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Emerging imbalance between ethylene and propylene growth rates creates a propylene supply ...

A recent study indicates that world demand for ethylene will reach 177 million tons in 2020 from 100 million tons in 2004, thus indicating an average growth of 3.6%. Propylene is expected to show a slightly higher growth at 3.7 %, reaching a level of 116 million tons in 2020 from 64 million tons in 2004. The demand of aromatics such as benzene and xylenes will have a slower growth at 2.5-2.8%.

During most of the 1990s, North American producers dominated global trade of ethylene derivatives, based on natural gas and feedstock prices. Changing market dynamics in North America and in global crude oil markets has caused regional competitiveness to shift. New capacities will be stronger in the Middle Eastern region due to cost economics. Also, demand is projected to be robust and will shift from North America to the Asia-Pacific region, getting much stronger. This, combined with rapid growth in the Middle East and increased self-sufficiency in Asia, is resulting in a reduction of North American market share. Increasing capacities in Asia, present Asian producers a chance to meet the regional demand that exceeds Middle East supply capabilities. In the period 1990-2003, ethylene capacity in the Middle East region increased by nearly 7 million metric tons and additional expansion plans announced for the region suggests a colossal build of petrochemical capacity. Very high crude oil prices witnessed over the last few years has reduced the dependence of Middle Eastern local companies on outside sources of capital. The Gulf States are now packed with private capital seeking investment opportunities.

About 55% of the ethylene in the world is presently manufactured from naphtha and is expected to have a demand growth of about 2.5% pa over the forecast period; however, its market share will slip to 45% due to the growth of ethane based ethylene facilities in the Middle East. Growth in propylene demand is estimated to be stronger than growth in ethylene demand. The Middle East's dominant cost position in ethylene derivative markets will not brim over into propylene markets. This provides opportunities for other regions to meet the growing need for propylene production as questions regarding future propylene supply availability continue to emerge. Propylene production globally exceeds 65 million tpa, valued in excess of US$25 billion pa. Demand in Asia will grow stronger, at nearly 6% pa. Of the total propylene produced globally, only a bare 3-5% is produced by on-purpose propylene only production plants. As propylene is often considered a byproduct, almost 61% is produced in ethylene plants and 34% is produced in petroleum refineries.

In 2003, ethylene prices were around US$650 and propylene prices stood at almost US$500. This scenario seems to have reversed in 2005, as propylene prices have overtaken ethylene price by almost US$50. Ethylene-Propylene Price Ratio in the US, which stood at 76% in 2003, now stands at 108%. This situation, however, has been in existence in Asia as a general trend indicates that propylene prices have been at or above parity with ethylene for several years. Ethylene-Propylene Price Ratio in Asia, which in 2005 stands at 104%, stood at 118% in 2003.

Strong demand for propylene derivatives is one of the key factors driving propylene’s increasing value. Propylene derivatives include Polypropylene, Acrylonitrile, Oxo chemicals, Propylene oxide, Cumene, Isopropyl alcohol, Polygas chemicals. Of the derivatives of propylene, polypropylene accounts for more than 60% of propylene demand due to its favorable properties and application in in end use products of low density, good mechanical properties, optical clarity and low moisture transmission. PP is finding applications in a number of sectors, with worldwide consumption expected to grow at nearly twice GDP growth rate. Global polyethylene growth is estimated to average only about 4% over same period. As demand ratio is increasing, a difference will emerge in the production ratio (determined by cracker feedstock mix) and will impact supply options.

The future:
Announced cracker projects and olefin expansions will not meet increased propylene demand for next few years. Future additions of predominately gas based crackers in Middle East will further reduce worldwide average of propylene yield. Almost 50% of announced refinery propylene projects are in Asia and will add 1.4 million tons of propylene by 2009. Globally announced projects will add slightly less than 3 million tons of propylene in the next 5 years. Before 2009, either metathesis propane dehydrogenation, or methanol based olefin olefins will be needed. Metathesis has potentially lower cost, but is less well proven technology while Propane dehydrogenation requires a low cost source - propane and is important only in the Middle East.
Plans for 500,000 tons of new capacity for metathesis by 2009 could grow even higher as the technical certainties are demonstrated in recent plants in Asia. Plans are underway for 900,000 tons of new capacity for PDH by 2009, all in Middle East, using propane feed at extremely low cost. Although a great deal of interest has been shown in methanol based production of both ethylene and propylene, there are currently no firm plans to use this technology before 2009.
(Based on reports from CMAI and APIC)

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