Ethane Cracker Megaprojects, Full Of Risks, Are Booming In The US
Call it fracking's lesser-known trickle-down effect. The surge in U.S. natural gas production not only results in low fuel prices, it's also behind an uptick in ethane cracker plant construction projects. The facilities produce ethylene, a key component in an array of products—everything from plastics and shampoos to military gear and medical equipment. It's estimated that the cracker building boom will push U.S. ethane production up to 1.7 million barrels per day by 2018, up from 1.3 million barrels a day in 2016, according to the U.S. Energy Information Administration.
Major multinationals are sponsoring cracker projects: Dow Chemical, Chevron Phillips Chemical and ExxonMobil have, within the last year, completed or will soon complete plants that will each produce at least 1 million metric tons of ethylene a year. “Both U.S.-based manufacturers and foreign companies are building plants because the raw materials are less expensive than anywhere in the world and the markets [for ethylene] are nearby,” says James Cooper, senior petrochemical adviser for the American Fuel and Petrochemical Manufacturers, Washington, D.C., USA.
“These megaprojects require millions of man-hours to construct and typically result in a peak labor force at the site of several thousand workers.”
—Rob Donnell, Baker & O’Brien Inc., Dallas, Texas, USA
These projects aren't a cinch, though—they typically require several years to design and build, and price tags can exceed US$3 billion, with some reaching US$10 billion. Teams have to navigate environmental and regulatory issues, along with community concerns about the massive facilities. They also have to grapple with how to incorporate sophisticated new technologies. “Cracker technology has been around for many years. But new projects are taking advantage of new feedstocks from shale development and are being built at large scale to serve global markets,” says Mark Lustig, a principal at PwC who tracks the petrochemical industry, New York, New York, USA.
Overall, more than a dozen plants are currently planned or under construction in the U.S. “The plants are becoming so big that their size alone is creating technical issues for some of the equipment design and construction,” says Rob Donnell, CEO of independent energy consulting firm Baker & O’Brien Inc., Dallas, Texas, USA. “These megaprojects require millions of man-hours to construct and typically result in a peak labor force at the site of several thousand workers.” Shortages of key technical and construction trade talent can slow progress.
Add complex logistics and a crowded stakeholder landscape (e.g., local residents, environmental groups, government agencies) into the mix, and project managers can find themselves straining to keep projects on schedule and within budget, Mr. Donnell says.
“Each of these facilities is engineered from the ground up,” Mr. Cooper says. And because of “long lead times for permitting, engineering, equipment fabrication and construction,” Mr. Lustig says, it can take four to five years from concept to bring a plant online.
Problems frequently emerge: For example, last year, Sasol's cracker project in Lake Charles, Louisiana, USA was both behind schedule and over budget, forcing the company to revise its budget from US$8.9 billion to US$11 billion. “This is what keeps project managers and executives up at night,” Mr. Donnell says. To rest easy, project managers need “strong span-of-control skills,” he says. “The goal is to minimize changes during project execution.”
For a US$1.5 billion cracker project it completed in February in Ingleside, Texas, USA, engineering, procurement and construction firm CB&I turned to risk management strategies refined during earlier projects. Hired by Ingleside Ethylene, a joint venture of Occidental Chemical Corp. and Mexichem S.A.B. de C.V., CB&I leveraged its “self-perform model,” says Andy Dadosky, the organization's vice president and project director, Houston, Texas, USA.
That model translates into more control and greater visibility over the value drivers of productivity in a project, he says. “This means that many of the key interfaces to deliver a project are from in-house sources, as opposed to being subcontracted out, and can be managed or eliminated through the use of digital technologies.” All this allowed the CB&I team to tightly integrate project activities and “identify and manage interdependencies not visible to subcontractors and providers.” In the end, the project came in on time and within budget.
It's estimated that the cracker building boom will push U.S. ethane production up to 1.7 million barrels per day by 2018, up from 1.3 million barrels a day in 2016.
Source: U.S. Energy Information Administration
Construction of Sasol's cracker project in Lake Charles, Louisiana, USA
“Today, crackers are a benchmark large project in the chemical industry,” Mr. Lustig says. “They require sophisticated engineering, construction and project management skills.” —Samuel Greengard