Feedstock Assumptions A Risk

By John Richardson

THE feedstock landscape can change very rapidly as the shale-gas revolution amply demonstrates.

But the assumption, right now, is that the landscape will not undergo any further radical changes. As a result, as much as 7.65m tonne/year could be added to US ethylene capacity by 2017. That would represent a 29 percent increase on existing capacity.

But Lee Fagg, Bangkok-based consultant with Nexant ChemSystems said: “Not all of the proposed US capacity will happen before 2020, as it remains unclear as to what the total availability of ethane supply from shale gas will be.

“Furthermore the current attractiveness in US ethane pricing is due to a supply surplus that exists today. However, if all the proposed projects go ahead the ethane market would change considerably. The sustainability of current US competitiveness would become less certain as domestic ethane prices would increase.

“And because of the nature of shale-gas extraction, it is very hard to accurately predict long-term ethane availability. You need to sink lots of wells in each shale-gas field. This makes it very hard to forecast the exact percentages of methane versus natural-gas liquids that will be produced by each of the fields.”

As a result, Nexant estimates that only between 4-6m tonne/year of new ethylene capacity will have started-up in the US by 2020.

Fellow blogger Paul Hodges, in this post, also raises these questions:

• Will oil prices stay at current high levels in future?

• Will ‘fracking’ technology transform oil production as well as natural gas?

• Will super-computer trading continue to dominate the oil futures markets?

“There are no obvious answers to these questions,” he wrote.

Add to this soaring construction costs. “You can earn US$400,000 a year as a welder in the US because of the boom in the shale gas and shale-oil industries,” added a senior source with a North American polyolefins producer.

Could the US go the same way as Australia, where liquefied natural gas (LNG) are now in doubt because of rising costs?

Further – there is China and its coal-based methanol-to-olefins (MTO) plans. As much as 50m tonne/year of capacity could, in theory, be eventually built.

On a cash cost basis, as we shall explore in a later post, these projects look very favourable when compared with naphtha crackers. Polymers made via these MTO plants, most of which are located inland, can be delivered cost effectively to coastal and southern regions, where the big consumption markets are.

What does China’s MTO investment wave mean for the ability of the US to export its petrochemical surpluses?

And, of course, none of this takes into account the other big uncertainty: DEMAND.

, , , , , , ,

Leave a Reply