New Consensus Builds On Ethylene Supply Gap


By John Richardson

THERE seems to be a new consensus emerging over an ethylene capacity addition shortage between 2013 and 2017.

Many of the projects that are supposed to come on-stream during that period will either be delayed, or perhaps might even be cancelled, think a growing number of people.

The future of some of the cracker projects in Southeast Asia is being questioned.

In some cases, it might be a case of “either or” for companies which have announced multiple projects across Asia as a whole, thinks the blog. The old tried and tested game of making theoretical project announcements designed to deter others from investing could once again have already been played out.

And in China, issues around water supply will quite likely stymie a large percentage of the coal-to-olefins capacity that’s supposed to be due on-stream before 2017 – along with a tougher new approvals process.

Last year, the National Development and Reform Commission (NDRC), China’s most-import central planning agency, took over the job of issuing approvals for coal-to-methanol and coal-to-olefins projects.

“Previously, local authorities could issue final approvals, but now that the ultimate decision is in the hands of the NDRC, a lot harder questions are being asked about both environmental and economic viability,” said one industry observer.

The NDRC also decided in 2012 that coal—based olefins projects must have a minimum capacity of 500,000 tonnes/year, and coal-to-methanol and a coal-to-liquids projects must each be at least 1m tonnes/year.

Many of the proposed investments fall below these new minimum-capacity levels and so might therefore be cancelled.

And in the US, many of its cracker projects are, anyway, already scheduled to start-up after 2017.

Those that are due before 2017 might be delayed because of a lack of engineering, procurement and construction (EPC) resources. Finding the right number of people with the right level of skills, given the very recent “hollowing out” of manufacturing in the US, seems to be a significant challenge for the industry.

Petrochemicals companies that are able to expand might, therefore, be tempted to accelerate their cracker projects in order to avoid missing out on a great opportunity.

But what happens if too many projects come on-stream in around 2017? It is has happened before (see the above chart).

And, of course, what happens after 2017 if too many people buy into this capacity-gap story?

More importantly:

  • One of the reasons why questions are being raised over the viability of cracker projects in Southeast Asia is because economic growth in the region now looks a lot more fragile.
  • Another reason why coal-to-olefins projects are in greater doubt is that China will no longer pursue investment for the sake of investment across all industries. This new policy will lead to lower GDP growth over the next decade.
  •   Long term economic recovery in the US is far from assured.

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