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INEOS may invest in UK shale exploration to boost chemicals business

06.13.2014  | 

Energy-intensive industries such as chemicals are having to compete with companies that have access to lower-cost US materials, where shale drilling caused gas prices to drop to a third of European levels.

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By NIDAA BAKHSH
Bloomberg

INEOS Group is considering investing in UK shale-gas exploration to secure raw materials for its chemicals operations in the country after a shortage threatened to close a plant employing at least 800 people.

The country’s biggest petrochemical company has charged a team of five people to look into options including supporting the nascent shale industry by investing in exploration and production, according to an article in an in-house magazine on its website.

“The reason for putting together this team is to look at what the options might be for us,” said Tom Crotty, a director of the Rolle, Switzerland-based company. “We may buy into something that’s already there” or pick up acreage in the 14th onshore licensing round, he said.

Energy-intensive industries such as chemicals are having to compete with companies that have access to lower-cost materials in the US, where shale drilling caused gas prices to drop to about a third of European levels. While Britain under the Conservative-led government would like to replicate the US fracking boom, exploration has yet to get off the ground.

“We are frustrated by the lack of progress,” Crotty said. “We need companies to be getting on with it.”

INEOS’s petrochemical plant at Grangemouth in Scotland faced closure last year as supplies of feedstocks from the North Sea dwindled. The combined petrochemical and refining operation, which employs 1,400 people, had lost about 150 million pounds ($252 million) a year in the last three years, according to the website.

Survival Plan

The company announced a “survival plan” in October to secure the long-term future of the site that includes building a gas terminal to import ethane from the US. It was forced to run one of its ethylene plants below capacity because of insufficient feedstocks, and the unit is expected to operate fully from 2017 following raw material deliveries from the US.

The British Geological Survey estimates that parts of northern England may hold as much as 1,300 trillion cubic feet of gas. That could meet demand for half a century at an extraction rate of 10% similar to US fields, according to Bloomberg calculations. A similar report is being conducted for the Scottish belt.

Several licenses lie close to INEOS’s production facilities in Scotland and northern England.

Reach Coal Seam has PEDL 162, which covers 400 square kilometers (150 square miles) in the Scottish central belt that the company is seeking funding for and is in the process of negotiating a farmout, company director Graham Dean said, without specifying who the talks are with.

Backers Sought

Reach needs 12.5 million pounds ($21 million) in the initial exploration phase, Dean told a conference in London last week. That amount rises to 50 million pounds in the next stage of extraction, followed by half a billion pounds for full development, he said.

Dart Energy, which IGas Energy agreed to buy last month to become one of the largest shale explorers, has acreage in the Forth Valley of Scotland. Aurora Energy Resources, a unit of Aurora Petroleum, has PEDL 164, in West Lancashire and Merseyside, northern England, according to its website.

Centrica, the largest UK energy supplier, and Total, Europe’s second-largest oil company, bought into licenses in the UK in the past year. GDF Suez and Iberdrola’s Scottish Power have also farmed into acreage.



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