22 March 2013 15:26 [Source: ICB]
Beate Ehle remembers a quieter North American petrochemical scene, a time when there were no thoughts of building new crackers and companies looked at just about anywhere but the US when it came to planning future production. That was just 10 years ago, the BASF president for market and business development for North America notes.
Times - more specifically, feedstock costs - certainly have changed. Cheaper raw materials and energy thanks to the shale gas boom have transformed North America into a petrochemical hotbed of activity, and German chemical maker BASF is knee-deep in that transformation.
"It's real," Ehle says of the shale boom. "Shale gas is very real in the US, and its benefits are also real in the US With that, investments that might not have been feasible for the US five to 10 years ago are now quite attractive."
"I would say the cheap raw material and energy costs have been the missing link for the US to be a very attractive investment market for the petrochemical industry," Ehle explains. "What the US also offered in the past and still offers and will offer in the future is political stability. It's the second biggest chemical market. You have the infrastructure to deal with petrochemicals, to deal with chemicals. You have the customer structure. So adding now cheap raw material and energy costs, I would say it is the perfect storm."
Ehle's optimistic viewpoint is one shared by many in the petrochemical industry, although she does see a few clouds in an otherwise sunny sky. While shale gas has changed the supply picture, the demand side of the equation for petrochemicals has not changed, she says. "And with that, the dynamics are changing in the US petrochemical industry, but it will not eliminate the cyclicality [of the marketplace]."
"Right now, the US has 26m-27m tonnes/year of ethylene capacity, and another roughly 11m tonnes/year have been announced. I would say that's more than the US can digest in the whole market. That might somehow impact at least for a certain period of time the supply-demand balance," Ehle says.
LABOUR SUPPLY AN ISSUE
With all the plans announced to build more ethylene crackers and on-purpose propylene plants, there is a need for qualified labour to build and operate the facilities. But the supply of that labour could be an issue. "Especially in the Gulf coast area, we have to make sure that we have enough installation services available for whoever wants to build there," Ehle says.
The move away in the US from naphtha to cheap ethane cracking has created a supply-demand issue with olefins. Ethylene now is in great supply because of the change, while propylene and butadiene production have fallen in response. Various companies have announced plans to build propane dehydrogenation plants to make on-purpose propylene, thus possibly filling that gap down the road. But butadiene production looks to stay low as more ethane crackers come on line.
"The change to lighter feedstocks in crackers has changed the ratio between C2 ethylene, C3 propylene and C4 butadiene. C2 is long, C3 is short and expensive, and the same is true for C4," Ehle notes. "Now moving forward, there are a lot of announcements for C3 on-purpose. I think overall seven PDH plants have been announced for US. If all of that comes true, I think it would balance more or less what we have lost in North America in C3 capacity due to changes in the refinery activity and due to primarily changes to lighter feedstock, so this would definitely have an impact on C3 availability and C3 pricing in North America.
"For C4, the story's a little bit different, because so far for C4, at least I'm not aware of any good on-purpose technology for C4, so the other picture is a little bit unclear as to what will change the current situation where C4 is short and quite expensive," she adds.
"In a nutshell, will more investment come to the US? I would say yes," Ehle concludes.
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