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Business

Cheap Tires And Gas

The shale gas boom took away a synthetic rubber component; dehydrogenation could boost supplies

by Alexander H. Tullo
May 6, 2013 | A version of this story appeared in Volume 91, Issue 18

WHEEL OF FORTUNE
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Credit: Goodyear Tire & Rubber
The price of tires has shot up due partly to shale.
Photo of a Goodyear truck tire.
Credit: Goodyear Tire & Rubber
The price of tires has shot up due partly to shale.

Anyone who has visited a tire store in recent years probably noticed that the trip was a little harder on the wallet than the last visit 50,000 miles ago.

One of the big reasons is shale gas. The same deposits of natural gas that have turned around the fortunes of the U.S. chemical industry have also contributed to a jump in the cost of tires—an increase that the Department of Labor puts at 64% since 2003.

While reviving production of petrochemicals in the U.S., shale gas has made butadiene, a key synthetic rubber raw material, harder to come by. That’s because it starts from substances customarily extracted from petroleum, which is now less attractive than cheaper shale components. However, plans to produce butadiene via butane dehydrogenation—a process not practiced in the U.S. in a generation—could ultimately put the market back in balance.

The normal route to butadiene is via extracting it from streams of mixed four-carbon compounds that are made as by-products in ethylene crackers. The amount of C4s produced depends on the feedstock that the petrochemical maker runs through the cracker. According to William D. Hyde, senior director of olefins and elastomers for the consulting firm IHS Chemical, using naphtha as a feedstock yields 16 to 18 tons of butadiene for every 100 tons of ethylene. When fed ethane, crackers make only 2 tons of butadiene for every 100 tons of ethylene.

The shale geological formations that have been tapped in recent years by hydraulic fracturing and horizontal drilling are yielding an abundance of ethane in the U.S., along with propane and butane.

The new supplies and lower costs have prompted U.S. petrochemical makers to favor ethane as feedstock over naphtha, which comes from oil. The ethane also has provided the incentive to expand ethylene production. Seven petrochemical firms have announced plans to build multi-billion-dollar cracker projects.

Yet the shift away from naphtha toward ethane also means that less butadiene is being produced. Since 2007, North American output of crude C4s has declined by more than 20%, even as ethylene production increased by about 10%, according to Hyde. Over the same period, butadiene prices more than doubled. Through 2016, ethylene capacity will increase another 20%, but C4 production will climb only 10%.

The propylene business faces similar problems. The shift to cracking ethane has taken a big chunk of the polypropylene raw material out of production in recent years.

U.S. chemical makers have already reacted to the market imbalance in propylene by making it via propane dehydrogenation. In fact, the same shale that created the problem has provided the solution via a massive increase in propane recovered from the underground deposits. According to natural gas processing firm Enterprise Products Partners, current propane production levels of 741,000 barrels per day will increase about a third by 2015 and could nearly double by 2020.

Chemical companies are building propane dehydrogenation plants to convert these resources into propylene and make up for the shortfall from ethylene crackers. Enterprise itself is planning a dehydrogenation plant in Texas.

The industry is now looking to solve its butadiene problem in an analogous way via butane dehydrogenation. By 2020, Enterprise expects butane production to jump as much as 75% from the current level of 416,000 bbl per day. Dehydrogenation could address the shortage of butadiene while soaking up some of the butane windfall.

Globally, this process for making butadiene is rare. A couple of plants in Russia—leftovers from the Soviet era when natural rubber was hard to come by—are the only ones in commercial production. New butadiene capacity is coming on-line in China in response to strong rubber demand there, Hyde says. But those plants are dehydrogenating n-butene, not n-butane.

In the U.S., Enterprise is contemplating a butane dehydrogenation project. But so far, the only such project under active development is one from TPC Group.

The company, the largest U.S. processor of crude C4s into butadiene, previously practiced dehydrogenation. From the 1960s through the early 1980s, TPC operated two units at its Houston complex that converted butane into butadiene. But by the end of that period the market dynamic was the direct opposite of what it is now, according to Michael Bloesch, TPC’s vice president of strategic initiatives. Then, more and more crude C4s were becoming available from naphtha crackers, rendering on-purpose butadiene production uneconomical.

The company switched the feedstock it ran through the dehydrogenation units from n-butane to isobutane and changed the target product to isobutene, a raw material for the gasoline oxygenate methyl tert-butyl ether. But by 2006, MTBE was removed from the U.S. fuel pool because of environmental concerns; TPC shuttered the plants the following year.

The recent change in circumstances has prompted TPC to plan on restarting the dehydrogenation units. One of them, set to reopen next year, will make isobutene again. Although MTBE isn’t used in the U.S., the market is growing overseas. Moreover, TPC has cultivated a market for polyisobutylene as a lube and fuel additive.

The company will modify the other plant to make butadiene. The existing unit will convert n-butane into n-butene. To that the company will add another unit, using its Oxo-D oxidative dehydrogenation technology, to transform n-butene into butadiene.

TPC managers are still working out engineering details and cost projections before they approach the board for final approval. The company hasn’t pinned down a final capacity figure for the plant. “North America is importing approximately 350,000 metric tons of butadiene,” Bloesch says. “The range of production we are contemplating would be over half of that.” The targeted start-up is the end of 2016.

Whether or not TPC’s project will bring down the cost of the next set of tires for your car remains to be seen.

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