|Securing natural gas feedstock in the Middle East has become increasingly difficult in the last few years, threatening the region�s dominance as the most economical petrochemicals producer, as per GlobalData. The report found that the Middle East is now facing a natural gas scarcity due to increasing demand and inefficient utilization of subsidized natural gas by the energy intensive industries, which has led to the restriction of supplies and posed a subsequent threat to the global petrochemical market.
Huge natural gas resources and cheaper feedstock availability turned the Middle East into the hub of the global petrochemical industry over the last decade by making the region the most competitive in the world. Middle Eastern petrochemical producers use natural gas as a key feedstock due to the availability of subsidies. This means that natural gas in Middle Eastern countries can be as much as 60-70% cheaper than natural gas found in Europe and North America. However, the subsidies on natural gas production offered by countries such as Saudi Arabia, Iran and Qatar has led to the inefficient utilization of the available resources, leading to a decline in the supply of ethane feedstock. Feedstock costs determine the success of petrochemical producers, as they represent the majority of production costs. As natural gas is the primary feedstock used in the Middle East, its scarcity will affect the petrochemical producers significantly. The natural gas production in Saudi Arabia, Iran and Qatar is increasing at a rapid pace but it is not sufficient o fulfill the requirement from petrochemicals industry. The natural gas production in Saudi Arabia and Iran increased at a Compound Annual Growth Rate (CAGR) of 5.4% and 8.7% respectively. However ethylene capacity in Saudi Arabia and Iran increased at CAGR of 8.1% and 23.1% respectively. Saudi Aramco, the sole supplier of ethane in Saudi Arabia, stopped allocating ethane to new petrochemical projects in 2006, and pre-existing supply agreements have not received their allocated limits since 2009. Lack of development of Iranian non-associated gas reserves has also led to the scarcity in ethane supplies, and Qatar have imposed a moratorium upon further development of gas reserves, in order to assess sustainable rates of gas production, halting allocation of the country�s gas for industrial projects until 2014. In addition, the Organization of Petroleum Exporting Countries (OPEC) quota limits crude oil production, thereby also limiting associated natural gas production. Despite all Gulf countries producing more than their allotted quota, production is insufficient to meet burgeoning demand from the power, transportation and petrochemical sectors.
The petrochemicals feedstock supply trend in the major geographies has changed in the recent past. While the Middle East countries and Canada are facing lower ethane supplies, the US and Brazil have benefited from the discovery of shale gas and pre-salt reserves respectively. Contrary to the Middle East, where ethane feedstock is becoming scarcer, the US, Brazil and a few European countries have discovered new feedstock sources. The US holds a huge natural gas reserve in the shale rocks which has increased its natural gas supply in the last five years. Many of these reserves contain wet natural gas which would enhance the ethane supply in the country. Brazil has also started the crude oil production from the newly discovered pre-salt reserves and expects to become one of the largest producers of crude oil in the future. Increased crude oil supply will simultaneously enhance naphtha production from Brazil. Shale reserves have been identified in Europe also but there is not significant progress in developing these reserves except in Poland where the commercial production is expected to start in 2015. Canada is also facing lower ethane production due to lower natural gas supply from Western Canadian Sedimentary Basin (WCSB). The Canadian petroleum industry, however, has also discovered bituminous oil reserve which accounted for more than 50% of its crude oil production in 2010. The Canadian petrochemical industry is now focusing on meeting its future feedstock requirement from these bituminous reserves.
�The global economy is expected to recover from the current recession due to the continuing growth seen in emerging markets, hence the need for this new capacity,� Nexant Chemsystems consultant Lee Fagg told ICIS. Along with the recovery in growth, another important development has been the big shift in the type of feedstock slate used for olefins production. The last decade has seen significant shift towards lighter feedstocks, primarily ethane and other NGLs (natural gas liquids), because of the spate of new investments in the Middle East. The trend towards lighter feedstocks is forecast to continue for now because of the impact of shale gas on chemical production in North America and further lighter feed projects in the Middle East. In recent times, projects based on naphtha are now less attractive because they require higher capital expenditure. Additionally, the next 10 years will see more limited availability of merchant naphtha because many of the big, state-owned refiners in Asia and the Middle East are integrating downstream into petrochemicals. In Saudi Arabia, Saudi Aramco is diversifying into petrochemicals, while in China, Sinopec and PetroChina are continuing to add petrochemicals capacity downstream of their refineries. Petrochemicals producers who are not integrated with refining are therefore searching for other conventional and non-conventional feedstock options for future ethylene investments. One of the most attractive alternatives is shale-gas derived ethane in the US. In China, the alternative option to naphtha as a petrochemical feedstock is coal. The country has the world�s third-biggest coal reserves, after USA and Russia. Nexant anticipates a big increase in methanol-to-olefins (MTO) and methanol-to-propylene capacities, via coal as the primary feedstock. Investments in methanol to olefins, via natural gas, will also play a role in the changing ethylene feedstock story. Companies will seek to montetise low-cost natural gas reserves without flooding the methanol and ammonia markets. A consequent tightening of supply of butadiene (BD) and propylene from the change of feedstock slate is another big petrochemical story. Ethane cracking yields very low percentages of mixed C4s - from which butadiene is extracted - and propylene and MTO projects produce no C4s. The structural shift away from naphtha cracking has contributed directly to the spikes in butadiene pricing seen over the last two years. Currently, 64% of US ethylene is produced via ethane compared with 46% in 2005. This is the result of cracker operators switching to ethane from naphtha and other heavier feeds, in order to take advantage of falling gas prices resulting from the shale gas effect. The total ethane market share of US ethylene production will increase even further, if and when new crackers are brought on stream, as reported by ICIS. Increases in propylene spreads over ethylene would, however, be limited as its main derivative, polypropylene (PP), can be replaced by polyethylene (PE) and other polymers in many applications.
The polymer market is changing worldwide, with the booming of shale gas in North America and cheaper supplies of ethylene the global supply chain is in the process of major change. Noru Tsalic, consultant at Applied Market Information, has been studying the impact on the polyolefin industry and will be speaking about his findings at the compounding conference, Polyolefin Additives 2012, which takes place in October. With world market uncertainty a differentiated product can give a business the edge over the competition and provide improved performance for the clients � a win-win situation. Polyolefin Additives 2012 brings together the brightest and best of the additive suppliers with compounding industry leaders in polyethylene and polypropylene to highlight the latest technology and research. Borealis has studied PP modification using minerals and selective nucleation, Dr. Abdulhadi Alshehri of SABIC has results from experiments on fracture behaviour of PP-clay nanocomposites, while the technology group at Reliance Industries has developed a new high melt strength PP. Each material recipe combines a variety of specialty chemicals such as stabilisers, flame retardants, colorants, fillers, antifogging agents, processing aids, compatibilisers and antimicrobials. Carbon black filler is used to add conductive properties to HDPE and there are a variety of grades to choose from: Timcal has looked at the optimal selection. Chemtura has looked at aspects of sustainability in flame retardants and Kabelwerk Eupen has conducted research into new fillers for flame retardancy. In all formulations there is potential for interaction and unintended consequences. For example, Dr Rudolf Pfaendner (DKI) has looked at how flame retardants influence the photo-oxidative stability of polymers. Stabilisation is vital to polyolefin performance and Songwon from Korea has additives for processing PP, Cytec has developed long-term stabilisers for the construction market and BASF Schweiz has looked at compounding PP fibres for special markets. From the USA Albemarle Corporation has produced an antioxidant stabiliser. It is important for materials in contact with potable water and food to be safe in use, and migration of additives needs to be minimal in these applications. Tosaf Compounds has studied migrating and non-migrating additives for films. The appearance of packaging is important in selling to consumers: Milliken has specialty clarifiers and antifogging properties are imparted by additives from Croda formulated for food contact use. Several food ingredients are used as additives and the University of Alicante has studied the use of carvacrol and thymol as antimicrobials. In compounding there is the possibility of non-intentionally added substances (NIAS) and Norner in Norway has been examining this problem. When materials are processed they are subject to heat and shear, so processing aids are used like Fischer Tropsch based polymer additives from Sasol of South Africa, silicone masterbatches from Multibase and stabilisers from Clariant International.