InterviewAPIC '12: World requires new 40m tonne/year C2 capacity

16 May 2012 07:17  [Source: ICIS news]

By John Richardson

Scotland shale mineKUALA LUMPUR (ICIS)--Around 40m tonnes/year of new ethylene (C2) capacity will be needed to meet global demand growth in 2012-2020, a chemicals industry consultant said on Wednesday.

“The global economy is expected to recover from the current recession due to the continuing growth seen in emerging markets, hence the need for this new capacity,” Nexant Chemsystems consultant Lee Fagg told ICIS.

Along with the recovery in growth, he said that another important development was the big shift in the type of feedstock slate used for olefins production.

“Over the past decade, we’ve seen a significant shift towards lighter feedstocks, primarily ethane and other NGLs (natural gas liquids), because of the spate of new investments in the Middle East,” he said.

“The trend towards lighter feedstocks is forecast to continue for now because of the impact of shale gas on chemical production in North America and further lighter feed projects in the Middle East,” said Bangkok-based Fagg, who is in Kuala Lumpur for the 34th annual Asia Petrochemicals Industry Conference (APIC) to be held on 17-18 May.

Projects based on naphtha are now less attractive because they require higher capital expenditure, he said.

“Also, over the next 10 years, there will be more limited availability of merchant naphtha because many of the big, state-owned refiners in Asia and the Middle East are integrating downstream into petrochemicals,” the Nexant consultant said.

In Saudi Arabia, Saudi Aramco is diversifying into petrochemicals, while in China, Sinopec and PetroChina are continuing to add petrochemicals capacity downstream of their refineries, Fagg said.

Petrochemicals producers who are not integrated with refining are therefore searching for other conventional and non-conventional feedstock options for future ethylene investments.

One of the most attractive alternatives is shale-gas derived ethane in the US.

In China, the alternative option to naphtha as a petrochemical feedstock is coal. The country has the world’s third-biggest coal reserves, after the US and Russia.

Nexant anticipates a big increase in methanol-to-olefins (MTO) and methanol-to-propylene capacities, via coal as the primary feedstock. 

Furthermore, investments in methanol to olefins, via natural gas, will also play a role in the changing ethylene feedstock story. Companies will seek to montetise low-cost natural gas reserves without flooding the methanol and ammonia markets.

Fagg said that a consequent tightening of supply of butadiene (BD) and propylene from the change of feedstock slate is another big petrochemical story.

Ethane cracking yields very low percentages of mixed C4s - from which butadiene is extracted - and propylene and MTO projects produce no C4s.

The structural shift away from naphtha cracking has contributed directly to the spikes in butadiene pricing seen over the last two years.   

Currently, 64% of US ethylene is produced via ethane compared with 46% in 2005, according to Nexant. This is the result of cracker operators switching to ethane from naphtha and other heavier feeds, in order to take advantage of falling gas prices resulting from the shale gas effect.

“The total ethane market share of US ethylene production will increase even further, if and when new crackers are brought on stream,” said Fagg.

Increases in propylene spreads over ethylene would, however, be limited as its main derivative, polypropylene (PP), can be replaced by polyethylene (PE) and other polymers in many applications, he added.

“When PP becomes too expensive, big retailers such as Wal-Mart are able to switch to plastic converters who make packaging etc from PE, and also polystyrene (PS), in many applications. This acts as an automatic cap on the propylene/ethylene price delta,” said Fagg.

“There are no such constraints on the price of butadiene, as it cannot be replaced in its end-use applications by other polymers.”

Tyres for the automotive industry are the main end-use application for BD.

Rising auto sales in countries such as China and India has been pushing up demand for BD amid the tight supply.

Even when demand growth rates slow down, as has been the case in China over the last two years, Fagg pointed out that 70% of passenger car tyres and up to 90% of truck tyres demand is derived from replacement tyres.

BD prices had increased to the point where on-purpose production, via de-hydrogenation, had become viable, said Fagg.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: John Richardson
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