Chemical Profile: Europe ethylene

10 May 2013 09:36  [Source: ICB]

USES

Ethylene is mainly used to make polyethylene (PE), which accounts for about 60% of world demand. Other major uses are ethylene oxide (EO), ethylene glycol (EG), polyvinyl chloride (PVC) and polystyrene (PS).

Other derivatives include linear alpha olefins (LAO), detergent alcohols and plasticizer alcohols, vinyl acetate monomer (VAM), and various intermediates such as ethyl acetate (etac) and ethyl acrylate.

SUPPLY AND DEMAND

EU ethylene2012 was a year of two halves for the European ethylene market. The first two quarters saw prices supported by re-stocking and boosted by pre-buying strategies on the back of a firm upstream market. However, the Asian market faltered on Europe's economic woes, and Europe was hit by the double whammy of poor domestic production and influx of more competitively priced derivative volumes.

Upstream crude oil and naphtha prices softened. Europe was then left to adopt drastic measures to try and boost demand. This resulted in a decrease of €170/tonne in July 2012, the largest adjustment on contract prices since the timing was changed to monthly in 2009. With upstream volatility remaining a cause for concern, derivative producers hedged the best they could through stock management. The last quarter of 2012 was disappointing, but at least stable, even if at a very low level. Cracker operators were forced to reduce operating rates to 70-75% and a couple of crackers were idled.

Production figures from Belgium-based trade organisation Association of Petrochemical Producers in Europe (APPE) show that ethylene output for 2012 was about 19m tonnes, down by 6.85m tonnes from 2011 and just marginally ahead of the decade's production low in 2009.

The year 2013 started on a stronger footing because of inventory restocking and preparations ahead of a heavy cracker maintenance season in the spring. Unplanned outages - notably an issue at the Naphtachimie cracker in Lavera, France - also helped to boost demand and raise prices. Import tonnes from the Middle East and Asia were fixed into Europe - more so than seen in the past - because of high European prices, and demand on the back of expectations that the cracker turnaround season would tighten supply. INEOS' 1m tonne/year ethylene terminal in Antwerp, Belgium had a timely start-up in the first quarter.

But so far 2013 demand levels have been soft and have not lived up to expectations given the cracker maintenances and the fact that the second quarter is traditionally peak demand season. Cracker utilisation rates are once again low and ethylene export options are now being explored to prevent containment issues.

PRICES

Ethylene prices - both contract and spot - have shown a great deal of volatility over the past couple of years. The market saw a record high contract price settlement at €1,345/tonne FD (free delivered) NWE (northwest Europe) in April 2012, but decreases followed, save for a brief pick up following the slow summer months. 2012 ended the year flat. Spot prices - taken by some as a more realistic indicator of the market - remained resolutely below contract prices, sometimes by as much as €200-300/tonne, apart from a couple of brief periods in March 2012 and then in September 2012. Spot demand is limited at the best of times, but is additionally pressured by economic worries and cheaper alternatives available globally.

2013 started off with January settling at a rollover of €1,275/tonne FD NWE, and February rising by €50/tonne. Expectations of better demand, and at the very least some boost from the heavy turnaround season, have failed to materialise. The May contract settled down from April by €100/tonne at €1,165/tonne, while spot prices were indicated in the low-€900s/tonne on the ARG (Aethylen Rohrleitungs Gesellschaft) pipeline or $1,100s/tonne or below on the deep-sea market.

TECHNOLOGY

Ethylene is produced commercially by the steam cracking of a wide range of hydrocarbon feedstocks. In Europe and Asia, ethylene is obtained mainly from cracking naphtha, gasoil and condensates with the coproduction of propylene, C4 olefins and aromatics - from pyrolysis gasoline (pygas).

The cracking of ethane and propane, which is mainly carried out in the Middle East, the US and Canada, has the advantage that it only produces ethylene and propylene, making the plants cheaper to build and less complicated to operate.

Development efforts are concentrated on improving plant performance through process optimisation, computer control and furnace design. Ceramic-based furnaces could be developed in the future, offering much higher conversion rates and efficiency achieved by very high-temperature cracking with no coke formation.

An advanced catalytic olefins (ACO) technology that produces ethylene, propylene and other olefins from naphtha at a lower temperature of 700˚C (1,292˚F) has been developed by Korea's SK Energy and US engineering and construction contractor KBR. The ACO route claims to cut initial investments by 30% and reduce carbon dioxide (CO2) emissions and energy costs by 20%, compared with traditional technology. It also produces more propylene than traditional steam crackers - the typical propylene/ethylene ratio is about one to one.

A demonstration unit - which came on stream at SK Energy's complex in Ulsan, South Korea, in Q4 2010 - met the expectations of both companies. KBR announced the first licence in October 2011. Shaanxi Yanchang Petroleum Yanan Energy and Chemical is constructing a plant capable of producing 200,000 tonnes/year of olefins (ethylene and propylene) in Shaanxi Province in China.

Olefin cracking and interconversion processes are being developed to boost light olefins output. Typically, they can convert C4-C8 olefins and light pygas into ethylene and propylene. Newer catalytic processes are being developed to provide enhanced control of the cracking process or permit catalytic dehydrogenation of ethane.

Small quantities of dilute ethylene can be obtained from refinery streams. In South Africa, ethylene is produced by the Fisher-Tropsch process in coal gasification,

There are processes available that use lower alcohols as feedstocks. The methanol-to-olefins (MTO) process - jointly developed by Honeywell's UOP and INEOS (formerly Hydro) - converts methanol derived from crude oil and non-crude oil sources such as coal or natural gas to ethylene and propylene. MTO also offers flexibility in the quantity of propylene and ethylene produced, so producers can adjust plant designs to most effectively address market demands.

There is considerable interest in using this technology in China with methanol produced via coal gasification. China is the world's largest producer of coal making it an attractive alternative feedstock.

By May 2013, four UOP projects had been announced, all in China. The latest announcement by Jiangsu Sailboat Petrochemical will be the largest single-train MTO unit, with a capacity of 833,000 tonnes/year of ethylene and propylene. The other three include Wison (Nanjing) Clean Energy; Shandong Yangmei Hengtong Chemicals; and Jiutai Energy (Zhungeer).

By 2017, more coal-to-olefins (CTO) and stand-alone MTO capacity is due on stream in China than shale-gas-based olefins in the US, according to a recent report by HSBC. Early last year, only three out of 46 projects had secured final central government approval, but by this February, the number had risen to eight, said ICIS China.

EU ethyleneHowever, because of challenges posed by carbon dioxide emissions and water resources, HSBC believes only 20% of the 6m tonnes/year CTO capacity due on-stream in 2013-2017 is actually viable.

Belgium-headquartered Total Petrochemicals, also working with UOP, developed a technology that takes the heavier olefins from the MTO unit and converts them into lighter olefins, specifically propylene, through the Olefins Cracking Process (OCP).

The company started up a pilot plant at Feluy, Belgium, in 2008 and was able to produce commercial quality polypropylene (PP) in May 2009.

Total signed a letter of intent with Chinese energy group China Power Investment to study construction of a €2bn-3bn ($2.7bn-4.1bn) complex in Inner Mongolia. Start-up is projected for late 2015 or early 2016.

OUTLOOK

The key issue for Europe remains the impact of new cost competitive capacity that has come on stream in the last couple of years in the Middle East - the effects of which are increasingly felt in the European market and made even worse under current poor macroeconomic conditions. Add to that the shale gas revolution and its advantage versus naphtha in the US - the frequently talked game changer - which has prompted expansions between 2013-2014 totalling about 1.2m tonnes, and a series of announcements for new crackers due on stream in 2016-2020 totalling 8.6m tonnes. Therefore, Europe's position as a high cost, uncompetitive producer, due to ageing assets, continues. Increasing pressure on margins because of volatile and expensive feedstock high energy costs and tightening regulations and the dominant cost positions of Middle East and US will make it even more difficult for European producers to operate profitably and utilise full capacity.

It has long been talked that 2.2m-3m tonnes of European ethylene capacity should close, but there have been no new announcements since the closure of Shell's 2B 240,000 tonnes/year cracker at Wesseling in Germany in 2011 and ExxonMobil's 125,000 tonne/year cracker at Fawley in the UK in 2010. Instead, the temporary idling of some crackers is increasingly common, while remaining cracker utilisation rates of 75-85% have become the norm.


By: Nel Weddle
+44 20 8652 3214



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