WORLD ETHYLENE CAPACITY STILL GROWING

Richard A. Corbett
Refining/Petrochemical Editor

Despite declining prices and a softening market for ethylene worldwide, capacity growth continues on the upswing.

About 3.9 million metric tons/year (8.6 billion lb/year) of ethylene capacity came on stream during 1989, according to the Journal's survey of worldwide petrochemical plants.

Capacity rose to 54.043 million metric tons/year (119.1 billion lb/year) as of June 1, 1990, from 50.142 million metric tons/year the previous year (Table 1).

The increases are the result of healthy ethylene demand and attractive ethylene prices during the latter part of the 1980s. The booming petrochemical market of the late 1980s brought with it a rash of project announcements for ethylene capacity additions that should keep capacity rising well into the 1990s.

Concern is growing that the announced capacity additions through the mid-1990s could substantially outstrip demand, putting the industry in a serious overcapacity situation. But some of the projects have been delayed or downscaled enough to lessen the concern some.

And even though ethylene prices have fallen from about 30/lb to currently about 23/lb, higher plant efficiency means that profitability is reasonable at these lower prices.

Of course, the ethylene market depends heavily on growth in demand for ethylene derivatives, such as high and low density polyethylene, polystyrene, and polyvinyl chloride. These derivatives are the primary constituents in a wide range of plastic products that are growing as replacements for traditional raw materials for all manner of consumer and industrial products.

WORLD ETHYLENE CAPACITY RISES

Worldwide ethylene capacity gains occurred in most regions, with the largest gains concentrated in the U.S., Latin America, and the Asia/Pacific region. The U.S. gained about 1.3 million metric tons/year as a result of Occidental Chemical Corp. increasing capacity of its Lake Charles, La., plant to 1.59 million metric tons/year total capacity (Table 2). Most other U.S. plants maintained 1989 capacity.

Mexico and Venezuela are largely responsible for the 960,000 metric ton/year capacity rise in the Latin American region. Pemex added 486,000 metric tons/year capacity at its Morelos, Veracruz, plant.

Pequiven, the Venezuelan state petrochemical company, reported 400,000 metric tons/year total capacity at its Anzoatequi complex, and 220,000 metric tons/year total capacity at its Zulia plant. Those capacities contrast with a total Venezuelan capacity of only 150,000 metric tons/year in 1989.

Saudi Arabia led the Mid East capacity rise with a gain of 359,000 metric tons/year. Saudi Arabia's capacity gain was equally distributed among its three plants, with Saudi Petrochemical Co.'s Al-Jubail plant capacity rising 104,000 metric tons/year, Arabian Petrochemical Co.'s Al-Jubail plant gaining 150,000 metric tons/year, and Saudi Yanbu Petrochemical Co.'s Yanbu plant gaining 105,000 metric tons/year.

The Asia/Pacific region gained 553,000 metric tons/year of ethylene capacity, all in Japan. Showa Denko, K.K. in Chita boosted plant capacity by 264,000 metric tons/year over 1989 capacity, and Ukishima Petrochemical Co. Ltd. in Ukishima and Chiba added 219,000 metric tons/year capacity.

Smaller additions were at Tonen Petrochemical Co. Ltd. in Kawasaki (43,000 metric tons/year), Mizushima Ethylene in Mizushima (25,000 metric tons/year), and Nippon Petrochemicals in Kawasaki (2,000 metric tons/year).

In other parts of the world, Czechoslovakia reported 370,000 metric tons/year of ethylene capacity. The Chemicke Zavody CSSP plant at Litinov produces ethylene from naphtha, LPG, and gas oil feedstocks.

Even Western Europe, where ethylene overcapacity was a significant problem of the 1980s, a modest 295,000 metric tons/year increase in capacity occurred in 1989. France gained 140,000 metric tons/year capacity, with Atochem's Feyzin plant capacity rising 20,000 metric tons/year and its Gonfreville plant rising 80,000 metric tons/year. The remaining 40,000 metric tons/year rise was Shell Chimie's Berre plant.

Some 90,000 metric tons/year of ethylene capacity were added to DSM's Limburg, The Netherlands, plant, 40,000 metric tons/year was added to Ruhr Oel AG's Gelsenkerchen, West Germany, plant, and 25,000 metric tons/year were added to ICI Chemicals & Polymers Ltd.'s Wilton, U.K., plant.

CAPACITY WILL CONTINUE UP

The worldwide ethylene capacity gains scored during 1989 are just the first of many projects that will keep global ethylene capacity rising steadily through the 1990s. Although some of these projects may be delayed or scaled down (some already have since last year), most will likely come on stream by the late 1990s in response to projected demand.

Oil & Gas Journal's Worldwide Construction Reports (OGJ, Oct. 16, 1989, p. 63, and Apr. 16, 1990, p. 60) show that by 1994, about 19.8 million metric tons/year of capacity will be added worldwide (Table 3).

U.S. projects account for a large share of projected world capacity at about 4 million metric tons/year, most of that to be on stream by 1993. A large number of these projects are world scale facilities with capacities exceeding 450,000 metric tons/year (about 1 billion lb/year).

Quantum Chemical Corp. plans the largest U.S. capacity addition, 760,000 metric tons/year, with 680,600 metric tons/year at Deer Park, Tex., and 80,000 metric tons/year at Morris, 111. But other companies rivaling that capacity boost are: Dow Chemical Co., Freeport, Tex. (680,600 metric tons/year); Phillips 66 Co. at Sweeney, Tex. (680,600 metric tons/year); and Formosa Plastics Group, Point Comfort, Tex. (680,600 metric tons/year).

Amoco Chemical Co. deferred and downsized a project at its Chocolate Bayou, Tex., plant to about 272,000 metric tons/year, scheduled for 1994 completion. The project originally would have added 680,600 metric tons/year and was scheduled for a 1993 start-up.

Cain Chemical Co. has also deferred its 453,500 metric tons/year capacity increase. No deferral date has been given. No doubt, more of these projects may be downsized.

Canada is planning a significant increase in ethylene capacity of about 1.1 million metric tons/year by 1993. World-scale plants of Alberta Energy Co. and Alberta Gas Ethylene Co. (a NOVA subsidiary) will account for the increase.

Iraq has three big expansions planned for completion by 1992 that will add about 1.2 million metric tons/year to Iraq's total ethylene capacity.

But the current crisis in the Mid East, and the questionable future economic health of Iraq, may put these projects on indefinite hold.

Saudi Arabia also plans an additional 1 million metric tons/year ethylene capacity by 1993. Again, the unrest in the region could delay these projects.

Another article in this special section details Saudi Arabia's ethylene capacity situation and the feedstock economics associated with ethylene production there.

China is planning about 1 million more metric tons/year of ethylene capacity, with completion scheduled before the mid-1990s. The current political situation in China, of course, could dampen expansion plans considerably.

Regionally, the Far East is planning substantial capacity increases by 1993. About 3.2 million metric tons/year of ethylene capacity are scheduled there, excluding China. Japan and Korea will see the largest increases in the Pacific Rim.

Latin America will see some 1.7 million metric tons/year come on stream by the mid-1990s, resulting from some large projects in Brazil and Mexico. However, economics are still shaky in both Brazil and Mexico.

The current Mid East crisis, however, could have a positive effect on Mexico's economic conditions if crude oil prices remain higher.

Although the planned increases in global ethylene capacity could glut the world with ethylene by the mid-1990s, deferrals and downsizing will ease that some, and steady demand for ethylene derivatives will likely make good use of the added capacity by the end of the decade.

DERIVATIVES GROWTH STEADY

Despite fears of an ethylene overcapacity situation later during the 1990s, ethylene derivatives growth could be enough to ease, if not alleviate, the problem. But much of that growth depends on economic growth around the world, particularly in developing countries.

Substantial economic growth in the Eastern Bloc and Soviet Union could spur a rapid jump in demand for consumer products, including plastics.

But expansion of polymer plants there could lag behind demand growth.

The Far East, particularly China, is another region where substantial growth in consumer product demand could boost the need for polymer products.

LOW-DENSITY POLYETHYLENE

Steady growth is forecast for low-density polyethylene (LDPE), high-density polyethylene (HDPE), polystyrene, and polyvinyl chloride (PVC). These major consumers of ethylene were the focus of analysis at the 1990 DeWitt Petrochemical Review earlier this year in Houston.1-4 LDPE consumption grew to about 18.5 million metric tons/year in 1989 from about 12.3 million metric tons in 1983, according to Donald Ryan of Union Carbide Corp., Danbury, Conn.1 That growth rate cannot be maintained through the 1990s, he says, but could be as high as 4%/year (Fig. 1).

Even at that growth, some 28.6 million metric tons could be consumed by the year 2000. Capacity could likely run close to 37 million metric tons/year, according to Ryan.

Western Europe and U.S. LDPE growth should be about the same, growing at about 3.5-4.0%/year throughout the decade, according to Ryan, Growth rates in the Asia/Pacific region could run at about 5%/year by the end of the decade, and the growth rate in Latin America could run at about 4.6%/year during the last half of the 1990s.

LDPE supply and demand should remain in good balance throughout the 1990s, according to Ryan, if an important assumption is made. That assumption is that if HDPE demand continues to grow at about 4%/year, the swing, low-pressure plants that can make either HDPE or LDPE will continue to make their share of HDPE.

That would keep LDPE operating rates close to 90% throughout the decade. Ryan says that, with that assumption, by 2000 LDPE supply could become tight.

However, if HDPE growth falls significantly below 4%/year, swing plants would switch to LDPE production, lowering LDPE operating rates to about 70%.

There is a short-term over-capacity situation currently in the U.S., according to Ryan, but this should correct itself in 2-3 years.

In Western Europe, capacity and demand are in balance, for the most part. Many of these plants are older, high-pressure plants, but rebuilding plans will probably be extended.

Another factor in LDPE demand is the share of the LDPE market occupied by linear low-density polyethylene (Lldpe). Lldpe accounts for about 28% of the LDPE market in the U.S., 32% in Canada, and about 18% in Western Europe, according to Ryan.

Worldwide, Lldpe holds about a 22% market share of the total low density market. That share is expected to grow to about 34% by 2000.

Much of the swing capacity currently being built will be devoted, to a large part, to LDPE production, says Ryan. Swing capacity was only 16.8% of the total LDPE capacity in 1983, but it could grow to more than half of LDPE capacity by 2000.

HIGH-DENSITY POLYETHYLENE

HDPE demand is expected to grow at about 4%/year until about 1993, according to Dennis L. Rohlfing of Phillips 66 Co., Pasadena, Tex.2 HDPE capacity is tight currently as a result of the explosion at the Phillips Pasadena plant in the spring of 1990, and as a result of cold weather on the Gulf Coast, which limited ethylene production last winter.

But capacity additions will ease that as the decade progresses.

For instance, about 1.3 million metric tons/year of HDPE new or rebuilt capacity will come on stream in the U.S. by 1991, according to Rohlfing. HDPE could experience overcapacity in the period 1991-1993 (Fig. 2).

POLYSTYRENE

Polystyrene capacity and demand should remain in decent balance through the 1990s, keeping operating rates close to 90% worldwide, according to Mark A. Bruner of Huntsman Chemical Corp., Chesapeake, Va. (Fig. 3). He expects global polystyrene demand to rise to about 11.8 million metric tons/year by 1998, with capacity at about 14.1 million metric tons/year by then.

Much of the growth in polystyrene demand will likely come from Eastern Europe and China as the economies of those regions accelerate during the decade. These regions consume polystyrene at per capita levels well below those of developed regions. For instance, Eastern Europe consumes 3.9 lb/capita, Asia and the Far East 2.7 lb/capita, Latin America 1.8 lb/capita, and China, only 0.4 lb/capita. Those consumptions are contrasted with the U.S. at 20.9 lb/capita and Western Europe at 14.1 lb/capita.

POLYVINYL CHLORIDE

There will not be a repeat in the 1990s of the decline in PVC demand that was experienced during the early 1980s, according to Fred Sacks of Occidental Chemical Corp., Berwyn, Pa.4 PVC markets are much stronger today, and they will likely remain steady through the 1990s.

Significant capacity increases in the U.S. will put pressure on operating rates and prices for the next 5 years, but worldwide operating rates should not go below 84% through the 1990s.

Demand is projected to rise to about 21 million metric tons/year in 1994 from about 16 million metric tons/year in 1987 (Fig. 4), according to Sacks.

Capacity will move up to about 24.2 million metric tons/year by 1994, from about 18 million metric tons/year in 1987.

Operating rates could drop to about 87% during the first 2 years of the 1990s, and dip further to about 84% by 1994. They are expected, however, to recover to the upper 80% region after 1994.

Sacks points to PVC's growing market share for large-diameter pipe applications and an increasing market for PVC siding and windows as important driving forces for steady demand for PVC.

For ethylene producers, the derivatives markets look reasonably steady throughout the 1990s. If global economics stay healthy, and if, as expected, some of the large planned ethylene capacity expansions are delayed or downsized, ethylene producers should be able to remain profitable, despite the current softness of the market.

REFERENCES

Ryan, Donald, Union Carbide Corp., "World Low Density Polyethylene Markets," paper presented at the DeWitt 1990 Petrochemical Review, Houston, Mar. 27-29, 1990.
Rohlfing, Dennis L., Phillips 66 Co., "Today's High Density Polyethylene Markets and Future Opportunities," paper presented at the DeWitt 1990 Petrochemical Review, Houston, Mar. 27-29, 1990.
bruner, Mark A., Huntsman Chemical Corp., "Trends in World Polystyrene Markets," paper presented at the DeWitt 1990 Petrochemical Review, Houston, Mar. 27-29, 1990.
Sacks, Fred, Occidental Chemical Corp., "The World of PVC in the 90s," paper presented at the DeWitt 1990 Petrochemical Review, Houston, Mar. 27-29, 1990.