Feedstock cost is the most important factor determining the competitiveness of the petrochemical producers. As per Globaldata, it accounts for the largest portion of production cost, making it imperative for the petrochemical producers to choose a feedstock that provides a cost advantage. However, feedstock options for the petrochemical producers are limited and depend on the location of the manufacturing facilities. Naphtha, natural gas and coal are the three major feedstocks used in the global petrochemical industry. Most of the regions are dominated by one feedstock. While naphtha is a dominant feedstock used for petrochemical production in Asia Pacific and Europe, natural gas is dominant in the Middle East, Africa, and North America. Naphtha and natural gas are converted into petrochemicals by a process known as steam cracking. Naphtha is a liquid mixture of hydrocarbon produced from distillation of crude oil and is directly used in the steam cracking. Natural gas is not used directly in steam cracking but its components such as ethane, propane and butane are used to produce petrochemical. These components are produced as by-products during extraction of methane from natural gas. Mixtures of these gases are known as Natural Gas Liquids (NGLs) and are most prevalent in the Middle Eastern countries for the petrochemical production. Coal is another major feedstock used for petrochemical production but its use is limited to the Chinese market, which accounted for more than 90% of coal consumption as a feedstock in 2010. The global petrochemical industry is dominated by naphtha feedstock, which accounts for the largest share in the petrochemical production. However, the selection of feedstock depends on many factors, such as the availability of petroleum resources and the production cost of the feedstock in the region. The Middle Eastern petrochemical producers use natural gas as key feedstock as it is available to them at subsidized prices. The subsidies on natural gas in the Middle Eastern countries make it 60-70% cheaper compared to natural gas in Europe and North America. Availability of huge natural gas resources has brought the Middle East to the forefront of global petrochemical industry, making it the most competitive region in the world. The global petrochemical industry is witnessing significant changes in the feedstock supply trend. The most important change is occurring in the Middle East petrochemical industry, which is experiencing a decline in the supply of ethane feedstock. Simultaneously, North American countries are hugely benefitting from newly-discovered petroleum reserves, which are potential feedstock sources for the petrochemical industry. The petrochemical industries in South America, Central America and Europe are also anticipating feedstock availability from pre-salt and shale gas reserves respectively. These developments in the petroleum and natural gas industries will cause a substantial change in the availability and type of petrochemical feedstock used in the major geographies of the world. Newly discovered pre-salt oil reserves in South America are expected to change the face of the global petrochemical industry’s feedstock supply, according to a new report by GlobalData. The report found that the new reserves will help balance the feedstock scarcity being experienced by many countries in the Middle East, the world’s fastest growing petrochemicals producer, enabling many companies to use naphtha feedstock for upcoming petrochemical projects in the future. Brazil therefore has the potential to become one of the largest crude oil producers in the coming years, representing a potentially huge source of naphtha feedstock.
The Brazilian petrochemical industry is set to start large-scale crude oil production from these pre-salt reserves this year, which will benefit the country by strengthening its oil production and exports. Brazil became a net exporter of crude oil in 2009, and, according to International Energy Association (IEA) Short Term Energy Outlook 2011, Brazil will continue to remain a net exporter of crude oil through to the end of 2012. At the same time, the country’s growing crude oil supplies from its new, large-scale activities will dictate naphtha production, creating tremendous amounts of feedstock and elevating the status of the Brazilian petrochemical industry in the global arena. Brazilian state energy company Petrobras' plans to develop its offshore pre-salt oil reserves will contribute in part to a "sizable upward shift" in hydrocarbons production from 2011 through 2020, according to Barclays' Global Energy Outlook. Brazil and Colombia are expected to experience increases hydrocarbons production during that time period, most concentrated in oil versus natural gas, as featured in rigzonenews.com. Petrobras has unveiled plans to spend US$127.5 bln, or 57% of the resources under Petrobras' 2011-2015 Business Plan of US$224.7 bln, on exploration and production efforts. The company plans to increase total oil and gas output from 2.7 mln boe/d in Brazil and abroad to 4 mln in 2015 and 6.4 mln in 2020. Pre-salt output alone will add up to nearly 2 mln boe/d in 2020, pushing the pre-salt's contribution to production from 2% today to 18% in 2015 and 40.5% by 2020. Petrobras will achieve this growth by setting up 30 extended well tests over the next five years, including 20 in the pre-salt cluster, and 10 in the post-salt area. Additionally, the company will spend US$1.3 bln pa on technology, which will include funding for efforts explore new frontiers, oil recovery and develop a new generation of offshore and undersea production systems. Petrobras has also confirmed the commercial potential of its Lula discovery in the pre-salt Santos Basin in water depths ranging from 6,890 feet to 7, 218 feet. Lula produced 28,436 bpd, according to Subsea IQ, and is the first well to produce from Brazil's high touted pre-salt offshore reserves. The well is interconnected to Cidade de Angra dos Reis FPSO and is the first of six production wells to be connected to the FPSO. Petrobras expects for the FPSO to produce around 100,000 b/d d throughout 2012. Other companies are seeing significant potential in Brazil's pre-salt area. BG Group in June upgraded its estimate of its pre-salt Santos Basin interests to some 6 billion boe net to BG Group with an upside potential of 8 bln boe net. The new estimates results from the company's internal analysis of data gathered from drilling, appraisal and other data, including data collected from 29 wells drilled in BG's existing discoveries. Chevron reported that it plans to drill a well later this year in the pre-salt section beneath its Frade field offshore Brazil. The significant distance at which pre-salt reserves lie offshore Brazil means that operators will likely continue to favor floating production systems as field development solutions. Brazilian waters will be the most active region for future floating production projects, with 50 potential floater projects in the planning cycle, according to a recent report by International Maritime Associates Inc. Of the 50 potential projects, 26 are planned for ultra-deepwater, or water depths greater than 4,921 feet; five are planned for deepwater, or water depths between 3,280 feet and 4,921 feet, and 19 for water depths less than 3,280 feet.