INSIGHT: Indorama joins US ethylene fray

12 March 2012 15:16  [Source: ICIS news]

by Joseph Chang

NEW YORK (ICIS)--Thailand-based Indorama Ventures Ltd (IVL) is jumping into the US ethylene cracker fray, joining a crowded field of players that are going full steam ahead with new crackers and expansions, as well as considering projects.

IVL will likely partner on its 1.3m tonne/year cracker rather than go it alone. It has already completed a pre-feasibility study with an undisclosed partner, and expects to complete its full feasibility study by 2013, aiming to start work on the project in 2015.

“This world-scale cracker will be most competitive in the US with the progress of shale gas,” said IVL founder and CEO Aloke Lohia, at its analyst conference at the Stock Exchange of Thailand on 29 February. “The scale [of this project] and availability of cheap gas makes it very exciting.”

IVL is the first non-ethylene producer to announce its entry into the market – at least on a feasibility study stage. Expect its partner to be an existing cracker operator in the US.

“Our partner… is also building utilities and other polyolefins plants at the complex,” noted Lohia.

IVL is in the process of closing its $795m (€604m) buyout of US-based ethylene oxide/monoethylene glycol (EO/MEG) producer Old World Industries. It will also build EO and MEG capacity as part its US cracker project.

As players look to the US for cheap natural gas feedstock for petrochemicals, they see another advantage.

“For any petrochemical plant, whether you make paraxylene, [ethylene] or derivatives or PVC [polyvinyl chloride], a major cost is energy. When energy is cheap in the United States, the cost of production goes down,” said DK Agarwal, CEO of IVL subsidiary Indorama Polymers, at the conference.

Agarwal pointed out that plant energy operating costs in China are about 11 cents/kilowatt hour (kWh), whereas in the US they are around 5.5 cents/kWh.

Not only is IVL seeking to secure feedstock for its downstream MEG and EO operations, it also aims to capture full integrated cracker economics.

“That is the game plan – to capture the value chain from ethane to ethylene,” said Agarwal.

In its “Roadmap to 2020” plan, IVL shows that its US ethylene and EO/MEG plant will be completed in 2018.

ICIS expects US ethylene expansions to add about 28% to existing capacity by 2017–2018, with the addition of at least one more world-scale cracker resulting in a stunning 32% increase.

Formosa Plastics USA planted its flag in the ground on 27 February, announcing it will spend $1.7bn to build an 800,000 tonne/year cracker at Point Comfort, Texas, along with a 300,000 tonne/year low density polyethylene (LDPE) plant and a 600,000 tonne/year propane dehydrogenation (PDG) plant to produce propylene. Construction on the projects is expected to be complete by 2016.

Local producers fully committed to building new world-scale crackers are Chevron Phillips Chemical (CPChem), Dow Chemical, Shell Chemicals and Formosa Plastics.

These four new crackers will amount to 800,000 tonnes/year to 1.5m tonnes/year of capacity each and come on between 2016 and 2017.

South Africa-based Sasol is undertaking a feasibility study for a $3.5bn–4.5bn cracker of 1m–1.5m tonnes/year at Lake Charles, Louisiana, to be completed in the second half of 2013. Sasol already operates a 470,000 tonne/year cracker at the site.

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

In addition to new crackers, four US producers are planning expansions or debottlenecks at existing sites – Westlake Chemical, LyondellBasell, INEOS and Williams. The total additional capacity from these expansions amount to around 995,000 tonnes/year. The upgraded plants are planned to come on line by the end of 2013 through 2014.

All the above outlined expansions, excluding Indorama’s latest announcement, total an estimated 7.4m tonnes/year of ethylene capacity by 2017, representing 28% of existing US ethylene capacity of around 26.6m tonnes/year, based on an analysis by ICIS.

But this 7.4m 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 Indorama, Saudi Arabia’s SABIC, Brazil’s Braskem, US-based Occidental Petroleum (Oxy) and US-based start-up Aither Chemicals.

LyondellBasell is also weighing up another expansion at its 873,000 tonne/year cracker in Channelview, Texas, but has not disclosed additional capacity or a time frame.

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 8.6m tonnes/year of additional ethylene capacity, or 32% of the total in the US today.

Additional reporting by Anna Jagger in London

($1 = €0.76)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

Author: Joe Chang

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