Honeywell Breakthrough Seen Transforming Plastics Industry: Tech

Honeywell International Inc. (HON) has discovered a one-step process to convert household natural gas into a plastics raw material. The implications are far-reaching.

The technology in time could ease a glut of natural gas from U.S. shale drilling; lower the cost of products ranging from soda bottles to paint; and give Honeywell a steady profit stream from licensing the technique in the $150 billion plastics raw-material industry.

The process would allow companies to make ethylene -- the substance from which plastic and other materials are created -- from methane, commonly known as natural gas. Ethylene is now produced from ethane, which is found alongside natural gas and costs three times as much. Ethylene can also come from naphthas in oil refining, which are more expensive than ethane.

Commercially viable gas-to-ethylene conversion is the industry’s “holy grail,” making methane more versatile at a time when natural gas is abundant and cheap because of shale drilling, said Gotz Veser, a chemical engineering professor at the University of Pittsburgh. Burned mostly as a fuel, natural gas closed yesterday at $1.98 per million British thermal units, compared with $13.58 at a July 2008 pre-recession peak.

“The industry has been looking for efficient ways to turn methane into higher hydrocarbons directly for decades,” said Veser, who has written more than three dozen papers on the subject. “Nobody has been able to come up with an economical process.”

Seeking Partners

Honeywell’s approach, proved in the laboratory by the company’s UOP petrochemical unit, won’t be marketable for several years. Morris Township, New Jersey-based Honeywell is designing and seeking partners for a pilot plant.

“This will basically for the first time take natural gas and directly convert it to a chemical, not through a multistage process,” UOP Chief Executive Officer Rajeev Gautam said. “At this point we have enough proof of principle, enough testing done that you can probably detect the excitement in my voice.”

Direct conversion has so far met with limited success because methane molecules are extremely stable. Once a reaction starts, it’s difficult to stop at the desired chemical, such as ethylene, before the methane breaks down further into low-value carbon and hydrogen gas, Veser said. Methane can now be converted to synthesis gas and then to methanol, which can be turned into ethylene. Those steps require more investment.

“We have completed proof-of-concept experimental work and have seen good yields and performance,” Gautam said. “The next step is to start working on development and scale-up of the technology.”

Reducing Production Costs

He said UOP’s process using natural gas would save about 40 percent from the cost of ethane-based ethylene production at current prices. Ethane for May delivery traded yesterday at the equivalent of $7.16 per million Btu, according to Jason Miner, a senior chemicals analyst with Bloomberg Industries.

Sales at UOP, part of the specialty materials division, rose 24 percent to $1.93 billion in 2011, or 5.3 percent of Honeywell’s $36.5 billion total. The parent company’s shares climbed 10 percent this year through yesterday, topping the 8.8 percent gain for the Standard & Poor’s 500 Industrials Index.

Plastics were first primarily made from the byproducts of oil refining and later in the U.S. from lighter feedstocks such as ethane. Producers recently have been switching more to use ethane as an ethylene feedstock as prices drop relative to crude with the boom of U.S. natural gas production.

Dow’s Investment

Dow Chemical Co. (DOW) said April 19 it will build a $1.7 billion plant in Freeport, Texas, to produce ethylene from ethane and other natural-gas liquids, with operations starting in 2017. Royal Dutch Shell Plc (RDSA), Chevron Phillips Chemical Co., Sasol Ltd. (SOL) and Formosa Plastics Corp. (1301) are drawing up plans to build new U.S. ethylene plants during the next four years.

Dow and “a lot of the industry” have worked on a direct route for converting methane, said Carol A. Williams, executive vice president of manufacturing and engineering at the largest U.S. chemical maker.

“If they are announcing that, then I think that is a significant step forward for our industry,” said Williams, who hasn’t seen Honeywell’s technology. “Lots of people have worked on it and they have worked on it many different ways.”

Even if proved economically and scientifically viable, Honeywell’s process may take years to be adopted by an industry that changes slowly because of large investment in petrochemical complexes, said Nils-bertil Wallin, a Credit Agricole Securities analyst in New York. Some technologies need improvement after their discovery before gaining acceptance, he said.

Disruptive Technology

Hydraulic fracturing, or high-pressure injection of water, sand and chemicals into share rock formation to extract gas, has been around for decades, Wallin said. Only recently has fracking, as the process is known, set off a boom of natural gas production as methods became more efficient.

Honeywell’s direct methane conversion “could potentially be a disruptive technology,” Wallin said. “It would change the whole supply-demand dynamic.”

The benefits would include saving costs across the industry and giving gas producers another market for methane, he said.

UOP, which was a joint venture with Dow’s Union Carbide unit before Honeywell bought the half it didn’t own for about $825 million in 2005, was formed in 1914 based on an oil refining technology invented by Jesse Dubbs, whose enthusiasm for the industry led him to name his son Carbon Petroleum. The company since has created advances in unleaded gasoline and catalytic converters. More recently, it devised a process to make plastics raw materials from coal and sold its first license to a company in China, where coal is plentiful.

Synfuels Process

Low natural-gas prices drove Dallas-based Synfuels International Inc. to work since 1998 on a cost-effective process to transform the fuel into ethylene and gasoline blends. The company is ready to go to market after operating a demonstration facility, and an undisclosed global company is seeking to build a plant based on the technology, Chief Engineer Ed Peterson said.

In Synfuels’s process, methane is transformed to acetylene and then to ethylene. The technology matches the cost of ethane- to-ethylene conversion, he said.

“We’re always going to have lots of natural gas; now we have to find an economical way to make the products that we want out of it,” said Peterson, a chemical engineer who has worked at Dow and a Royal Dutch Shell unit. “We have one of those economical methods.”

Honeywell’s Gautam said methane-to-ethylene technology will prove cost effective even if natural gas prices rise much higher than today’s lows.

“We have found a route that just seems to work well,” Gautam said. “It will truly be a game-changing technology.”

To contact the reporter on this story: Thomas Black in Dallas at tblack@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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