After over a decade of heavy international sanctions, Iran’s petrochemical industry is trying to recover from its losses and regain its position as an important competitor in the global arena. Iran has an ambitious new plan to heavily invest in the industry and increase production capacity from 64.1m tonnes/year in 2015 to 130m tonnes/year by 2025. The important question is: What are the value-added products that can do most to help the country reach this goal?
In recent years, the 60% share of olefins in the global petrochemical market and their increasing demand, as well as new technologies such as local methane gas-to-olefins/produced methanol-to-olefins (GTO/MTO) and methanol-to-propylene (MTP) which has been more utilised by China and east Asia, have been exciting topics for Iranian policy makers. But is there enough strategic planning to implement this policy?
The starting point of these new policies occurred when investments in methanol projects increased along with concerns of surplus methanol capacities among Iranian policy makers. As new concerns about the economic feasibility of MTP technology evolved, the petrochemical industry elected to go with MTO technology (using produced methanol), but now is finding its way towards GTO (local methane gas to methanol to olefins).
An important question is: Will the world wait for the Iranian petrochemical industry to increase olefins capacity to supply the increasing demand? Do the local competitive feedstock costs, based on modern technologies, along with new developments such as the North American shale gas revolution and low oil prices on one hand, and increased local investment in China which has caused lower product prices, on the other, make the current policy feasible?
This article will analyse and evaluate the widespread evolution of olefins projects based on MTO or GTO technologies in the context of future changes in the olefins market.
GLOBAL CHANGES IN OLEFINS
Global ethylene and propylene production has seen an average annual growth rate of 3-4% in recent years – the highest growth after methanol for petrochemical products. By the end of 2014, ethylene and propylene production reached 137m tonnes and 88m tonnes, respectively.
North America, thanks to the shale gas revolution, and China from utilisation of new technologies to produce olefins from coal and methanol, have had the highest level of global olefin production increases. The Middle East and Europe kept their market shares without any significant growth.
Global ethylene demand is expected to grow from 129m tonnes in 2015, to 155m tonnes in 2035. Asia and North America, with 42% and 24% of global demand, respectively, are the largest ethylene consumers in the world. Planned capacities will grow by 1.4%/year in North America and 0.9%/year in Asia in the coming years.
Studies show that growth in demand for olefins is sustained for periods of five years. Hence, it is optimistically expected that ethylene and propylene global demand will reach more than 145m tonnes and 116m tonnes, respectively, by 2020. And propylene production using propane dehydrogenation (PDH) technology is expected to show 45% growth while that by coal-to-propylene (CTP) technology should grow by 25% through 2022.
IRAN NEW OLEFINS PROJECTS
Growth in demand is prompting Iranian petrochemical policy makers to increase investment in its petrochemical industry. This new policy led to 27 new projects under execution in order to produce around 23m tonnes/year of olefins by private and semi-private investment groups. These new projects will require capital investment of around $26bn-30bn.
The majority of these projects are based on China’s favourite technologies – MTO and GTO. Some of these projects have not been studied properly and are only based on recommendations made by technology providers and/or licensors.
GLOBAL OLEFINS SUPPLY WAVE
With significant demand growth for ethylene and propylene in the global market, there is a great motivation for investment throughout the world and Iran is not the only country that is attempting to satisfy this additional demand by planning new projects. Field studies show there are 85m tonnes/year of new capacity under construction in the world other than Iranian projects.
North America has the highest share in new ambitious projects, thanks to its shale gas resources. New projects in the region have capacity exceeding 20m tonnes/year. Canada, as a part of the North American region, has projects to develop existing crackers and downstream units, most notably NOVA Chemicals in Alberta with a $1bn investment.
Interestingly, Latin America is playing a more active role thanks to the new investments in Brazil, Mexico and Peru. The most notable project in this region is Mexico’s $5.2bn ethylene and polyethylene project. It consists of a 1m tonne/year ethane cracker, 750,000 tonnes/year of high density polyethylene (HDPE) and a 300,000 tonne/year low density PE (LDPE) unit. In Peru, a petrochemical plant with 1.2m tonnes/year of PE production from natural gas involving $3.5bn in investment has been planned.
East Asia, with China leading, has the largest olefins projects from coal feedstock. China’s petrochemical industry is moving from using naphtha to coal, based on its 13th economic development program. Nearly 36 new MTO and GTO projects will be operational by 2020 and ethylene production from coal will reach 39% of total production.
Starting these projects will increase China’s self-sufficiency share in ethylene and propylene production to 62% and 93%, respectively. Yet China is still expected to have olefins imports, especially from the Middle East.
India, as well as other countries such as Indonesia and South Korea, will decrease their import dependency of olefins by importing cheap ethane gas from the US.
Europe’s share in the olefins market will increase with both naphtha and ethane crackers because of access to Russian gas resources and gas imports from the US to north European countries, and also from the decrease in crude oil prices. In Russia, thanks to its rich natural gas resources, most of the plans are based on natural gas. The Zapsib-2 petrochemical project is a good example of this – it is a 1.5m tonne/year ethane cracker. With these new developments, Europe will lose its attraction as an excellent export destination.
MIDDLE EAST INVESTMENTS
After North America and China, the Middle East is expected to have the most changes in the industry with its ambitious projects to increase capacity using its traditional steam cracking method and cheap ethane resources.
Saudi Arabia is leading the region with its $60bn investment in petrochemical projects and downstream industries. This investment includes very large plans such as the Petro Rabigh 2nd phase development, and the Sadara complex. This increase in capacity, as well as Saudi Arabia’s new strategy for investment in new technologies to produce olefins directly from crude oil, and also the shift in strategy by purchasing shares of rival European companies, will present new horizons in the olefins market.
SABIC is evaluating an investment for a new petrochemical complex on the US Gulf Coast with ExxonMobil Chemical. This new investment is part of SABIC’s strategy to start new units in different parts of the world.
Even Africa will play a huge part in new increases in olefins capacity. Egypt and Algeria are taking the main roles. The Tahrir project, which belongs to Egypt’s Carbon Holding, with capacity of 1.5m tonnes/year of ethylene, would be the largest naphtha cracker in the world.
LAW OF DEMAND, EXPECTED DECREASE
With all the new investments, supply of important olefins such as ethylene and propylene is expected to reach two times market demand. Based on market mechanisms and the law of demand, this could reduce the profitability of major producers and shrink the gap between production costs and final price of the product.
In this price competitive market, North America will have the biggest share in supplying market demand, thanks to shale gas.
On the other hand, a decrease or stabilisation of the crude oil price at around $50/bbl could help the feasibility of projects based on naphtha. Saudi Arabia is targeting a price of $30/bbl for its 2030 economic outlook. By increasing investment in naphtha production, Saudi Arabia will notably increase its olefins production.
Considering about 150m tonnes/year of ethylene capacity, if the oil price is set to $50/bbl, the ethylene price would reach approximately $600/tonne. To get lower prices for ethylene, ethane feed and lightweight material would have to get greater share in ethylene production.
It is important to note that the ethylene price in China’s domestic market is different than in the global market, due to government support. Experience shows that Chinese policy makers aim to reach self-sufficiency in petrochemical products. Therefore, 40m tonnes/year of Chinese ethylene demand should be eliminated from global demand. Excluding this, and then considering 110m tonnes/year of ethylene demand without China’s government supported ethylene price, the global ethylene price can be below $500/tonne.
The increase in olefins capacity in the world, the competitiveness of the market and a decrease in prices will eliminate many projects that are less feasible. Meanwhile, projects based on GTO and MTO which are pursued mainly in eastern Asia are facing a riskier situation compared to ethane and naphtha. However, these technologies will remain active in countries such as China that have strategies to increase self-sufficiency.
On the other hand, introduction of new technologies to produce olefins directly from crude oil (Saudi Arabia’s project to construct two steam cracker units by Aramco and ExxonMobil) and reduce ethylene production costs by $200/tonne compared to more traditional methods, and also the OCM technology which can produce olefins directly from methane (pilot plant in Brazil by Siluria and Linde) can have a notable influence on future market changes and a decrease in prices.
The latter, due to Iran’s rich sources of methane, can be very interesting for Iranian investment. However, policy makers in Iran’s petrochemical industry are pursuing MTO and GTO technology which is being used by China and which could be very risky.
In conclusion, Iran has great gas resources with very low share in downstream products such as plastics. China on the other hand has no gas resources with very great market share in downstream products, especially plastics and textiles. Therefore, it should be asked of Iranian policy makers in the petrochemical industry, who are following Chinese policies: If Iran’s goal is to get a reasonable share of the market, isn’t it better to find more suitable technologies in order to produce more valuable petrochemical products to help them to reach this goal? This easily can be achieved by a revised strategic direction.
Authors: Dr Hamidreza Haghighat Padjooh is Managing Director of Royan Polymer Aria, Iran. Dr Ali Niakan is Manager of Projects, Economic Appraisal Department at the Bank of Industry & Mine, Iran. Atiyeh Taleifard is Economic Expert, Bank of Industry & Mine, Iran.