Supply and demand factors have been re-shaping the petrochemical market for some time. The most influential have been the availability of unconventional gas in the US and Canada and the high demand for oil and petrochemicals in the Asia Pacific region. These factors spearheaded the expansion of the petrochemical industry in the Middle East, US and Asia.
Important additional petrochemical capacity has been added in these regions and is having an impact on the fragile global supply and demand balance.
The US has shown the most significant growth due to the shale boom, mainly in new gas processing, GTL plant capacity, ethylene, methanol and ammonia plants. The number of projects in refining and petrochemical production is comparable – about 70 new plants in both refining and petrochemicals.
In the US, low ethane price was the trigger for the revival of the US petrochemical sector — a substantial number of petrochemical plants have been built and new projects are in the pipeline — taking advantage of the significant cost advantage of cracking gas. With the scope for expansion in the domestic market remaining fairly limited, US ethylene producers and even producers of on-purpose propylene production are turning their attention to export markets. Many overseas investors are involved in these Projects from Middle East and Asia in particular. Since 2012 Middle East and Asia-Pacific regions have slowed down their rate of construction, with Middle Eastern companies focusing on refining and cluster development, and Asian-Pacific – on world-class scale petrochemical complexes with maximum energy efficiency and integration, lower manpower and maintenance requirements.
European and Asian petrochemical producers with predominantly naphtha-based feedstock have been able to bridge the level of competitiveness versus the US and Middle East producers. Middle East, on the other hand, will remain a key ethylene producer due to feedstock cost advantage. The lower price of naphtha feedstock improves profitability of European and Asian producers but does not remove the US and Middle Eastern gas-based chemicals advantages, which support further investment in these regions.
Middle East and the US will see the most ethylene capacity additions. On the demand side, Asia and particularly China will drive consumption and trade in ethylene and primary derivatives.
Asia Pacific region’s rapid economic growth and high energy demand has been driving expansion of the global oil and petrochemical industries. The region holds the largest ethylene capacity in the world ahead of North America and the Middle East. It is estimated that two thirds of the global petrochemical demand in the next decade will come from the Asia Pacific region. However, significant petrochemical investment — particularly in China — is undermining supply and demand balances in the region.
Recent capacity additions have led to oversupply, which will affect petrochemical markets in the next few years.
Africa’s chemical and petrochemical production is connected to the agriculture sector, which is the biggest chemical consumers. Some African countries, particularly Algeria, have made substantial investments in fertilizer plants. Africa’s demand for petrochemicals is expected to increase substantially in the next decade or so as a result of faster economic growth.
Economic development will improve socio-economic conditions stimulating business investment and domestic consumption. A substantial increase in demand for petrochemicals will derive from infrastructure, construction and production of consumer goods.
Looking to the future, the main petrochemical consumer industries – construction and automotive sector – are set to grow in Africa helping to stimulate demand for polymers and rubbers.
Low operating costs and availability of feedstock are creating the conditions for a profitable and competitive upstream and downstream petrochemical industry in Africa. In addition, prospects of increased domestic demand and opportunities in export markets will create incentives for developing the downstream sector of the petrochemical industry.
African petrochemical producers can achieve competitive advantage in international markets based on low operating costs and benefit from low import duties in European markets.
Development of the petrochemical industries is also dependent on investment in energy resources, stimulating both the domestic and export market and infrastructure development. The development of the downstream sector of the chemical/petrochemical industry appears to be an important priority taking into account estimated growth in the region’s petrochemical demand. Europe’s leadership position in the production of ethylene, propylene and derivatives has been overshadowed by competition from other regions: notably the US and the Middle East. European market share in world petrochemical markets is expected to continue to decline.
The energy costs for petrochemicals in Europe remain higher than in other regions because of high electricity costs, which are partly the result of renewables subsidies in Europe. European petrochemical producers are also reported to be holding back their investment because of doubts over future oil price trends and future European commission energy policies.
On a positive note, European petrochemical producers benefit from high level of integration, large domestic market with large customer industry clusters nearby as well as good infrastructure and skilled labour. The wide range of chemical products together with the great level of innovation in the European petrochemical sector will encourage new growth of clusters driven by the need to meet environmental goals – for example energy-efficiencies or new types of materials. Niche projects will go ahead e.g. propane to propylene to meet the gap in the production of Propylene in Europe.
2017 was expected to see the peak in ethylene capacity investments in the last two decades, but this forecast has been revised due to the tougher economic conditions, that will negatively affect all investment programmes both in construction and modernisation. Major oil and gas companies will look to tighten their budgets, so we might expect to experience a slowdown in new project development.
By Stefan Chapman – vice president, EPC, and Ekaterina Kalinenko – project manager, EPC. Euro Petroleum Consultants (EPC) is a technical oil and gas consultancy with offices in Dubai, London, Moscow, Sofia and Kuala Lumpur. EPC also organises leading conferences including ME-TECH 2017 – Middle East Technology Forum for Refining & Petrochemicals which takes place in Dubai on 22 & 23 February 2017. For further details please visit www.me-tech.biz
