07 November 2011 00:00 [Source: ICB]
The shale gas revolution sweeping the US has dramatically changed the outlook for the US ethylene industry, which has gone from being aged and downtrodden only three years ago to becoming the new focus of expansion and competitiveness for the years ahead.
The numbers speak for themselves. After losing two crackers and around 7% of capacity in the wake of the 2008 financial crisis, US ethylene production is expected to grow by nearly 5% in the next three years, while five new crackers could come on stream after 2015.
The renewed focus on the US is the result of an expected boom in the production of ethane. Average output of 900,000 bbl/day in 2011 is forecast to grow to as much as 1.2m bbl/day by 2015, as the US increasingly taps its shale gas reserves.
To put that into perspective, it takes around 60,000 bbl/day of ethane to feed a worldscale cracker, so a 33% increase in the next four years would be enough to give the US five new crackers, each with around 2bn lb/year (0.9.1m tonnes/year) of ethylene capacity.
But not all that ethane will stay in the US, because Canada is expected to import a good share of the additional production to feed crackers in Ontario and Alberta. A conservative estimate is that Canada could import up to a combined 100,000 bbl/day from the Marcellus and Bakken plays starting in 2015, said Peter Fasullo, co-owner and principal at US-based energy investment company En*Vantage, adding that this would leave the US ethane market fairly balanced, based on a cracker restart and all of the expansions to existing ethylene plants announced in recent months.
These include projects by US companies such as Westlake Chemical, which in 2012-2014 will add about 230,000 tonnes/year of ethylene capacity to its crackers in Louisiana, where the company now has just over 1m tonnes/year of capacity. Westlake also plans to convert its 195,000 tonne/year Calvert City cracker in Kentucky to use ethane instead of propane, CEO Albert Chao said in August during the company's second-quarter earnings call.
US energy company Williams and Switzerland-headquartered INEOS have also announced expansion plans at their crackers in the US Gulf, while US-based Dow Chemical is scheduled next year to restart a 390,000 tonne/year cracker in Louisiana that was idled in 2009. Dow also plans to improve ethane flexibility in at least two of its crackers in Texas and Louisiana in 2014-2016, in addition to building an on-purpose propylene plant in Texas for start-up in 2015 and a worldscale ethylene plant on the US Gulf coast for start-up in 2017.
Anglo-Dutch oil major Shell and US energy and chemical company Chevron Phillips Chemical have also cited the further development of US shale gas reserves as the reason for their decision to expand ethylene capacity in the country. Chevron Phillips Chemical said it plans to build a cracker in Texas, while Shell is considering building a unit in the Appalachian region, near the ethane-rich Marcellus play.
But some of the green-field cracker announcements have faced scepticism in certain corners of the industry, particularly because of what one market participant says is a lack of specifics regarding capacity, location, funding and downstream strategy.
Whether these units, which a consultant dubs the "TBD [to be determined] crackers," will eventually become a reality will depend on the performance of the US economy and on how much ethane will actually come on stream after 2015.
Others have expressed similar reservations about the outlook for shale gas in the long term, including US major ExxonMobil Chemical. "We are not a great proponent of forecasting cycles. No one was predicting the impact of shale gas just a few years ago. That's why we take a long-term approach where we seek to outperform in good times and in bad," said ExxonMobil Chemical's president Stephen Pryor in March during the NPRA International Petrochemical Conference in San Antonio, Texas, US.
While the advent of US shale gas has given US producers a cost advantage today, the long-term impact is unclear, he noted. Inconsistencies in the assessment of the amount of shale gas available raise questions about the long-term supply projections for both natural gas and ethane.
Still, most ethylene makers - at least for now - seem to be setting those doubts aside, considering all the expansion and new cracker announcements made in the past few months.
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