EPCA '17: Europe petchems understand the challenges but see the opportunities

01 October 2017 10:45 Source:ICIS News

INEOS ship

BERLIN (ICIS)--It is only a year since the first ethane shipment arrived at the INEOS plant in Grangemouth, UK, from North America. Since then, more volumes have crossed the Atlantic to Europe – and to the west coast of India – with other producers keen to take full advantage of the petrochemical feedstock glut.

The shale revolution is transforming the face of the industry. Ethane for ethylene, propane and butane for propylene and other olefins, do not so much promise a cornucopia of riches but at the very least offer the prospect of much more interesting and flexible feedstock environment.

And this new world is attracting investment dollars – or should that be euros – to Europe. The prospects are brighter now than they have been for years for sector companies active in Europe’s big but costly operating environment.

The 51st European Petrochemical Industry Association (EPCA) meeting opens in Berlin this weekend with olefins producers on a roll and keen to take full advantage of new ways to cut costs and lift competitiveness.

There are significant industry trends that have the potential to undermine their efforts. Low-cost olefins derivatives will be flowing strongly soon out of North America. New production capacities are coming on-stream in the Middle East. China continues to suck in petrochemical and polymer imports but the question is for how much longer and at what volumes?

Europe itself is more upbeat economically than it has been for years and the impact is being felt in chemicals. The new feedstock flows, however, the continued relatively low oil price and the fascinating moves that are being made on the logistics front are providing the underpinning for much greater optimism.

Europe cracker margins yearly averages

The official EPCA meeting will look at how companies can continue to make money in the digital age while balancing the changing ambitions of stakeholders.

For producers in Europe, significant changes in the ways in which data are handled and the impact on logistics capabilities is an important theme.

European chemical companies are said to be digitally more advanced than their counterparts in the US and the Middle East but for most companies, however, the immediate challenge is from new, lower cost capacities.

Some companies with the flexibility in terms of product slate, location and cash flow will be able to shift portfolios to take advantage of the petrochemical feedstock abundance but certainly not all.

Feedstock flexibility is vitally important at the cracker but not always an option depending on the downstream product profiles.

The pockets of opportunity for naphtha-based producers have to do with the way cracking more ethane and natural gas liquids (NGLs) globally creates tightness in markets for C3, C4 and higher chemicals.

Europe C2 production vs capacity to 2016

On balance, the European petrochemical industry has more reason to be confident this year than at many times in the recent past.

The oil price has worked in producers’ favour, and companies upstream have held on to price and been quick to pass on costs when crude moves to their disadvantage.

Production and capacity are also in much better balance with companies better positioned to challenge the threat from the new capacities overseas.

Ethylene and propylene production in Europe has increased in recent years while cracker capacities have dropped. The rebalancing in terms of supply and demand has underpinned better operating rates and profitability.

Europe C3 production vs capacity to 2016

There have been big swings in cracker margins this year – they are shown on the charts based on contract and spot cracker product prices and naphtha feedstock and on LPG (liquefied petroleum gas) feed – but the margin improvement over the past two years is striking.

Europe cracker margins monthly averages

The annual EPCA meeting runs from 30 September to 3 October in Berlin.

By Nigel Davis

Pictured above: one of INEOS' ships. Source: INEOS

By Nigel Davis