US ethane petrochemical projects challenged

02 April 2012 00:00  [Source: ICB]

Conventional wisdom has it that the US is set to see a big increase in petrochemicals capacity.

An abundance of ethane, via shale gas, has led to an expected 29% rise in US ethylene supply by 2017. This would amount to 1.0-1.5m tonnes/year of new ­capacity by 2017, according to ICIS data.

Shale pipes, © Gerry Dincher

 © Gerry Dincher

The expansion of shale gas-based chemical production may be challenged by other regions

Downstream of this ethylene would be new polyethylene (PE) plants and other ethylene derivatives (C2) units. The new capacities are expected to be in excess of local demand, leading to ­substantial exports.

Plentiful supplies of propane - also via shale gas - offer the potential for a lot of propane dehydrogenation-to-polypropylene (PP) capacity, several delegates said during the 7th ICIS World Olefins Conference, in Brussels in late February.

US-based firms Formosa ­Plastics and Dow Chemical have already announced plans for propane dehydrogenation-to-PP facilities in the US.

Other companies are also likely to consider projects as a result of tightening propylene (C3), supplies, due to existing crackers switching to lighter feed, according to Mark Lashier, executive vice president of olefins and polyolefins for US-based Chevron Phillips Chemical, speaking to ICIS in early March.

However, although propane dehydrogenation-to-PP in the US will be competitive, it will not be competitive enough to offer a platform for exports, according to Stewart Hardy - UK-based ­consultant with US-headquartered ChemSystems - in a presentation at the Brussels olefins conference.

Few people in the petrochemicals business would have predicted such a revival in US fortunes four years ago, before the shale gas revolution.

But a few industry sources are questioning whether all the US projects will go ahead, as a result of weaker global economic growth - and China strengthening its petrochemicals self-­sufficiency. Global growth may remain weak in the long term due to the unresolved European sovereign debt crisis and big structural changes in China's economy, as it moves from an investment- to a domestic demand-driven growth model.

There are also concerns that China might decide to substantially boost its petrochemicals self-sufficiency for energy security reasons. This could be both via naphtha and coal as feedstock.

"It is possible that the US might become an increasing target for imports from South Korea and the Middle East because of the situation in China," a Singapore-based marketing executive with a global polyolefins ­producer said. This might raise doubts over the viability of some of the US projects.

South Korea is in a stronger position to export to the US due to the US-South Korea Free Trade Agreement, which came into ­effect on 15 March.

Under the agreement, US PP import duties were lowered to 0% from 6.5% on 15 March 2012.

PE duties are being lowered from 6.5% in three equal stages from 15 March 2012-1 January 2014, or in five equal stages from 15 March 2012-1 January 2016, depending on the grade of the polymer. Logistics can, however, present an additional "non-­tariff" barrier.

US converters take delivery of polymers via railcars and then store their inventory in large-scale silos.

The difficulty for Asian ­producers is that they often move polymer pellets around the world in small plastic bags stored in 20ft containers.

As a result, if they want to penetrate the US market they often have to bear the extra labor costs of taking the pellets out of the bags on arrival at local ports, and placing them in railcars.

It also takes about two months to ship polymers from South Korea to the US.

The South Koreans might instead choose to load polymer pellets into one giant bag lining each 20ft container.

This enables containers, when they arrive at US ports, to be emptied directly into railcars. "They also have the option of establishing local distribution hubs," added the marketing executive.

Customers would, as a result, not have to wait two months for delivery, as they would be able to place their orders directly with these local hubs.

"Pricing would also be agreed once cargoes arrive at these ­distribution hubs, rather than ­before shipments leave South Korea or while at sea," the ­executive added. "If the South Koreans really want to be a long-term player in the US, this is the right approach. "

Middle Eastern producers might also make use of local distribution hubs in the US, he said.

"The Middle East producers are already making use of local distribution hubs in Latin ­America, with some success," the ­executive went on to add.

By: John Richardson
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