Plans by Yara and BASF to produce ammonia in Freeport, Texas, via a hydrogen-synthesis process sets them apart from over a dozen planned nitrogen expansions that rely instead on traditional natural gas-based steam reforming.
The hydrogen used for Yara-BASF's ammonia production would likely be derived from a different petrochemical production process that cogenerates hydrogen as a byproduct. Avoiding the construction costs of building a traditional front-end unit that converts natural gas to hydrogen would result in significant initial savings. Instead, the project would require building only the back-end portion of a typical plant where nitrogen is pulled from the air to combine with already-sourced hydrogen in order to make ammonia.
Yara and BASF did not provide details on what hydrogen-synthesis process was being considered, though the ammonia plant will have a capacity of 750,000 t/yr ammonia. Further discussions on the deal are underway and the initiative still requires board approvals from both companies. But there are numerous options available for the companies to source hydrogen for the plant.
One option is that the hydrogen could be created from a PDH unit (propane dehydrogenation), which uses feedstock propane to create propylene with excess hydrogen leftover at the end of processing. Neither company has indicated this is under consideration, though there are several PDH projects already expected for the region.
Chemical producer BASF, which has caprolactam production assets in Freeport and petrochemical assets in Geismar, Louisiana (882mn lb/yr ethylene glycol), recently said it could build an MTP (methanol-to-propylene) unit in the US Gulf coast region. BASF purchases propylene to supplement production from its steam cracker in Port Arthur, Texas (capacity 1.2bn lbs/yr propylene), so an MTP unit would serve its own interest in achieving backward integration.
Additionally, a methanol production unit based on natural gas that would supply feedstock to the MTP facility would likely create surplus hydrogen, depending on the methanol production process implemented. There are several methanol units that will be built in the US Gulf coast in the coming years. The Celanese-Mitsui joint venture in Clear Lake, Texas, (capacity 1.3mn t/yr methanol) is expected to begin production in late 2015. It could be a possible nearby source of hydrogen, if its production is set up to purify the excess and put it into the grid.
With complex and well-developed hydrogen pipelines across Texas and Louisiana thanks to companies such as Air Liquide and Air Products, excess hydrogen from other petrochemical plants could easily be sourced for the Yara-BASF project. Hydrogen swaps deals could also be implemented across these networks, which typically transport hydrogen surplus from petrochemical producers and bring it to petroleum refinery customers.
The Yara-BASF deal would likely not rely only on external hydrogen sources because of the risks involved with sourcing solely through a pipeline and possible service disruptions. Some industry participants suggest a PDH plant could have lower capital and construction costs, making it an attractive in-tandem possibility. But there could be longer-term risks associated with relying on propane feedstock.
A byproduct of natural gas processing and oil refining, US propane supply has increased with the shale gas boom to the point that more of it is being exported. In February 2014, the US exported 342,000 b/d propane and propylene, up more than three-fold from February 2010, according to US data.
But as a feedstock, propane is more expensive than natural gas. For comparison, the Henry Hub day-ahead natural gas midpoint price in May has averaged $4.73/mmBtu, according to Argus pricing. In contrast, non-LST propane at Mont Belvieu, Texas, has averaged $11.62/mmBtu equivalent. Moreover, as LPG liquefied petroleum gas exports increase, US discounts to Europe and Asia are expected to narrow.
Export demand for PDH projects in China as well as additional PDH projects in the US Gulf should provide a tailwind for propane prices. PetroLogistics now operates the sole US Gulf PDH plant (1.45bn lbs/yr proplene capacity). Other PDH units have been proposed by BASF competitor Dow (750,000 t/yr propylene capacity) as well as Enterprise, Formosa and Ascend.
Aside from cost savings, the Yara-BASF Freeport deal yields other benefits to the partners. BASF wants to achieve self-sufficiency in critical feedstock ammonia instead of relying on imports. Yara seeks to increase its regional position and make further inroads to the chemical industry, capitalizing on established global relationships.
Yara is also adjusting its regional strategy because the long-term ammonia supply arrangement it has had with phosphate producer Mosaic will inevitably change in the coming years as Mosaic <a href="http://direct.argusmedia.com/newsandanalysis/article/872166"> sources more ammonia </a> from CF Industries' increased domestic production by 2017.
Last year, Yara postponed its urea expansion plans in Belle Plaine, Saskatchewan, because of increased labor and construction costs, so the Texas project helps Yara build its presence in North America despite the Canadian challenges. Ultimately, the Yara-BASF project fits nicely into Yara's overall commitment to being a leader in global ammonia production and transport, utilizing its own infrastructure and internal synergies to serve both the agricultural and industrial sectors.
lw/dcb
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