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Petrochemical markets are heavily impacted by changes in the crude oil price, since crude oil and its derivative naphtha, are essential steam-cracker feedstocks for the production of numerous chemicals. Changes in crude oil prices influence not only the overall price level for petrochemicals like olefins and aromatics, but are also a primary driver behind the supply and demand picture. IHS Chemical provides an overview of the market in Europe. Meanwhile, a new process that produces ethylene from natural gas through oxidative coupling of methane (OCM) is expected to change the ethylene market landscape.
Crude oil price swings in recent months, combined with a devalued Euro, have created a volatile, but profitable marketplace for European petrochemical producers, with European steam-crackers achieving record margins in fourth quarter 2014, according to analysis from research house IHS.
“After crude oil prices started dropping in the summer of 2014 descending to a low of approximately US$46 per barrel in January 2015, entire value chains for chemicals and polymers went into a destocking mode, and buyers began postponing their buying decisions for as long as possible, waiting for prices to bottom out, ” said Michael Smith, Vice-President of European chemicals, at IHS Chemical.
He adds that with crude oil prices now around US$62 per barrel, consumption is improving, and buyers throughout the value chain are focused on restocking their inventories. “The challenge now for buyers is simply sourcing material, not negotiating on price, which is a welcomed advantage for European petrochemical producers. These producers are asking how long will these good times last?”
IHS Chemical will hold its EMEA Aromatics and Olefins Conference June 9-10 at the Divani Caravel Hotel in Athens, Greece, where Smith says this will be the topic of discussion.
“Polymer and other petrochemical buyers are currently facing a once in a generation supply squeeze,” said Matthew Thoelke, Director of Olefins at IHS Chemical. “For buyers, the current market scenario is a perfect storm in reverse. At IHS, we see four main factors contributing to this unusual situation: buyers have an incentive to restock, European consumption is improving, imports are at reduced levels thanks to a devalued Euro, and lastly, as a result of these factors, buyers of polymers face a virtual supply nightmare."
Weak Euro prompting improvements
Ironically, IHS says the weakened Euro has been cont r ibuted to the Eurozone’s recent improved performance along with very low oil prices and stimulus from the European Central Bank, which is benefitting industries such as petrochemicals.
Howard Archer, Chief European and UK Economist, IHS Economics and Country Risk adds, “In particular, the weakened euro has provided a significant boost to the competitiveness of Eurozone manufacturers, particularly in export markets. With the Euro climbing off its mid-March lows and Eurozone growth expected to continue to firm, IHS thinks it is unlikely that the Euro will dip below parity against the dollar, so the advantage here for European producers, in terms of the Euro disparity, is likely to erode. However, the euros’ performance could be impacted by whether or not Greece stays in the Eurozone.
But how long the tight supply petrochemical market will last in Europe is the big question that depends on oil prices.
According to Thoelke, “Currently, the Brent crude oil price very stubbornly hovers above the US$60 per barrel mark, but this can change rapidly. Lower crude prices could send petchem prices tumbling. Fundamentals still point to an oversupplied oil market, and our colleagues at IHS Energy expect the Brent price to fall back to US$50 per barrel in the coming months, when close to 2 million barrels per day of crude oil will be heading into storage. If this happens, demand is likely to ease, though producers will have the opportunity to see a repeat of Q4 2014, as prices would trail costs downward and margins will once again strengthen.”
Converting methane into ethylene via new OCM process
For the last three decades, chemical companies worldwide have been working to develop a process to convert methane (natural gas) into ethylene, the world’s largest-volume commodity chemical, with global demand for 2015 estimated at more than 146 million tonnes, according to IHS Chemical.
Last year, IHS Chemical discussed the promise of a new technology, called the Siluria process, which produces ethylene directly from natural gas through oxidative coupling of methane (OCM).
With the start-up of Siluria’s new demonstration plant recently in La Porte, Texas, that technology has now moved one step closer to the long-sought reality of a commercial process for converting methane to ethylene.
The plant is wholly owned by San Francisco-based Siluria Technologies, and co-located at a plant operated by Braskem America.
IHS says the technology – in terms of the science behind it – is only part of the story. It is the engineering and project development implementation of the science that makes this particular Siluria process noteworthy.
Essentially, the Siluria process is potentially a game-changer for the industry. Other companies are working on similar technologies, but no other company is at this level, says IHS. That is no small accomplishment in a mature industry like petrochemicals, where major technological leaps forward are rare.
According to Siluria ”this breakthrough was achieved using a combination of new innovations in catalyst development and advances in catalyst screening.”
Siluria has previously announced its partnership with Linde to offer licenses to the ethylene industry worldwide. Siluria estimates that at 1 million tonnes/year scale, Siluria's technology would have a US$100/tonnes cost advantage over ethane cracking and US$350/tonnes for naphtha cracking. IHS estimates the ethylene cashcost to be US$515/tonnes when methane is US$4.12/MM BTU.
Siluria has also scaled up production of the catalyst, which is quite different. Capex for the 1-tonne/year OCM demonstration plant is US$15 million. Siluria is working with Linde to offer design for 75,000 to 1 million tonnes/ year scale methane to ethylene plants.
According to a IHS analysis Siluria has appeared to have unlocked the code, developing a patented process for the production of polymer-grade ethylene via oxidative coupling of methane. It says this is still timely for producers seeking to further leverage an abundance of shale gas resources available in North America and other regions into essential petrochemicals.
Currently, ethylene, which is considered the workhorse petrochemical building block, is predominantly produced using high-temperature steam cracking of ethane and naphtha feedstocks.
Since the development of the steam-cracking process of higher carbon alkanes to produce ethylene and heavier olefinic co-products, all process developments have been evolutionary, not revolutionary in nature. That said, R&D chemists have investigated the elusive process of coupling the simple, one-carbon methane molecule to form an economically viable two-carbon ethylene molecule. Such a route has been technically and economically problematic with respect to yield, selection and process stability, due to high-reaction temperatures, and non-specific catalysts.
IHS says it believes that this simple, but elusive, chemical process route is much more likely to be achieved with development of Siluria Technologies’ catalyst and process technology. Plus, it says it appears to be technologically feasible and commercially competitive as compared to naphtha cracking and even ethane cracking to ethylene when ethane/methane price ratios are above certain levels. This technology, when implemented on a commercial scale, could contribute to a global feedstock reshuffle for basic commodity chemicals.
IHS suggests that the Siluria process will be cost effective at lower natural gas (methane) prices and at higher ethane prices. The economics suggest that OCM to ethylene is a capital-intensive process primarily driven by the cost of heat exchangers and compressors used in modifying the temperature and pressure of light gasses in the process.
However, the process also generates value-added co-products energy that reduce the effect of the raw material and utilities costs. Specifically, IHS estimates that (based on methane at US$4.12/MM Btu) such credits reduce the raw material cost of US$567/tonne of ethylene to a net variable cost of US$426/tonne.
When considering fixed cost, the plant cash-cost that IHS expects for a world-scale OCM-based ethylene plant is US$515/tonne of production; and at US$3/MM Btu: US$420/tonne of OCM-produced ethylene.
(PRA)
