$2.5b petrochemical push

The Department of Industry and Resources (DOIR) is about to make a concerted bid to propel Western Australia into becoming a significant new player in the international petrochemical industry.

If successful, an ethylene-based petrochemicals and plastics plant, valued at about $2.5 billion, would be located either on Burrup Peninsula or at the nearby Maitland Industrial Estate.

And the rapidly expanding Onslow region, south-west of Burrup, is a third option for the ambitious project which is being progressed cautiously – a far cry from a previous ill-fated attempt to enter this field during the era of Brian Burke’s government, which gave petrochemicals a bad name in WA.

A report of a concept study compiled for DOIR assessing the amount of ethane feedstock that could be supplied annually by several North-West Shelf gas producers is set to be completed by late May.

But sources told WA Business News this week that the report’s compilers had determined that North-West Shelf gas producers were easily capable of supplying the 850,000 tonnes of ethane required annually for such a world-scale petrochemical facility.

Well in excess of that tonnage is said to be available with potential to meet increasing demand.

Ethane is the essential component of the petrochemical project to be proposed for the Pilbara, and North-West Shelf gas is understood to contain in the order of 5 per cent ethane in all gas extracted.

However, this level varies between the shelf’s more than 20 producing fields, and the quantities that could be supplied by individual producers are also dependent on the extractive processes utilised.

About 90 per cent of North-West Shelf gas output is methane with half the remainder being ethane, the DOIR study determined.

If a major international petrochemical player opted to establish itself in the Pilbara a series of agreements with individual gas producers would need to be signed.

Although DOIR’s forthcoming report concludes WA has an adequate supply of ethane, industry sources said this didn’t guarantee a go-ahead for the petrochemical plant.

Work still needs to be done to assess the long-term international demand for a range of products derived from ethane, including polyethylene, ethylene, glycol, ethylene dichloride, styrene and urenthanes.

And if projected aggregate world demand for such products doesn’t together exceed the world petrochemical sector’s output capacity after about 2010, a go-ahead would be most unlikely.

Producers interested in basing themselves in the Pilbara would carry out such market assessments to ensure their proposal was bankable.

Potential major ethane suppliers include Woodside Energy, Apache Energy, BHP-Billiton and Chevron-Texaco.

Also to be assessed is the projected expansion of aggregate capacity of petrochemical producers already operating, and the impact of possible new entrants.

A key factor will be the intentions of China and South Korea, and how longstanding American producers choose to respond to both these emerging challengers.

One source said if such projections showed only one new plant was likely to come on stream after 2010 that would be viable, then the Pilbara proposal was most unlikely to eventuate.

However, if international aggregate demand was adequate for the emergence of, say, three or more such plants, then the Pilbara was probably well positioned to provide one of these.

The Persian Gulf state of Qatar is a major ethane producer, and it has the advantage of being capable of supplying ethane at about half the projected cost of the Pilbara.

But Pilbara feedstock is markedly cheaper than that extracted across North America, especially from around the Gulf of Mexico.

The Pilbara’s other advantage is that it is significantly closer to Asian markets and is not subject to the uncertainties and threats of terrorism and related instability presently confronting Gulf states.

Once the forthcoming DOIR report is finalised, potential petrochemical producers will be alerted to its findings.

This means European, South-East Asian, East Asian, and North American players will be told of WA’s potential as a new player in their sector.

Rotterdam and Singapore are major petrochemical manufacturing centres.

DOIR is confident major American players will seriously consider the North-West Shelf’s potential because of the US-Australia Free Trade Agreement, signed by the Howard Government last year, has served to highlight Australia as a trading partner and reliable raw material, including gas, supplier.

In the past Americans have tended to show some hesitancy in venturing beyond their shores.

Both Prime Minister John Howard and Premier Geoff Gallop highlighted the Pilbara’s potential as a gas supplier during their separate visits to the US last year.

A just-released DOIR publicity pamphlet headed Opportunities in WA – Petrochemicals and Chemical Production from World-Class Reserves of Natural Gas, Crude Oil and Condensate, reads: “Currently ‘wet’ natural gas associated with condensate and crude oil is brought ashore in Dampier and Onslow in north-western WA.

“As demonstrated in the Petroleum Resources Availability and Opportunities Study, potentially there is sufficient petrochemical feedstock availability following the extraction of ethane from the North-West Shelf gas project and the Apache Energy operated gas production, for production of ethylene while achieving internationally competitive ethylene cash cost levels.”

The other essential ingredient for petrochemical output is chlorine, which is relatively easily obtained in the Pilbara because of the region’s huge salt output.

WA currently exports about 10 million tonnes of salt annually, most of it from the Pilbara, with Dampier Salt Ltd and Onslow Salt Pty Ltd being the two major producers.

Salt is readily converted into chlorine and caustic soda, and huge quantities of the latter are used in the state’s South West alumina industry.

WA currently imports 560,000 tonnes of caustic soda annually.

A Pilbara-based petrochemical plant could, therefore, serve a dual purpose – displacement of foreign-supplied caustic soda while simultaneously boosting the state’s exports in a new range of ethane-derived products.

If DOIR attracts a petrochemical major to the Pilbara the necessary feasibilities could be completed within about two years.

And the development and construction phase of the nearly $2.5 billion project would take a further four years, meaning the earliest that Pilbara-manufactured output could come onto the international market would be 2011-12.

Worldwide market conditions and the sector’s capacity after then will be the crucial determining factors with respect to a go-ahead.

One industry insider said: “With the new State Development Minister, Alan Carpenter, having just taken his oath of office, he will want to make his mark in the resource sector, and adding value to North-West Shelf gas suggests itself as a way to go.”