US to see hike in foreign-funded ethylene capacity in second wave of projects
The US petrochemical market will see a sharp increase in investment in ethylene production and derivatives capacity from foreign chemical and petrochemical manufacturers, totalling at least 10 million tons of new production per year by 2025, according to Petrochemical Update’s US Ethylene Plant Construction Costs Report 2015 released on June 4.
To date, about 25 companies, some at multiple locations, have announced they plan to build new crackers or to expand existing ones, 12 of which are foreign players, according to the report.
At least 10 other companies from South Korea, Japan, the Middle East and elsewhere in Asia are also studying ethylene investments in North America, many of which will service the export market.
The shale gas boom in North America has transformed petrochemical manufacturers in the US, Canada and Mexico from high-cost producers of key petrochemicals and resins to some of the lowest-cost producers globally, second only to the Middle East, ushering in a wave of new ethylene capacity construction.
The Petrochemical Update study tracks comprehensive cost data for 50 line items for ethylene plants in the US Northeast and Gulf Coast through 2020.
In the United States, 14 new world-scale ethane crackers with capacities above 1,000 KTA (2.2 billion pounds per year) have been announced or are planned with a combined capacity of almost 22 million tons per year (47 billion pounds per year), according to the report.
Debottlenecking will add another 2 million tons (4.4 billion pounds) per year of ethylene capacity, bringing the total to 24 million tons (50 billion pounds) per year.
An additional 1,750 KTA (3.86 billion pounds per year) of ethylene production has been announced for Canada and Mexico.
With traditional large players, new market entrants – such as Braskem and Sasol – and other manufacturers (SABIC, Lotte, Appalachian Resins, among others) looking to invest, overall capital expenditures in new ethylene crackers, expansions and associated derivative units could exceed $40 billion over the next five years.
Announced and planned ethylene capacity increases in North America. Source: Petrochemical Update Construction Costs Report 2015.
The first wave of projects (2015-2020) in the US includes six new ethylene crackers, five expansions and supporting derivatives units where work is already underway, worth a total investment of $18.4 billion and adding 10.2 million tons (8.3 million tons from new ethane crackers and 1.9 million tons from expansion units) of new capacity.
The US currently produces about 34 million tons of ethylene per year (75 billion pounds per year).
The capital expenditures for these investments range from around $250 million to $8 billion per project.
Of the six new ethane crackers under construction, three are being developed by foreign manufacturers. Formosa Plastics is building a 1,750 KTA cracker in Texas and is likely to build a 1,000 KTA facility in Louisiana.
In March this year, Sasol broke ground on its 1,500 KTA ethane cracker and derivatives mega project near Westlake, a facility that will roughly triple Sasol’s chemical production capacity in the US when it comes on stream in 2018.
In the second quarter of 2014, OxyChem and Mexichem’s 50-50 JV, Ingleside Ethylene, began construction of its 540 KTA, $1.5 million ethane cracker at OxyChem’s Ingleside, Texas, complex.
Besides the first wave of units expected to come on stream around 2018, there is likely to be a second wave of plants that have not yet started construction, assuming that the oil to gas price ratio remains competitive.
Some 13 companies, including nine foreign ones, have announced they plan to build new crackers or expand existing units.
In addition, there are at least 10 other petrochemical manufacturers (three from South Korea, four from Japan, one from the Middle East and two more from elsewhere in Asia) that are known to be studying an ethylene investment in North America.
While not all of these new crackers may be built, the level of project activity underscores the interest from foreign companies in the abundant supply of low-cost ethane from shale gas.
“The key driver for Asian companies is the high cost of their own naphtha-based olefins capacity versus olefins produced from shale gas in North America,” said Petrochemical Update Business Research Manager Louis Vye.
“Even at the current oil-to-gas (naphtha-to-ethane) ratio, North American olefins are competitive in the export market compared to naphtha-based olefins. These plants would be built largely for export by Asian companies.”
Source: Petrochemical Update Construction Costs Report 2015.
Controlling construction costs will be of paramount importance to Asian players as they will be exporting much of their production and need to offer very competitive prices. Margins are occasionally very tight and companies need to ensure construction costs remain under control if they are to recoup their capex investment, the report says.
The second wave of projects will likely be different in a number of ways. At least one new cracker will be built in the Northeast. Two companies, Braskem Americas and Shell, are considering projects based on ethane from the nearby Marcellus shale formation, and one plant is being considered for Ohio (PTT/Marubeni).
There are some distinct benefits to locating in the Northeast despite the relatively higher plant construction costs compared to the US Gulf Coast (see graph below). The cost of ethane should be lower than on the Gulf Coast due to lower demand for ethane in the North East and the significant reserves in the region.
The proximity to the end user market is another advantage, since 50 to 60 percent of the polyethylene market is in the Northeast and North Central United States.
Also, by the time either of these projects move to construction, there will also be a large pool of trained, skilled workers in the Gulf Coast from the seven crackers and multiple expansions currently underway in North America.
Source: Petrochemical Update Construction Costs Report 2015.
Crackers built in the second wave will have a much higher export sales component, especially if one or both investors are specifically targeting the export market, according to the report. The US domestic market will likely be saturated with capacity from the first wave of projects, making international markets the major outlet for the second wave of projects.
This will be true for polyethylene, polypropylene and PVC, assuming that at least two, if not three, major PVC investments move forward.
The exception could be for crackers built in the Northeast, due to their lower operating costs, which could give them an advantage with customers in the Northeast and North Central US.
However, these firms would likely face stiff competition from existing producers supplying the region as they look to retain market share.
To get more insights about the construction costs and local labor markets for ethylene plant projects in the US, check out Petrochemical Update's US Ethylene Plant Construction Costs Report 2015.