World ethylene capacity jumped 5 million mt/y or 6.5% in past year

Anne K. Rhodes
Refining/Petrochemical Editor

Phillips Petroleum Co. increased capacity at its Sweeny, Tex., ethylene plant by 409,000 metric tons/year in late 1996. Shown here is a new 227,300 mt/y unit designed and licensed by Stone & Webster Engineering Corp., Houston. Phillips also restarted an idle 181,800 mt/y ethylene unit at Sweeny late last year

. About this report... Each year, the Journal looks closely at global capacity and market conditions for ethylene, the principal petrochemical building block. Ethylene's performance in the marketplace has a major effect on petroleum feedstocks and petrochemical derivatives of all kinds.

The world ethylene industry is in the midst of a construction boom. Capacity is expected to peak later this decade, resulting in lower utilization and weak markets.

But innovative business strategies can help defray the effects of the current capacity buildup. A few strategies that have been adopted by petrochemical producers are presented here.

Global ethylene capacity has increased more than 5 million metric tons/year (mt/y) to about 85 million mt/y since the Journal's last survey (OGJ, May 13, 1996, p. 62). This increase amounts to a 6.5% boost in only 1 year's time.

Responsible for this increase was:

Construction of several new plants in China, and expansions of existing ones
Major expansions at a number of U.S. plants
Capacity additions in Saudi Arabia, the U.K., and India.

Table 1 [25161 bytes] shows regional changes since last year's survey. Producers in the Asia/Pacific region added the most ethylene capacity during the past year: 2.3 million mt/y. This amounts to a 13% increase over 1996 capacity.

It should be noted that the global and regional changes noted in this article exclude a 440,000 mt/y plant operated by Sanyo Petrochemical Co. Ltd., which has been erroneously excluded from past surveys.

Table 2 [37388 bytes] lists national ethylene capacities. Continued expansions throughout the decade should bring capacity up to about 105 million mt/y, predicts Andrew Pettman, CMAI Europe, London (Fig. 1 [ 31587 bytes]). This increase will be necessary to keep up with demand growth of 5.4%/year, which is about 1.7 times world growth in gross domestic product (GDP), says Pettman.

Table 3 [118587 bytes] lists planned ethylene capacity expansions. If all these planned units come on stream, global ethylene capacity will reach about 102 million mt/y early next decade, according to the Journal's calculations.

The survey

This year's ethylene survey reveals an increase in capacity in all regions except Eastern Europe and the former Soviet Union (FSU). Asia/Pacific and North America showed the largest year-to-year increases, but major expansions also took place in Western Europe and the Middle East.

In the Asia/Pacific region, China led growth, with the addition of about 1.23 million mt/y of capacity. In fact, China alone accounts for more than half the growth in the region.

New plants were built at Dushanzi, Tianjin, Zhongyuan, Maoming, and Guangzhou, totaling 970,000 mt/y. And ethylene plants at Jilin, Lanzhou, Beijing, and Yangtze were expanded by a total of 270,000 mt/y.

China's ethylene capacity now totals 3.7 million mt/y. Official reports indicate that the country has aggressive plans to increase capacity to 5.8 million mt/y by 2000.

In Indonesia, PT Chandra Asri started up its 550,000 mt/y ethylene plant in Cilegon, West Java. Previous Journal surveys mistakenly reported that a 375,000 mt/y plant was operated by Shell in Indonesia. So, although the survey reflects an increase of 175,000 mt/y in Indonesia, the true increase is 550,000 mt/y.

In India, Reliance Industries Ltd. started up a 750,000 mt/y naphtha cracker at Hazira in Gujarat State.

Two major expansions took place in the U.S. during the past year. Phillips Petroleum Co. added 408,000 mt/y capacity at its Sweeny, Tex., plant (photo). And Exxon Chemical Co. increased capacity at its Baytown, Tex., complex by 240,000 mt/y.

Other U.S. expansions included:

163,000 mt/y at Shell Chemical Co.'s Norco, La., complex
122,500 mt/y at Shell's Deer Park, Tex., complex
108,000 mt/y at the LaPorte, Tex., plant of Millennium Petrochemicals (formerly Quantum Chemical Co.).

Expansion in Western Europe was led by the U.K., where Exxon added 370,000 mt/y capacity to its plant at Mossmorran Fife, Scotland. Also in Europe:

Dow Chemical increased capacity at the B"hlen, Germany, ethylene plant-formerly owned by Sachsiche Olefinwerke AG-by 150,000 mt/y.
BP Chemicals Ltd. increased capacity of its Grangemouth, Scotland, complex by 100,000 mt/y.

In the Middle East, Qatar Petrochemical Co. Ltd. expanded its plant at Mesaied to 525,000 mt/y from 350,000 mt/y. The three ethylene plants at Al-Jubail, Saudi Arabia, were expanded by a total of 410,000 mt/y. Discrepancies in the way these capacities were reported this year compared to last year make it difficult to determine the increase at each plant.

During the past year, Latin America also saw an increase in ethylene capacity, mostly in Brazil. Co. Petroquimica do Sul S.A. (Copesul) increased capacity at its Triunfo plant to 685,000 mt/y from 600,000. And Petroquimica Uniao S.A. increased capacity at its Santo Andre plant to 460,000 mt/y from 360,000 mt/y.

Global ethylene outlook

Chemical Marketing Associates Inc. (CMAI), Houston, and Purvin & Gertz Inc., Houston, recently completed a joint study of petrochemicals and feedstocks. At CMAI's 1997 World Petrochemical Conference, held Mar. 18-20, 1997, in Houston, Purvin & Gertz's Thomas Manning presented an overview of the study results.

"As the basic chemical building block for so many plastics worldwide, ethylene demand has doubled in the last 15 years, due in large part to rapid demand growth in Asia," said Manning. The joint study predicts that ethylene demand will nearly double again in the next 15 years.

Average growth in ethylene consumption will be 4.8%/year for the next 10 years, according to the study (Fig. 2 [28719 bytes]).

Fig. 3 [ 37245 bytes] shows ethylene capacity additions, by region, for the decade ending in 2005, as predicted by Chem Systems Inc., Tarrytown, N.Y. Global ethylene additions should total 41.3 million mt/y, says Chem Systems.

East Asia has the largest expected growth, with an estimated 18 million mt/y increase. The U.S. is second, with projected growth of 6.4 million mt/y for the period.

Asia/Pacific

CMAI expects growth in ethylene demand in the Asia/Pacific region to average 8.6%/year between 1995 and 2001 (Fig. 4 [33412 bytes]). Capacity, on the other hand, will increase 9.5%, says CMAI, producing a drop in ethylene utilization rate before the end of the 1990s.

China is poised to become a major ethylene producer, with planned capacity additions totaling 2.1 million mt/y by 2000. And India has plans to add at least 1.3 million mt/y of ethylene capacity in the next few years (Table 3). Other Asian countries with announced ethylene expansion plans are South Korea, Taiwan, Singapore, Malaysia, and Thailand.

Pramote Chaiyavech, advisor to the board of National Petrochemical Public Co. Ltd., Bangkok, presented a paper on Thailand's growing petrochemical industry at the DeWitt Petrochemical Review, Mar. 18-20, 1997, in Houston. Dr. Pramote says Thailand's ethylene capacity will increase from its present level of 751,000 mt/y to about 3 million mt/y in the next 3-4 years (Fig. 5 [33369 bytes]).

North America

The industrialized countries of North America represent a relatively mature market for plastic products. CMAI predicts ethylene demand in North America will increase at an average of 3.3%/year from 1995 to 2001 (Fig. 6 [30978 bytes]).

Because North American producers are planning a number of major capacity expansions in the coming years, utilization will decline to a trough in 2000, according to Pettman.

Fig. 7 [30978 bytes] shows DeWitt & Co. Inc.'s projections for U.S. ethylene supply and demand. DeWitt also predicts a drop in utilization rates.

DeWitt group vice-president Earl Armstrong says the current expansion phase in the U.S. "...has all of the trappings of potential overbuilding and the resulting poor market seen in the early 1990s." This, says Armstrong, indicates that the industry's 7-year business cycle is right on schedule.

Western Europe

Peter Jordan, senior vice-president of DeWitt & Co. Inc., Farnham, U.K., presented his outlook for olefins in Western Europe at the most recent DeWitt Petrochemical Review.

"Concerns that West Europe may not have enough installed cracker capacity to support even a modest GDP-matched growth are fast abating," said Jordan. Although no world-scale, grassroots ethylene plants are expected to come on stream in the region until early next decade, expansions of existing plants should support ethylene growth of 2%/year, says Jordan.

Fig. 8 [30892 bytes] shows DeWitt's forecast for Western Europe through 2001. As much as 2 million mt/y ethylene capacity will be added through expansion of existing units in the next few years, according to DeWitt. "In fact," said Jordan, "cracker loadings might even fall back to below 90%, which will...once again provoke demands that some small plants be closed."

CMAI predicts demand growth in Western Europe to be only 1.7%/year between 1995 and 2001. The firm expects operating rates to remain stable at 89-90% during the period. According to Pettman, this should lead to better margins for European companies than were seen during the most recent cyclical dip of 1992 and 1993.

Latin America

Privatization efforts in Latin American countries are providing growth opportunities for both regional companies and outside participants. Dow and Mobil are two non-Latin companies that are increasing their presence in the region (Tables 3 and 4).

According to Chem Systems' vice-president Robert Bauman, changes in investment rules for the private sector will result in additional ethylene capacity for the region. Table 4 [58226 bytes]shows Chem Systems' predictions of Latin American ethylene expansions and additions through 2001.

Speaking at Chem Systems' annual U.S. chemical conference, Bauman said, "If all these expansions proceed, it will represent a 65% increase in ethylene capacity."

Middle East/Africa

In the Middle East and Africa, ethylene demand is outpacing capacity growth, so operating rates are increasing. Fig. 9 [32237 bytes] shows CMAI's ethylene outlook for the region. Pettman cautions that this forecast needs to be put in perspective.

"Nearly all new capacity in the Middle East is being built with on-site derivative expansions aimed at export markets," said Pettman. "Most of the new capacity being built is world-scale and will tend to run at high rates, regardless of the strength of the market, due to low operating costs," he added.

Five Middle Eastern countries are producing ethylene at this time. When Equate Petrochemical Co.'s new plant comes on stream in Shuaiba, Kuwait, later this year, that number will rise to six. John Philpot, managing director of Chem Systems Ltd., London, predicts it will increase to eight by 2000.

Fig. 10 [29933 bytes] shows Chem Systems' forecast for Middle East ethylene capacity through 2000. While Saudi Arabia will remain the dominant player, Iran will expand its capacity further near the beginning of the next decade.

Feedstocks

The Journal looks closely at ethylene capacity because, with ethylene's status as the principal petrochemical building block, its performance in the marketplace has a major effect on derivatives of all kinds. Similarly, because ethylene can be derived from several feedstocks, the choice of feed affects not only olefins markets, but also the petroleum industry, which precedes ethylene in the supply chain.

The CMAI/Purvin & Gertz joint feedstock study cited earlier concludes that naphtha will continue to be the dominant feedstock through 2005. Between 50 and 55% of ethylene is produced from naphtha. This is expected to change little in the coming years (Fig. 11 [32709 bytes]).

"Ethylene growth will outpace growth in NGL availability, so heavy liquids will be required," said Manning. "Increased availability of condensate will contribute to feedstock supplies-both directly and indirectly-but refinery-produced naphtha will have to expand to close the balance."

Demand for propylene, ethylene's major by-product, is increasing rapidly. It is forecast to increase from 39 million mt/y in 1995 to almost 90 million mt/y in 2015, says Manning. Based on the projected feedstock slate, the propylene supply/demand balance will be tight.

"Most of the propylene will be coproduced in ethylene complexes," said Manning, "but more propylene recovery from refineries will be required."

As a result of global economic growth, demand for olefin feedstocks is increasing rapidly. Substantial ethylene plant construction will be required to keep pace with petrochemical demand. But capacity buildup tends to cause another downturn in the petrochemical business cycle.

The worldwide buildup of ethylene capacity will result in weak markets in 1999 and 2000, predicts Pettman.

"Unlike the last expansion cycle, most of the new ethylene capacity is relatively low cost," Pettman said. "This will put pressure on higher-cost operations, particularly derivative plants not integrated with ethylene. There will be a recovery in operating rates," he predicted, "but it is not likely until after 2001."