EPCA ’16: Global markets will adjust quickly to latest US cracker wave - Patel

03 October 2016 15:00 Source:ICIS News

LyondellBasell CEO Bob PatelLONDON (ICIS)--Global markets will adjust quickly to new ethylene and polyethylene capacities coming on stream in the US based on shale gas economics, LyondellBasell CEO Bob Patel said on Monday.

In an interview with ICIS on the sidelines of the 50th European Petrochemical Association (EPCA) meeting, Patel also suggested that ethylene cycle tightness may be buoyed later this decade if coal to olefins and methanol to olefins plants in China do not come on stream as planned, because of water use and other environment related issues.

Even 18 months ago, 2017 was seen as the on-stream date for many of the new US crackers under construction on the US Gulf Coast.

Those on-line dates appear to have been pushed out, he suggested, towards 2018, so the capacity additions could be smoothed, thereby maintaining a degree of tightness in the global ethylene market. There may be some excess in 2018/19, he said but not a lot of new investment has been announced beyond that.

For ethylene, unlike the C3 and C4 chains, the global cost curve is fundamental, he said. And while demand for polyethylene remains significant in China and is likely at some stage to grow strongly in Africa, the US is currently the place to invest to produce the polymer.

“We [the US-based chemical industry] will be exporting a lot more to Asia post-2018,” the LyondellBasell CEO added, but the region would absorb more commodity-oriented products for film, blow-moulding and injection moulding applications, for example.

There would not be a wave of polyethylene imports to Europe, he suggested, because of grade requirements and a need to maintain close customer relationships.

Ethylene producers need to have a view on the potential for coal to olefins and methanol to olefins production in China and the position of new plants in China on the global cost curve, Patel said. Cost-per-tonne production costs for MTO producers in China at the current oil price help determine global ethylene operating rates.

Patel believes that ethane feedstock supply and ethane costs are likely to adjust very quickly when the new US crackers come on stream, with particular wet gas supply flexibility in the proximity of the US Gulf coast in the Eagle Ford shale deposit in Texas.

There is enough ethane to support all the new crackers under construction, he suggested, although if ethane costs do rise, LyondellBasell has the feedstock flexibility to take advantage of competitively-priced propane and butane.

Because the ethane cost advantage is not as great as it was when oil touched $110/bbl, Patel believes that the second wave of cracker investment in the US – projects that have been announced but where there is no steel in the ground – will be challenged.

“Today it is not obvious that all the new crackers should be built in the US,” he said earlier in a presentation to the EPCA meeting.

“The key [to investment decisions] is to look through the cycles,” he said, and invest for the long term.

With its cracker debottlenecking project at Corpus Christi due online soon, LyondellBasell will have added close to 1m tonnes of ethylene capacity to its US total at about half the capital cost of a similar greenfield investment, Patel said.

He admitted, however, that construction costs for its latest expansion were “meaningfully higher” because of decline in construction and field engineering quality.

This has been driven by the speed at which some of the new investments were realised and the demand pressure on key construction and engineering personnel such as welders and pipe fitters.

LyondellBasell is preparing to make an investment decision in the US for the construction of a propylene oxide/tertiary butyl alcohol (PO/TBA) plant using its proprietary technology. Its high density polyethylene (HDPE) expansion in Texas and the PO/TBA plant are current investment priorities.

The PO/TBA investment at Pasadena, Texas, and nearby would be for 1bn lbs/year of PO and 2bn lbs/year of TBA.

“We are thinking about a global market place,” Patel said earlier on Monday when referring to the La Porte, Texas, HDPE plant. It will be able to produce multi-modal products using process technology developed in Frankfurt and Italy helping converters use less resin.

“The future is about applying what we are really good at,” Patel said to the ongoing investments and what he described as the next wave of value creation for the company.

By Nigel Davis