Ethylene Producers Race to Cheap Feedstock

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Researched by Industrial Info Resources (Sugar Land, Texas)--For the past two years, ethylene producers across the U.S. Gulf Coast region have considered expansion plans to increase production capacity in response to steadily declining feedstock costs. Over the last year, as the long-term outlook began to show signs of prolonged price advantages for ethane, the primary ethylene feedstock in North America, plans for new capacity quickly escalated not only to expansions, but also to grassroot capacity and new unit additions. Most of these investments are being driven simply by ethane feedstock cost advantages compared to traditional naphtha-based ethylene elsewhere in the world, while only minimally by influenced by demand.

In just the Gulf Coast region, Industrial Info is tracking more than $12 billion in capital projects planned by ethylene producers for new capacity, feedstock conversions, and feedstock flexibility modifications. Historically, the Gulf Coast region is where a majority of all ethylene is produced in the United States as a result of close proximity to feedstock and an integrated network of infrastructure pipelines to downstream polymers, plastics and related end markets. Even as the primary ethylene feedstock has moved from naphtha to lighter feeds over the last decade, the region still has access to significant amounts of ethane, continuing its legacy as the central production point for most ethylene in the U.S. Ethane-rich shale plays in Texas promise to provide long-term access to inexpensive feedstock for years to come.

As the exploration of dry natural gas shale plays rich with ethane gas in the Northeast and Mid-Atlantic region began to heat up over the past two years, there has been a significant amount of new ethylene capacity proposed in these regions. Industrial Info is tracking more than $5 billion of planned ethylene capacity in the form of grassroot construction in these regions. If even one of these new ethylene plants are built, this would be the first grassroot ethylene plant built in this part of the country in decades. Oil and gas developers are moving quickly to exploit the massive reserves available from the regional Marcellus and Utica shale plays to feed downstream markets like the ethylene producers, plus export opportunities to Southern markets. How quickly ethane from this region is made available will likely determine whether any chemical company can successfully build new ethylene capacity in this region. Limitations in transporting product from the region due to a lack of pipeline infrastructure could hinder the speed to market for natural gas developers, putting new ethylene capacity in jeopardy as producers in the Gulf Coast region stand ready to construct and install new capacity already connected to the most integrated infrastructure system in all of North America.

It's expected that as much as half or more of the $17 billion in proposed ethylene investments will be cancelled or delayed indefinitely, as there is far more capacity proposed than current or even future demand warrants. ChevronPhillips Chemical (CPChem), Exxon Mobil Chemical Company (NYSE:XOM), The Dow Chemical Company (NYSE:DOW) and a couple others appear to be moving aggressively with their expansion plans and are likely to outpace most producers in their quest to take advantage of the current feedstock outlook.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.