News Post

Major US players turn focus to propane dehydrogenation

Much has been written about the impact of newfound supplies from the US shale boom on the nation’s ethylene industry, culminating in plans for several new ethane crackers. However, a similar trend for olefins producers is also occurring on the propylene side, using shale-derived propane as feedstock.

As of today, seven projects have been proposed in the field of propane dehydrogenation (PDH), which converts propane into propylene and byproduct hydrogen. But, at the moment, only one such plant is actually operating in the US. That one is the PetroLogistics facility near Houston, which started operations in 2010 and has a propylene production capacity of 1.45 billion lb/year (658,000 tpy). The plant is one of the largest of its kind in the world.

Flint Hills moves to acquire PetroLogistics

So does this trend have staying power? Flint Hills Resources, a major US-based refining and petrochemicals producer and a part of Koch Industries, is betting that it does—as evidenced by their $2.1 billion agreement announced in early June to acquire PetroLogistics.

“PetroLogistics’ unique capabilities will help us expand our existing chemical and refining business,” Flint Hills said in a statement. “There are also pipeline and supply synergies that will help us create additional value for our customers. We will continue to serve the customers of the business but will look for synergies with our existing business in the future where it makes sense.”

One such synergy could come with the existing Flint Hills polypropylene (PP) business, which includes plants in Texas and Michigan and could use the new propylene supply as a raw material in its production process.

Propylene trading is another possibility

But another plausible scenario comes in the form of propylene trading. The PetroLogistics plant, located on the Houston Ship Channel (Fig. 1), has strong pipeline interconnections between the plant site and storage facilities in nearby Mont Belvieu. From there, the propylene could be transported almost anywhere through existing infrastructure.

And with none of the other seven plants expected to launch production until the second half of this decade, the US propylene market is likely to be tight for the immediate future. That gives Flint Hills, assuming the successful completion of its planned PetroLogistics acquisition, a head start on the market. While most of the PetroLogistics propylene supply is presently under contract, the first major contract ends in December of this year, giving Flint Hills plenty of options and flexibility.

New hydrogen supply from PDH could benefit US refiners

Another byproduct of the PDH trend is a new source of hydrogen for US refiners, who could then use it to help meet stricter sulfur regulations. The nation’s recently-adopted Tier 3 gasoline standards intend to reduce sulfur levels to 10 parts per million (ppm) from 30 ppm. To accomplish that drop, refiners are expected to need an additional 100-to-200 million cubic feet/day of hydrogen, according to Daniel Yankowski, president of Praxair’s global hydrogen business.

Already, PetroLogistics is providing Praxair with 93% of hydrogen produced at its Houston plant. And both Praxair and Air Products, two of the major hydrogen providers within the US, are prepared with existing pipeline infrastructure to transport hydrogen to facilities throughout the US Gulf Coast.

Work remains to be done

The deal for PetroLogistics is not yet complete. Other prospective buyers have until July 6 to file a competing offer, and between that period, customary closing conditions and regulatory approvals, Flint Hills says it does not expect to complete the deal until late 2014.

But the agreed-to terms would make the acquisition the largest in Flint Hills’ history, reflecting the confidence that the company has in both the PetroLogistics plant and the role of propane dehydrogenation going forward in the US petrochemical marketplace.

“PetroLogistics built this facility from the ground up, and it is a world-class operation,” said Brad Razook, CEO of Flint Hills Resources. “Its capabilities are well aligned with our existing chemical and refining business. We look forward to welcoming PetroLogistics employees to Flint Hills Resources as we work together to build on their success.”

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Major US players turn focus to propane dehydrogenation

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