INSIGHT: INEOS expansions, new cracker and PDH all good news for Europe, but there could be casualties

Source: ICIS News

2018/07/05

LONDON (ICIS)—First reactions from market players in Europe to the latest INEOS ethylene and propylene announcement have so far been very positive. But when the dust settles, players will be trying to determine the real impacts on their own balances and hoping not to be left behind.

INEOS said on Tuesday that it would be spending €2.7bn  - its largest investment to date – on a new world-scale cracker and a propylene producing propane dehydrogenation (PDH) plant somewhere on the coast in northwest Europe. The cracker was new but the new PDH unit was known about last year.

At first sight, the new cracker news is surprising as Europe has long been languishing at the bottom of the most- ripe-for-investments list with most eyes focused on more dynamic and attractive growth areas like Asia, the Middle East and latterly the US.

Who would have thought that a new world-scale – usually considered to be 1m tonnes/year – cracker would be built in Europe after twenty years?

“It’s very good news that people believe in Europe, you always see announcements for new projects over the rest of the world, so good to see it here,” an olefins producer said adding that these sort of announcements usually encourage and promote other opportunities.

"All investments in petrochemicals in Europe are a good sign that we are preparing the European market for a competitive future,” a second producer said.

It added: “we have had some good years in terms of earnings and cracker margins. This is a good message and a good signal.”

While there may have been no ethylene capacity additions in Europe for more than a decade, there has been demand growth so eventually there is a need for new capacity.

The INEOS concept, thought to include ethane cracking and PDH alongside one another to make use of synergies, is a bit new. It would allow ethylene output to be regulated without being detrimental to propylene production.

Alongside INEOS’s announcement last year that it was planning a new PDH somewhere in Europe, it said it would be expanding cracking capacity at its Grangemouth, Scotland and Rafnes, Norway sites to the tune of 900,000 tonnes/year of ethylene. The projects would be equivalent to a world-scale cracker as INEOS Chairman Jim Ratcliffe said at the time.

There was some confusion in various media reports this week as to whether the the new cracker would be “instead of”  or  “in addition to” these expansions.

However, INEOS company spokesman Richard Longden confirmed on Thursday that "the cracker is new. It is in addition to the expansions at Grangemouth and Rafnes that are continuing as well.”

While the overall view is positive, players will be attempting to determine what this could mean for their own businesses. Speculation over which of the existing older crackers in Europe would be the likely candidates for closure has already begun.

“It’s difficult to put into context what this means for the markets,” an integrated player said, “we don’t have much detail.”

Players want more clarity from INEOS in terms of location, nameplate capacities and timing.

So far players have speculated on either Rotterdam or Antwerp being the location of the cracker/PDH site, and there has been comment from INEOS that the project would take four years to complete which suggests a 2022-2023 start-up time frame.

For many sources, the impact is clear if not completely defined.

“We will need to consider possible cracker shutdowns,” a trader said.

Competition is expected to be strong, especially in a high crude oil price environment.

“This will put pressure on other [European] cracker operators in the future,” the second producer said.

“Even so, I would prefer to have a new cracker in Europe than face new US capacities coming across to Europe,” it added.

Overall, the market’s view is that change is necessary. The European cracker is old, the landscape mature, and it is time to refresh.

“Let’s make European petrochemicals competitive again,” said a second trader.

By Nel Weddle

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Photo: INEOS ethane carrying vessel arrives in Norway, source: INEOS