It is well known that shale-driven ethylene expansions are taking place in the North American market. The question is, will these growing supplies of olefins outstrip the ability of units downstream to take in product?
US ethylene production is at an all-time record level, according to data from the American Fuel and Petrochemical Manufacturers association. Data for the first quarter of 2016 showed that ethylene production was at 6.857 million mt, down fractionally from the previous quarter but nearly 10% higher than the level from the first quarter of 2015.
The production growth is due to cracker project expansions and strong utilization on the Gulf Coast. LyondellBasell brought online an expansion at its Corpus Christi facility in the second half of 2015 and utilization rates are estimated at about 94%.
Meanwhile, downstream ethylene demand kept pace, but by the slimmest of margins. Production of polyethylene — the main end-use derivative for ethylene — climbed from 4.18 million mt in the first quarter of 2015 to 4.5 million mt in the first quarter of 2016. Ethylene conversion into polyethylene is roughly 1:1.
Most of the new shale-driven cracker projects are well underway and are expected to be completed in the next few years with majors such as ExxonMobil, Dow and CP Chemical bringing online in excess of 7 million mt of ethylene capacity by 2019.
Will this expansion be met by derivative demand?
Our analysis shows that the ethylene market in the US will be balanced with 5.8 million mt of polyethylene capacity, 1.7 million mt of monoethylene glycol capacity and a slight increase in ethylene dichloride capacity brought online over the same time frame.
Meanwhile, the projected balance for the propylene market is less stable. With the increase in lighter feedstock cracking the US has seen production of cracker co-products drop off over the past 10 years.
In addition, new crackers being built in the US are all geared at maximizing ethane consumption, which produces lower levels of propylene, crude C4s and aromatics.
However, there will be a large increase in the amount of on-purpose propylene production over the coming years as producers try to plug the propylene hole and take advantage of low propane prices. The total increase in propylene production is expected to be about 2.2 million mt by 2019, or 20% higher than the current levels. But, unlike the ethylene market, the increase in propylene production won’t be matched by an equivalent build out in the downstream derivatives market.
However, recently, BASF are to postpone a decision on a natural gas (methane)-based propylene investment in Freeport, Texas due mainly to the current uncertainty in oil prices causing volatility throughout the whole energy complex. If this trend continues, we may see a drop in this potential 20% increase in propylene production.
Currently our estimates show that polypropylene demand for propylene will only amount to about 500,000 mt/year of demand. The expected length in the US propylene market could be met by additional polypropylene lines as the US looks to fill holes in the Canadian and Mexican market polypropylene markets. Or the US could look to export larger amounts of propylene.
The market only currently has around 600,000 mt/year of propylene waterborne export capacity but this could increase in the coming years as well.
Canada looks to building first polypropylene capacity
In recent developments, and despite volatility of raw material prices, the Canadian gas company Pembina Pipeline and Kuwait’s Petrochemical Industries Company (PIC) are to undertake a study to build a 35,000 b/d propane dehydrogenation (PDH)/polypropylene (PP) plant in Alberta. The amount of PP capacity for the facility is planned to be 800,000 mt. This clearly is a move to utilize the propane coming from the shale exploration and create more demand for the feedstock. The new capacity is projected to come online in 2020 and could serve the currently short domestic market as well as export, mainly into the US and Mexico, as Platts Analytics forecasts that the US PP market will remain relatively tight in this timeframe and Mexico will be deficit.
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