The petrochemicals industry is an integral part of energy value chain that offers a wide range of products to meet material needs of virtually every sector like agriculture, water conservation, construction, automobiles, consumer durables, textile, healthcare, packaging etc. During the past few years substantial investments have been made in new capacities in emerging economies like China, India and the Middle East . While growth in China and India are driven by local demand, the Middle East region is expected to emerge as a production hub due to availability of cheap feedstock like ethane, propane and condensate.
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 tpa ethylene cracker at Mai Liao in Taiwan . Qapco, Qatar expanded its 525,000 tpa Ethane based cracker to 720,000 tpa. Iran added two new crackers with Arya Sasol started its, 1000,000 tons Ethane feed cracker and Jam Petrochemicals started its 1320,000 tpa mixed feed cracker in 2007.
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 until 2008's economic meltdown. Large capacity additions in the Middle East and Asia during 2009-2011 amid deteriorating demand will impact operating rate, thus marking the potential for a down cycle. 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. In India almost 2.5-3 mln tons of ethylene and polyethylene (PE) will be added by Reliance Industries Limited, Haldia Petrochem Limited, IOC and Gail over 2008-2011. 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%.
Based on new capacities announced and plants that are under construction, global Ethylene capacity is expected to be at 162 mln tons by 2012, 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$.75-2/MMBTU, making the region the one of the lowest cost ethylene producers in the world. The Middle East plants could run at high operating rates, regardless of market conditions, because of low fixed and feedstock costs. The augmentation of capacity in the Middle East to be commissioned in the next few months is predicted to be disastrous for liquids-based producers, forcing them to pull down the shutters, possible bankruptcy or government rescue. Globally 10% of cracker capacities are less than 5 years of age, whereas 23% crackers 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. They may be closed down.
|
|