Petchem Prognosis in IHS Chemical Week

April 1, 2013 - Houston, TX

By Robert Westervelt

The high spirits of North American petrochemical makers were evident at the American Fuel & Petrochemical Manufacturers (AFPM) and IHS petrochemical conferences over the past two weeks.

Confidence about the sustainability and durability of the US cost advantage thanks to shale continues to build. The situation was perhaps best summed by Ineos founder and chairman James Ratcliffe in remarks at AFPM, where he was presented with the 17th Petrochemical Heritage Award by the Chemical Heritage Foundation and the Founders Club (p. 13). Ratcliffe said that Ineos would increasingly direct capital toward the United States, attracted by low feedstock and energy costs. The United States already contributes more than half of the company’s profits despite a much smaller portion of its assets, he said, and its profit share will continue to grow.

While the company targets growth investments in the United States, it will play defense in Europe. “I think, from an Ineos point of view, we’ll look at whether we can underpin any of our assets in Europe with cheap feedstocks in one form or another from the United States,” he said. “And there will have to be some rationalization in there.”

Most at the meeting feel that the unconventional natural gas and oil resource base in North America is strong and durable enough to support a long-term sustainable advantage, but risks do remain. Weaker demand growth coupled with stronger rates of capacity expansion has dampened the profit outlook for ethylene, particularly high-cost producers that use heavier feedstocks, Mark Eramo, v.p./chemical market insights for IHS Chemical, told attendees at the IHS World Petrochemical Conference (p. 29). Global ethylene consumption is forecast to grow at 4%/year for the next 5 years, Eramo said. That represents about 29 million m.t./year of new demand by 2017, compared to 34 million m.t./year of expected capacity growth over the same period. “This would suggest limited improvement in ethylene cash margins due to oversupply,” Eramo said. Profits will vary widely by feedstock used, however, with gas-based producers maintaining strong margins.

Several producers also noted that the United States will face material and labor constraints, and likely cost escalation, if as many as six or seven grassroots cracker projects head into peak construction phase in 2015–16. Ethane and natural gas supplies are surging, but not limitless. The attractive cost of natural gas is also incentivizing investments in natural gas exports and fuel switching to gas—and other industrial users, in addition to petrochemicals, are also lining up investments to take advantage.

Link to IHS Chemical Week.

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