Commentary: An Asia perspective on US shale gas impact on petrochemicals

17 May 2013 09:47  [Source: ICB]

Nobody would be surprised to learn that the number one topic discussed at the Asia Petrochemical Industry Conference (APIC) was US shale gas and its global impact. But whereas players at the American Fuel and Petrochemical Manufacturers (AFPM) annual International Petrochemical Conference in March high-fived each other on the windfall and toasted a new global order, a broader perspective was offered at APIC.

Indeed, the industry association heads of Japan, South Korea, Thailand and Malaysia acknowleged that the renewed competitiveness of US players would "cause a great deal of discomfort" for Asia's naphtha-based petrochemical sector and "bring a significant change in its structure".

Global ethylene

That change in structure could involve a move to C4s, aromatics and heavier-cut product lines, as well as the further development of bio-based and coal feedstocks for chemicals, the association heads said.

But other players in Asia and the Middle East downplayed the significance of US shale gas. Wim Roels, CEO of Borouge's sales and marketing arm, noted that the impact of US shale gas should be kept in perspective, given the massive capacity expansion plans in the Middle East and Asia, which would dwarf US investment.

Abu Dhabi-based Borouge is about to unleash 2.5m tonnes/year of new polyoelfins capacity from its Borouge 3 site in Ruwais upon start-up in early 2014. Much of the product is targeted for export across Asia and Europe.

WORLD'S LARGEST CRACKER?

India's Reliance Industries is also planning to start up its new refinery off-gas cracker (ROGC) at the end of 2015 at its massive Jamnagar refining complex. This could be the world's largest cracker at 1.6m tonnes/year, using refinery off-gas - currently re-used as fuel at the complex - to produce ethylene. Downstream products include polyethylene (PE) and monoethylene glycol (MEG).

Using off-gas, which contains ethane and ethylene, as feedstock for a new cracker is probably an option unique to Reliance's Jamnagar complex because of its massive size.

The refinery complex processes 60-70m tonnes/year of crude oil, whereas most large refinery sites process 10-15m tonnes/year - hardly enough to produce off-gas for a worldscale cracker.

"US shale gas is not going to take over the world," said one major India-based petrochemicals and polymers distributor at APIC. "Is all that product going to come all the way to southeast Asia?"

He expects US shale gas will be more of a regional phenomenon, with US exports increasing to Latin America.

Global consultancy Nexant pointed out at a presentation at APIC that the majority of new investments to 2020 are expected to be in China and the Middle East.

"US shale gas is important, but over 70% of the ethylene net capacity additions will be in the Middle East and Asia," said Andrew Spiers, senior vice president at Nexant Asia.

THE BIGGER PICTURE

Nexant expects North American net ethylene capacity additions of around 6m tonnes/year by 2020. However, there are already plans for over 10m tonnes/year of new ethylene capacity additions during that time, according to an analysis by ICIS.

Looking over a longer period to 2025, Lee Fagg, principal at Nexant Asia, projects that of the 68m tonnes/year of global ethylene capacity additions, US expansions will account for just 13% in Nexant's base case scenario of 1%/year US gas production growth.

In Nexant's high case scenario of US gas production growth at 2%/year, he sees US ethylene expansions accounting for 18% of the global total. Overall, this amounts to 8.5m-12m tonnes/year of capacity, or the equivalent of 6-9 crackers, noted Fagg.

The impact of US shale gas continues to be one of the first points of discussion - in both presentations and talks with sources. While the phenomenon should be kept in perspective, the fact alone that global players are talking so much about it signals a major coming shift in production strategy.

  • Additional contribution by Nurluqman Suratman in Taipei

By: Joseph Chang
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