# Scale, capacity and feedstock: which chemical plants get built: Technology, learning and feedstock: where the cost floor is set

Source page: https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p4/

[Understanding Chemicals](https://www.materialinsights.org/learn/chemicals/) / [Module 7: Scale, capacity and feedstock: which chemical plants get built](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/) Part 4 of 5

## Technology, learning and feedstock: where the cost floor is set

Scale and utilisation decide how efficiently a plant spreads its fixed costs. Technology and feedstock decide what those costs are in the first place. This part looks at how process technologies improve and get replaced, why feedstock prices give some regions a lasting edge, and how the IEA's scenarios might redraw the map of where ethylene, ammonia and methanol get made.

### 4.1 Technologies follow S-curves, and experience lowers costs only up to a point

Brennan describes a process technology's life as an S-shaped curve. In the initiation phase it can take ten years or more from discovery to commercial production, and five to ten more before production is clearly profitable; first plants are often small to limit capital at risk. In the growth phase the process improves, costs fall and plants get bigger. In maturity, cost reduction and scale growth slow sharply (pdf pp. 182-185). A newer technology may then overtake the old one: sulphuric acid moved from lead chambers to the contact process and then to double absorption; chlor-alkali moved to titanium anodes in the 1960s and to membrane cells from the early 1980s (pdf p. 183).

A learning or experience curve links real price or cost to cumulative production: S = d x X^q, with q negative. The Boston Consulting Group observed real cost falls of 20-30% for each doubling of cumulative production. A 20% fall corresponds to q of about -0.32, since 2^-0.32 = 0.80 (pdf pp. 192-193). Taylor and Craven found the characteristic price decline in chemicals only for products with fast-growing demand.

Brennan is cautious about the curve. Prices can fall because inputs get cheaper, not because the industry learned: the real price of Ethylene fell about 7% a year in the 1960s partly because feedstock and energy got cheaper, then jumped after the 1973 oil shock (pdf p. 194). The curve also ignores advances from outside the industry, such as metal anodes and membranes in chlor-alkali. He prefers to track measures over time: capacity, raw materials, energy, staff and capital per tonne (pdf p. 194).

Data Growth in maximum plant capacity, new plants of best available technology and scale

| Technology | Period | Growth in maximum capacity (% a year) |
|---|---|---|
| Ethylene from naphtha | 1950-70 | 13.0 |
| Ethylene from naphtha | 1970-85 | 1.5 |
| Chlorine and caustic soda, mercury cell | 1940-75 | 8.7 |
| Chlorine and caustic soda, mercury cell | 1975-85 | 0.0 |
| Aluminium smelting | 1900-80 | 6.3 |
| Catalytic cracking of petroleum | 1913-53 | 15.0 |
| PSA oxygen | 1971-76 | 33.3 |

 Source: Brennan (2020), Table 7.4, pdf p. 195  Common misreading

#### The experience curve is not a promise

Brennan's ethylene data warn against assuming a fixed percentage fall per doubling. Maximum plant capacity grew 13% a year in 1950-70 but 1.5% a year in 1970-85, and the gain in total production cost slowed from about 2.5% a year in the 1950s to under 1% in the 1970s (pdf p. 195). From the late 1960s, tighter safety and environmental standards and spending to save feedstock and energy pushed capital per tonne up (pdf p. 196). A mature technology's next big gain usually comes from a new technology.

- Brennan (2020), Ch 7, 7.2-7.8 · pdf pp. 182-185, 192-196

### 4.2 Feedstock price is the main reason one region's plant beats another's

The IEA states the rule plainly: the overarching factor in choosing a feedstock and route is production cost. Equipment costs are fairly similar worldwide because there are few vendors, so the big differences come from feedstock (pdf p. 31). Crude oil sells at a similar price everywhere, but natural gas prices can differ by a factor of four; gas tends to cost more than coal, and oil products more than gas. Feedstock can be 15% to 85% of the levelised cost of high-value chemicals (HVCs: ethylene, propylene and the aromatics benzene, toluene and xylenes) (pdf p. 32).

Brennan's 2017 prices show the spread. Natural gas was $3.0/GJ at Henry Hub in the United States and $5.6/GJ in Europe, while Japan's $8.1/GJ was built up from Henry Hub plus $3 for liquefaction and $2.1 for shipping. Crude was $51/bbl for West Texas and $53 for Dubai. Coal was $62/t in the United States and $85/t in China and Europe (pdf pp. 41-42).

Ammonia shows how directly this flows through: gas is both the source of hydrogen and the furnace fuel, and Kent puts it at 70% to over 85% of cash cost (pdf p. 907). Efficiency has improved, from 55.9 GJ/t in 1950 to 26 GJ/t in 1982 (Shreve, pdf p. 325), but no efficiency gain can offset a gas price two or three times higher.

Coal is the alternative where gas is scarce. Coal-based ammonia equipment costs more than twice as much per unit of output as gas-based, and biomass-based nearly seven times (IEA, pdf p. 31). In China, coal is cheap enough to give lower costs for ammonia and methanol anyway, though coal-based plants have tended to run at low utilisation (pdf pp. 33-34).

Process flowchart Ammonia from natural gas by steam reforming Inputs **Natural gas**feed and fuel; about 30 million Btu per t in late-1990s plants **Steam**for reforming and shift **Air**supplies the nitrogen Process steps 1 **Desulphurisation**

Sulphur removed so it does not poison the nickel catalyst
 2 **Primary reformer**

CH4 + H2O → CO + 3H2 over nickel catalyst in fired tubes
 3 **Secondary reformer**

Air added at 28-30 bar and 955-1,025 C; burns some gas and brings in nitrogen
 4 **Shift conversion**

CO + H2O → H2 + CO2, more hydrogen per unit of gas
 5 **CO2 removal and methanation**

CO2 absorbed by solvent; traces of CO and CO2 turned to methane
 6 **Compression and synthesis loop**

N2 + 3H2 → 2NH3 at about 20 MPa over iron catalyst; ammonia condensed, purge gas recovered
 Outputs **Ammonia**1 t **Carbon dioxide**by-product, used to make urea **Steam**about 4 t raised per t of ammonia

Gas is 70% to over 85% of cash cost, so the gas price dominates plant economics.
 Source: Shreve (1984) Ch 18; Kent (2012) Ch 22; IEA (2018), Shreve pdf p. 325; Kent pdf pp. 892, 905-907; IEA pdf p. 29  Worked example

#### Ammonia cash cost, US gas versus Japanese LNG

Kent's rule of thumb is that ammonia cash cost in $/t is 40-50 times the gas price in $ per million Btu (pdf p. 907). Wittcoff gives 1 Btu = 1.054 kJ, so a million Btu is 1.054 GJ (pdf p. 57). Henry Hub at $3.0/GJ is $3.16 per million Btu, giving about $126-158/t. Japan's $8.1/GJ is $8.54, giving about $342-427/t. Identical plants, more than double the cost: this is why new Ammonia and Urea capacity goes to cheap-gas regions.

- IEA (2018), Ch 2 The present petrochemical landscape · pdf pp. 31-34
- Brennan (2020), Ch 2 Table 2.4 · pdf pp. 41-42
- Kent (2012), Ch 22 · pdf pp. 905-907
- Shreve (1984), Ch 18 · pdf p. 325
- Wittcoff (2004), Ch 1 · pdf p. 57

### 4.3 Ethane gives the cheapest ethylene, naphtha the broadest product slate, and scenarios may shift the map

Ethylene is made by steam cracking: heating a hydrocarbon very briefly to a high temperature so its molecules break into smaller ones. The lighter the feed, the more becomes ethylene. Ethane needs only about 1.2 t of feed per tonne of HVCs and gives about 50% more HVCs than naphtha, but nearly all of it is ethylene. Naphtha, a light petrol fraction from refineries, gives a balanced mix of ethylene, propylene and aromatics (IEA, pdf pp. 31-32).

Where ethane is cheap, it wins. The IEA found Middle East ethane crackers the cheapest route to HVCs in both 2010 and 2017 (pdf pp. 32-33). Saudi associated gas, which comes up with oil, had no other use, and the Saudis costed ethane extraction at $0.50-0.75 per million Btu in 2001, when US gas hit $10 (Wittcoff, pdf pp. 52, 57). US shale gas then changed the picture. From 2010 to 2017 US ethane prices fell by about two-thirds, and producers left up to 400-600 kb/d of ethane in the gas stream ('ethane rejection') until about 4 Mt of new cracking capacity arrived in 2014-17 (IEA, pdf p. 76).

Regions without gas liquids crack naphtha. China uses naphtha for over 90% of its HVCs and has added coal-based methanol-to-olefins (MTO) plants. Before the 2014 oil price slump, MTO undercut the cheapest naphtha cracker by nearly $300 per tonne of HVC; by 2017 the gap was almost zero (pdf p. 33). A feedstock advantage moves with the oil price.

The IEA's Reference Technology Scenario (RTS) follows current policies; its Clean Technology Scenario (CTS) works back from sustainability goals. Neither is a forecast. In the RTS, ethane supply peaks in the late 2020s and naphtha supplies over half of HVC output to 2050 (pdf p. 76).

Data Three routes to high-value chemicals

| Route | Capital cost (USD per t HVC) | Product slate | Where it dominates |
|---|---|---|---|
| Ethane steam cracking | 1,500 | Mostly ethylene; about 1.2 t feed per t HVC | United States, Middle East |
| Naphtha steam cracking | 2,050 | Balanced ethylene, propylene, aromatics | Europe, Asia (China over 90%) |
| Methanol-to-olefins (MTO) | 1,000 plus upstream methanol | Balanced propylene and ethylene | China, coal-based methanol |

Capital assumptions from the IEA's simplified levelised cost comparison, with an 8% discount rate and 25-year life.
 Source: IEA (2018), Ch 2, Figure 2.6 notes, pdf pp. 31-33  In the data

#### The IEA's two scenarios in numbers

RTS: primary chemical demand rises about 30% by 2030 and almost 60% by 2050, and chemicals' share of oil demand goes from 12% to 16% (pdf pp. 69, 79). CTS: 2050 emissions 60% below the RTS while demand for primary chemicals still rises about 40%; carbon capture supplies about 35% of the cut, switching coal to gas 25%, efficiency 25%, and alternative feedstocks and recycling 15% (pdf pp. 92, 99). Electrolytic ammonia beats gas with carbon capture only with power at $20-45/MWh, against typical generation costs of $50-80/MWh (pdf p. 112).

- IEA (2018), Executive summary; Ch 2; Ch 4; Ch 5 · pdf pp. 12, 31-34, 69, 75-79, 92, 99, 112
- Wittcoff (2004), Ch 1 · pdf pp. 52, 57

### See it in the table
[Oil Crude oil](https://www.materialinsights.org/energy/crude_oil/)[Gas Natural gas](https://www.materialinsights.org/energy/natural_gas/)[Ti Titanium](https://www.materialinsights.org/commodities/titanium/)[H2SO4 Sulphuric acid](https://www.materialinsights.org/chemicals/sulphuric_acid/)[H2 Hydrogen](https://www.materialinsights.org/chemicals/hydrogen/)[NH3 Ammonia](https://www.materialinsights.org/chemicals/ammonia/)[Ur Urea](https://www.materialinsights.org/chemicals/urea/)[C2H4 Ethylene](https://www.materialinsights.org/chemicals/ethylene/)[C3H6 Propylene](https://www.materialinsights.org/chemicals/propylene/)[Bz Benzene](https://www.materialinsights.org/chemicals/benzene/)[Tol Toluene](https://www.materialinsights.org/chemicals/toluene/)[MeOH Methanol](https://www.materialinsights.org/chemicals/methanol/)

### Check your understanding

Brennan cautions against reading the 7% a year fall in ethylene's real price in the 1960s as pure learning. Why?
 Part of the price fall came from falling real unit costs of feedstock and energy, not from improved performance, and prices jumped after the 1973 oil shock.

Why can two identical ammonia plants have cash costs differing by more than a factor of two?
 Gas prices vary by a factor of up to four between regions (IEA), and with Kent's 40-50 multiplier, $3 versus $8.5 per million Btu gas gives roughly $126-158 versus $342-427 per tonne.

What is the main drawback of ethane as a cracker feed compared with naphtha?
 Ethane gives the highest HVC yield but mostly ethylene. Naphtha gives a more balanced slate of ethylene, propylene and aromatics.

[← Part 3: Capacity planning, utilisation and the chemical cycle](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p3/)[Mark read · Part 5: Integration, uncertainty, safety and sustainability: what decides what gets built →](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p5/)

## Other sections

- [Module overview](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/index.md)
- [Economies of scale: why big plants make cheap tonnes](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p1/index.md)
- [How plant sizes grew, and what stops them growing](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p2/index.md)
- [Capacity planning, utilisation and the chemical cycle](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p3/index.md)
- [Integration, uncertainty, safety and sustainability: what decides what gets built](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p5/index.md)
- [Key terms, quiz and sources](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/review/index.md)