Methanex's Geismar Plant Reassembly Takes Shape
Vancouver, British Columbia-based methanol producer Methanex has fast-tracked the relocation of a major chemical plant across continents to capitalize on natural gas prices from Louisiana's shale plays. It's a massive undertaking involving thousands of skilled workers and a seven-month sea voyage—but it's still cheaper than building a new plant.
Nearly 1,000 workers are on site each day at the Geismar, La., site, with a wide selection of contractors and subs. Jacobs Engineering, Pasadena, Calif., is the engineering and procurement contractor (EPC); Cajun Industries Inc., Baton Rouge, has handled site prep and concrete work; and the Netherlands' Mammoet was charged with lifting and hauling the process modules from the original plant site near Puntas Arenas, Chile, to Louisiana.
All this has been coordinated with Methanex's in-house project team, which provides overall direction on the project.
"Members of the project team ensure the application of best practices and lessons learned from previous projects," says Gustavo Parra, Methanex vice president of manufacturing excellence and projects. "Additionally, Methanex is responsible for the overall commissioning and start-up and performance tests of the plant."
Making the Move
Methanol is a versatile chemical used in many manufacturing processes, including renewable fuels products, paint, sealants and plastics. The versatility of the material is generating a global surge in demand. Methanex, whose stock price has doubled in a year, plans to relocate a second plant to Geismar as well. It's a $1.1-billion effort that will generate 2,500 construction jobs at its peak. The first plant will be operational in 2014, the second in 2016, according to Methanex.
To move the parts from Chile, Methanex contracted a special ship called a Dockwise Vanguard, which can sink itself to water level to receive and unload industrial equipment. Jacobs managed the disassembly and Chilean subcontractors did the work. Foreign contractors were used for some critical tasks such as marking and tagging, heavy lifts and heavy hauls.
"These ships have to be scheduled months, sometimes years in advance, so there was only a short window to unload the modules and get them to the site," says Dale LaBlanc, Methanex site manager for Cajun Industries Inc. "We made sure it all had somewhere to go."
Shipments were made with dedicated semi-submersible ships and geared heavy-haul ships. The ships were booked early to ensure their availability in the required time frame, Parra says.
"Indeed, the [time] windows were extremely short. It's not like you can put some of these modules in a traditional cargo box. They're more like oceangoing barges," a site engineer who asked not to be named told ENR. "This is undiscovered country, cutting up a plant and moving it across the ocean to a different country."
Methanex disassembled the plant months before Cajun came on site in Geismar. "It was fast-tracked and we had to mobilize to start the site work very quickly. No dates could be missed," LaBlanc says. "If adjustments had to be made, they were done on site."
After the modules had been disassembled and reinforced, Mammoet moved them from the remote Chilean location to their new U.S. home, along with many heavy components, a spokesman for the heavy-haul contractor says. "All components and modules had a combined weight of more than 157,000 tons. Sometimes these facilities needed to be transported over roads and bridges specially constructed for the project."
Other challenges included loading and sea fastening in the Straits of Magellan, an area notorious for strong currents and sudden storms. In addition, a Mississippi River levee had to be crossed using a specially engineered and constructed bridge. "The soil conditions required a customized design for the bridge and its foundations," the Mammoet spokesman says.
Another challenge was starting the new site in a cow pasture. "Sand and clay had to be stabilized, underground pipe and foundations had to be laid," LaBlanc says. "We've had about 300 people out at the site ourselves—carpenters, machine operators, concrete finishers. It's a major project."
Relocation Perks
Geismar is a sought-after hot spot for industrial projects because it has a deep-water port and offers financial incentives. Methanex did not encounter difficulties in securing a site. "Site surveys were prioritized early on in the process, and as a result, the site was procured without major issues," Parra says. "The U.S. Gulf Coast and Louisiana possess world-class infrastructure, skilled workers and a very positive, low-risk environment in which to do business."
Five years ago, construction costs associated with building new methanol capacity were about $750 per ton. "We think that has risen to over $1,000 recently, and escalating construction costs are one of the risks that Methanex is exposed to," says Chris McDougall, a methanol-sector analyst for Westlake Securities in Austin, Texas. "There are some labor-related increases associated with building on the Gulf Coast, but those aren't enough to kill the economies."
To date, however, Methanex says it has not experienced a shortage of trades or craft labor. "To avoid high turnover of craft labor, it has been necessary to permanently monitor market conditions to ensure salaries and wages are competitive," Parra says. "Labor needs going forward are expected to be in the piping, mechanical, electrical, instrumentation and insulation-painting areas," he adds.
In its 2013 financial report, Methanex said capital expenditures related to the Geismar projects were $145 million and the remaining budget for the project was $635 million, not including interest. Methanex expects to be producing methanol from Geismar 1 in late 2014 and from Geismar 2 in early 2016. "These key projects support the 3-million-tonne increase in our operating capacity to 8 million tonnes by 2016, a time when new market supply is expected to be limited," the report says.
Few liquid hydrocarbons can be manufactured from natural gas, but methanol can be. It is used in China and Europe as a component of gasoline blends to improve octane. The U.S. is consuming methanol as a net importer—mostly for specialty chemical manufacturing—so the strategy to leverage idled equipment supplying the U.S market is sound, McDougall says.
"Argentina has basically cut the supply of natural gas to Chile, so the assets were stranded. Methanex has mitigated its gas-price risk by contracting a long-term supply agreement with Chesapeake Energy for the first plant," he says. "The payback in the current environment is pretty quick—at the $500-per-ton range for methanol—and even at $450 per ton, it's reasonable.
"Relocation saves them time and money. When you build new, there are large deposits you have to drop on some of this equipment, which also has long lead times," McDougall says. "The only negative to moving these plants is if Argentina starts supplying more natural gas to Chile. Then Methanex would like to be able to have those assets there producing methanol without the costs of the relocation to the United States and subsequent construction here. Also, some will argue that this equipment is old and not as efficient as the current technologies Methanex would likely use if they were building new."
One of the biggest advantages to relocating a plant is that dormant equipment does not have to be salvaged, which is a major expense. "Also, it takes 12 to 18 months to have some of these more exotic vessels fabricated [for the manufacturing process], so Methanex is saving time there," an onsite engineer told ENR.
Some of the equipment, however, is being upgraded and modified before it will begin producing methanol in the U.S. "For instance, Chile is very cool, so the processes don't need the same cooling equipment, and the systems are required to run in Louisiana, where it's very hot. There were major atmospheric condition changes and some of the equipment is 20 years old. It had to be upgraded," he said.
Relocation, compared with building new, offers significant capital savings and a reduced time frame. "By using an existing plant, we also expect to have a more efficient commissioning and start-up," Parra says. "The largest technical challenge was taking a stick-build plant and turning it into a modularized concept, transporting it over the ocean and refurbishing some of the equipment to ensure asset integrity."
Speed is ultimately the key when it comes to building or relocating a manufacturing plant that buys and sells commodities like natural gas and methanol because the markets are volatile. For now, the margins are good and Methanex hopes to have Geismar 1 and 2 producing before the situation changes or more competition arises. Other companies are already in various stages of building methanol plants in the U.S. and that could put downward pressure on prices.
But could there be a scenario where the domestic market is oversupplied? "I would say that it's not likely," McDougall says.
