The Role of Innovation in US Gulf Coast Competitiveness

The Future of the Gulf Coast Petrochemical Industry

Global Energy Management Institute

University of Houston

April 29, 2005

James H. D’Auria

UOP LLC

Agenda

The competitiveness gap Potential for technology innovations to

improve competitiveness Key technology innovations Examples of options for the USGC The integration conundrum Final thoughts

The USGC Cost of Production Gap:Ethylene Example

North American Ethane Crackers Have Become the High Cost Producers

How Can Technology Innovation Help? Technology can be developed to:

– Make use of lower cost and/or unique feedstocks

– Create feedstock or product flexibility—Hedge—Reduce volatility

– Reduce required capital investment– Make existing assets more efficient– Integrate existing assets to increase

efficiency– Improve product quality

Competitive advantage is gained when technology innovations are linked with the right market or

business circumstances

Alternative Feedstocks to Consider Low Value Refinery/Cracker Streams

– Light Gases– By Product Olefins– Pentanes– Light Cycle Oil– Resid

Remote Gas Coal ? Biomass ???

Basis for US Industry Advantage:• GC Refining Concentration

• Atlantic Basin Stranded Gas • Coal Reserves

• Biomass potential

Key Technology Innovations Use of Alternative feedstocks

– Stranded Gas to Olefins/Polymers— “Mega-Methanol” Plants— Methanol to Olefins

– Clean Coal Refinery- Petrochemical integration

– Petrochemicals from FCC– Olefins Conversion– LCO Conversion– Naphtha optimization

Longer term Breakthrough Technologies

Methanol/MTO Economies of ScaleConstant IRR

0 2,500 5,000 7,500 10,000

Methanol Capacity, MT/d

Met

han

ol P

rice

Req

uir

ed f

or

Tar

get

IRR

MeOH PlantMTO Plant

Mega Methanol Plants Enable Gas to Olefins Projects

MTO on the USGC

$0

$200

$400

$600

$800

$20 $30 $40 $50

Crude Oil Price, $/BBL

Lt

Ole

fin

s C

ash

Cos

t of

Pro

du

ctio

n, $

/MT

US EP Cracker Naphtha Cracker ME Ethane Cracker

MTO on the USGC

* Based on $85/MT methanol from Atlantic Basin Stranded Gas** Based on $100/MT methanol

USGC MTO Becomes Attractive At High Oil Prices

$0

$200

$400

$600

$800

$20 $30 $40 $50

Crude Oil Price, $/BBL

Lt

Ole

fin

s C

ash

Cost

of

Pro

du

ctio

n,

$/M

T

US EP Cracker Naphtha Cracker ME Ethane Cracker

MTO* MTO**

Clean Coal TechnologyCoalCoal

Gasification Synthesis Gas

Methanol

PowerF-T LiquidsSteam, H2

Chemicals

Alternative GasificationFeedstocks:

Petroleum cokeResidbio-residue

Coal to Olefins in the US(@ $40/BBL Crude)

$0

$100

$200

$300

$400

$500

$600

Cas

h C

ost

of P

rodu

ctio

n, $

/MT

E

thyl

ene

Historic US Avg* CTO** ME Ethane

* Based on correlation of ’97-’05 CMAI data: weighted avg. feedstock

** Assumes $125/MT methanol from coal

High Oil Prices Improve Attractiveness of Coal To Olefins

Key Technology Innovations Use of Alternative feedstocks

– Stranded Gas to Olefins/Polymers– “Mega-Methanol” Plants– Methanol to Olefins

– Clean Coal

Refinery- Petrochemical integration– Petrochemicals from FCC– Olefins Conversion– LCO Conversion– Naphtha optimization

Longer term Breakthrough Technologies

Propylene from Refineries

VGO

CrudeOil

CrudeCrudeColumnColumn

C4 and Lighter

Straight Run Gasoline

Kerosene

AGO

VacuumVacuumColumnColumn

Vacuum ResidueVacuum Residue

FCCFCC

PropylenePropylene

Fuel GasFuel Gas

LPGLPG

GasolineGasoline

DieselDiesel

Heavy Heavy Fuel OilFuel Oil

PRUPRU

DownstreamProcessing

UOP 4288K-4Refinery FCC is an Important Source of Propylene

Petrochemicals from FCCP

rop

ylen

e Y

ield

Pro

pyl

ene

Yie

ld

Unit Design and OperationUnit Design and Operation

Max. GasolineMax. Gasoline3 - 5 wt%3 - 5 wt%

GasolineGasoline

Enhanced Enhanced PropylenePropylene5 – 7 wt%5 – 7 wt%

CC33==

GasolineGasoline

High-Severity High-Severity FCCFCC

10 -16 wt%10 -16 wt%

CC22==

CC33==

GasolineGasoline

PetroFCCPetroFCC20 + wt%20 + wt%

CC22==

CC33==

AromaticsAromatics

UOP 4399A-7

Increasing Petrochemical Production

Challenge: Manage Across Traditional Boundaries

RefineriesRefineries

FCC

OlefinOlefin

Recovery

GasGasOilsOils FCC GasolineGasoline

Cycle OilsCycle Oils

LightLightOlefinsOlefins

CC44-C-C88

LPGLPG

CC22==CC33==

OlefinCracking

Olefins Conversion TechnologyNaphtha CrackersNaphtha Crackers

Furnace Product Recovery

CC55/C/C66

Paraffin-RichParaffin-Rich

CC44/C/C55

OlefinsOlefins

CC22==

CC33==

OlefinCracking

NaphthaNaphtha

UOP 4399A-22

• Metathesis: Converts ethylene + C4 olefins to propylene• Olefin Cracking: Converts C4 – C8 olefin streams to propylene + ethylene• Utilize USGC refinery & liquid cracker capacity

ULSDULSD

New catalysis selectively opens rings to upgrade Light Cycle Oil to produce:

–Clean fuels–BTX Aromatics

Environmental Benefits: – Reduces HSFO production– ULS Diesel co-product– ULS Gasoline co-product

Ring Opening to Upgrade LCO

LCOLCO

LCO RingOpening

High OctaneHigh OctaneGasolineGasoline

PetrochemicalsPetrochemicals

UOP 4288A-18

USGC Opportunity: Pool LCO Streams

Naphtha Optimization

UOP 3994J-10

NaphthaCracker

CatalyticReformer

Iso/normalseparation

Full Full Range Range

NaphthaNaphtha

CC55-C-C11 11 nn-paraffins-paraffins

CC77+ +

Ethylene yield 30% higher than with conventional naphtha

Same propylene yield

Increased octane-barrel production

• Economic value of ~ $30 MM/year • Requires close integration of olefins & gasoline production

Concentration of refining capacity in USGC provides basis for competitive advantage

Technology innovations that cross traditional boundaries can create economic value and cost advantage - “On Paper”

Barriers to integration are many:– Increasing complexity/Limiting flexibility– Conflicting objectives– Mixing disparate cultures– Difficult technical issues– Diffusing business focus (What business

are we in?)

The Integration Conundrum

Need to develop integration enablers•Business management practices•Advanced process technology•Information technology

Longer Term Technology Outlook Continuing investments are needed to develop

new chemistries Example areas of focus:

– Catalytic Naphtha Cracking– Paraffin Activation

— Ethane + Benzene to EB— Direct Propane to PO, CAN, Acrylic Acid— Pentanes to Higher Value Chemicals

– Direct Methane to Methanol– Renewables as Feedstocks (carbohydrates,

biomass)

The Role of Technology: Final Thoughts

Technologies are available today to take advantage of lower cost feeds

– Remote gas, coal, refinery by-products Future technology advances will continue to come via

process engineering & catalysis innovations New technology needs to be matched with the right

situations to provide a competitive advantage. For USGC:

– Integration with refining, power– Ability to increase propylene production– Pooling of by-product streams– Access to Atlantic basis remote gas, US coal

Can we improve the risk-reward balance?– Cost to develop & commercialize new technology– First user risks & rewards– Government regulations & incentives– Market uncertainties

THANK YOU