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Emerging markets to produce 50% global ethylene, depending on local access to feedstocks, demand

Emerging markets to produce 50% global ethylene, depending on local access to feedstocks, demand

28-Mar-14

Ethylene production from export-oriented steam crackers associated with advantaged gas-based feedstocks is set to alter the global ethylene markets, according to analysis by Wood Mackenzie's new Chemical Markets Service. As per the analysis, the key competitive differentiator for ethylene producers is access to low cost feedstocks or proximity to local demand. Through 2030, advantaged cracker investments will continue in the Middle East, sharply increase in North America, and later develop in Russia and the Caspian. Ethylene producing assets that have access to low cost gas feedstocks, such as the ones in North America, will lead the competition with total ethylene and derivative investment. Over the same time period, global ethylene demand will grow by 3.3% pa, on average. In turn, China will continue to have the fastest demand growth for ethylene and ethylene derivatives and will satisfy this demand through increases both in domestic production capacity (coal-to-olefins and naphtha cracking) and imports from producers around the world with advantaged feedstocks.
In the next 10 years, Wood Mackenzie estimates total investment in ethylene and derivatives is expected to reach a record US$40-50 bln in North America. In addition, ethane feedstocks to make ethylene have increased from under half of total feedstock for ethylene in 2005 to about 65% of total feedstock in 2013, and are expected to continue to rise to over 80% of total feedstock consumption. Development of shale gas resources in North America has triggered an ethylene investment renaissance, with the abundance of competitively priced natural gas liquid feedstocks, particularly ethane. Domestic demand in North America for ethylene derivatives  is estimated to grow more slowly than the planned ethylene increases, which will lead to derivative exports more than tripling over the next 15 years.  China will continue to add capacity aggressively, with a significant portion through coal-to-olefins (CTO) plants, resulting in a rise in self-sufficiency.  Although there have been many announced CTO projects, water supply constraints and overall environmental impact will slow the rate of capacity build-up longer term.  In the next two decades, China's shift to an increasingly domestic consumer demand driven economy will alter ethylene and derivative demand patterns, but expectations are that growth rates will remain strong. Over the next decade, the more mature markets of Japan, South Korea and Taiwan will go through a period of consolidation, cost cutting and product value creation to increase their competitiveness, as their export market share to China is gradually replaced by low cost material from the Middle East, North America, Russia and The Caspian.  Emerging economies with growing populations including India, Indonesia, Philippines and Vietnam have the potential to become the next rapid growth demand centres in Asia. However, under-developed infrastructure, weak support from local governments and/or lack of abundant feedstock resources will continue to slow the pace of ethylene investments in these countries. After decades of stagnation, Russia and the Caspian region will undergo considerable change, with plans to add nearly 10 mln tons of capacity by 2030.  In Russia, capacity expansions are planned in six discrete production clusters across the Western, Siberian and Far Eastern territories. The region's emergence as a major exporter will place increasing pressure on high cost producers who do not have the benefit of advantaged feedstock. Europe, in particular, will be under considerable pressure with the addition of a neighboring region with low cost supplies. Its ethylene industry is restructuring due to its weak demand growth, competitive disadvantages and widely available imports from low cost producers in other regions. Since Europe is forecast to remain uncompetitive in terms of commodity chemical production, producers will focus on lower volume, higher-value speciality products in order to survive.  Advantaged ethane-based ethylene investments drove massive capacity growth in the Middle East throughout the 1990s and 2000s, culminating with significant new capacity additions in 2008-2010.  The Middle East is again expected to almost double its existing capacity by 2030 and remain the largest ethylene derivative exporting region globally. Forced to change feedstocks by an impending shortage in ethane supplies, projects in Saudi Arabia, Qatar and eventually Oman will adjust feedstock mix to diversify and include LPGs and naphtha. This region has been very dependent on exports of ethylene and ethylene derivatives - a trend that will continue throughout the forecast period. 

The US ethylene market could have six new world-scale steam crackers online by 2017-2019, Dow Chemical's Jim Fitterling has been reported by Platts. Expansions for the energy industry - as many as 120 projects worth US$100 billion in investment - have outpaced all projections. Other companies planning to build steam crackers include Axiall, ChevronPhillips Chemical, ExxonMobil Chemical, Formosa Plastics, Shell Chemical, Occidental/Mexichem, Odebrecht, Shell and Shin-Etsu. 10 new ethane crackers have been announced, 8 of them in the US Gulf Coast region- 6 of the 10 are past the feasibility phase. He added that"Announced doesn't mean built, but it's still an indication of what companies think of the investment thesis." If all projects - greenfield as well as expansions and debottlenecks are realized, US ethylene production could grow as much as 12-14 mln tpa by 2020, according to Platts data. That translates into an increase of nearly 50% from today's production levels.
Global ethylene capacity is currently estimated at 168.6 mln tpa, compared with 92.7 mln tpa in 2000, according to Platts. Emerging market producers like Saudi Arabia's SABIC will produce half of global ethylene capacity in 2014, as per Geoff Haire, global sector head of chemicals for HSBC. Emerging market producers' share of global ethylene capacity was 22% in 2000. The emerging market companies are expected to look for new geographic and product markets, while greenfield expansions and acquisitions could increase. Emerging market producers in the top nine companies in 2000 were Abu Dhabi National Government, Sabic and Sinopec. This list will expand to include Iran's National Petrochemical Company in 2014 and increased capacity from the rest. The table shows the percentages of ethylene capacity by the leading producers in 2000 and 2014, according to HSBC.

 
Top Companies
Percentage of Ethylene Capacity 2000 Top Companies Percentage of Ethylene Capacity 2014
Dow
7%
Sabic
7%
ExxonMobil
6%
Dow
7%
Shell
5%
ExxonMobil
6%
LyondellBasell
5%
Sinopec
5%
BP
4%
LyondellBasell
4%
Abu Dhabi Government
4%
Shell
4%
Sabic
3%
Abu Dhabi Government
4%
Sinopec
3%
Iran's NPC
3%
Eni
2%
Ineos
3%
       
 
Source: HSBC
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