North America to remain globally competitive as chemical producing region

North America's chemical feedstock and energy costs will stay among the lowest in the world, and NGLs will surpass naphtha as the major cracker feed globally by 2025, according to ExxonMobil Chemical's senior vice president.

Photo by Eric Kayne/AP Images for ExxonMobil

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North America will remain one of the most competitive chemical producers in the world in the long run, riding on the back of its abundant shale resources, its operating flexibility to thrive across feedstock cycles and the positive long-term outlook for global chemical demand, according to Matthew Aguiar, senior vice president at ExxonMobil Chemical Company.

Speaking at the IHS Chemical 30th Annual World Petrochemical Conference in Galveston, Texas on March 25, Aguiar projected that North America's chemical feedstock and energy costs would stay among the lowest in the world and that natural gas liquids (NGLs) will surpass naphtha as the number one cracker feed globally by 2025.

"We expect North America to remain competitive with other regions as a chemical producer. And we see continued growth in jobs, growth in production and growth in US chemical exports,” he said.

US shale gas boosts competitive advantage
The US chemical industry export capacity will increase as planned expansions move forward and as production exceeds domestic demand. US exports of plastics and other chemical products will double from 2014 to 2030, according to the American Chemistry Council (ACC).

The surge in shale gas production, in particular, is boosting export demand for ethane and ethane-based products, and is driving significant flows of new capital investment into the US.

Some 10.5 million tonnes of ethylene capacity are expected to come on stream in North America by 2018 or 2019. A number of other projects have been announced, though not yet approved. This planned capacity will increase domestic ethylene production by about 30% by 2018 from 2013 levels.

"The changing oil prices have not changed the fact that shale production technologies have unlocked an abundant long-term supply of natural gas in North America,” Aguiar said. “US gas production has grown by 45% over the past six years. The nation has a nearly 100-year natural gas supply, and it’s still growing."

Besides supplying NGLs for feedstock, the shale gas boom means there will be plenty of low-cost natural gas to power manufacturing operations, which is just as important since energy represents about half of the cost to manufacture chemicals, Aguiar said.

According to him, the petrochemical industry is the world's largest industrial energy user and the only one that uses energy for both fuel and feedstock. ExxonMobil Chemical expects North America's feedstock and energy costs to remain among the lowest in the world.

"The production of chemicals accounts for about 15% of global oil demand and 10% of natural gas demand – and includes more than 45% of the demand for natural gas liquids,” he said.

NGLs to surpass naphtha as main feedstock
The US output of ethane, propane and other natural gas liquids has risen by more than 65% since 2008 and will continue to increase, according to Aguiar.

Pre-shale boom crackers in the US were approximately 70% ethane- and 30% naphtha-based, according to the ACC, shifting to 87% and 13%, respectively, since 2013.

The rising NGL production in North America and the Middle East is also driving a global shift toward NGLs as a chemical feedstock.

Naphtha remains the major steam-cracker feedstock, accounting for more than 50% of global demand. Ethane and other NGLs are second, at about 30%, according to Aguiar.

ExxonMobil Chemical projects the demand for NGL feedstock will rise by about 125% through 2040 compared to 70% for naphtha. This means NGLs could surpass naphtha as the top feedstock in the chemical sector by around 2025.

ExxonMobil’s Baytown expansion in Texas
ExxonMobil is moving forward with the expansion of its olefins plant in Baytown, Texas, which is expected to add 1.5 million tonnes/year of steam-cracker ethylene capacity when it is completed in 2017.

ExxonMobil says US chemical industry export capacity will increase as planned expansions move forward, including the company's project at Baytown, Texas. Image: Eric Kayne/AP Images for ExxonMobil

Construction at the project has been underway since mid-June 2014 and has so far employed about 4,000 workers from a range of disciplines, including carpenters, electricians, welders, and ironworkers, according to Aguiar.

"Foundation and underground work will be completed over the next few months, followed by installation of steel structures and equipment, and then piping, electrical and instrumentation," he said.

The project’s eight steam-cracking furnaces are currently being built in Thailand and will be shipped to the site beginning in August 2015.

The ethylene feedstock will be used for downstream chemical processing, including processing at two new 650,000 tonne/year high-performance polyethylene lines at the company’s Mont Belvieu plastics plant.

The expansion will create a total of 10,000 construction jobs and is projected to add 4,000 new, permanent local jobs, including 350 positions at the ExxonMobil Chemical plants.

Aguiar said that while it examines its day-to-day operations and investments with a microscope, the company strives to maintain a wide aperture.

"Each of our capital investments – like Baytown, or our recent expansion in Singapore – is designed to perform well under a wide variety of scenarios," he said. “We look at the long term.”

ExxonMobil Chemical is designing its facilities to have the operating flexibility to thrive across feedstock cycles, whether naphtha- or NGL-based.

Long-term effects for chemical demand remain strong
ExxonMobil expects global ethylene production volumes to double by 2040. That growth is faster than overall energy demand. With the demand for chemical products projected to remain strong in the long run, ExxonMobil Chemical does not expect to see a big wave of petrochemical megaproject cancellations despite the low oil prices.

"The world will need to add the equivalent of four new petrochemical complexes each year in order to keep pace with this growth," Aguiar said. "Nearly two-thirds of chemical demand growth will come from developing countries; 50% will come from China alone."

The demand for chemicals will be driven primarily by the rising living standards and the growing middle class in emerging economies, Aguiar said. This will push the use of products such as cars, appliances and other consumer goods, which increasingly require plastics and other chemicals.

In the coming decades, an estimated 3 billion people are expected to move out of poverty and into the middle class. Consultancy McKinsey sees India's middle class growing tenfold by 2025. And the African Development Bank says that by 2030, most African countries will have a middle-class majority. 

"Rising exports from North America will help meet this demand," Aguiar said. "And as demand for chemicals continues to outpace overall energy demand, the production of chemicals will assume an even larger role in the global energy landscape."

By Heather Doyle