INSIGHT: Wave of new N America petchem capacity may have begun

01 April 2011 17:41  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS)--In the first of what is believed to be a wave of new investment in North American petrochemical capacity, Chevron Phillips Chemical has unveiled plans for a worldscale grassroots ethylene cracker in the US to take advantage of abundant supplies of shale gas.

Recognise this as a watershed event. This has been the first announcement of a cracker in the US in about a decade, as the entire industry took a solemn vow to never again build in the country after the severe downturn of 2001–2002.

The last decade has seen unprecedented volatility in the price of natural gas – the key feedstock for the US petrochemical industry. But shale gas had the bulls running this week at the International Petrochemical Conference (IPC) in San Antonio, Texas.

Upward price pressures across a wide spectrum of commodities were a major theme at the event – from ethylene to naphtha cracker co-products propylene and butadiene, to short-term shortages in cumene, and subsequently downstream products phenol/acetone.

In the medium term, supply constraints are poised to emerge in monoethylene glycol (MEG) and methyl di-p-phenylene isocyanate (MDI). Titanium dioxide (TiO2) has been as tight as a drum and producers are banging the skins for further price increases.

The announcement of a new US ethylene cracker was inevitable. The rising prices, favourable cost economics and tight market demanded it. The question now is, how many more are on their way? Every global producer is evaluating the potential.

For long-time industry players and observers, this should have a familiar ring. While not every cycle is the same, there are repetitive elements. The build-up of capacity in what are indisputably favourable conditions is one key element.

Does the planned cracker, which is only at feasibility study-stage, signal the end of the upcycle? Not necessarily. But keep an eye on other announcements – whether grassroots capacity or other major expansions.

Canada’s NOVA Chemicals is undertaking a $100m (€70m) upgrade of its flexi-cracker in Corunna, and other players are debottlenecking capacity.

The global petrochemical industry, in the next two-to-three years, should enjoy the sweet spot of the cycle. No-one wants to leave the party early. But recognise the seeds of the downturn that are already being sown.

($1 = €0.70)

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By: Joseph Chang
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