Petrochemical manufacturers that work with naphtha-based feedstock should reconsider their strategy if they want to remain competitive.
Most petrochemical businesses have already come to the realization that the U.S. natural gas-based feedstock is giving those who use it a great advantage in terms of costs. This fact, combined with predictions that the advantage is unlikely to wear off any time soon, is causing a growing number of petrochemical companies to switch to gas-based feedstock as much as possible.
Such a move has already been undertaken by many huge players on the global petrochemical market. One of them is Swiss giant INEOS, which recently announced plans to start using U.S.-manufactured ethane in some of its European crackers. Similarly, Italian Versalis is also looking into the possibilities of utilizing feedstock from the United States for two crackers, ISIS reported.
Brazilian conglomerate Braskem is implementing plans to switch to lighter feeds entirely. Fernando Musa, president and CEO of Braskem America, explained that the company was moving to a gas-based feedstock in search of a more balanced portfolio. At present, Braskem's four crackers located in Brazil work with naphtha-based feedstock but two of them are equipped to use restricted amounts of ethane, propane and gas condensate.
Petrochemical manufacturers that work with naphtha-based feedstock need to reconsider their strategy if they want to remain competitive. Some of them have been relying on higher values of co-products, including butadiene and propylene, that naphtha crackers produce but this is hardly sufficient, ISIS noted. Having to face the competition of U.S. polyethylene players is a daunting task, Musa admitted, but he added that the measures being implemented by the company will make it more competitive.
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Meanwhile, Asian petrochemical producers have chosen another way to offset the impact of cheap U.S. ethylene by investing in creating specialized units that produce chemicals up the value chain. Taiwan's Formosa Petrochemical Corp, South Korea's Lotte Chemical Corp and Anglo-Dutch group Royal Dutch Shell plc have all poured billions of dollars into switching to high-end products and while this plan may be justifiable for one company, its adoption by the majority might prove self-defeating, industry experts commented.
Paul Hodges, chairman of consulting firm International eChem, explained that the main problem is that many businesses predicted demand would recover and invested serious amounts of money to build huge capacities but in fact demand has not picked up at all, which is putting Asian petrochemical producers in a very difficult situation. But moving up the value chain has presented them with problems as well. Such a transition means that plants have to earn enough from the high-end grades to make up for selling the ethylene that makes up about a third of their output at a loss.
The three biggest Asian players have plans to build ethane crackers with a total annual capacity of two million tonnes per year of ethylene by 2017 across the globe, in the United States, Uzbekistan and Kazakhstan. The crackers will produce ethylene from ethane derived from natural gas.