Turbulent waters ahead
Expert warns of recession in petrochemicals, urge other options
By Karen Remo-Listana
Posted: 25 December 2006
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There is enough capacity to satisfy global petrochemical demand beyond 2010. But as Middle East and Asian ethylene capacity comes on stream from 2009, the effect could be a recession.
 To start off, the polyethylene market is looking dangerously overbuilt, Philip Leighton, Director, Jacobs Consultancy said in Abu Dhabi at a petrochemicals conference. The highest degree of building is in low density polyethylene (LDPE).
Anyone building LDPE for commodity film grades must be prepared to force existing operators to shut down, he said.
´The Arabian Gulf will account for over 20% of global polyethylene capacity by 2010,ˇ he said. ´ Arabian Gulf polyethylene net exports will increase to around 16 million tonnes by 2010 and 19 million tonnes by 2012.
´But so is the Chinese capacity. This poses a key challenge to Gulf producers especially to those bringing on new projects around 2010.ˇ He added that even on the best scenario, operating rates will fall in 2009-2010.
In addition, global polyethylene trade is becoming stiffer. The Middle East has depended on the Chinese market to absorb much of its import. With Chinese import growth lagging Middle East capacity growth, the region will thus need to exploit new markets just as global operating rates are falling.
Some of these markets such as Western Europe and the Americas are geographically remote and difficult to penetrate.
Project cost and schedule pressures are adding to this future ´turbulenceˇ, says Leighton. ´High oil prices have increased the number and scale of projects. The market is the busiest since 1970s and perhaps the busiest ever,ˇ he said. ´While the effects are seen globally, Middle East is the centre of the storm. Costs and constraints are most evident in the region.ˇ
According to Leighton, when feedstocks other than ethane are used, the region˙s producers lose their strong cost advantage. He showed a study showing that the Arab Gulf will account for about 22% of global ethylene capacity by 2010.
The advantage of ethane is enhanced at high oil prices. Producers based on ethane are beating economics excepting at unrealistically low prices for crude oil. ´Heavier feeds are another matter. Present Saudi subsidies on LPG and condensate expire on 1 January 2012 and pricing beyond this point is opaque,ˇ he added.
With ethylene and derivatives market starting to overbuild, the Middle East could look at the aromatics sector, Leighton said. ´Only polyester can meet the world˙s fibre needs. Polyester is growing faster than commodity polymers such as polyethylene and polypropylene.ˇ
Asia ˙s demand for paraxylene, a base chemical for the production of polyester, is projected to increase from 69% to 74%. The Middle East ˙s investment in this sector has been historically small with the exception of Iran .
The region has the feedstock but the Middle East may risk coming late to the party given plans already in progress in China and India .
The new petrochemical fluid catalytic cracking (FCC) is therefore an option. ´Coupling aromatics production with high olefin yield FCC maximises the value added from the FCC unit,ˇ he said.
Diverting the highly aromatic gasoline to aromatics production gets around the difficult problem of blending this stream to gasoline. FCC gasoline, he said, is a desirable reformer feed for high ultimate aromatics yield.
The high aromatics yield of FCC gasoline outweighs the slight premium in value compared to straight run naphtha. ´Integration of aromatics into a Petro-FCC refinery is an interesting opportunity to explore,ˇ Leighton said. |
