Alternative Feedstocks

11:49 AM EST | February 23, 2009 | REBECCA COONS

The Solution to Petchem Volatility?

The volatility of oil-based petrochemical prices, which constrained margins and
crippled industry earnings last year, forced chemical producers to take a closer look
at diversifying their feedstock base. Many firms have R&D projects under way
involving coal- or renewable resource-based feedstocks, but these technologies
present their own challenges that industry is at work to address.

Alternative feedstocks have not yet proven to deliver a return on investment, but
some industry firms expect that they will ultimately yield a big payoff in the form of a
sizable competitive advantage. The hope is that using any of several alternative
feedstocks to produce chemicals will provide flexibility for chemical producers
seeking to ultimately reduce their dependence on conventional oil-based feedstocks,
help their margins, and, in some cases, reduce their carbon footprint.

Industry projects include several types of alternative feedstocks—such as methane,

as well as plants or coal used to produce synthesis gas (syngas)—that are then used
to make chemicals. Issues that all of the alternatives face include high capital costs,
which currently hinder their wide-scale adoption, industry executives say. Even so,
Avantium, BASF, Dow Chemical, and several other firms are investing in these
technologies and trying to overcome the challenges.

“The initial target is to replace the feedstocks that we buy for downstream
production,” says Mauro Gregorio, director/alternative feedstocks at Dow. Dow’s
large asset base makes the potential payoff from using such alternatives huge,
Gregorio says. Finding alternatives to conventional feedstocks reduces Dow’s
exposure to the volatility that squeezed margins and hurt earnings last year, he says.

The price of crude oil is important, but “what really kills us is the price volatility,”
Gregorio says. “There was a time when the price of a barrel of oil varied by as much
as $5 per year. Now it can be as much as $5 per day. The industry needs to be able
to mitigate the impact of this new reality.”

Dow’s goal is to have a portfolio that allows for the diversification of intermediates,
says Charles Kresge, Dow v.p./R&D. The basic economics of each process for Dow
stems from the project’s value as a fuel on a cost/million Btu basis, Kresge says.

Currently, low prices for petroleum-based chemical feedstocks have caused some
firms to question whether to move ahead with alternative feedstock investments.
Projects that looked great in July when oil was more than $140/bbl oil do not look as
attractive now that prices have collapsed, consultants say.
Also, alternative feedstock projects are capital-intensive. Syngas-to-chemical routes,
for example, are “unlikely to be economically viable at current oil prices in the $45/bbl
range, unless [they are] subsidized, which we don’t envision in the short-term,” says
John Murphy, president at The Catalyst Group Resources (Lower Gwynedd, PA).
Capital costs for the gasification step are a significant barrier to entry. “A world-scale
gasification plant is on the order of $1 billion-$2 billion,” he says. “Unless oil is in the
$60-$75/bbl range, a lot of these projects just don’t make sense.”

Some firms acknowledge that but say they will continue their R&D efforts. “Now is the
time to innovate, not when the price of crude is back at $100/bbl,” Kregse says.
“Even though current prices may delay steel in the ground, it doesn’t delay
investment in innovation.”

Dow’s initiatives span several alternative feedstock-to-chemical routes, including one

that skips syngas. “The production of olefins from syngas is an established, but
capital-intensive, route,” Kresge says. The conversion of methane directly to olefins,
bypassing syngas, has been an industry goal for many years, he says. “Whoever can
create and develop a technically feasible, commercially viable process to take
methane and couple it to make ethylene, skipping syngas, is going to have a huge
advantage to exploiting stranded natural gas resources.”

Methane is abundant as it is the major component of natural gas, and there are large
number a natural gas reserves in many parts of the world, Dow says. However, the
process of coupling methane to make ethylene still needs be streamlined, it says.
“Ethylene yield with current catalyst technology is not enough to make the process
commercially viable,” Kresge says. A direct methane-to-chemical conversion process
that is economically viable will likely encompass advancements to the catalyst,
process, and separations, Kresge says.

Dow hopes to have a methane conversion process developed in the next decade,
Gregorio says. “If we are successful in developing a catalyst, we can accelerate the
implementation in our downstream business.” Dow is tapping university talent to help
solve the complex chemistry behind the methane-to-chemical process. Dow awarded
Cardiff University (Cardiff, U.K.) and Northwestern University (Evanston, IL) a
combined total of more than $6.4 million in grants last year to develop technologies
that produce chemical intermediates from methane. The grants will be awarded over
three years as part of Dow’s methane challenge program that seeks proposals on
innovative methane-conversion processes.

Dow, like several other chemical companies, says it is working to develop more
efficient and economical syngas-to-chemical processes to defray the “steep” capital
requirements and conversion costs. Dow and Süd-Chemie (Munich) recently
announced an R&D deal aimed at converting syngas from coal or biomass to building
block chemicals, including olefins (CW, Jan. 26, p. 4). The catalyst is the software of
a process, Kresge says. “Having the ability to drop in a replacement catalyst with
improved productivity in an existing reactor—the hardware—is a tremendous
opportunity.” Terms of the deal are under development, but the program is expected
to start in April. Research will be conducted at Dow’s Terneuzen, The Netherlands
site and Süd-Chemie’s catalyst R&D centers in Germany and the U.S.

BASF recently announced a syngas-to-olefins technology that uses a newly

developed heterogeneous catalyst for industrial-scale conversion of syngas to
hydrocarbons using the Fischer-Tropsch process. The method would provide BASF
with an alternative to steam cracker technology based on high-cost feedstocks such
as naphtha, the company says.

The process will likely take another eight years to commercialize, BASF says. The
company has advanced the process from lab to “miniplant” scale at Ludwigshafen
(CW, Oct. 6, 2008, p. 15).

The process’s main advantage is that it produces olefins directly from syngas, rather
than from syngas via methanol, which existing processes use, BASF says. The
bypassing of methanol significantly reduces capital expenditures, BASF says.

Companies that will ultimately be successful at developing and commercializing

syngas-to-chemical routes will be those that have chemical production core
competencies, as opposed to agricultural and biotech firms, Murphy says. “A
diversified feedstock base beyond oil and gas is critical for the long-term viability of
chemical producers who don’t have access to inexpensive and readily available
resources,” he says.

Meanwhile, recently announced plans for “massive” coal-to-chemical projects include

Dow’s initiative at Shaanxi Province, China, which is in the “feasibility” stage and
targeted for start-up in 2014 or 2015, Dow says. The project will be based on clean
coal technology that converts coal to methanol for production of ethylene and
propylene. Derivatives products made at the complex would include vinyl chloride
monomer and chlorinated organics, as well as acrylic acid and derivatives, amines,
glycols, propylene derivatives, solvents, and surfactants.

Dow is also in talks with both federal and state authorities as well as potential partner
companies for a coal-to-chemical project in the U.S., Kregse says. Both China and
the U.S. have substantial coal reserves, making coal an attractive alternative to
natural gas and petroleum feedstocks in these countries.

Shell says it has been developing gas to liquid (GTL) and coal to liquid (CTL)
technologies that could open up new process routes to chemicals. The company’s
Ras Laffan GTL plant Qatar Petroleum is set to come online this year and will be he
world’s first commercial GTL plant, Shell says. The company says its CTL technology
can turn even the lowest grades of coal into syngas and has been licensed for 15
gasification plants in China and two in Europe. Shell says its work throughout both its
petrochemical and upstream businesses is based on the assumption that the “age of
cheap, easy oil is at an end.” Unconventional sources are needed to help close the
gap, it says.
Plant material and agricultural waste, or biomass, is another alternative feedstock
that some chemical companies are focusing on. The “bottom-line economics” will be
a major determiner of success regarding the production of chemicals and fuels from
biomass, says Bob Davenport, analyst at SRI Consulting (Menlo Park, CA). “Until the
price of oil goes back up, there will be some hard times. Some commercial-scale
projects are apt to be delayed and the leading edge technologies also may not
become commercialized until later than once thought.”

Avantium tells CW that it is collaborating with sugar and food group Royal Cosun to
develop a process to produce plastics and fuels from agricultural waste streams that
would be viable even when crude oil is priced as low as $50/bbl. Avantium and Royal
Cosun will focus on developing polyesters that have the potential to be cost-
competitive with oil-based polymers, Avantium says. “ Para -xylene, a feedstock for
polyethylene terephtalate precursor terephthalic acid, is $800-$1,200/ton, while
glucose is $150-$400/ton,” it says.

Avantium will develop a chemically catalyzed production process under the deal.
Cosun will select, isolate, and purify suitable components, such as carbohydrates
C5- and C6-sugars, from the waste streams. The first phase of the collaboration is
expected to last about two years. If results are positive, the companies say they will
scale-up the technology to commercial scale.

Danisco’s Genencor develops and manufactures enzymes as well as renewable bio-

raw materials for chemical companies. The slide in crude oil prices to about $40/bbl,
although a concern, is only a “short-term issue” and will not derail any of the
company’s projects or partnerships, says Tjerk de Ruiter, CEO at Genencor (p. 20).
Genencor says its processes will still be economically viable if crude oil prices are at
or above $50/bbl-$60/bbl.

Dow entered into an agreement with the U.S. Department of Energy’s (DOE;
Washington) National Renewable Energy Laboratory last summer to jointly develop
and evaluate the commercial viability of a biomass-to-ethanol process. The process
will convert non-food ingredients, such as the leaves from corn plants or wood waste,
into syngas using a gasification process. The gas will be converted to a mixture of
alcohols, including ethanol, using a Dow mixed alcohols catalyst (CW, July 21, 2008,
p. 7).

Another factor in feedstock choice is the material’s overall carbon footprint,

consultants say. Producing syngas from coal emits “huge” volumes of carbon dioxide
(CO2), Murphy says. “Its success in the future is highly dependent on being able to
capture the CO2, such as is envisioned for CO2 at integrated gasification combined-
cycle power plants.” Biomass-based syngas is expected to be eligible for carbon
credits and has broader support from legislative bodies on a global basis, Murphy
says.

“The focus of chemicals from biomass will be mainly niches and supplements to the
petrochemical routes,” Davenport says. It is apt to be a long time before there is
major displacement, and during that time any number of things could happen, such
as increased recycling, which could affect the dynamics of petroleum versus biomass
sources.” The gathering and transportation of biomass in the U.S. also remains a
cost issue, he says.

Another consideration is feedstock availability. “Oil is available everywhere.

Alternative feedstocks often require local solutions,” Gregorio says. Dow has chosen
Brazil for a planned polyethylene unit based on ethanol-to-ethylene conversion. The
location enables the company to benefit from the region’s already established
production of ethanol for fuel, Dow says. The 350,000-m.t./year plant, set to be online
in 2012, will be the world’s first fully integrated, world-scale renewable feedstock-to-
plastics production unit, the company says.