Bulk of new Mideast capacity to target Europe, not Asia: INEOS CEO

01 May 2014 16:06 Source:ICIS News

LONDON (ICIS)--Product from large-scale capacity ramp-ups in the Middle East is likely to target Europe, as demand from Asia will not be able to absorb supply, the CEO of Switzerland-headquartered producer INEOS said on Thursday.

The Middle East is expected to have 10-12m tonnes/year of new petrochemicals production capacity onstream by 2020, and as an exporting region, the bulk of new supply will likely go to Europe, according to INEOS chief Jim Ratcliffe.

While fears of Europe having to bear the brunt of a capacity overhang from the Middle East have failed to materialise in the past due to fast-growing demand from Asia, local production capacity in that region means that the wave of new material is likely to hit European shores, Ratcliffe added.

Tens of billions of dollars are also being spent on new production capacity in the US as producers move to capitalise on cheap shale ethane stocks, which Ratcliffe estimates will also contribute at least 10m additional tonnes of capacity in the medium-to-long term.

Ratcliffe wrote an open letter to European Commission president Jose Barroso in March this year, expressing concern about the continent’s competitiveness in light of energy costs and a “tsunami of imported product heading this way”.

While Asia may not prove to be a market for the bulk of new Middle Eastern capacity, the region may absorb a portion of the growing stocks of US shale ethane intended for export, according to David Thompson, procurement and supply director of INEOS’ Olefins & Polymers Europe arm.

Some producers in the US are in the process of gauging interest from Asia to determine how strong a market there may be in the region for shale ethane exports, due to demand for cheaper petrochemicals feedstocks and energy supplies, according to Thompson.

China and wider Asia could prove to be a market for petrochemicals feedstock supplies, he told ICIS, while economies with high energy costs such as Japan may also look to procure stocks for energy use. South Africa may also prove to be a market for US stocks, he added.

LyondellBasell CEO Jim Gallogly made similar comments on an earnings call earlier this week, relating to news that fellow US firm Enterprise is to construct the world’s largest ethane export terminal on the US Gulf coast.

Asia would likely be a potential market for some of the terminal, which will potentially boast a 240,000 bbl/day loading rate, and is expected to be complete in the third quarter of 2016.

“Some of that has got to go to Asia,” Gallogly said.

INEOS has actively pursued US shale ethane stocks for use in its European operations, with long-term supply deals inked with US firms Range Resources, CONSOL Energy, and several other as-yet unnamed partners for the supply of material to its operations in Grangemouth, the UK, and Rafnes, Norway.

INEOS claims that the shale ethane stocks could lower its cost of petrochemicals production to half the European average, and that imports to Rafnes could lower its ethylene production costs there to a little over $500/tonne, near US price levels.

However, Phillips 66 CEO Greg Garland told analysts this week that the company did not view shale ethane exports as economically viable.

“I kind of go back to the past decade in the Middle East where ethane was free and no one could make it work with free ethane, and now we are talking about playing between Henry Hub gas and European prices,” Garland said on an earnings call.

Ratcliffe and Thompson were speaking on the sidelines of the launch of Go Run For Fun foundation in London. The organisation is a charity founded by INEOS to encourage children in the UK to take an interest in physical activity through a series of short-distance running events.

Additional reporting by Jeremy Pafford

By Tom Brown