October 7, 2010
BY Erin Krueger
While most are well aware that volatility, price spikes and overall price increases have characterized the U.S. transportation fuel market over the past decade, the effect these factors have had on the domestic petrochemical industry may be less clear. According to the U.S. Energy Information Administration, the average domestic price of crude oil remained below $30 per barrel throughout the 1990s and into the early 2000s. Prices began to increase in the 2004 timeframe, before spiking at $133 per barrel in July 2008, a more than 400 percent increase from the price of oil less than a decade earlier. While crude oil prices now hover in the $70 per barrel range, this is still a significant increase when compared to prices that occurred five years ago. Higher crude oil prices do more than increase the price of gasoline and diesel though-they also reflect higher input costs for the petrochemical sector that produces materials such as plastics, polymers, rubbers and fibers.
As the price of crude oil has risen, petrochemical refiners have been more attracted to alternative feedstock, specifically natural gas. Technology advances, driven in part by higher crude oil prices, have resulted in a boon of recoverable natural gas reserves, while prices have remained relatively low. According to the EIA, the industrial price for natural gas is currently in the $5 per thousand-cubic-foot range.
Due to these two market dynamics in the fossil fuel sector, those in the petrochemical industry that are feedstock flexible have largely begun to move to natural gas liquids as feedstock. Although both crude oil and natural gas can be used to make carbon 2 (C2), carbon 3 (C3), and carbon 4 (C4) chemical building blocks, the use of natural gas liquids as a petrochemical feedstock results in more C2 production, and less C3 and C4 production. These limitations seem to be driving up prices for C3 and C4 molecules, which could open up market potential for biobased molecules that can fill this void.
Petrochemicals 101
According to Steve Zinger, global business director of the olefins market with Chemical Markets Associations Inc., these newly recoverable natural gas reserves have only recently begun to enter the market place. “This gas has started to come into the market over the past two years,” he says. “It’s really going to change the energy markets-at least where gas and oil compete-it’s going to change those dynamics.”
However, natural gas itself isn’t used as a feedstock for the petrochemical industry, except for ammonia and methanol production in a few cases. Rather, natural gas liquids that are recovered as part of the extraction process can be processed by petrochemical manufacturers. “The specific chemicals [that compose natural gas liquids] are ethane, propane and butane,” Zinger says. “Pretty much the only use for ethane is to go into the petrochemical industry. They take the ethane and heat it up to very high temperatures, and they crack it. When you do that it makes some basic chemical building blocks, like ethylene, propylene and butylene. Those three petrochemical building blocks probably go into 70 percent of the different chemicals you use every day, whether it’s a polypropylene cup that you get at a baseball game, or the PET (polyethylene terephthalate) bottles you drink out of, or the trash bags you use. All the building blocks for polymers and petrochemicals really start at that level.”
As more ethane feedstock has become available, some petrochemical producers in the U.S. have begun to move away from the use of naphtha feedstock, which is derived from oil. “When you use naphtha as a feedstock for petrochemicals, you make a lot of byproducts; you make a lot of ethylene, but you also make a lot of propylene and butylene,” Zinger says. “When you use ethane as a feedstock, you make mostly ethylene and very little propylene and butylene. So the punch-line here is that, as the industry shifts more and more toward ethane feedstock because of its new availability, it is making less and less of the propylene and butylene molecules. Those molecules are becoming more expensive as a result, and the ethylene is actually becoming cheaper. That has kind of changed some of the dynamics in the petrochemical industry.”
Ethylene is a C2 chemical, while propylene is a C3 and butylene is a C4. According to Zinger, companies that are making biobased C3 and C4 molecules, like Gevo Inc., may be able to capitalize on this market opportunity. According to information published by Gevo in its Aug. 12 S-1 filing with the U.S. Securities and Exchange Commission, isobutanol can be converted into a wide variety of hydrocarbons, including rubber, lubricants, polyesters and polystyrene. The company states that there is approximately 67 billion gallons per year of market opportunity for these products in the petrochemical industry.
“In the case of Gevo, they are making isobutanol, and it is a C4 platform that could tie into that C4 market,” he says. “It would fit nicely into that C4 market, I think they have a good product that has good properties. It’s just new, so it will take a little time to get accepted in the industry.”
Obstacles
One obstacle facing biochemical producers is that their products are new and have historically been more expensive to produce. “The issues with using biobased inputs have primarily been that it’s a more expensive route to making them, versus the petroleum-based routes,” Zinger says, noting that low crude oil prices in the 1990s didn’t lead to a great deal of interest in developing alternatives. “As we moved into this decade, higher petroleum-based costs have made people look for alternatives,” he continues, adding that there has also been a significant push for renewable and recyclable products by retailers and brand owners.
Even with this push, however, biobased chemicals make up less than a few percentage points of the petrochemical market. “It’s fairly new, and there are several different routes to making them, but none of them have really taken a lot of market share from petroleum-based products,” Zinger continues. Jim Cooper, vice president of petrochemicals at the National Petrochemical and Refiners Association, confirms that biobased inputs currently make up an extremely small portion of the overall chemical market.
According to Cooper, biobased chemical producers need to improve their efficiencies a great deal to be able to compete with current processes that petrochem manufacturers employ. “So far, all we’ve seen are things like succinic acid and more complex molecules that are naturally derived from plants anyway,” he says. “Even those are just being put out at the pilot scale. We haven’t seen a butanol process that can even come close to competing right now in the marketplace, or have any real commercial viability yet. I’m not saying that won’t happen in the future, but we haven’t seen anything that is going to be coming online to replace the current processes anytime soon.”
While the use of some biobased inputs is being explored, their commercial use will be ruled by physics, Cooper says. “It is performance based,” he continues. “Whatever the molecule is, it has to have certain attributes to be able to really compete in the marketplace-in addition, of course, to price.”
Working with Established Industry
While Cooper notes that it could take decades for biobased chemicals to reach a significant level of market penetration, he also says he thinks that there is a strong future for biobased materials in the long-term. We can’t look at the marketplace under the impression that, as the petrochemical industry collapses, a biobased chemical sector will rise up to replace it, Cooper says. There is currently an abundance of raw materials for both petrochemicals and biochemicals, and there is enough room in the marketplace for all of them because each product line has its own attributes.
“Our members are putting a pretty good amount of resources into developing these kinds of [biobased] processes, so we’re pretty confident that there is a future for them,” he says. “I’m talking some of the world’s biggest corporations that have pretty advanced resources to look in a lot of different areas, as far as viability of feedstocks and processes, and they are pretty confident that there is going to be a role for green chemicals in the future.”
To develop interest within the traditional petrochemical sector, Zinger says it’s important to get the right people involved. “From a business standpoint, I think it’s key to get partners in place to test and commit to using materials to demonstrate that biobased chemicals will work in the refining and petrochemical industry,” he continues. “That’s always a challenge. These industries tend to fall back to the traditional products that are out there until a new one can be proven better, and the only way to really do that, I think, is to develop alliances or partnerships and long-term commitments with customers to try these things out. As they become accepted, then they can grow in the industry.”
Author: Erin Voegele
Associate Editor, Biorefining
(701) 850-2551
evoegele@bbiinternational.com
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