Global ethylene forecast hinges on local access to feedstocks, demand
Ethylene production from export-oriented steam crackers associated with advantaged gas-based feedstocks is set to alter the global ethylene markets, according to new analysis from energy research firm Wood Mackenzie's new Chemical Markets Service.
"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 then later develop in Russia and The Caspian," said Stephen Zinger, head of Americas chemical research at Wood Mackenzie.
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 set to reach $40-50 billion in the next decade.
Over the same time period, global ethylene demand will grow by 3.3%/year, on average, according to Wood Mackenzie.
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.
Wood Mackenzies new long-term ethylene analysis categorizes the transformation of the global ethylene market into three types of market positions; locations supportive of new export-oriented ethylene investments based on advantaged feedstocks (North America, Middle East, and Russia and The Caspian); locations supportive of new ethylene investments which have higher costs due to reliance on naphtha feedstocks but with very high levels of local demand growth (China, India and Southeast Asia); and locations of existing aging assets with a high cost basis that will be subject to rationalization, consolidation, and specialization (Europe, Japan, Korea, and Taiwan).
"Producers and consumers involved in the global ethylene industry will have to employ vastly different strategies depending on their location in order to be successful," explains Zinger.
North American ethylene investment renaissance
In the next 10 years, Wood Mackenzie estimates total investment in ethylene and derivatives is expected to reach a record $40-50 billion 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.
"The 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," adds Zinger.
Wood Mackenzie says domestic demand in North America for ethylene derivatives will grow more slowly than the planned ethylene capacity increases, which will lead to derivative exports more than tripling over the next 15 years.
Asia, the most diverse ethylene market
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," said Vincent Sinclair, head of Asia-Pacific chemical research at Wood Mackenzie.
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," said Sinclair. "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."
Middle East expected to almost double existing capacity
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," said Alex Lidback, head of chemical research for the EMEA (Europe, Middle East and Africa) region at Wood Mackenzie.
Russia and The Caspian come alive as Europe restructures
"After decades of stagnation, the Russia and The Caspian region will undergo considerable change, with plans to add nearly 10 million tons of capacity by 2030," said Lidback. "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," said Lidback.
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