Europe is one of the world’s highest cost production regions for chemicals and is on the verge of losing its competitiveness. However, a robust supply of ethane from the US is presenting an opportunity for some chemical producers in Western Europe as there is the potential for a transformation in the feedstock landscape. However, European chemical producers must innovate, further consolidate and rationalise to stay afloat according to IHS.
Michael Smith, VP, IHS Chemical said, ‘with lack of investment in new plants and R&D, the chemical industry in Europe is in a stagnation phase. ‘The competitive landscape forces Europe to concentrate on mature, domestic markets and leaves it vulnerable to imports. European producers must innovate to stay competitive.’
Around the world, investment in chemicals varies by region favouring demand growth centres with a particular focus on China and low cost producers such as the US and Middle East. The US in particular has in recent times seen a big influx of investment due to the availability of cheap feedstock and energy. In 2012, chemicals were the leading industry for foreign direct investment flows into the US.
Europe versus the US
Smith said, ‘energy prices in Europe will remain high, but this is not the end of the world. Producers already have been taking advantage of increased supplies of LPG from international markets and they are looking for other ways to survive in this new world order. Ethane imports from the US seem to be an attractive alternative. As we do not see the US shale gas boom being repeated in Europe, the availability of US ethane could significantly transform the European feedstock landscape.’
Mukta Sharma, MD, IHS Chemical said ‘according to IHS Chemical forecasts, US ethane production will be in surplus, exceeding domestic requirements by around 300 000 bpd and growing. This surplus is expected to continue at least until 2030.
Traditionally, the anticipated surplus of US ethane has attracted a number of European cracker operators who were looking for a virtual ethane pipeline between North America and Europe.
Ineos was one of the first companies to sign a supply agreement with the US for ethane for its Grangemouth facility and others in the UK and Norway. Two other producers followed suit. Sabic confirmed its plans to upgrade its Wilton, UK plant to enable better feedstock flexilibity, and Borealis signed an agreement for its cracker in Stenungsund, Sweden.
Western Europe now accounts for 17% of all ethylene production and is an integral part of the global industry. The US ethane availability presents an interesting alternative for European ethylene producers, especially in the West with costal units, who are today still heavily reliant on higher stock naphtha feedstock.
Matthew Thoelke, senior director/olefins and derivatives, Europe, Mideast and Africa, IHS Chemical said, ‘in Europe, it’s those flexible costal crackers in the northern part of the continent that are likely to benefit and, therefore, favour the use of LPGs. In the Mediterranean, crackers are less flexible than those in the north, so there is so much stronger weighting towards naphtha.’ In terms of logistical integration, Thoelke commented that Mediterranean crackers are not as well configured, on average, as the crackers in the north.
Smith said, ‘ with the US ethane supply, its importance in Europe’s feedstock landscape will increase, but naphtha is certainly not going away. According to IHS Chemical forecasts, by 2023, naphtha will still account for 39% of the global feedstock market share and 67% of the European feedstock slate.’
The rationalisation of units in Europe is going to progress in the near term. Smith believes producers will need to close old and uneconomical plants with a particular focus on those that are not well integrated into refineries or chemical clusters close to key consumer markets.
Edited from press release by Claira Lloyd
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/09102014/us-uk-ethane-ihs/