In H1-2011, robust margins supported by strong demand were seen by ethylene and propylene producers in countries that comprise the Organization for Economic Cooperation and Development (OECD), as per International Energy Agency, as reported by OGJ editors. However, H2-2011 saw those margins weaken. In North America and Europe margins have remained high on low feedstock prices and stable demand. OECD Pacific margins, on the other hand, turned negative on expensive naphtha and lower Chinese demand.
In the short term, US ethane-based natural gas crackers have been enjoying cheap feedstock prices, while naphtha crackers have benefited from surplus naphtha from gasoline blenders. In the medium term, the US shale gas bonanza is revitalizing interest in new ethane-based crackers, particularly near the US Gulf Coast and the Marcellus and Utica basins. Currently, several US Gulf ethylene producers are in the process of implementing capacity increases. Additionally, “ambitious plans are afoot” to take advantage of expected abundant ethane, extracted from shale gas, with a couple of new world-scale gas crackers planned for 2015. Plans exist to lock in almost 200,000 bpd of ethane from Marcellus and Utica producers to an Ontario cracker, while Enterprise Products Partners LP is advancing a competing, 1,230-mile project to transport 125,000 bpd of feedstock to the Gulf Coast. North American ethylene producers can expect relatively cheap, gas-based feedstock persisting through in the medium term.
In Europe, says IEA, healthy summer margins sprang more from relatively inexpensive naphtha than strong end user demand. As 2011 draws to a close, the weight of weak underlying petrochemical demand, exacerbated by the debt crisis, is “injecting a harsh dose of reality” into the sector. The short-term breathing space afforded European producers by cheap feedstock may dissipate in the longer term. Fundamentally, as is the case for the refining sector, OECD operators will come under increasing pressure from world-scale capacity expansions under way in non-OECD countries. A combination of weak end user demand and more expensive oil-related feedstock will likely leave OECD European capacity “vulnerable to closure.”
IEA data show that smaller-than-average naphtha crackers—those with average 2011 ethylene production of less than 523,000 tpa and cracking the most expensive feed—are, under the assumption that with all else being held equal, the least economical or more vulnerable.