APIC ’11: High ethane-cracking margins to sustain US production

26 May 2011 10:39  [Source: ICIS news]

FUKUOKA, Japan (ICIS)--The higher margins on cracking ethane in the US, which is boosted by the increased availability of shale gas, will allow the country to maintain its current low-cost producer role in the long term, analysts said on Thursday.

“The ‘shale gale’ has resulted in a significant long-term change in the relationship between oil and natural gas prices,” said Russell Heinen, director at research and consultancy firm, IHS.

The change in price relationships has kept ethane prices low relative to naphtha, which is the dominant feedstock for ethylene producers in the world, he said.

The higher margins on cracking ethane has also resulted in significant feedstock shifts in the US over the last two years, Heinen said.

“This change has resulted in a tightness in other product chains and significant price increases for propylene and butadiene [BD],” he said.

Ethane produces very few products, so the shift in feedstocks usage in the US has greatly reduced the availability of propylene and BD domestically, Heinen said.

As a result, prices of propylene and BD have increased faster than that of ethylene, he added.

“The overall effect is positive”, but the industry in the US still faces a number of challenges in the next few years, Heinen said.

The industry needs to bring on stream at least 3m tonnes/year of cracked ethane and requires nearly 1m tonnes of debottlenecks to come on stream in early 2016, he said. This is needed to capitalise on ethane that can potentially be made available, he added.

The industry will also need to supply the logistics to handle nearly 300,000-400,000 bbl/day of new ethane supplies by 2016-2020, Heinen said.

US producers have already announced the expansions of around 5m tonnes of new ethylene capacity, mainly based on the availability of natural gas liquids (NGLS) over the next five years, said John Pearson, director at IHS.

“However, domestic demand is forecast to grow at only half of that pace,” Pearson said.

US producers appear to be concentrating on an “Americas strategy” to serve North and South America, but North American ethane-based production will be competitive, even in Asian markets in the future, Pearson said.

“Asian producers should consider investing in North America to take advantage of the likely low energy prices and available NGLs for the long-term future,” Pearson added.

For more on propylene and butadiene, visit ICIS chemical intelligence

By: Nurluqman Suratman

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