Reliance Industries Limited (RIL) is expected to source 1.5 million tons of ethane annually from the United States to provide feedstock to its petroleum cracking units in India. It will be the first Asian petrochemical company to import US ethane. This move is expected to save RIL close to Rs 2,000 crores each year. Storage and capacity agreements for both the liquefaction and the export of ethane have been closed and operations from a Northern American terminal will commence in the second half of 2016.
RIL has an established shale-gas and cracker portfolio in India right now. It also has substantial investments in shale-gas assets in the USA. Leveraging these assets, RIL will bring in this supply of ethane, which is currently a dominant feedstock in the States. This move is part of the larger picture for RIL, which is working on doubling its petrochemical capacity by financial year (FY) 2016. The company has a 5-year plan of investing $30 billion towards this core business.
Ethane to Overtake Butane and Propane
Feedstock is the largest expense incurred by a petrochemical company. Naptha, though expensive to extract and process, is readily available in India. It is the basis of 3 naptha-based cracker complexes in the country. India also has 3 gas-based and 1 mixed-feed cracker. Propane and butane are not viable options considering their high price and lack of domestic availability.
Though RIL is predominantly a naptha-based petroleum company, it is now walking in the footsteps of international players. In the US and West Asia, ethane and propane feedstock crackers usually earn gross margins of over 50% and project payback periods are as short as 2 to 3 years. Input for this feedstock stands at $3-$5 per million metric British thermal unit (mmBtu), whereas current Indian consumption of naptha or propane is around $19-$23 per mmBtu.
The domestic cost of ethane in the USA is now $4 per mmBtu. Add to that landed import cost to India and the figure touches $12 per mmBtu, which works out to savings of $5 per mmBTU.
The USA’s massive shale reserves indicate that its oil and gas production may exceed – perhaps even be double – that of Saudi Arabia. The inability of the US ethane export infrastructure to keep up with local gas production will ensure low prices within the US. Therefore, the vast difference between US domestic and international prices will continue to prevail for a long period.
RIL’s Plan of Action to Import Ethane
RIL already has in place storage and capacity agreements for the liquefaction and export of ethane. When operations commence in 2016, liquefied ethane will be transported to India in 6 technologically advanced ethane carriers, which will have the distinction of being the largest vessels ever built. These carriers are being built through Samsung Heavy Industries, South Korea.
In India, RIL will have a receiving and storage facility in place for the liquefied ethane and a dedicated pipeline to deliver ethane to its crackers. All of RIL’s crackers will soon upgrade to facilitating cracking with ethane.
This project has a long-term goal of improving competitiveness in RIL’s cracker portfolio with dedicated feedstock. This, in turn, will enhance margins, increase capacity and facilitate end-to-end integration in the petrochemical industry.