02 April 2012 00:00 [Source: ICB]
Shale gas is going to be very important for US chemicals
US ethane-based chemical producers now enjoy a cost position comparable with Middle East players once logistics costs are taken into consideration. Understandably, the industry is scrambling to take advantage of this and the announcement of several major expansions as well as new cracker developments during the past few months are testament to this. Flexible crackers are being switched to crack ethane and any further debottlenecking is sure to increase feedstock flexibility further.
Figures from global advisorsBooz & Company show how responsive the US industry has already been to shale. Ethylene derived from naphtha cracking has declined from 30% of the total in 2007 to 14-15% in 2011, while ethane-based production rose from 50% to 65-70%. This switch will surely continue as the new capacities come on stream during this decade. The next obvious step is to boost derivative production to take advantage of what could amount to a 30% increase in US ethylene capacity during this decade. We can expect to see announcements of this type over the next year or two, LyondellBasell CEO Jim Gallogly said last week.
What risks are there to this superb growth story? With a slow-growing domestic market, much of the new capacity will have to be exported. The number of announced cracker projects in China dwarfs US plans and as China's domestic production ramps up, it may become less reliant on imports. So certainly we will need to see healthy growth in the global economy to absorb all this new production.
The structural shortage of naphtha-based derivatives is already causing ripples across the industry as prices for products such as butadiene (BD) and propylene have become increasingly volatile. Moves to boost on-purpose production may help to alleviate the situation a little but are unlikely to solve it altogether. Words such as "revolution" or "renaissance" really may not be an exaggeration for what we are about to witness during the next few years in the US petrochemical sector.
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