INSIGHT: Tapping future feedstock opportunities

01 April 2008 17:26  [Source: ICIS news]

By Nigel Davis

SAN ANTONIO (ICIS news)--When oil costs more you do things differently.

US ethylene producers seek to lighten the feedstock slate in the face of $100/bbl plus crude. The pressure is on liquids cracking margins as demand for C3s and C4s continues apace.

“The world for liquid cracking is [very] challenging,” Shell Chemicals LP president and CEO Stacy Methvin said on the sidelines of the 33rd National Petrochemical & Refiners Association (NPRA) meeting here this week.

Her view was echoed by other producers. Liquids cracking is disadvantaged now, LyondellBasell’s chemicals division president Ed Dineen told ICIS news in an interview.

But co-products are holding up and prices - of propylene and butadiene - are moving higher. Downstream demand has been hit by the US economic slowdown although exports demand has been maintained.

On the feedstock front, ethane clearly has become more advantaged as oil-based feedstock prices have skyrocketed, but Dineen expects the WTI crude-to-ethane relationship to come more back into balance.

In a high-cost oil environment producers just have to be more creative.

But the extent to which they can be depends on many things, among them integration and technology and, ultimately, strategy.

Shell adopted its heavy feed strategy some years ago and has sought to use more of the heavier end of the barrel in its crackers.

It may not be advantaged in North America now but with still (relatively) high ethane prices, certainly compared with prices earlier this decade, and the high oil cost environment, the strategy remains robust.

Dineen is encouraged by the now global cracker capability of LyondellBasell. He thinks the new company can create more value in aromatics and cracker co-products.

Gaining competitive advantage in petrochemicals rests on many things but technology and engineering ultimately underpin the business.

Over the past four years ExxonMobil Chemical has qualified 300 new cracker feedstocks, Sherman Glass, senior vice-president for basic chemicals, intermediates and synthetics, told the conference.

Between 50 and 55 were qualified in the past year, he said later, with about 30 run through the group’s steam crackers. These include heavy feeds with a high sulphur and naphthenic acid content.

ExxonMobil is relentless in its drive for greater cracking efficiencies and flexibility. Technology and integration lie at the core of this strategy. And a molecule optimisation group at each site helps decide which feeds will be run through the cracker or the refinery.

So much has been said about petrochemical feedstock advantage in the Middle East but the sector is turning more to alternative locations as ethane availability in the region is put under pressure.

Middle East liquid-feed cracker players will not be so advantaged.

The latest wave of cracker investment will hit the global business over the next few years but there is considerable uncertainty surrounding projects originally planned for 2012 and beyond.

Those uncertainties over feedstock availability - and cost - are prompting global petrochemicals players to look elsewhere.

LyondellBasell is planning a methanol-to-olefins (MTO)-fed polyolefins complex in Trinidad & Tobago, for example. It is progressing plans to build a gas-fed cracker in Kazakhstan and is looking at an opportunity in Tatarstan.

Feedstock availability and choice will continue to drive the business as technologies are applied to tap into new feedstock sources and locations.

Alberta is beginning to say more about the opportunities for petrochemicals development in the province based on Canada’s vast oil sands deposits.

The oil sands - holding the world’s second largest oil reserve after Saudi Arabia - are a long way north, but oil extraction, should the oil price remain high, would produce vast quantities of bitumen with energy and chemicals feedstock potential.

To be cost-effective, producers in Alberta would have to adopt more of a European-style chemicals ‘cluster’ approach, in which integration is key. But building new chemicals plants in politically stable and economically attractive locations not too far from significant end used markets is attractive.

The search for feedstocks in a higher cost environment is, hardly surprisingly, continuing apace. On the large, and the small, scale the opportunities can be significant.

Listen to Ivan Lerner's radio interview with NOVA's Grant Thomson on Alberta's oil sands potential

By: Nigel Davis
+44 20 8652 3214

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