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Source: Odessa American, TexasNov.self storage 17--REXtac President Nick Fowler's plans for a more than $680 million expansion to his south Odessa petrochemical plant represent more than just an upgrade. He plans to move into a different business, eliminating the middle-man between him and the Permian Basin.The plant -- part of a complex that once included Flint Hills Resources -- makes amorphous polypropylene, a sticky polymer used to make adhesives. The primary ingredient is an odorless gas called propylene.And this is what Fowler intends to make now. It is an effort to combat expensive propylene prices and to take advantage of the growing supply of the natural gas liquids produced by oil wells in the Permian Basin.One analyst compared Fowler's plan to a hot dog maker facing higher bread prices. In this analogy, the hot dog maker not only enters the bread baking business -- he buys a windmill and enters the flour manufacturing business. Does his plan make sense?To understand why it does indeed make sense requires an understanding of what Fowler calls the "global tectonic shift" in American energy production. So often out here, new drilling efficiencies dominate that conversation: how the combined techniques of hydraulic fracturing and horizontal drilling unlocked tremendous amounts of oil in shale rock long-thought inaccessible.Fowler's REXtac illustrates the impact of the energy boom downstream, on the petrochemical industry.Fowler plans to produce 300 kilotons of propylene a year in order to produce another 270 kilotons of polypropylene when the new operations come online in mid-2016. To do this, he plans to build a device called a fractionator that will allow him to extract propane from the natural gas liquids pumped out of the Permian Basin. From this, he plans to implement a high-temperature propane dehydrogenation technology that uses a catalyst to turn that propane into propylene. And from there: his polypropylene.There are only five propane dehydrogenation plants in the country working or announced, according to Maria Mejia, a natural gas liquids analyst with the Denver-based firm Bentek Energy. All of those plants are bigger than Fowler's -- with names behind them like Dow Chemical -- but they are driven by the same forces as his.In 2009, natural gas prices were rising and showed no signs of stopping. Flint Hills Resources closed the Odessa petrochemical complex as its natural gas feedstocks became less and less profitable.In fact, industry experts widely projected that major petrochemical companies would never build another petrochemical plant in America again.Fowler at the time ran Orion Pacific, which contracted with Flint Hills Resources and the Huntsman Corporation to process the amorphous polypropylene the plant made. Instead of closing, Fowler incorporated REXtac and bought the plant. The Flint Hills complex had been supplying the propylene feedstock, so Fowler spent some $15 million on conversions to the plant to allow it to accept feedstock by rail.Propylene prices were volatile, but another market reality supported the move. The amorphous polypropylene REXtac makes comes in units sometimes referred to colloquially as the "potatoes" they resemble. It's easily malleable, used to make diapers or automotive linings and feminine hygiene products, among other everyday items. The companies that bought the polypropylene to make them still needed it."That's such a huge division for them, they aren't going to stop just because glue got expensive," said Kirk Edwards, the president of Las Colinas Energy Partners in Odessa and a trained petrochemical engineer. Plus, the effect of propylene prices was industry-wide.Propylene is made primarily in two ways, and neither one is on purpose: It is a byproduct of gasoline refineries and a byproduct of using machines called "crackers" to process the heavy natural gas known as naptha in other petrochemical plants.Both operations are happening less, causing the price of propylene to go up and creating a challenge for REXtac.The reason is twofold. First, Americans use less gasoline than they did 10 years ago. And second, an oil renaissance is underway across the country.Even though oil and gas producers in the Barnett Shale of north Texas were experimenting with hydraulic fracturing -- pumping millions of gallons of chemically-treated water into rock and seeing great returns of natural gas -- this was doing little to change the big picture for the broader迷利倉petrochemical industry in 2009, because prices remained high.But when the techniques began to take hold in other areas such as the Marcellus Shale underneath Pennsylvania, natural gas prices plummeted, including ethane. That would have meant tremendous profit the former Flint Hills Resources plant, had it remained open, because ethane was its feedstock, several experts have said.It also meant that the petrochemical plants that were cracking naptha had a cheaper alternative in cracking ethane. That process makes almost no propylene."So, by God," Fowler said announcing his product this month. "I'm just gonna make it myself."The Permian Basin is rich in supply of natural gas liquids but oil and gas producers have struggled with poor takeaway capacity to bring it to market. Sometimes, they have been forced to burn it away in flares at a financial loss."Those molecules are here in the Permian but we have to ship them all the way to Houston to get the fractionated, or broken apart, and then they ship them back to us," Edward said, referring to REXtac by rail.At the same time, the production of natural gas liquids (NGLs) is growing. In 2008, the average NGL production was 338,000 barrels per day, according to Bentek. This year, the daily average was 362,000 barrels. And by 2018, the firm projects NGL production will grow by 13 percent to an average 420,000 barrels per day.Fowler's plans will provide a local outlet for 42,000 barrels per day of those natural gas liquids.The new variety of crystalline polypropylene Fowler plans to make comes in smaller, denser pellets. It is used to make harder plastics, such as bottle caps.REXtac has about 40 people who work the existing plant right now. They sit in a control room of old flashing dials, sensors and paper-and-needle readings. It evokes a NASA control room in the Apollo years. But it's all computer controlled now, and a few employees at a time sit at a terminal in the center of this room.The company's "Line 3" is a towering tangle of pipes that will be upgraded and brought online. That plant's control room sits empty but cleaned.A laydown field east of Line 3 will become the home of the PDH plant. The Houston-based energy investment bank Tudor, Pickering, Holt and Company is arranging the investment in the new plant.Every four hours nonstop, Fowler said, these new operations will fill one rail car with the polypropylene material. That works out to about 600 million pounds of polypropylene per year.He intends to hire 155 employees, working along the on-site operation of 40 people at the current plant.A curve-ball is the fractionator.The Gulf petrochemical plants don't have to build them, because there are so many in the Mount Belvue area near Houston, said Chuck Carr, a global director in petrochemicals with the research firm IHS in Houston. Some businesses, in fact, operate with the sole focus of running a fractionator and selling the various gas feedstocks they make to petrochemical plants.Mejia and others have questioned why Fowler would build one. There are two fractionators in Gaines County, and Fowler could build a pipeline to one of them and get the propane he needs. (He said that could be a possible route but isn't the current plan).Only about 28 percent of the return on the NGLs a fractionator produces is propane. That leaves 72 percent of ethane, butanes and heavier gases that Fowler doesn't need.But there is a solution, he said: REXtac will sell them."It's not common, but we have a market for them," Fowler said, declining to elaborate.Fowler expects the economics of this move to remain, driven by the supply of natural gas liquids in turn driven by the techniques behind the oil boom."When shifts are that huge, you have to ask yourself: 'Did this happen because the government did something? Or did this shift occur because someone raised the price of crude artificially? Or did this change because somebody invented something and you are not putting it back in the box?" Fowler said. "What happened to crude oil and natural gas liquids -- it's like the computer business. You're not going to make them expensive again. Once they accessed that source rock, you are not putting that back in the bottle."Contact Corey Paul on Twitter @OAcrime on Facebook at OA Corey Paul or call 432-333-7768.Copyright: ___ (c)2013 the Odessa American (Odessa, Texas) Visit the Odessa American (Odessa, Texas) at .oaoa.com Distributed by MCT Information Services迷你倉