, the CIS and southern Asia have more than doubled. On a worldwide basis, Figure 2, natural gas reserves have grown to nearly match crude oil reserves. A portion of the upswing in crude oil reserves during the late 1980s was due to a policy change within OPEC to tie sales output to "known" reserves. If one takes a very long view at the past and future of energy, Figure 3, it has been projected that natural gas will be the fuel, and possibly the petrochemical feedstock, of the next century (2).
Figure I
Figure 2
Figure 3 2. C. Marchetti and N. Nakicenovic US. Department of Interior.
95
Even with this long-term increase in reserves, natural gas has struggled to attain its price parity with respect to crude oil. Figure 4 shows the true commodity nature of crude oil. Despite major changes in industry configuration, world wars and regional conflicts, crude oil's price in the U.S. has just kept pace with inflation. A comparison of natural gas and crude oil prices in the U.S. post-World War II, Figure 5, shows that gas prices have increased as gas markets and distribution systems have developed. In a sense, at one time the U.S. was a site of "remote gas." However, gas in the U S . is still at a discount energy value with respect to oil. A gas price of 2.00 $/MMBTU is equivalent to about 11 $Ibl. oil.
Figure 4
U.S. Energy Prices Constant 1992 $ ~~~
*+-I--
~~
--lY
1950 1955 7960 1965 7970 1975 l9&
Source: API
Figure 5
1985 188(
96
Clearly, the need for new technologies exists. What direction should the world R&D community pursue? A considerable amount of research is being directed toward reducing the cost and ease of natural gas transportation. This subject will not be addressed in this paper. We will focus on the remote conversion of natural gas to transportable fuels and chemicals. For gas to be developed in a remote location and made usable at a reasonable value, typical remote gas fields are 100-200 MMSCFD in size. The cost of production for these fields typically runs from 0.50 to 1.50 $/MMBTU. Utilization of this gas for conversion to chemicals could yield plants producing 1-2 Bil Ib/yr of product. This increment of capacity can be easily absorbed into the world's 1.5 trillion Ib/yr gasoline market. However, this is a sizable plant for most higher value petrochemicals. With the intent of bringing on stream less than 5%-10% of the world capacity for a target chemical, the world market for this target chemical should be greater than 10 Bil Iblyr. Figure 6 shows the limited number of possible products that, based on volume alone, could be derived from natural gas.
Figure 6
91
Much of the past research in natural gas conversion has targeted fuels or methanol as the transportable product. Two other chemicals that rank high on the top 25 list have also shown some activity. Scoping economics for the production of benzene from methane are shown in Figure 7. Assuming a low value methane feed, 1.OO $/MTBU, the envisioned processes are not very sensitive to yield of benzene. It is apparent that a successful process will have, for example, a capital intensity similar to that of a state-ofthe-art xylene to p-terephthalic acid process. Current published results (3) suggest that capital improvements are needed. A number of papers (4) have also been issued on the methylation of toluene to yield ethylbenzene or styrene. If the toluene is provided through traditional petrochemical sources, methane makes up only 16% of the product’s weight. METHANE TO BENZENE EFFECT OF CAPITAL COST AND SELECTIVITY (METHANE @ $1 .OO/MMBTU) _ _ _ _ ~ ~ - ~
/.-
~Z’oo~TYPICAL BENZENE
$0.50L,&$&$b ao.00 $0.00
I
$0.20
I ,
$0.40
-_~
6o
Eo
1
$0.60
$0.80
,_$1.00
CAPITAL INVESTMENT S/(LBIYR CAPACITY)
Figure 7
As can be seen from Figure 8, this hypothetical process is very dependent on toluene selectivity. To date, there have not been any publications of high yield methane to toluene chemistry. This would obviously improve the economics for this target chemical. METHANE + TOLUENE TO STYRENE EFFECT OF CAPITAL COST AND SELECTIVITY (81 @ $1 2610AL. TOLUENE @ $1 Wl(iAL. Can 0 ZD~ILB.METHANE @ (1 WIYMBTUI ~- _______ . -
.-
16% ATROR SM VALUE (ULB)
601
SELECTIVITY lL-_
$0.00
5wb C7
$0.20
$0.40
~
100% C7
$0.80
$0.80
$1.00
CAPITAL INVESTMENT. SI(LBIYR CAPACITY)
Figure 8 3. Devries, L.: Ryason, P. R. U S . Patent 4,599,474, 1985. 4. A. 2. Khan and E. Ruchenstein, J. Chem. SOC.,Chem. Commun. 1993, 587. K. Otsuka, M. Hatano and T.Amaya, J. Chem. SOC.,1992, 137, 487-496. H. M. Suh, H. Kim and H. Paik, Applied Cat., 1993, 96, L7.
98
In addition to a large worldwide marketplace for a target product from methane conversion, what other characteristics are also important? A majority of final realized price for a commodity chemical is composed of the raw materials and capital recovery costs. Operation, maintenance and shipping costs tend to account for less than 25% of a commodity's final price. However, there is a broad range of capital and raw material intensity for commodity chemicals. Figure 9 shows a range of raw material costs to capital cost for some current methane conversion technologies, and for some non-methane based chemicals. This simple analysis suggests that the feedstocks for an ethylene dichloride plant could be a prime candidate for future remote gas conversion research.
REMOTE GAS INVESTMENTS g loo%
1
t ETHYLENE DlCHWRlDE 75%
9
-
i BTYRENE
,
ETHVLENI OXlDB
+ ACLTIC ACID
50%
L
5
8
25%
OK
26%
CAPITAL COST (W REQUIRED NETEACK)
Figure 9
-
50%
99
The analysis presented in this paper so far assumes reduced natural gas feedstock cost and U.S. Gulf Coast construction cost. Is this a totally unreasonable assumption and how significant is this assumption? The answer to the second question is portrayed in Figure 10. Shown is the relationship between construction costs relative to the U.S. Gulf Coast and low valued natural gas prices for a state-of-the-art methanol plant. Because of the demand growth for MTBE legislated by the Clean Air Act, considerable new methanol capacity is required. With current natural gas prices in the U.S. at about 2.00$/MMBTU, one would expect to see plant construction in the States. In fact, only debottlenecks are occurring in the States. The major methanol capacity additions, and planned additions, are being built in areas of the world where the decreased gas values can compensate for the somewhat higher construction costs. In fact, the announced methanol plant expansions through this decade show a significant shift in the location of the world's methanol supply, Figure 11.
Remote Methanol Facility Raw Materials vs Construction Costs ~~~
21
~~
~~
~
~
Construction Costs*
~-
~
~
'. 1.41 I
1.21
---.-
I
11
0.5 0 5
0.7 0 7
LL 0 0.Q 9 1.11 1
1.3 1 3
I1.55
1.7 1 7
.
1.9 1 9
2.11 2
I
.
2.3 2 3
Gas Cost $/MM BTU
* Relative 10 USGC
Figure 10
Global Methanol Capacity 1986-2000
Figure 11
~
I
-. . 2.5 2 5
I00
will this trend continue in all commodity chemicals and does it suggest a general movement of the commodity chemical industry to areas abundant resources? To answer this question, one needs to look at the factors controlling remote gas investment decisions, Figure 12. These scenarios obviously apply to any capital-intensive industry.
Purely by definition, when remote gas fields are initially developed, the resource has low value. Because of the lack of regional infrastructure and skilled labor force, construction costs are conversely higher than in industrialized areas. These "Pioneer" remote gas regions are currently characterized by areas such as Alaska, northwest Africa, northern Canada and the central CIS. Investments in these "Pioneer" regions should focus on processes that are not capital intensive and are raw material driven. They need to be a large scale and export driven. Therefore, they should be producers of fuels or chemicals shown toward the top of Figure 6. If possible, they should have the ability to be modularized. In addition, they should be well proven technologies in order to minimize capital risks. At this time, only existing methanol technology meets all of these requirements.
REMOTE GAS INVESTMENT SCENARIOS
i --1-------1 B
f
P\
Figure 12
I01
If the region is conducive to the development of petrochemical infrastructure, there is an opportunity window when raw materials and low construction costs are competitive with industrial regions of the world. Such a situation currently exists in the Middle East, China and Mexico. This historical decrease in construction costs in Saudi Arabia is shown in Figure 13. However, this condition may not last forever. If favorable construction conditions continue and the region can develop a significant indigenous market, the price of the raw materials becomes competitive with other world markets. Because of the significant population and rising standard of living in Indonesia, Malaysia and Singapore, these regions have seen a significant development of the petrochemical industry. These industries are competing for indigenous gas supply and driving prices toward U.S.and European levels. Those regions in the future may not be regarded as processing "remote gas." One can also speculate that because of the international attention on the development in China, competition for construction resources may greatly inflate future investment costs in this rapidly developing country. SAUDI ARABIA PLANT COST LOCATION FACTORS* 1 2,
r
US GULF COAST
In conclusion, researchers in the area of natural gas conversion have a number of difficult challenges in addition to the inertness of the methane molecule. To be commercially successful, the ultimate goal of technology, one needs to recognize the rapidly changing world in which we live. The remote gas technologies of the future should focus on processes that are not capital intensive. They should also have simplicity in design to match the risk of investment in a low infrastructure region. In the long run, justification of research projects based on discounted gas prices is not a sufficiently aggressive target. Natural gas can truly be the petrochemical feedstock of the future if technologies can accept the full market price of natural gas in the industrialized world.
Acknowledgement. The authors would like to acknowledge C. S. Lee and E. A. McKee for their helpful insights and contributions to this paper.
93
NATURAL GAS: FUEL OR FEEDSTOCK Authors: M. G. Axelrod, A. M. Gaffney, R. Pitchai, and J. A. Sofranko* *Principal author. Responses to ARC0 Chemical Company, 3801 West Chester Pike, Newtown Square, PA 19073 U.S.A.
ABSTRACT Since 1980 a considerable amount of R&D activity has been focussed on the direct conversion of natural gas to transportable products. This has been driven by the assumption that low value gas is available in remote areas of the world. This paper examines the basic premise of the relationship between low value gas and the actual costs of upgrading this resource. Investment scenarios are discussed that indicate that low valued feedstocks attract investment into these regions. Increased investment in an area increases the manufacturing infrastructure and intends to lower construction costs. As capital-intensive investments move to these resource rich areas, the low valued natural gas begins to realize a more competitive price. Given these possible investment scenarios for remote gas conversion, suggestions are presented that might guide future R&D work in this area.
Since 1980, there has been an explosion in R&D efforts for the direct conversion of natural gas to higher value, transportable materials. Since that time, there have been no commercial examples of natural gas conversion based on any of these new technologies. The obvious reason for this lack of progress is the failure of these developing technologies to compete economically with known alternatives. There have been numerous publications that have compared the economics of known and developing processes (1). This paper will not reiterate this information but will attempt to give guidance for future efforts in natural gas conversion.
1. J.
M. Fox, Catal. Rev.-Sci. Eng. 1993, 35(2). 169-212
94
It is useful to review the reasons for the activity in gas conversion and look at some longterm trends that could help foresee the future. The distribution of worldwide remote natural gas is shown in Figure 1. By definition, remote natural gas is gas that has been discovered, possibly developed for production, but which has not found a market of worthwhile size. Thus remote gas is typically valued lower than industrialized world gas. Later in this paper, we will discuss the long-term validity of such economic assumptions. It is interesting to note that since 1980, the proven reserves in the Middle East, the CIS and southern Asia have more than doubled. On a worldwide basis, Figure 2, natural gas reserves have grown to nearly match crude oil reserves. A portion of the upswing in crude oil reserves during the late 1980s was due to a policy change within OPEC to tie sales output to "known" reserves. If one takes a very long view at the past and future of energy, Figure 3, it has been projected that natural gas will be the fuel, and possibly the petrochemical feedstock, of the next century (2).
Figure I
Figure 2
Figure 3 2. C. Marchetti and N. Nakicenovic US. Department of Interior.
95
Even with this long-term increase in reserves, natural gas has struggled to attain its price parity with respect to crude oil. Figure 4 shows the true commodity nature of crude oil. Despite major changes in industry configuration, world wars and regional conflicts, crude oil's price in the U.S. has just kept pace with inflation. A comparison of natural gas and crude oil prices in the U.S. post-World War II, Figure 5, shows that gas prices have increased as gas markets and distribution systems have developed. In a sense, at one time the U.S. was a site of "remote gas." However, gas in the U S . is still at a discount energy value with respect to oil. A gas price of 2.00 $/MMBTU is equivalent to about 11 $Ibl. oil.
Figure 4
U.S. Energy Prices Constant 1992 $ ~~~
*+-I--
~~
--lY
1950 1955 7960 1965 7970 1975 l9&
Source: API
Figure 5
1985 188(
96
Clearly, the need for new technologies exists. What direction should the world R&D community pursue? A considerable amount of research is being directed toward reducing the cost and ease of natural gas transportation. This subject will not be addressed in this paper. We will focus on the remote conversion of natural gas to transportable fuels and chemicals. For gas to be developed in a remote location and made usable at a reasonable value, typical remote gas fields are 100-200 MMSCFD in size. The cost of production for these fields typically runs from 0.50 to 1.50 $/MMBTU. Utilization of this gas for conversion to chemicals could yield plants producing 1-2 Bil Ib/yr of product. This increment of capacity can be easily absorbed into the world's 1.5 trillion Ib/yr gasoline market. However, this is a sizable plant for most higher value petrochemicals. With the intent of bringing on stream less than 5%-10% of the world capacity for a target chemical, the world market for this target chemical should be greater than 10 Bil Iblyr. Figure 6 shows the limited number of possible products that, based on volume alone, could be derived from natural gas.
Figure 6
91
Much of the past research in natural gas conversion has targeted fuels or methanol as the transportable product. Two other chemicals that rank high on the top 25 list have also shown some activity. Scoping economics for the production of benzene from methane are shown in Figure 7. Assuming a low value methane feed, 1.OO $/MTBU, the envisioned processes are not very sensitive to yield of benzene. It is apparent that a successful process will have, for example, a capital intensity similar to that of a state-ofthe-art xylene to p-terephthalic acid process. Current published results (3) suggest that capital improvements are needed. A number of papers (4) have also been issued on the methylation of toluene to yield ethylbenzene or styrene. If the toluene is provided through traditional petrochemical sources, methane makes up only 16% of the product’s weight. METHANE TO BENZENE EFFECT OF CAPITAL COST AND SELECTIVITY (METHANE @ $1 .OO/MMBTU) _ _ _ _ ~ ~ - ~
/.-
~Z’oo~TYPICAL BENZENE
$0.50L,&$&$b ao.00 $0.00
I
$0.20
I ,
$0.40
-_~
6o
Eo
1
$0.60
$0.80
,_$1.00
CAPITAL INVESTMENT S/(LBIYR CAPACITY)
Figure 7
As can be seen from Figure 8, this hypothetical process is very dependent on toluene selectivity. To date, there have not been any publications of high yield methane to toluene chemistry. This would obviously improve the economics for this target chemical. METHANE + TOLUENE TO STYRENE EFFECT OF CAPITAL COST AND SELECTIVITY (81 @ $1 2610AL. TOLUENE @ $1 Wl(iAL. Can 0 ZD~ILB.METHANE @ (1 WIYMBTUI ~- _______ . -
.-
16% ATROR SM VALUE (ULB)
601
SELECTIVITY lL-_
$0.00
5wb C7
$0.20
$0.40
~
100% C7
$0.80
$0.80
$1.00
CAPITAL INVESTMENT. SI(LBIYR CAPACITY)
Figure 8 3. Devries, L.: Ryason, P. R. U S . Patent 4,599,474, 1985. 4. A. 2. Khan and E. Ruchenstein, J. Chem. SOC.,Chem. Commun. 1993, 587. K. Otsuka, M. Hatano and T.Amaya, J. Chem. SOC.,1992, 137, 487-496. H. M. Suh, H. Kim and H. Paik, Applied Cat., 1993, 96, L7.
98
In addition to a large worldwide marketplace for a target product from methane conversion, what other characteristics are also important? A majority of final realized price for a commodity chemical is composed of the raw materials and capital recovery costs. Operation, maintenance and shipping costs tend to account for less than 25% of a commodity's final price. However, there is a broad range of capital and raw material intensity for commodity chemicals. Figure 9 shows a range of raw material costs to capital cost for some current methane conversion technologies, and for some non-methane based chemicals. This simple analysis suggests that the feedstocks for an ethylene dichloride plant could be a prime candidate for future remote gas conversion research.
REMOTE GAS INVESTMENTS g loo%
1
t ETHYLENE DlCHWRlDE 75%
9
-
i BTYRENE
,
ETHVLENI OXlDB
+ ACLTIC ACID
50%
L
5
8
25%
OK
26%
CAPITAL COST (W REQUIRED NETEACK)
Figure 9
-
50%
99
The analysis presented in this paper so far assumes reduced natural gas feedstock cost and U.S. Gulf Coast construction cost. Is this a totally unreasonable assumption and how significant is this assumption? The answer to the second question is portrayed in Figure 10. Shown is the relationship between construction costs relative to the U.S. Gulf Coast and low valued natural gas prices for a state-of-the-art methanol plant. Because of the demand growth for MTBE legislated by the Clean Air Act, considerable new methanol capacity is required. With current natural gas prices in the U.S. at about 2.00$/MMBTU, one would expect to see plant construction in the States. In fact, only debottlenecks are occurring in the States. The major methanol capacity additions, and planned additions, are being built in areas of the world where the decreased gas values can compensate for the somewhat higher construction costs. In fact, the announced methanol plant expansions through this decade show a significant shift in the location of the world's methanol supply, Figure 11.
Remote Methanol Facility Raw Materials vs Construction Costs ~~~
21
~~
~~
~
~
Construction Costs*
~-
~
~
'. 1.41 I
1.21
---.-
I
11
0.5 0 5
0.7 0 7
LL 0 0.Q 9 1.11 1
1.3 1 3
I1.55
1.7 1 7
.
1.9 1 9
2.11 2
I
.
2.3 2 3
Gas Cost $/MM BTU
* Relative 10 USGC
Figure 10
Global Methanol Capacity 1986-2000
Figure 11
~
I
-. . 2.5 2 5
I00
will this trend continue in all commodity chemicals and does it suggest a general movement of the commodity chemical industry to areas abundant resources? To answer this question, one needs to look at the factors controlling remote gas investment decisions, Figure 12. These scenarios obviously apply to any capital-intensive industry.
Purely by definition, when remote gas fields are initially developed, the resource has low value. Because of the lack of regional infrastructure and skilled labor force, construction costs are conversely higher than in industrialized areas. These "Pioneer" remote gas regions are currently characterized by areas such as Alaska, northwest Africa, northern Canada and the central CIS. Investments in these "Pioneer" regions should focus on processes that are not capital intensive and are raw material driven. They need to be a large scale and export driven. Therefore, they should be producers of fuels or chemicals shown toward the top of Figure 6. If possible, they should have the ability to be modularized. In addition, they should be well proven technologies in order to minimize capital risks. At this time, only existing methanol technology meets all of these requirements.
REMOTE GAS INVESTMENT SCENARIOS
i --1-------1 B
f
P\
Figure 12
I01
If the region is conducive to the development of petrochemical infrastructure, there is an opportunity window when raw materials and low construction costs are competitive with industrial regions of the world. Such a situation currently exists in the Middle East, China and Mexico. This historical decrease in construction costs in Saudi Arabia is shown in Figure 13. However, this condition may not last forever. If favorable construction conditions continue and the region can develop a significant indigenous market, the price of the raw materials becomes competitive with other world markets. Because of the significant population and rising standard of living in Indonesia, Malaysia and Singapore, these regions have seen a significant development of the petrochemical industry. These industries are competing for indigenous gas supply and driving prices toward U.S.and European levels. Those regions in the future may not be regarded as processing "remote gas." One can also speculate that because of the international attention on the development in China, competition for construction resources may greatly inflate future investment costs in this rapidly developing country. SAUDI ARABIA PLANT COST LOCATION FACTORS* 1 2,
r
US GULF COAST
In conclusion, researchers in the area of natural gas conversion have a number of difficult challenges in addition to the inertness of the methane molecule. To be commercially successful, the ultimate goal of technology, one needs to recognize the rapidly changing world in which we live. The remote gas technologies of the future should focus on processes that are not capital intensive. They should also have simplicity in design to match the risk of investment in a low infrastructure region. In the long run, justification of research projects based on discounted gas prices is not a sufficiently aggressive target. Natural gas can truly be the petrochemical feedstock of the future if technologies can accept the full market price of natural gas in the industrialized world.
Acknowledgement. The authors would like to acknowledge C. S. Lee and E. A. McKee for their helpful insights and contributions to this paper.