INSIGHT: Snug Europe EO market greets BASF’s Antwerp expansion plans

25 July 2018 14:17 Source:ICIS News

LONDON (ICIS)--The European ethylene oxide (EO) and derivative markets have reacted positively to BASF’s plans to expand production at Antwerp in Belgium, which emerged earlier this week.

The expansion decision is driven by BASF’s intention to “further strengthen its backward integration into EO to support continued growth of its customers" in downstream markets, according to a source from the German chemical major this week.

For EO purchasers this expansion could be welcome news, as the European market for purified EO has been structurally snug.

Demand has been robust and players are yet to see a slowdown in the summer months during the traditional holiday period.

Although exact details surrounding the level of capacity increase are not currently available, a BASF spokesperson said: “The capacity expansion pursued by BASF is limited to the integrated EO complex and downstream derivatives."

An EO supply crunch has been widely anticipated at the end of the third quarter and beginning of the fourth due to a cluster of planned turnarounds taking place at similar times. Preparations have been ongoing.

Supply and demand levels have been in a delicate balance and any unplanned outages would upset that balance.

Back in 2015, there were unprecedented shutdowns on EO, upstream and downstream, which resulted in supply shortages.

As a result, more availability caused by BASF's expansion is likely to be absorbed by the European market, but there is always a concern extra material could increase competition downstream.

“I hope with this [BASF] expansion, the EO shortness in Europe will relax from 2021 onwards," said a buyer.

"On the other side, market for derivatives could become even more competitive and strong."

Nonetheless, demand for EO is expected to grow in the long term.

The compound annual growth rate (CAGR) of EO demand in Europe is forecast at 1.2% over the next 10 years.

Assuming that forecast, EO demand is expected to exceed existing European capacity by 2028.

Even if operating rates were running at full capacity theoretically, additional supply is likely to be needed to meet the growing demand in Europe from 2025 or 2026 by the latest.

In the surfactant downstream markets, players expect some impact from BASF's expansion, depending when it is actually operational.

“I don't think it will be a thick increase in demand, [the surfactants] market in Europe is balanced, with a slow increase every year, [so I] don't expect there will be an explosion in the market,” said a surfactants player.

The downstream EO markets are uncertain as to which product will be most affected at this stage as exact details have not been released yet by the company.

“[The] market is short of purified EO, which is required for multiple products, including ethanolamines. Therefore, the current expansion may not be aimed only at ethanolamine market,” said a buyer of those products.

Another ethanolamine buyer said that capacity expansion announcements were sparked by the continued growing demand for EO derivatives.

“I think the new EO capacity is needed, every year the demand keeps growing in Europe. Even if it [demand growth] is 3% by year, by the time it is built it will be needed,” added a European ethanolamine producer.

The EO expansion news comes hot on the heels of INEOS’ announcement of significant investment plans for a new world-scale cracker and a propylene producing propane dehydrogenation (PDH) plant somewhere on the coast in northwest Europe.

There was also recent news of an INEOS EO expansion in the US.

The majority of EO output is used in the production of ethylene glycol and other major derivatives include, surfactants, ethanolamines, glycol ethers (used in solvents and fuels), ethanolamines, polyether polyols among others used in surfactants and personal care products.

Pictured above: Aerial view of BASF's Antwerp site
Source: BASF

By Melissa Hurley

Additional reporting from Nigel Davis, Heidi Finch, Moritz Lank and Samantha Wright

By Melissa Hurley