A flood of new supply likely to put ethylene projects at risk of closing in next decade

09-Aug-19

A glut of new supply could put several ethylene projects at risk of closing in the next decade, as per findings by energy research firm Wood Mackenzie, reported houstonchronicle.com. Dozens of new ethylene related projects are planned in the Gulf Coast and internationally in Asia, Europe and Middle East totally about 68 mln metric tons of new capacity over the next five years. Global demand for ethylene and petrochemicals is expected to grow in the coming decades, but analysts are warning that there could be too much ethylene capacity flooding the markets at once in the mid-2020s. This could lead to collapse ethylene margins and put older, less-advantaged projects at risk of closure.

 Wood Mackenzie estimates that 80% of new capacity additions will open in around the same two year time period between 2022 to 2024. That is "expected to push the ethylene industry into bottom-of-the-cycle conditions by the mid-2020s. This follows a recent period of peak operations and profitability," notes Patrick Kirby, Wood Mackenzie Principal Analyst, in a new market analysis. Kirby said that the supply-demand imbalance  "highlights the need for some capacity closures across the various regions as the industry grapples with the extended and pronounced margin pressure the downturn will bring – aggravated by rising crude and liquid feed costs."

 Although margins could dip in the U.S., the region is still expected to be somewhat shielded from the worst of the downturn in the sector because of its access to lower cost ethane unleashed by the shale boom. Other chemical markets that could be at risk include  propylene and butadiene, which "are similarly expected to enter their respective downcycles due to the increased investment landscape," Kirby said. That could mean propylene and butadiene related units also face similar downward pressures on margins and likely won't produce above-average economics during the same mid-2020s time frame.

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