Ethylene is the principal petrochemical building block and is a major feedstock for polymers. Global ethylene demand grew by 4.6% in 2007 reaching 114 mln tons, primarily due to strong demand from its derivatives like Polyethylene and Ethylene Oxide/Glycols. The growth in supply was largely from Middle East which grew at 23.5%. Global capacity of Ethylene during this period grew by 4.5% to 132 mln tons keeping industry operating rates relatively high. In Asia, Formosa Plastic started its 1200,000 ton Ethylene cracker at Mai Liao in Taiwan. Qapco, Qatar expanded its 525,000 ton Ethane based cracker taking it to 720,000 ton. Iran added two new crackers with Arya Sasol started its 1,000 KT Ethane feed cracker and Jam Petrochemicals started its 1,320 KT mixed feed cracker in 2007.

Ethylene operating rates
Cracker operating rates are a prime indicator of Ethylene chain profitability. Historically, Ethylene chain profitability was seen to increase exponentially at operating rates above 90%. Global Ethylene capacity utilization has remained above 90% since 2004 and is expected to stay high in 2008. Large capacity additions in the Middle East and Asia during 2009-2011 may impact operating rate thus marking the potential for a down cycle. The industry is also witnessing a high feedstock cost environment due to strong crude oil and resultant naphtha prices.

Ethylene global demand-supply

Shift in global ethylene capacity base
Large capacity addition currently underway in the Middle East and China are poised to change the geographical demand supply dynamics. Share of developed regions (North America and Europe), currently at 46%, is likely to come down significantly by 2012. On a global capacity base of 132 mln tons, over 28 mln tons of new capacities are planned or being added in Middle East and China during next few years. The bulk of these facilities are coming up in Saudi Arabia , Iran and China.

Changing feedstock mix in future
Annual Ethylene demand growth is expected to average at 4.8% over the next few years. Polyethylene and Ethylene Oxide/Glycol are likely to remain the dominant derivatives. Based on new capacities announced and plants that are under construction, global Ethylene capacity is expected to be at 162 mln tons by 2012, slightly ahead of the demand growth. Globally, ethylene is produced from a variety of hydrocarbon feedstock. Over 60% of current cracker capacity is based on liquid feed. The balance is based on gas of which around 12% is based on the advantageously priced gas in the Middle East . The share of gas based crackers in global capacity is expected to increase in future. Ethane, which is used as a primary feedstock for most of the Middle East crackers, is available at fixed natural gas prices of US$0.75 to US$2.00 /MMBTU, making the region one of the lowest cost ethylene producers in the world.

Changing age profile of crackers and its impact
Globally 10% of cracker capacities are less than 5 years of age, whereas 23% cracker capacities are more than 30 years old. These ageing facilities are likely to be under pressure from new world scale plants. The older crackers which are mainly based on liquid feeds and are smaller in size (below 300 KT) are likely to be the most vulnerable during a down cycle due to higher variable costs and feedstock costs.

Ethylene capacity additions planned in India
Ethylene capacity in India marginally increased with 70,000 ton expansions by GAIL. In next five years the capacity is expected to increase from current 3.1 mln tons to 5.8 mln tons, with a CAGR of nearly 14 %. While 65% of new capacity and expansion would be based on refinery off-gas at Reliance, nearly 35% would be based on liquid/mixed feed being pursued by other producers.