INSIGHT: US ethylene capacity poised to rise by up to 29% by 2017

01 February 2012 15:35  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS)--The coming boom in US ethylene cracker expansions driven by low-cost shale gas could add a whopping 29% to existing ethylene capacity in the country by 2017, leading to a supply-driven bust in the cycle.

The capacity additions will come through the construction of new world-scale crackers, as well as restarts, expansions and debottlenecks.

Three producers are fully committed to building new world-scale crackers – Chevron Phillips Chemical (CPChem), Shell Chemicals and Dow Chemical. CPChem will build its 1.5m tonne/year cracker in Cedar Bayou, Texas, while Shell will select a location in the Northeast US, and Dow on the US Gulf Coast.

These three new crackers will likely amount to 1.0-1.5m tonnes/year of capacity each and come on between 2016-2017.

South Africa-based Sasol is undergoing a feasibility study, due in the second half of 2013, for a $3.5bn-$4.5bn cracker of 1.0-1.4m tonnes/year at Lake Charles, Louisiana. Sasol already has a 470,000 tonne/year cracker at the site.

Dow Chemical also plans to restart its 390,000 tonne/year cracker in St. Charles, Louisiana, by the end of 2012.

In addition to new crackers, three companies are planning expansions or debottlenecks at existing sites – Westlake Chemical, LyondellBasell and INEOS.

The total additional capacity from these expansions amount to about 723,000 tonnes/year, and are planned to come on by the end of 2013 through 2014.

All the above outlined expansions total an estimated 6.4m tonnes/year of ethylene capacity by 2017, representing 24% of existing US ethylene capacity of around 26.6m tonnes/year, based on an analysis by ICIS.

Given that the size of world-scale crackers announced recently has been in the range of 1.0-1.5m tonnes, we assume a cracker size of 1.25m tonnes/year in our analysis. This was applied to Dow and Shell’s new crackers. Shell has already announced the projected size of its cracker – 1.5m tonnes/year.

But this 6.4m tonnes/year of additional capacity does not include the potential expansions other companies are considering.

Companies that have said they are evaluating the construction of a new world-scale cracker in the US include Saudi Arabia’s SABIC, Taiwan-based Formosa Plastics and Brazil’s Braskem, as well as US-based start-up Aither Chemicals.

Mexico-based Mexichem has said it would like to partner on a new cracker. SABIC also said it would look to partner on a cracker, but also would go it alone.

LyondellBasell is weighing another expansion at its 873,000 tonne/year cracker in Channelview, Texas, with no additional capacity or timeframe given.

Assuming the equivalent of just one additional world-scale cracker is built at a size of 1.25m tonnes/year by 2017, we arrive at 7.65m tonnes/year of additional ethylene capacity, or 29% of the total in the US today.

Plenty of downstream capacity ranging from polyethylene (PE) to monoethylene glycol (MEG) will accompany this mammoth expansion in ethylene capacity.

Supply additions of this magnitude are likely to cause major upheaval in the market, leading to a downturn in the petrochemical cycle – at least regionally, and potentially globally.

Some of that capacity will be absorbed locally with economic growth, but much of it is likely to be targeted for export in the form of intermediates and polymers.

Everything needs to go right for this supply to be absorbed into the global marketplace without a major margin squeeze.

Key components of this formula for success include a continued low level of US natural gas prices in relation to crude oil, as well as sufficient infrastructure and pipeline capacity to convert this gas into enough low-cost ethane available to crackers.

In addition to the new crackers and expansions, a number of North American producers are simply expanding their capability to process ethane. BASF FINA Petrochemicals will undertake a 50-day project at its Port Arthur, Texas cracker in April to increase its feedstock flexibility to use lighter feeds.

Others planning to boost ethane cracking capability include Dow Chemical at Plaquemine, Louisiana; NOVA Chemicals at Corunna, Ontario, Canada; Westlake at Calvert City, Kentucky; and LyondellBasell at Channelview, Texas.

These projects represent another major draw on ethane supplies.

Other success factors for maintaining margins include moderate growth in the global economy, rationalization of high-cost naphtha-based capacity in Asia and Europe, the lack of huge new capacity additions in the Middle East, China, and Latin America, and the lack of other countries exploiting their own shale gas reserves for feedstock.

But already there are at least 15 world-scale ethylene projects being planned in China with most expected to start up in 2015-2016. World-scale crackers are also being planned in Mexico and Brazil, with start-ups in 2015 and 2017, respectively.

One thing we’ve learned in these volatile markets is not to count on the status quo.

While the stars are lining up for the US to experience a boom in low-cost petrochemical and polymers production, a bust is more than likely to follow in 2017.

US shale gas does indeed change the game in global petrochemicals. It just doesn’t change the cycle.

Additional contribution from William Lemos in Houston

US ethylene expansions based on shale gas

Company

Project

Capacity (tones/year)

Location

Cost

Start-up

Westlake Chemical

Expansion

108,863

Lake Charles, Louisiana

NA

H2 2012

Dow Chemical

Restart

390,000

St. Charles, Louisiana

NA

end 2012

INEOS

Debottleneck

115,000

Chocolate Bayou, Texas

NA

end 2013

Westlake Chemical

Expansion

113,399

Lake Charles, Louisiana

NA

2014

LyondellBasell

Expansion

386,000

Laporte, Texas

NA

2014

Aither Chemicals, Renewable Manufacturing Gateway

New cracker

NA

US Northeast

$750m

2016

Shell

New cracker

World-scale

US Northeast

NA

2016-2017

Chevron Phillips Chemical

New cracker

1.5m tonnes

Cedar Bayou, Texas

NA

Q1 2017

Dow Chemical

New cracker

World-scale

US Gulf Coast

NA

2017

Sasol

New cracker

1.0m -1.4m

Lake Charles, Louisiana

$3.5bn-$4.5bn

NA

LyondellBasell

Expansion

NA

Channelview, Texas

NA

NA

SABIC

New cracker

World-scale

US

NA

NA

Formosa Plastics

New cracker

NA

Point Comfort, Texas

NA

NA

Braskem

New cracker

NA

US

NA

NA

 

 

 

 

 

 

NA = not available
Source: Companies, ICIS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


By: Joseph Chang
+1 713 525 2653



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