Nitrogen+Syngas blog

Is CTL a leap forwards, or backwards?

2011-12-07T18:31:00.000Z

The number of projects to produce olefins from coal feedstock has been increasing rapidly, with nearly 2 million t/a of production already operational, and several million more under development. This is merely one facet of a new push toward coal-based chemical production across the board, from ammonia and methanol to downstream dimethyl ether, urea, even gasoline and diesel. China has been at the forefront of these expansions, but other countries such as Australia and South Africa are moving ahead with coal-based chemical production and the US and India have also seriously considered such developments.

High oil prices have of course been the main driver, particularly for olefins and fuel derivatives, as well as the increasing use of natural gas for power production, edging out chemicals production in some places in the world. China in particular has faced rocketing demand for fuels and a lack of oil or gas to use to supply that demand. Indeed, until quite recently the orthodoxy was that high oil and gas prices would lead to a new focus on coal and other heavy feedstocks such as heavy fuel oil, petroleum coke, refinery bottoms and so on. Just this week I came across a report written as recently as 2006 by a leading consultancy – I will spare the company’s blushes by not naming them, but many of us were saying exactly the same thing back then – which said that coal to liquids production had reached a “turning point”, and could now become the feedstock of choice in a world where oil production may have already peaked.

Of course, in the world of basic chemicals there are few truly new ideas, and in some ways this is a question of turning the clock back to the first half of the 20th century, when the chemical industry was almost exclusively coal-based, before widespread car use had created the oil refining industry and before cheap natural gas had begun to displace coal as a feedstock for ammonia and methanol production. Indeed, it could be argued that in many ways this new era of coal-based chemicals is something of a backwards rather than a forwards step. One major reason is that in a world where global average temperatures are increasing, generating 50% more CO2 per tonne of fuel or chemical produced (as compared to natural gas) is not sustainable in the long term. Various ways of overcoming coal’s limitations on this score have been proposed, mainly revolving around carbon capture and storage (CCS). But this technology remains unproven on the grand scale that would be required, and is only really currently viable in areas where the CO2 can be used to re-pressurise declining oil and gas reservoirs.

And now, in just the past few years since that 2006 report, a new complication has emerged, in the form of shale gas. Shale gas has come to dominate ‘unconventional’ gas production in the US, eclipsing coalbed methane and tight gas production. US shale gas production increased by an astonishing 50% year on year from 2006 to 2010, and could soon be supplying 40% of all US gas demand. Were that to be replicated in China, which itself has massive resources of shale gas, then the future of the chemical industry could begin to look very different indeed.

Shale gas itself is of course not a panacea. There are genuine concerns about its use of water, especially in dry regions, the potential for aquifer contamination (albeit something often overstated by those with a vested interest in seeing shale gas falter), and the use and disposal of fracking fluids. Perhaps more seriously for its green credentials, some very recent studies have claimed that – taking into account the energy expended in drilling and fracturing the rocks – shale gas can actually in some situations be responsible for generating more CO2 than coal.
So it is beginning to look as though it may be a question of which feedstock – coal or shale gas – is best able to answer its environmental critics. In the meantime, a degree of caution on the current coal to liquids boom may be called for.

Ammonium nitrate faces unwelcome spotlight - again

2011-10-05T02:04:00.000+01:00

The past couple of months have seen a renewed spotlight turned upon ammonium nitrate, after it has been found to have been used in a number of terrorist attacks around the world. The Mumbai bombings of 13th July and Anders Breivik’s attack on central Oslo on July 22nd have both been found to have used ammonium nitrate fertilizer as their base. On a visit to Islamabad in August, US Senator Robert Casey told Pakistani officials that the CIA estimates that 80% of all improvised explosive devices (IEDs) used in Afghanistan to kill and injure US and allied troops (there have been record numbers of IEDs this year, killing or injuring 368 US soldiers so far) are based on calcium ammonium nitrate fertilizer produced in Pakistan and smuggled across the border into Afghanistan. And now suspicion has also fallen upon ammonium nitrate in the car bombing of the UN compound in Abuja, Nigeria on August 26th.

The succession of incidents has led to intense discussion in governments across the globe, and the use of ammonium nitrate as a fertilizer has come under scrutiny of a sort it has not seen since the mid-1990s, in the wake of the 1993 World Trade Center and 1995 Oklahoma City bombings in the US, and the IRA’s 1993 Bishopsgate bombing and 1996 Docklands bombing in London. The reaction this time has been swift. Even in just the first few weeks following the new set of incidents the US Department of Homeland Security has finally issued its notice of proposed rulemaking on AN – something that was mandated by Congress in 2007 but left on the back burner. India likewise has dusted off its own plans for reclassifying AN with a high nitrogen content as an explosive, and there are also reviews under way in Europe, Norway, and other Scandinavian countries. It seems a fairly safe bet that there are likely to be further moves to regulate AN around the world. Already straight ammonium nitrate is banned as a fertilizer in China, Colombia, Afghanistan, Ireland, Germany and the Philippines. Might more countries follow suit? Could this be the end of AN as a fertilizer?

Outright bans are fairly unlikely, and there are still powerful arguments for continuing the use of AN, which has definite agronomic benefits in some climates, and which is widely and safely used as a fertilizer across Europe and the CIS – but the major threat that the compound faces arguably comes not from an outright ban, which has by and large so far only happened in countries where usage was already fairly low, but rather a gradual accumulation of regulations on storage, handling, transport and security which make it too expensive or impractical or even simply too much of a hassle to use, compared to urea or various NPKs. Many dealers in the US have already stopped handling AN fertilizer because of steadily growing restrictions, and those in Europe could begin to follow suit if the regulatory burden became too onerous.

To head this off, various methods have been proposed on the production side to try and reduce the risk posed by AN. The question of ‘tagging’ ammonium nitrate to determine its origin – something that was initially proposed in the 1990s – has been raised again, as has colouring it so that it can be immediately spotted by customs officials. There have also been the usual calls to blend AN with other substances to make it less explosive, although it remains is arguable to what extent this is truly possible and still have a usable fertilizer. Honeywell sells a mixture of AN with ammonium sulphate which it claims meets Department of Homeland Security guidelines, and during the 1995-6 lawsuit against ICI Explosives that followed the Oklahoma City bombing there was also mention of a patent filed by a Samuel Porter in the US which mixed AN with ammonium phosphates to reduce its explosive characteristics. However, calcium ammonium nitrate is arguably already an attempt at such a formulation, and yet has been successfully used as an explosive by the IRA and the Taliban, as the compound can be dissolved and the AN can be recrystallised from solution.

What will happen as a result of the current focus on AN is still very uncertain, but what is not in doubt is that manufacturers and users of AN face their greatest challenge in more than a decade.

China looks to the future

2011-07-26T12:54:00.001+01:00

China published its 12th Five Year Plan in March this year. Although the very notion of a Five Year Plan was copied from the old Soviet Union, and the concept remains a relic of central planning, this year the Chinese government is insisting that it be called a ‘guideline’ rather than a ‘plan’, in order "to reflect the transition from a centrally planned economy to a socialist market economy". Those who might be tempted to scoff at this as a purely cosmetic touch should at least consider just how far and how fast China has changed over the past decade, and how fast it is still changing. And the new plan shows that the Chinese government is fully aware of China’s problems with pollution and environmental concerns, sustainable growth and inequalities of wealth, and is attempting to take steps to tackle them. This is the first Five Year Plan to mention climate change, for example, and it sets a target for a 17% improvement in energy efficiency.

China is often excoriated as an example of unfettered economic growth and a ‘slash and burn’ attitude to the environment, but in fact the country is – at least in recent years – often more forward-thinking than its critics give it credit for. On a recent visit to China, I was struck by the sheer number of wind turbines that seem to have proliferated across the northern hills, to take just one example. China has revised its target for wind energy to generate 70GW by 2015, higher than the previous target for 2020.

However, China’s main feedstock remains inescapably coal, with 94% of China’s energy currently coming from coal. In attempting to convert this to other uses, possibly involving carbon capture and storage, syngas-based industries will continue to play a key part in China’s economy. Coal to olefins production will need to cover a forecast gap of 6 million t/a of olefins demand by 2015, and the current plans indicate that 5 million t/a of this could come from coal-based methanol to olefins (MTO) plants. The Five Year Plan targets 20% of olefin production to come from ‘diversified’ sources, which for China essentially means coal, and the successful start-up of the Shenhua Baotou plant in August last year has helped to alleviate some concerns regarding MTO as a process route.
Coal to liquids (CTL) production is also estimated to rise to 12 million t/a over the period of the 12th Five Year Plan, and the four huge synthetic natural gas (SNG) projects currently under development are scheduled to be producing 15 bcm per year by 2015, and the approval of a fifth project could take that to 20 bcm.

Ammonia and especially methanol production are also set to increase – methanol demand being bolstered by new national fuel standards on methanol and dimethyl ether (DME) which are due to be published this July. The previously fragmented nature of some of these industries, with small plants, difficulties in accessing coal and access to commercially viable technologies have emerged as the main roadblocks in coal-to-chemicals projects, and so China's National Development and Reform Commission (NDRC) has now set minimum project sizes required to gain approval; the minimum capacity for a new coal-to-olefins plant has been set at 500,000 t/a in terms of olefins, while a 1.0 million t/a limit has been set for coal-to-methanol projects, in order to gain suitable efficiencies of scale. This will be assisted by moves on the feedstock front; another key part of the 12th Five Year Plan is the streamlining of the Chinese coal industry, with the current 11,000 enterprises to be reduced to 4,000, mostly in the hands of 6-8 major coal groups. The bulk of the announced coal-to-olefins projects are from companies that have coal arms or utilities businesses with coal supply, thus ensuring feedstock supplies for the projects.

China has already come to dominate the methanol industry, and is the largest ammonia producer and consumer in the world. It looks as though it will also be setting the pace in the development of CTL, MTO, DME and many other syngas-based industries as well.

Egypt’s new powerhouse

2011-07-26T12:53:00.001+01:00

A couple of months ago it was announced that Egypt’s Orascom, via its Dutch subsidiary OCI Nitrogen, had bought a 50% stake in the Pandora ammonia and methanol project in Texas. In conjunction with Deo van Wijk’s Janus Methanol, which holds the other 50%, the company will rehabilitate the old Beaumont methanol plant, with 250,000 t/a of ammonia production due to re-start by the end of this year, and 750,000 t/a of methanol production next year. The move is yet another sign that Orascom is now a major player in the global basic chemicals market, branching out with this purchase from nitrogen products into the methanol market.

It is only one of a flurry of developments in the past few years. Beginning with the purchase of the Egyptian Fertilizer Company in 2007, with 1.2 million t/a of ammonia-urea capacity at Suez, Orascom has also taken positions in Egypt Basic Industries Corporation (60%) with ammonia and now downstream ammonium sulphate capacity, Notore Chemicals in Nigera (a 23% share, later cut to 13.5%) – where another ageing ammonia-urea plant is being rehabilitated, Sofert in Algeria (51%), with a 1.1 million t/a urea plant now commissioning, and last year the company attracted worldwide attention with its 100% purchase of DSM Agro. It was also named as a bidder for Brazil’s Copebras in 2009, and more recently has also been in the frame as a potential purchaser of the Burrup Fertilizers Plenty River ammonia plant in Australia. While commenting on the Beaumont purchase CEO Nasser Sawiris said that the company is also considering a bid for BASF SE’s nitrogen fertilizer unit at Antwerp. In just four years the company has come seemingly from nowhere to become one of the top ten nitrogen fertilizer producers in the world, and it seems to have an appetite for more. March this year saw agreement with Maire Tecnimont, now owners of Stamicarbon, on project developments in sub-Saharan Africa.

The company can trace its origins to 1950, and remains 55% run by the Sawiris family that founded it. The group’s portfolio includes Orascom Telecom Holding – one of the largest operators in the Middle East, Orascom Hotels and Development, Orascom Technology Solutions, and Orascom Construction Industries (OCI) – the latter is the arm that has been responsible for the group’s move into nitrogen fertilizer production. The group has been widely recognised as one of the most dynamic companies in North Africa, as evidenced by its rapid expansion into nitrogen fertilizers and now methanol. The latest acquisition in Texas pushed OCI shares to 253 Egyptian pounds, valuing the company at $8.8 billion, while profits for Q1 2011 were up 77% on last year at $206 million on the back of higher ammonia and urea prices, and seemed unaffected by the turmoil in Egypt earlier in the year. OCI makes most of its money in Europe and North America now, with less than 10% from North Africa. Industry commentators have noted that the group’s investments have been canny ones, backed by low gas price contracts in Egypt - although there have been warnings that Egyptian gas prices may be set to escalate soon.

A few years ago, as traditional European and North American chemical producers continued to exit the basic chemicals sector, the assumption was that production would devolve either to large integrated oil and gas companies or to state-run firms in the developing world. However, Orascom is a symbol of the new dynamism and confidence of private companies based in Russia, the Middle East and North Africa, China, Brazil and other industrialising regions. It will be fascinating to see where they move next.

Feeding the world

2011-04-05T16:14:00.000+01:00

The current difficulties that have engulfed several countries of North Africa and the Middle East have monopolised world attention for the past few months. However, what has had less media ‘airplay’ is the role that high food prices have played in stoking the fires of discontent. It is instructive to remember that the protests in Tunisia and Algeria that started the whole ball rolling began with food riots.

Prices for basic foods such as sugars, cereals and edible oils were at or near record levels this February, according to the UN Food and Agriculture Organisation. Their ‘weighted basket’ index of wholesale food prices is now at its highest level for 21 years – even higher than in the 2007-08 price spike. Wheat prices have risen by 74% over the past year, coffee by 94%, and corn by 88%, while sugar has risen 14% in price. In 2008, as global food prices reached their previous peak and countries around the world began to impose export bans on rice and other food crops, there were riots in dozens of different nations, in one of which – Haiti – the government was toppled. Are we about to see the same thing this year? There seems little doubt that the cost of living is contributing to the current anger and unrest in the Middle East, and could easily spread elsewhere. Other countries ‘at risk’ include much of sub-Saharan Africa, Central America, and Central Asia.

A major difference this year is that rice prices have so far not risen as fast as other food crops, helping to keep a lid on tensions in southern and eastern Asia. Last year was a bad one for food production, and especially grains. Rain in Canada, drought in Russia, a hard winter in the US which lowered yields on winter wheat and disastrous flooding in Australia all played their part in the shortage of grain, exacerbated by low global stocks still not replenished from previous crises. Wheat production will be down 4.3% in 2010-11 compared to the previous year, while demand has increased by 1.2%. There are worries about stockpiling and speculation driving prices higher still. In advance of northern hemisphere harvests, April and May this year could be particularly difficult months.

However, regardless of what happens this year, for the longer term food price inflation will be a major issue for countries around the globe to tackle, as the world’s population steadily rises towards 9 billion, and arable land resources are slowly eroded. The ultimate answer will have to come from a variety of factors, including further improvements in agricultural productivity, food distribution systems and greater nutrient use efficiency. Many have suggested, for example, that Africa needs its own ‘green revolution’ comparable to the one that India went through in the second half of the 20th century.

Fertilizers, especially nitrogen fertilizers, of course have a role to play in this situation. Regardless of gains that are made from increased efficiency of fertilizer use via balanced nutrition and micronutrients, some of the extra food will have to come from increased application in regions where fertilizer use is currently low. Achieving this will be a delicate balance between the interests of industry, farmers and consumers, to ensure that the first two are sufficiently rewarded to induce them to produce more, without placing too high a burden on the latter.

Energy markets also play their part. Fertilizer production consumes 1.2% of world energy use, according to the International Fertilizer Industry Association (IFA), and 94% of that energy goes into the production of ammonia, the most energy-hungry process and yet one of the most vital – at a rough estimate 50% of all people alive today owe their existence to the Haber-Bosch process. Moves towards carbon pricing in the fertilizer industry must also recognise the crucial contribution that ammonia producers make to global food security. Riots over food prices and collapsing governments can only serve to emphasise the urgency of the task in hand.

Tomorrow’s world

2011-02-01T15:21:00.000Z

I am a bit of a sucker for futurology. It probably comes of reading too much science fiction in my youth. In a sense all of us in any industry have to be futurologists of a sort; identifying trends, looking for the next growth area or the next business opportunity, and so on. Perhaps it is because we have just completed a year ending in ‘0’ and everyone is looking towards the next one in 2020, but there seems to have been a lot of futurology about of late. My attention was drawn particularly by a rash of reports at the end of last year from several consultancy companies – Deloitte, Frost & Sullivan and KPMG – which all aimed to pick out ‘megatrends’ that they believe will shape the future of the chemical industry over the next decade and beyond. Some companies have looked further still, out to 2050, where the future becomes hazy indeed.

Such reports are well-meaning of course, though hardly containing much that will surprise. Some of the predictions are easy and uncontroversial – demographic shifts are relatively predictable for some way into the future, economic shifts are predictable on a broad scale over the medium term, and resource trends likewise – again to a degree. The impact of increasing urbanisation and the rise of the BRIC countries on chemical demand, and the impact of the resource-rich Middle East on chemical production are already evident and equally evidently likely to continue. The centre of gravity of the chemical industry continues to shift, and the buyout of DSM Agro by Egypt’s Orascom is just one such straw in the wind. Occasionally unnoticed but equally relevant are other trends such as the growth of corporate ‘economies’. Measured against national economies, 46 of the top 100 global economic entities are now corporations rather than nation states. In 2007, WalMart, Exxon and Shell were bigger than Denmark, Iran and South Africa.

Some trends are more industry specific. The retreat of the ‘old’ European and North American chemical industry from commodity chemicals and into specialities is almost complete, except where those commodities are integrated into complexes which add value at various stages of the production chain. Frost & Sullivan single out the BASF ‘verbund’ integrated chemical complex concept as paving the way forward for the European and US industries, and increasingly likely to be exported to the developing world.

Likewise I am sure that the reports are right when they say that the industry will increasingly be driven by sustainability criteria, and not just in the developed world. China has discovered for itself the social and environmental costs of rapid industrialisation, and is working harder than many give it credit for to ameliorate them. I am also sure that they are right that we will see more use of bio-feedstocks and so-called ‘white biochemistry’ in chemical production, although I personally believe that poor economics and competition for scarce land and water resources will inevitably prevent any large-scale move towards biomass feedstocks for the commodity chemicals sector.

The difficulty with futurology is that it depends on continuing that line on the graph into the future. Provided that all trends stay constant, they are easy to predict. The problem is that they never do. There will always be geopolitical shocks like 9/11 or the fall of the Berlin Wall. And unfortunately, futurology is also at its most frustratingly vague when dealing with the impact of technology, which is especially problematic when making predictions about a technology-driven industry like chemicals. The drawbacks of futurology are clearly illustrated by one of the cult online phenomena of last year - a blog dedicated to reproducing a 1972 children’s book called 2010: Living In The Future. The book was originally written by Geoffrey Hoyle (son of the astronomer and SF writer, Fred Hoyle) and is an instructive and even nostalgic look at how we once imagined 2010 might be; a world of jumpsuits, automated kitchens, free public transport, supersonic travel and working for only three days a week as mechanisation provided increased leisure time. To give him his due, electric cars, videophones, videoconferencing and online shopping are all here as he predicted, but so are global warming, peak oil and suicide terrorism. And although the book was more prescient than most about the impact of computers on everyday life, in 1972 the internet was still something no-one could have quite imagined.

Indeed, perhaps its capacity to continually surprise us is the most encouraging thing about the future - it at least proves that it is still ours to create.

A tale of two gas industries

2010-11-15T14:05:00.002Z

The new realities of the natural gas market can be seen starkly in the current difference in natural gas pricing on either side of the Atlantic. In the United States, the benchmark Henry Hub gas price has dropped below $3.50/MMBtu. While it is close to, albeit just a shade above last year’s record low, these prices are still some of the lowest seen in North America for many years. But even more surprising is the outlook as winter approaches. Storage is over 95% full, and US gas futures have dropped 40% this year. You can now buy US gas for 2011 on the New York Mercantile Exchange for an average of $4.10/MMBtu, including winter peaks as well as the current summer low.
This contrasts starkly with the received wisdom of just a few years ago, when US gas prices were looking like staying above $10/MMBtu a few years ago. But the promised US shortage of natural gas simply didn’t materialise. LNG cargoes have been left chasing buyers all over the world. Just this week Norway had to sell a ship full of LNG to South Korea, for want of anywhere closer. There has been a recession, it’s certainly true, and demand has fallen in most major markets. But that doesn’t seem to have affected the oil price very much. Brent Crude for December delivery is trading at $82/bbl.
Meanwhile, in Europe, natural gas prices at the UK National Balancing Point, Europe’s closest equivalent to a trading nexus like the Henry Hub in the US, are around $7.50/MMBtu. The UK still has plenty of North Sea gas and receives piped gas from Norway and some LNG cargoes to make up the difference, but the situation grows more serious the further east you go, into the arms of Gazprom and its near-monopoly on supply to some countries. Under increasing economic pressure, Ukraine increased gas prices by 35% in August, to $8.20/MMBtu. The price is unlikely to come down during the forthcoming winter.
The difference between the European and North American gas markets is a startling one, and it is a gap which has opened up only in the past couple of years. People are now actively talking about taking advantage of arbitrage – the US could soon actually be exporting LNG cargoes to Europe! And the difference has been made by US unconventional gas supplies, especially shale gas. The huge Marcellus Shale stretches through Pennsylvania and into New York state; only a stone’s throw from the major cities of the US east coast. It is far easier to export gas from Pennsylvania to New York than to bring it by ship from Qatar.
At the moment it is still far from clear how this revolution in gas production will play out. Critics are keen to point to water requirements for fracturing gas-bearing rocks, and the potential for contamination of aquifers in some parts of the world which are short of potable water. But so far the ecological doomsday scenarios do not seem to have played out in the US, a country where local environmental issues can quickly stop a project in its tracks. Consequently, interest has been quickly gathering in other countries. India is now moving ahead towards shale gas production, and China, perpetually short of energy, especially clean energy, as our feature in this issue discusses, has rapidly moved to its first auction of shale gas licenses. In Europe, some countries, the UK in particular, remain very wary of shale, but Poland hopes to break its dependence on Russian gas and is actively developing its own shales – first gas is expected to be pumped next spring.
Gazprom has been doing its best to talk down shale - as well it might, because there is the clear potential for something as radical as the transformation in the US gas market to happen elsewhere. Middle Eastern LNG producers must also be considering the wisdom of their investments, and whether their abundant gas might be more profitably used in other downstream ventures. This month also marks the commissioning of Shell’s massive 140,000 bbl/day Pearl GTL project in Qatar. Cheap gas and expensive oil surely make a process that can convert one into the other look much more tempting?

A nail in UCG’s coffin?

2010-10-05T16:03:00.002+01:00

Underground Coal Gasification (UCG) hit the headlines in Australia for all of the wrong reasons in July. The Department of Energy and Mines (DEM) of the Queensland state government ordered a shutdown of the Cougar Energy UCG facility at Kingaroy, following the detection of benzene and toluene in monitoring bores.
Even though the company quickly managed to establish that the laboratory results – which it had submitted under voluntary reporting rules - had in fact been incorrect, and the Queensland Department of Environment and Resource Management (DERM) acknowledged that when it checked borehole results, levels of the chemicals were lower than permitted levels in Australian drinking water, the damage had already been done. DERM director general John Bradley actually came out and said that; "in all cases these are below the Australian Drinking Water Guideline standards. The maximum level of benzenes detected was 0.7 parts per billion (ppb) compared to an Australian drinking water guideline standard of 1.0 ppb and this was only detected at the Cougar Energy plant site itself. Although it is difficult to compare exposures from drinking water to those in air, by comparison, this is less than 10% of the benzene level in the air of a city street and up to six hundred times less than the air at a suburban petrol station.”
However, in spite of these reassurances, local residents have been up in arms, and the DERM has ordered that Cougar keep the Kingaroy plant closed until the government is “assured that groundwater resources are protected”. The company was forced to lay off staff and has been placed into a parlous financial position. Shares have plummeted to just 2.3 cents, and just as I was writing this came news that the company’s chief financial officer and company secretary Rodney Watson had resigned. The company posted a full year net loss of A$4.1million, up from A$2.9 million for 2008/09, and said that it might not be able to continue as a going concern, as forecast working capital requirements for the next 12 months exceeded its current cash position.
Cougar has placed the blame squarely at the government’s door for its demise, and not without justification, it seems. But if this is what happens even when chemical levels in water are within permitted drinking limits, one can only imagine what would happen if they were not!
Two other companies are also operating UCG bores at pilot plants in Queensland; Carbon Energy at Bloodwood Creek and Linc Energy at Chinchilla, the latter of which we reported on in Nitrogen+Syngas issue 303 (Jan/Feb 2010). While both are still operating, Queensland has imposed a moratorium on new operating licenses and issued Environmental Evaluation Notices to all of the projects. The matter has made its way to the Federal government, where the Green Party is now pushing to amend environmental legislation, while Senate candidate for Queensland and co-founder of the Republican Democrat party Peter Pyke has said that if elected he would fight to scrap UCG drilling country-wide.
As a potentially promising technology to harness coal reserves in a clean and safe way, an environmental scare – even an apparently spurious one - is really the last thing that UCG needed. As delegates at the UCG Partnership conference in London earlier this year told me, it was already difficult enough to try and convince investors in a technology which many had thought a dead end after abortive trials in the 1970s and 80s, but which has been given a new lease of life by modern drilling and computer modelling techniques. With the fate of Cougar Energy fresh in peoples’ minds, that task has just become harder still.

Gas remains a hot topic for Ukraine

2010-07-16T16:53:00.003+01:00

Ukraine has had a long and troubled history of relations with its northern neighbour Russia, and the trend shows no sign of going away as we move into the 21st century. Since the breakup of the Soviet Union one of the major bones of contention has been natural gas, at first over complaints of non-payment, and then arguments over pricing which several times degenerated into a complete embargo, and it seems to be an issue which refuses to die. For a while it looked as though the deal struck between the two countries’ presidents in January 2009 might have settled things, but it has not prevented Gazprom from continuing to try and exert pressure over Ukraine. Now that there is a far more pro-Russian government in power in Ukraine, Russia is talking actively of a merger between Gapzrom and Ukraine’s state gas company Nefetegas, something which the Ukrainian opposition fear would effectively be a Russian takeover of Ukraine’s gas industry, given the relative sizes of the two companies.
Ukraine’s elections in February this year have delivered a much more Moscow-friendly administration under president Viktor Yunokovych, and a flurry of deals between the two countries has resulted. But
Ukraine’s gas-based chemical producers, predominantly ammonia and urea based, have found themselves on the wrong side of the partnership, and have in the meantime have sent heir costs progressively squeezed as gas prices continue to rise and the government finds itself less and less willing to continue to subsidise them. The Ukrainian prime minister Mykola Azarov has said that he is considering a complete withdrawal of discounts to nitrogen producers in the second half of 2010. At the moment the import price for natural gas from Russia is running at $7.50/MMBtu, and the Ukrainian National Electricity Regulatory Commission is seeking to increase prices to as high as $9.10/MMBtu, going up to $9.70/MMBtu from October, which would put Ukraine very much at the wrong end of the industry cost curve, especially at a time when gas prices in the US are down to $4.00/MMBtu. The industry has tried to talk the government down to $5.40/MMBtu, but it seems to be a vain hope given the prevailing mood in the country. Ukraine’s ammonia sector had already effectively become a swing producer thanks to the gas price deal agreed in 2009, and it is now facing being priced out of the market completely.
Even if the government were inclined to subsidise the ammonia industry, it finds itself in a poor bargaining position. The financial crisis has hit the country very hard; last year the economy contracted by 15%, its worst performance since the fall of the USSR. Heavily reliant on steel exports, Ukraine suffered disproportionately from the global contraction in manufacturing. At the end of 2008 Ukraine went to the International Monetary Fund for a $16.5 billion bailout, but the money was withdrawn last year over allegations of broken budget promises. The Ukrainian government has been left with very little room for manoeuvre, and it has found that the IMG has also been calling for and end to its gas subsidies.
Russia and Ukraine have agreed that any merger between Gazprom and Neftegas should only proceed step by step, the first one being to produce a 50-50 joint venture company to run some of the assets of both countries, such as gas transit pipelines. If Gazprom does come to control Ukraine’s gas transmission, whether it might be able to offer a more favourable deal as a lifeline to Ukraine’s ammonia producers – perhaps in return for an equity stake as it has done in Russia – remains to be seen.

A Pearl beyond compare

2010-06-04T13:28:00.001+01:00

In spite of finding myself forcibly detained in Doha for a few days by the Eyjafjallajokull volcanic eruption, one of the highlights of my recent trip to Qatar was a visit to the immense Ras Laffan site in the north of the country, where gas from the North Field comes ashore. As well as being home to Qatar’s two huge liquefied natural gas (LNG) projects, Qatargas and Rasgas, and the Oryx gas to liquids (GTL) plant, the largest and most imposing complex on the site is Shell’s new Pearl GTL plant, now nearing completion.
Pearl is an amazing sight, easily dwarfing the two next door LNG complexes, and Shell are quite justifiably proud of it and keen to dwell on its superlatives. It is the largest project ever undertaken in Qatar; the complex’s footprint covers a larger area than Hyde Park here in London – almost as large as Central Park in New York - and it is made up of two million tonnes of steel and pipes – enough, Shell say, to build 2.5 Eiffel Towers every month during the four month construction phase, which occupied an army of 50,000 workers from 50 countries. There is enough concrete to build eight Wembley stadiums, the 67 control servers run 12 million lines of computer code, while 5,850km of control cables alone would stretch from Doha to Tokyo if laid end to end. At the end of the pipe is the immense water treatment facility which processes water from the site (GTL production produces one barrel of water for every barrel of GTL products from reacting hydrogen with oxygen) through pipes several metres across. It is the world’s largest industrial water processing plant with zero discharge capability, and the treatment plant could serve the equivalent of a city of 140,000 people, according to Shell.
Once it reaches peak production next year, Pearl will be producing 140,000 barrels/day of synthetic diesel, as well as processing 120,000 bbl/d equivalent of natural gas liquids and ethane. It will be by far the largest gas to liquids plant ever built, and at a price tag of $19 billion (some say as high as $24 billion), Shell have had to pay handsomely for that privilege.
The next question will be whether it provides Shell with a return on investment. The Wall Street Journal called Pearl “the most expensive gamble on clean fuel in the history of the energy industry.” But is it such a gamble? Shell is reported to have negotiated a gas price with Qatargas that is virtually free, and the company say that at an oil price of $70/bbl it should generate $6 billion per year in profit. Indeed the surprising thing is that no-one else is doing it, given the difficulties western oil and gas majors have had in breaking into regions now largely under the sway of national oil companies, and their consequent focus on alternatives like sour gas and oil sands. However, this overlooks the fact that the major competitor for GTL over the past few years has not been conventional fuels but the opportunity cost of using the gas elsewhere, primarily for sale as LNG. Until the banking crisis of 2007-8, natural gas costs were high and LNG provided the best returns around for gas monetisation. It is the reason why the LNG industry has expanded by leaps and bounds, but GTL is limited to just a handful of projects.
Now however the boot seems to be firmly on the other foot. The rise of unconventional natural gas production has changed the dynamics of the natural gas market. The USA, which was predicted to be a huge importer of LNG by now, is virtually self-sufficient in natural gas. The LNG industry faces massive overcapacity. And with gas relatively cheap and oil still relatively expensive, even at its massively over budget cost Pearl begins to look like a very shrewd investment once again. Nevertheless, the economics is only one of the hurdles. There has been a large scale-up – Pearl is ten times the size of the other SMDS plant at Bintulu, Malaysia. Given the teething troubles that Oryx faced when it started, Pearl may still not be out of the woods just yet. It will be interesting to see next year – assuming that there are no technical issues with the plant – whether the oil and gas industry swings back towards GTL in the way that it did ten years ago.

Safety, regulatory questions tarnish China’s DME boom

2010-03-18T11:47:00.002Z

Dimethyl ether has been one of the fastest-growing applications for methanol in the past few years. South Korea’s Kogas is now on the verge of building a large 300,000 t/a natural gas-based DME plant in Saudi Arabia to feed the burgeoning Korean market, while Chinese capacity has advanced by leaps and bounds to almost seven million tonnes per year, allowing them to transform domestic coal into an LPG substitute and cut down on their rising tide of petrochemical imports. DME can be blended into LPG at levels up to 10-20% without any need to alter distribution infrastructure, and as it was also cheaper and cleaner-burning than imported LPG, China took to it enthusiastically. According to the International DME Association (IDA), Chinese DME capacity quadrupled between 2006 and 2008 alone, although such massive overbuilding seems to have moved far in excess of the market, and actual production in 2008 was just 1.8 million t/a, just 30% of capacity.
However, China’s rush to DME has started to come unstuck, and the issue is a familiar one for DME – corrosion of rubber and plastic seals. DME attacks some types of rubber, and dissolves PVC. LPG containers for the Chinese domestic market often have rubber seals, and in 2008 the Chinese authorities began to become concerned about the potential for these to be corroded to the point where potentially devastating gas leaks could occur. The upshot was the issue of an advisory notice in March 2008 by the Chinese General Administration of Quality Supervision, Inspection and Quarantine that domestic LPG cylinders should not be filled with blends of LPG and DME.
The IDA says that at the levels that DME is blended in China its corrosive properties should present no problems, and that in its “informed view”, any problems reported were probably due to faulty valves, product contamination (eg with water) or inconsistent production and mixing standards. The organisation goes on to state: “there is a concern that some blenders have been tempted to use higher than recommended percentages of DME”, encouraged by the cost advantage of DME over LPG. Reportedly some filling stations were blending at levels of up to 35% DME, which is almost certain to cause corrosion problems. This to my mind goes to the heart of the issue, which is essentially one of standards, regulations and compliance. China does not have a happy history of companies complying with standards even where they are agreed and circulated – and another of the major issues for DME in China is that such standards have lagged behind consumer reality. The Chinese government has yet to set national standards for DME/LPG blends in areas such as storage, transportation and blending ratios.
And in spite of the March 2008 ban, companies continued to blend DME. Dongguan Jiufeng Energy, a major supplier in the southern Guangdong Province, was found to have been continuing to defy the ban after it was reported to the authorities by local media, and after a subsequent investigation it was forced to suspend operations for a week in January. The incident has prompted a major crackdown by the Guangdong Provincial authorities.
If the current crackdown on illegal blending has an upside, it is that it seems to have finally prompted movement by the Chinese government towards a national DME/LPG blend standard – work on which had been languishing since 2008 without formal agreement. In February it was reported that the government was consulting with industry over the establishment of a blend standard and this time was attaching “great significance” to the talks, pressing for a draft as soon as possible, according to Zeng Xiangzhao, a member of the LPG Cylinders Committee of the Standardisation Administration of China. Mr Zeng added that replacing the O-ring seals in LPG cylinders with ones resistant to DME would cost about two yuan each ($0.29).
With Chinese DME capacity still rising, agreement on a national standard cannot come soon enough.

The future of syngas

2010-03-18T11:46:00.001Z

As we enter a new decade, even if we haven’t quite decided what to call it yet (twenty-teens?), it is a time for looking both backwards, at where we have come from, and forward, at where we are going. The first decade of the 21st century has been a momentous time for the world, but no less so for the syngas-based chemical industry. Even stepping aside from the political fallout from September 11th 2001, major economic and social factors have been and remain at play. If the 1990s were about the collapse and recovery of the economies of eastern Europe and the FSU, and the beginnings of globalisation, the 2000s have seen the rise of China and the beginnings of a global consensus on climate change. What shape will the new decade take? Will we talk about it as the decade that India came of age?
The syngas industry has seen two major reversals of fortune in the “noughties”. Firstly rising oil and gas prices, driven by the new industrialising countries, especially China, began to make what had become the ‘traditional’ business model – of capacity based in remote areas around cheap ‘stranded’ natural gas – begin to look less attractive. Building costs, finance costs, all soared, but feedstock costs in particular began to make other routes, perhaps based around refurbished, written-down plants close to end use markets, look more attractive. All manner of feeds that had once been the mainstay of the industry, from coal to petroleum coke, made a comeback. China embraced coal enthusiastically. Gasification seemed the way forward, with the new environmental concern also promoting biomass and municipal waste as fuel sources. And sky-high oil prices meant that all manner of routes towards liquid products involving a syngas intermediate step, from methanol to olefins to coal to liquids, became attractive propositions.
But in just the past eighteen months, things have taken a dramatic swing back the other way. The recession has cut oil prices back, although still to historically relatively high levels. Demand for liquids can now be met – for the time being – by existing capacity. The impetus for the syngas routes to fuels has dropped away, although some routes still seem to be gaining ground, with methanol and its derivatives taking an ever greater share of the Chinese fuels market. And developments in the gas arena have changed the feedstock game, too. The US move towards shale gas production has removed that import gap we were all expecting. Now the world is awash with LNG cargoes which were once destined for America (indeed, America is still taking them in, but only to store them and sell them on). While ‘stranded’ gas is becoming a thing of the past, there are still lower gas cost locations in the Middle East, Caribbean, and Central and Southeast Asia, and they are back to the fore.
So what can we expect from the coming 10 years? I am beginning to sense that the era of cheap or even free biomass may be coming to an end. Just as syngas developments which had been assuming that petcoke would remain cheap even once refiners saw that they might have a new buyer for it found that they faced a rude awakening, so I suspect that biomass, already expensive because of its low energy density, may – unless heavily subsidised (and that can’t be ruled out) – end up finding only a few niche applications, such as in the Swedish pulp mills that are producing di-methyl ether via methanol. And although moves towards carbon pricing and trade are still fitful and only sporadically effective, as some of our articles this issue show, the writing may be on the wall for heavy, solid feedstocks like coal unless they can afford some kind of carbon capture system. It will be much easier to justify a natural gas-based plant to a government keen to reduce its carbon emissions than a coal-based one.
Meanwhile, shale gas technology is still spreading, and soon Europe and China, and – who knows, perhaps India – may, like the US, find that they are able to produce far more gas again. Shale gas seems to have finally achieved that long-awaited ‘decoupling’ of oil and gas prices. The question is whether that gap will last through another period of high energy prices such as we saw in 2008. I suspect that it might, and I am starting to be convinced that the next decade will see a return to the ‘traditional’ gas-based model of production, for environmental reasons as much as any, but that higher oil prices might see us beginning to concentrate more on the fuel and liquids end uses for syngas-based products.
But of course… I have been wrong before!

Peaking into the Future

2009-12-01T12:46:00.000Z

Over the past few years a debate has raged over the concept of ‘Peak Oil’ – the notion that we are nearing or may even have passed a global peak in oil production, and will soon be into a time of declining yields and rising prices. The concept originally comes from Shell geologist Dr M.King Hubbert, who first produced his famous bell curve of US oil production in the 1950s to successfully predict US peak production in the 1970s. However, he also predicted global peak oil production in 1995, while current estimates put it anywhere from 2006 to 2020 or even 2030. While it is self evident that any finite commodity must eventually pass a peak of production, the debate over Peak Oil has often shed more heat than light, with some very polarised and entrenched opinions on display.

However, it has as a by-product also managed to turn attention to the consumption of various other finite resources, and there was a rather sobering paper on two of these – platinum and phosphorus – at the recent Ammonium Nitrate/Nitric Acid meeting in Little Rock, Arkansas, presented by Harald Sverdrup of Norwegian precious metals firm KA Rasmussen.
The world of phosphorus is – with the possible exception of MAP/DAP – just a bit too far downstream for this magazine (although the implications are rather more worrying, given that it is a key component of our own bodies and not amenable to ‘substitution’ in the same was that oil is), but peak platinum is worth considering for a moment, as a vital catalyst in our industry (especially in nitric acid production) and many others besides, from fuel cells to vehicle catalytic converters, and especially since it is a platinum refiner who gave the paper and who therefore is presumably better placed than the rest of us to discuss its future.

KA Rasumssen have modelled platinum, both production and in circulation in various stockpiles and ‘sinks’ – from jewellery to automobiles – and in the ground, as well as ‘burn off rates’, where platinum is simply lost without being recovered. One disappointing figure is that only 25% of platinum in automotive catalysts is recovered, for example. Much of it is simply lost in the vehicle exhaust over the lifetime of the catalyst, and converters are not always recovered from vehicles when they are scrapped. There are many imponderables; the markets for precious metals can be distorted by over-claiming of reserves (there are an estimated 20,000 tonnes of gold worldwide which exist only on paper, for example). The price sensitivity of when people will begin to melt down jewellery to make catalysts or vice versa is also hard to model, and the accuracy of forecasts of various grades of platinum-bearing rocks and their extent can be difficult to predict accurately. However, with these caveats in mind, Mr Sverdrup’s conclusion was nevertheless a stark one; we have probably reached peak platinum production already, and the future is likely to see rising prices and lower availability. Global production of platinum group metals (PGMs) has increased 250% since 1997, and at present rates of depletion some estimates suggest there may only be 14 years of supply left in existing mines. Rhodium can be used to substitute in catalytic converters, but rhodium is itself mainly a by-product of platinum mining. Some have even suggested that this may be another nail in the coffin of fuel cells for vehicles, which rely on platinum to catalyse the oxidation of hydrogen to water.

As with all projections, this one relies on everything continuing as it does at the moment, and an improvement in recycling of platinum could change the figures quite markedly. From this it seems clear that we need to husband our platinum resources more carefully; losing 75% of platinum that finds its way into vehicles is clearly not a sustainable practise. The chemical and petrochemical industries are relatively more efficient at recovering precious metal catalysts, as our article on the subject last issue demonstrated, but even there 40-50% of metal can be lost during a production campaign, and it is clear that there is room for improvement.
Platinum prices stood at about $1,350/troy oz over the past few weeks. Although this is down on the 2008 peak of $2,100, it is still high by the standards of the first half of the decade, when prices used to average $700-800/oz, or the previous decade, when they stood at $300-400/oz. It could be that the market is sending a signal which we would be wise to listen to.

Welcome to Nitrogen+Syngas Blog!

2009-12-01T12:36:00.000Z

My name is Richard Hands, and I'm the editor of Nitrogen+Syngas magazine at BCInsight Ltd. Over the coming months, our aim is to use this webspace to expand on some of the issues that make it into the editorial columns of our magazines, as well as to provide a platform for some guest columnists.

We hope you enjoy it and find it interesting. Feedback is, of course, welcomed.

Richard Hands