McDermott wins FEED contract for PetroLogistics’ 500 KTA Gulf Coast PDH plant

McDermott International, Inc. has won a front-end engineering design (FEED) contract from PetroLogistics II LLC for a proposed 500,000-tonne-per-year propane dehydrogenation plant on the US Gulf Coast, moving the project into a more detailed engineering phase after PetroLogistics selected Dow technology for the facility. McDermott described the award as “sizeable,” a classification the engineering and construction company uses for contracts worth between $1 million and $50 million, although it did not disclose the precise contract value. The award was already reflected in McDermott’s second-quarter 2019 backlog.

The proposed plant is intended to manufacture propylene through on-purpose propane dehydrogenation, rather than depending on propylene produced as a by-product of refineries and heavier-feed ethylene crackers. PetroLogistics II argues that structural changes created by the US shale revolution have reduced supplies from those traditional sources because the expansion of low-cost ethane cracking produces relatively little propylene. The 500 KTA project is therefore aimed at a market in which additional dedicated propylene production could be required as demand expands.

Why is PetroLogistics developing another propane dehydrogenation plant?

PetroLogistics has direct experience with dedicated propylene production. The company said its earlier business built the first PDH plant in North America, with operations commencing at a Houston Ship Channel site in 2010, giving its management team experience in constructing and operating a large on-purpose propylene facility. For the new project, PetroLogistics II is evaluating two alternative Gulf Coast locations, while neither a total project budget nor a commissioning timetable has been disclosed.

The economics behind the development are closely connected to the transformation of US petrochemical feedstocks. New ethane-based crackers benefit from abundant shale-derived natural gas liquids, but ethane cracking yields far less propylene than cracking heavier feedstocks. PetroLogistics President Nathan Ticatch said the resulting decline in co-product propylene means a greater portion of future US demand will need to be supplied through dedicated technologies such as PDH.

That creates an opportunity, but PDH investments are capital intensive and their economics depend heavily on technology, feedstock costs, operating reliability and the spread between propane and propylene. PetroLogistics has identified high capital costs and efficiency challenges associated with established PDH technologies as factors that have slowed additional US projects. Its technology selection therefore represents a central part of the investment proposition rather than merely an engineering detail.

What technology will the 500 KTA Gulf Coast project use?

PetroLogistics licensed Dow’s proprietary fluidized catalytic dehydrogenation, or FCDh, technology in July 2019. The process uses a reactor design derived from fluidized catalytic cracking technology and is intended to produce propylene directly from propane. PetroLogistics said it had spent about three years evaluating the technology with Dow before selecting it for the proposed Gulf Coast facility.

The company expects the FCDh process to offer lower capital costs and energy consumption as well as improved reliability compared with incumbent approaches, although those expectations will ultimately need to be demonstrated at commercial scale. Both PetroLogistics and Dow have experience with PDH plants employing other technologies, which gives the partnership a base of operating knowledge while the new plant would introduce a different process configuration.

McDermott was selected in part because of its engineering capabilities and experience with fluid catalytic cracking projects, an area relevant to the reactor principles underlying FCDh. PetroLogistics Chairman David Lumpkins also pointed to the companies’ previous working relationship when explaining the selection. The FEED phase should help translate the process concept into plant configuration, equipment requirements and engineering information needed for subsequent investment decisions.

Why does the FEED contract matter for McDermott?

The individual engineering award is modest relative to McDermott’s overall business, particularly given that its stated “sizeable” range extends from $1 million to $50 million. McDermott reported $6.705 billion of revenue for 2018 following the combination with Chicago Bridge & Iron, giving the company a much broader engineering, technology and construction portfolio across energy and petrochemical markets. The significance of the PetroLogistics assignment is therefore less about the FEED contract value alone and more about participation at the formative stage of a potentially much larger petrochemical project.

Front-end engineering work can also position an engineering contractor closely with a project before full construction packages are awarded, although McDermott has not announced any subsequent engineering, procurement or construction scope for this development. For PetroLogistics, the immediate requirement is to develop the design sufficiently to evaluate the proposed plant and the two potential Gulf Coast locations. For McDermott, the assignment adds another US petrochemical project to a portfolio spanning engineering and construction as well as refining and chemicals expertise.

The broader commercial question is whether PetroLogistics can translate the feedstock and propylene-market logic into a competitive investment case. The project combines a 500 KTA scale, a management team with earlier PDH experience and technology designed to address some of the capital and efficiency constraints associated with conventional plants. McDermott’s FEED award moves that proposition further into engineering, but site selection, capital requirements and a final development timetable remain important unresolved elements.