Chemical Industry Summary
The 6-month anniversary of OPEC’s decision to limit crude oil production will occur at the end of May, and the decision to re-authorize production cut targets is pending. The current news flow prompts many analysts to anticipate that the production cut targets will remain in place in 2017, perhaps extended to 9 months and tweaked a bit. Despite roughly a 90% compliance by OPEC, the effectiveness of the November targeted cuts to re-balance global supply and demand has been modest. The main issues have been increased crude oil production from the US and limited compliance to targets by non-OPEC producers. However, ahead of the May reauthorization meeting, OPEC and Russia issued a rare joint statement calling for continued production cuts. In the recent days, global crude oil pieces have strengthened somewhat, primarily on news concerning the impending reauthorization mixed with geopolitical concerns including the North Korean missile tests. However, it is generally conceded that global crude oil inventories remain elevated and global supply/demand will not rebalance in 2017.
Macroeconomics and Geopolitics
Americas
The balance of US economic news in April was positive following a weak showing in March. The US Bureau of Economic Analysis has come out with an initial estimate of US GDP growth at only 0.7%. However, a significantly stronger Q2 is in progress with the consensus forecast at around 2.9% GDP growth. This week, the Atlanta Fed is forecasting a strong 4.1% growth in Q2, up from 3.6% previously. For the full year, current GDP growth estimates are in the 2.1% to 2.3% area. The shape of economic growth once again calls for growth to be back-end loaded in 2017.For April, the US jobs report bounced back from a very poor March by recording 211,000 jobs added. The US unemployment rate edged down to 4.4%, at a level that has been historically seen as full employment. However, the labor participation rate remained low at 62.9% and many of the new jobs were in the lower-paying service sector. In April, US sales of light cars and trucks were 16.8 million units, up 1.7% from March and flat with last year. US auto sales in the first quarter have cooled from last year’s pace. The year-to-date average sales is near 17.1 million vehicles, down 0.6% from last year. This is in-line with recent consumer spending trends in the US for Q1 that recorded only a 0.3% improvement from last year. However, April did see US consumer spending up 0.5% from Marchand the Conference Board anticipates a 2.3% overall growth in consumer spending in 2017.
In the US manufacturing activity slowed, but was still in mild expansion territory. Markit’s April US manufacturing PMI index slowed to 52.8, down from 53.3 seen in March. This result indicated the slowest improvement since last September and was partially due to a pull-down of inventory by producers.
US housing starts in March were again firm at 1,215 thousand on a seasonally-adjusted basis, very near the January/February level. Construction-leveraged companies including paint suppliers and builders have seen improved stock prices and healthier outlooks. For Q1, housing starts were up 6.6% over 2016. In its May forecast, the NAR (National Association of Realtors) is projecting 2017 starts at 1.273 million, up 8% from 2016. The 2018 forecast calls for an additional increase of 8.7%.
Sales of existing houses in March were the strongest in 10 years at 5.71 million units, up 6.5% from last year. Housing inventory is now only 1.8 months. Average housing prices for existing home sales in March was US$236,000, up 6.5% from last year. Per Freddie Mac, the average interest rate in March was remained relatively low by historic standards at 4.2%. Sherwin-Williams reported same-store paint sales growth in Q1 of 7.5%, a relatively strong result. Architectural paint sales in the past have been a strong function of existing home sales.
The manufacturing sector in Mexico slowed in April, reversing a recent trend of improvement. According to Markit, Mexico’s PMI in April improved to 50.7, up from 51.5 seen in March. With manufacturing activity barely in expansion territory, US President Trump’s trade policies could prove to be significant for Mexico, the largest trading partner of the US.
Manufacturing activity in Canada continues to accelerate on improved domestic demand and a strong outlook. Canada’s April PMI of 55.9 was the highest in three and one-half years and well ahead of the 55.5 level recorded in March.
Brazil’s manufacturing sector recorded a PMI of 50.1 in April, the first time it has been above the neutral level of 50 since January 2015. In its April 2017 forecast, the IMF expects Brazil’s GPD to be nearly flat after falling 3.6% in 2016.GDP growth could return to modestly positive territory in 2018/2019, in the 1.5% to 2.0% area.
Europe
In France, the recent election of pro-EU centrist Emmanuel Macron scored a decisive victory in the presidential election over far-right National Front Candidate Marine Le Pen. In Germany, Angel Merkel’s re-election bid is gaining momentum and Europe’s swing to populism and anti-immigration, isolationist policies appear to be losing momentum.
The European economy continues to improve in part due to continued economic stimulus from the European Central Bank (ECB). As a region, the Eurozone recorded a strong manufacturing PMI result of 56.2 in April, up again from 56.2 seen in March. Manufacturing activity in the major European economies continued to be in strong expansion territory, with Italy and France recording 6-year highs. The ECB extended its €2.3 trillion stimulus program in December, through the end of 2017. In its April 2017 forecast, the IMF expects the EU’s GDP growth at 1.6% and 1.8% in 2017 and 2018.3.
For April, recently improved growth trends for Eastern Europe and Russia’s have moderated but continue to be positive. Russia’s manufacturing PMI was recorded at 50.8 in April, down from a 50.8 reading seen in March. Poland’s manufacturing sector continues to show expansion, registering a manufacturing PMI of 54.1, up from 53.5 in March. Poland’s April number was the highest in 31 months.
Asia
After a positive start to 2017, Chinese growth appears to have moderated. Slower orders and rising costs have trimmed activity the manufacturing sector. The Chinese government is restructuring the economy to focus on consumer demand and growth without excessive debt, and away from exports and capital expansion-driven growth. China’s housing market activity is at a fast pace but tightening short-term credit will likely cool the market later this year. April’s PMI index for China slowed to 50.3, down from 51.2 in March. Chinese imports in February were quite high with an unusual deficit of US$9.15 billion recorded.
China’s auto production in the first quarter was 7.133 million vehicles, up 8.2% from 2016 on an YTD basis. Full-year auto sales were at a record in 2016, up 13.6% from 2015, but are expected to be near 5% growth this year per the China Automotive Association, like 2013/2014. In April, China’s passenger car sales fell 3.7% to 1.72 million. The strong auto sales growth in Q1 was due in part to a sales-tax incentive that pulled sales forward. This incentive was curtailed in April, helping to explain April’s shortfall.
Polyolefin prices in Asia are tracking down reflecting weaker oil-based feedstock pricing and soft demand. Thus, in April, Far East Asian HDPE blow molding prices dropped by US$100 from previous month to a range of US$1,050 to 1,100/MT. Spot ethylene prices for March and April in SEA traded down from February.
In the last month, spot propylene and butadiene pricing in SEA have continued to come off peak levels that were seen in mid-March. Propylene spot prices are currently near US$735/MT, down US$215/MT from peak. Current injection molding PP in SEA remains in the range of US$1,050/ MT to US$1,100/MT providing a spread for PP of near US$315/MT. In April. SEA butadiene prices have continued to come down from peak levels of near US$3,000/MT seen in late February. Current prices are closer to US$1,055/MT.
Feedstock – Crude Oil
Since the November 2016 crude oil production cuts were announced, global stocks of crude increased 31 million barrels to slightly over 3 billion barrels, 275 million barrels above the 5-year average at the end of the first quarter. OPEC’s April crude oil production numbers have been released and the reported production was 31.73 million barrels per day, a reduction of 18,000 barrels per day from February. Additional production cuts were seen by UAE, Libya and Iraq. Production at this level represents an 88% adherence to the total target (1.2 million barrels per day) agreed to at the November 30 meeting in Vienna. The 6-month review of this initiative is due at the end of May where-authorization with modestly changed targets expected. Early reports are that producers are proposing a 9-month extension of the cuts.
OPEC reported that Russia’s production in April was 11.18 million barrels per day. This result was approximately 100,000 barrels per day lower that the average of the first quarter. OPEC reported that production from non-OPEC countries declined 440,000 Bpd in April, a substantial part of the pledged 558,000 barrels per day target. However, higher US production blunts the impact of the OPEC production cuts.
As of May11th, WTI spot prices in the US were US$47.33 per barrel, down about US$5/bbl. in the last month. In recent weeks, WTI oil prices have eased, and natural gas prices have firmed. The oil-to-gas price ratio has edged below 15:1 for the first time in several years.
For the week of May 5th, US crude inventories not in the SPR (Strategic Petroleum Reserve) were 522 million barrels, down about 10 million barrels, or 2% in the last month. US production keeps creeping upwards reflecting improving rig count as prices remain above the break-even point for many formations. Current US production for the 48 States is now near 9.3MM Bpd, up 6% from the beginning of the year. For the week ending May 12, Baker Hughes reported that the US total rig count (oil and gas directed) was 885, up 38 rigs from a month ago and up substantially from last November’s count of near 570. Oil-directed rigs are bear 80% of the total. Current rig count is over double the low mark of 404 seen as recently as May of 2016. The higher oil pricing and improved drilling efficiencies including expanding lateral distances, increase number of wells per platform, more concentrated well spacing have led to the boom in production activity.
Feedstock – Natural Gas & NGLs
In the last month, US natural gas prices have begun to firm as inventories have approached typical seasonal levels and are near US$3.25/MM BTU at Henry Hub. This appears to reflect a relative balance for supply and demand in a ‘shoulder season’ and inventories that are near seasonal norms. The week ending May 5thsaw total US inventories of 2.3 trillion SCF, down 14% from last year. While this level was 22% above the 5-year average of 1.89T SCF, it was well below last year’s storage level that was 43% higher than the prior 5-year average for this time of the year. This week’s injection to underground inventory was a modest 45B SCF.
Ethane spot prices for April averaged near US$0.246 per gallon, up 1.5cents/gal from March. The EIA reported ethane/ethylene inventories of 52.5 million barrels at the end of February, 60% higher than a year ago and near the record levels that were seen late in 2016. In January and February, US ethane exports averaged 135,000 barrels per day, up 42% from the 2016 average, facilitated by the start-up of Enterprise’s new ethane export terminal in Houston. Ethane export volumes are expected to be in the range 200,000 to 250,000 Bpdby the end of 2017. By the end of 2017, incremental ethane demand of 200,000 Bpdis anticipated for new domestic cracker feeds. The net result is additional demand of 335,000 to 385,000 barrels per day. This is substantial portion of the currently rejected 500-600,000 Bpd of US ethane.
US propane inventories have dropped sharply as new export facilities have been commissioned and seasonal global demand for exports has been seen. For the week ending May 5, the EIA reports that US propane/propylene inventories were 41.6 million barrels, down 43.1% from a year ago. US prices for propane are currently near US$0.62/gallon, up 24% from a year ago, but are still below international prices
US Olefins & Polyolefins
US contract ethylene prices for April settled up by 2.0cents/lb., resulting in a net transaction price of 28.0cents/lb.for the month. Since November of 2016, US ethylene has traded in a relatively tight range, reflecting the low volatility of feedstock pricing and the relative balance of supply and demand. Good export opportunities for ethylene derivatives have kept operating rates high. Pushed by limited availability due to Q1 turnarounds, US ethylene spot prices were in the mid-30’s in early February. More recently, spot prices have cooled to an April average of 29cents/lb., very near current contract pricing.
The strong turnaround activity for US crackers seen in Q1 has ended with 5.2% of US capacity idled during this period. For Q2, only2% of US ethylene capacity will be off-line for planned outages, although unplanned outages are always a possibility. Improved availability has softened the market and has contributed to lower spot pricing. Planned US cracker outages are relatively light until the fall turnaround season.
US contract propylene prices for April settled at down 6.0cents/lb.with chemical grade benchmark price at 44.5cents/lb. May prices have settled down by7.5cents/lb or16%to 37cents/lb. Due to improved supply. Current spot prices for propylene are in the high US$0.30/lb. area, down approximately 0.20/lb. from March.
US contract butadiene continues to be extremely volatile. Contract prices settled down 29cents/lb.in May to a level of 64cents/lb. This comes only two months after hitting a peak level of US$1.10/lb.
For April, US PE producers have delayed implementation of the second half of the proposed 6cents/lb. price increase announced in March until May. The April ethylene settlement of up 2cents/lb.will help support this increase as well as improving seasonal demand.
US exports of PE in March of 453 thousand MT remained flat with February and were down 6.7% from last year. However, imports of PE of 229 thousand MT were down 17% from a year ago. On a net export basis, PE exports were down 4% from March of 2016.
US polypropylene exports in March were flat from at115,000 MT, up 54% from last year. March imports of PP were up to near 15,000 MT, roughly one-third the level seen last March.
Following a 1cents/lb.increase in March, US PVC prices in April stayed flat. Since ethylene was up 2cents/lb.in April, PVC margins improved slightly. Export pricing for both EDC and VCM have increased in the last month.
European Olefins & Polyolefins
In May, the European contract ethylene price rolled over, settling for the third consecutive month at €1,050/MT. Since the first month of the year, spot prices for ethylene in NWE have firmed over €200/MT to the area of €1,100/MT. This level has been seen in the last three months.
Contract European propylene prices rolled over in May, and remain elevated at €880/MT. This the is highest contract price since August of 2015. European prices for PP homopolymer are down €20/MT since the beginning of April.
European contact butadiene prices for May dropped €225/MT for the month to a level of €1,525/MT. However, spot prices in May appear to have come down from peak levels see in February that were near US$2,400/MT. Current spot pricing is now closer to US$1,630/MT.
After dropping €192/MT in April, the European benzene contract price for May is up €9/MT to a level €754/MT. This price is up 26% from a year ago, primarily reflecting a 27% increase in the price of Brent crude.
Since March, European high-density polyethylene, blow molding grade prices in Europe remain elevated have traded in a €100/MT range. Prices for HDPE blow molding grade for Northwest Europe are near €1,375/MT, in a range of up €100/MT to €200/MT from the beginning of year.
Global Chlor-alkali
The US Chlorine Institute reported that US chlorine production in March was 1.14 million short tons, up 7.4% from last year. The reported operating rate of 93% was the highest since 2008 and reflects export opportunities provided by operating issues in Europe and in Asia. For the entire year 2016, US chlorine production averaged 84% of effective capacity.
Recent movements of export prices for caustic and the chlorine-containing PVC intermediates VCM and EDC have been positive. Producers were successful in implementation of most of the US$45/ST increase announced for caustic since the beginning of 2017. For Q2, an additional US$70/ST increase was announced for May. US export prices for caustic averaged US$450/ST in April due to tight supply, up about US$80/ST from January.
Eurochlor reported chlorine production for March 2017 at 791,833 MT, down 1.5% from last year. Operating rates were reported at 78.8%. Caustic stocks of 198 thousand metric tons were 15% below a year ago and were lower than any reported inventory in the last 10 years. CMR believes that during 2016 and 2017, 31% percent of European mercury cell capacity will be shut down, representing 8% of total European capacity. This will push operating rates up and likely will necessitate caustic imports.
AMERICAS
CB&I launches polypropylene pilot plant in Texas
CB&I has announced the inauguration of Novolen®Technology Polypropylene Pilot Plant at its Pasadena R&D center in Texas. The pilot plant will be a critical part in the development and commercialization of new products and catalyst systems.
Comments: CB&I with Novolen®PP process is a leading propylene (PP) technology licensor. Novolen®PP process is a gas-phase polymerization technology based on two vertically-stirred bed reactors, providing flexibility of manufacturing a full range of products using Ziegler Natta (ZN) or metallocene catalysts, including homopolymer (HPP), random copolymer (RCP) and impact copolymer (ICP). The pilot plant allows simulation of continuous polymerization under commercial conditions and enables to perform extensive trials before moving innovations to commercial production. The investment in Texas will be complementary to CB&I’s ZN polypropylene catalyst facility that launched in Louisville, Kentucky last year. With the start-up of this pilot plant, CB&I could continuously address evolving market needs and position itself in a more competitive position in the technology licensing market.
ExxonMobil, SABIC select Texas for JV petrochemical project
ExxonMobil and SABIC have chosen San Patricio County, Texas for their JV ethylene complex. The proposed project will include one 1,800KTA ethane-fed cracker and would potentially produce MEG and polyethylene. The two companies will individually make final investment decisions after necessary permits are granted.
Comments: ExxonMobil and SABIC have worked on multiple partnerships in the past, the latest being an elastomers project in Saudi Arabia that started up in 2015. SABIC has a strategic goal of adopting more non-crude oil feedstock source for petrochemical production. Last year, SABIC cooperated with Shenhua Ningxia Coal Industry Group for coal-to-chemical facilities in China with scheduled start-up in 2020. This US joint venture allows SABIC to expand its polyolefin production into North America, as well as secure economical and abundant natural gas feedstock. ExxonMobil is preparing to start-up new capacity in USGC in 2017 and the joint venture with SABIC will prepare the company for next wave of PE expansion. The stream cracker and ethylene complex are part of ExxonMobil’s US$20 billion investment on the USGC for next 10 years.
Nova Chemical acquires Williams Partner’ cracker in Louisiana
NOVA Chemical has announced it will take over 88.5% stake owned by Williams Partner in Geismar cracker in Louisiana for US$2.1 billion. The transaction is expected to finalize in summer 2017. After completion of the transaction, Williams Partners will continue feedstock supply via Bayou Ethane pipeline under a supply agreement.
Comments: NOVA Chemicals headquartered in Calgary, Alberta, is a wholly owned subsidiary of International Petroleum Investment. NOVA Chemicals has manufacturing facilities for Polyethylene at Moore and St. Claire River sites (both places located in Ontario, Canada). NOVA Chemicals business is built on its feedstock advantage in Alberta and energy-efficient manufacturing facilities in Canada. NOVA Chemicals has actively invested into the US Gulf Coast in 2017 with a JV with Total and Borealis for ethylene and PE complex as well as the acquisition of Williams Partners’ Geismar cracker. Those moves are part of NOVA’s growth strategy to leverage US shale gas economics and its proprietary SCLARITECH gas-phase PE technology to better serve customers in North America. As for Williams Partners, the divestment of Louisiana cracker and Canadian PDH unit, along with associated natural gas assets in Canada, align with company’s strategy to allocate capital back to its core natural gas focused business. Lyondell Basell planning US$3 billion petrochemical projects on the USGC
LyondellBasell plans to build one HDPE facility in La Porte, Texas and one propylene oxide/tertiary butyl alcohol (PO/TBA) in Houston, Texas for total investment of US$3 billion. The HDPE project with capacity of 500 KTA targets commercial operation in 2019, while the PO/TBA unit can produce 450KTA of PO and 900KTA of TBA with tentative start-up in 2021.
Comments: Lyondell Basell is studying multiple investment projects in ethylene, propylene, PE, PP, PO with an eye on prospective global trade. While most of the projects are still undergoing feasibility assessments, the company is getting ready to build a new 420KTA HDPE plant in La Porte that will use their brand new Hyperzone PE technology. The final investment decision on other projects can be anticipated in the next couple years.
INEOS evaluates US polypropylene expansion INEOS is considering debottlenecking its polypropylene (PP) capacity in the United States with a final decision to be made in 2018. INEOS currently has three PP facility in the United States with total capacity of 726KTA.
Comments: Most of the announced expansions in North America were for shale gas-basedethylene and polyethylene. This led to increasing investments in PDH units for production of propylene. US polypropylene producers are planning to take advantage of low-cost propylene and expand or build new polypropylene capacity. Formosa is building new PDH and PP plants planned for start-up in 2017, followed by INEOS that is likely to expand its capacity by up to 20%.
EUROPE
SOCAR targets 2022 for start-up of Azerbaijani petrochemical project
SOCAR eyes to begin commercial operation at its proposed gas processing and petrochemical complex in Baku, Azerbaijan in early 2022. The project will include a gas processing facility, a gas-fed cracker, a 600KTA swing HDPE/LLDPE plant. SOCAR is currently in talks with financial institutes about project financing and is expected to sign financial agreement by early 2018.
Comments: State Oil Company of Azerbaijan Republic (SOCAR) Polymer is a joint venture formed in 2013 between the stated-owned SOCAR and private holding companies -Pasha, Gilan and Azersun. Currently, Azerbaijan imports PP and HDPE to meet its domestic demand. SOCAR has selected Univation’s UNIPOL™ PE Process and XCATTM metallocene technology for its planned PE facility. It is highly likely that the start-up of this new PE plant will put the country in an oversupplied position with respect to PE. SOCAR Polymer plans to export approximately 70% of its production to Eastern European and Western Asian countries where demand growth is increasing rapidly. With the manufacturing capability of manufacturing metallocene PE grades in film applications, SOCAR could offer cost-advantaged and high value-added products to expand its foothold in oversea markets. The balance of its production will be sold to domestic consumers.
Russia’s SIBUR to establish R&D center in Skolkovo
SIBUR plans to build an R&D center at Skolkovo Innovation Center near Moscow, Russia for development of polyolefins. The R&D center is scheduled to be completed in 2018.
Comments: SIBUR is Russia’s largest producer of both polyethylene (PE) and polypropylene (PP) by volume. To increase global competitiveness, SIBUR has previously invested in modernization of petrochemical infrastructures and utilization of cost-competitive natural gas for downstream production, aiming at both domestic and export markets. The R&D center will install all required equipment for experiments and pilot manufacturing lines, allowing SIBUR for deeper studies for polymer properties and product quality. With the establishment of R&D center, SIBUR could better serve its clients and explore new market segments via expansion of existing products into new applications as well as development of new product solutions.
MIDDLE EAST & AFRICA
Dow’s Sadara launches LDPE facility
Sadara Chemical has begun all commercial operation at its high-pressure low-density polyethylene (LDPE) facility in Jubail Industrial City II, Saudi Arabia. With the start-up of LDPE facility, Sadara has all its plastic manufacturing facilities up and running.
Comments: Sadara Chemical Company is a joint venture between Dow Chemical and Saudi Aramco in which Dow Chemical provides proprietary technology and market network while Saudi Aramco offers feedstock and expertise in mega project. Saudi Aramco is known as the world’s the most valuable company with the largest oil production on daily basis. The heavyweight has been in efforts to integrate vertically toward to downstream petrochemical production since its JV with Sumitomo, Petro Rabigh established in 2005. In 2016, Saudi Aramco formed a synthetic rubber joint venture with Laxness, called Arlanxeo. Saudi Aramco recently entered the partnership with Petronas for petrochemical projects in Malaysia. These projects will help Aramco diversify downstream product portfolio and solidify its market position both home and aboard to up against SABIC and other foreign rivals.
Iran seeking US$40 billion for petrochemical projects
Iran seeks foreign investment for development of petrochemical projects over next five years as the nation attempts to expand its foothold in global petrochemical market. There are approximately US$40 billion worth petrochemical projects to be developed during 6th Five Year Economic Development Plan period (2017-2022).
Comments: The criteria for choosing foreign investment is to bring in technical know-how, technology and capital equipment for Iran. Iran is preparing to rebuild its economy after more than 10 years of economic sanctions that have choked off foreign investment and access to energy markets. The Persian Gulf nation agreed in 2016 to accept limits on its nuclear program in return for a removal of the curbs, which have targeted exports of petrochemicals as well as oil. Any potential investors will be highly encouraged to form partnership with local companies.
ASIA PACIFIC
India Oil in talks with Saudi Aramco for potential downstream projects
India Oil Corp. has reportedly been in initial discussions with Saudi Aramco for exploration of a mega petrochemical project to be built on west coast of India.
Comments: Indian state-ran companies Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL)and Hindustan Petroleum Corporation (HPCL) are planning to build the refinery, in which IOC would have 50 percent and BPCL and HPCL would hold 25 percent each. The Indian companies that plan the construction of the refinery have identified land on the Maharashtra coast for the venture. The International Energy Agency (IEA) has said in an outlook on India that refining capacity additions over the last decade had outpaced domestic demand growth and turned the country into a net exporter of refined products. Over the period to 2040, a further 3.4 million bpd of refinery capacity expansion and very high utilization rates are expected to drive refinery runs up by 3.1 million bpd to reach an overall capacity of 7.6 million bpd in India by 2040.
Sinopec acquires BP’s stake in SECCO
UK’s BP has decided to sell its 50% share in Shanghai ECCO Petrochemical Company (SECCO) to Sinopec’s subsidiary Gaoqiao Petrochemical for US$1.68 billion. The deal will be paid in installments and is expected to close by the end of 2017.
Comments: Shanghai SECCO produces 3,200KTA of petrochemical products, including ethylene, propylene, butadiene, SM, PE, PP, PS, ACN and SAR. The company formed in 2001 with a total investment of US$2.7 billion and is the BP’s the largest investment in China. BP’s decision for selling off its stocks of SECCO comes at the period of low crude oil prices, coupled with three straight quarterly loss and ongoing payoff plan for 2010 Gulf of Mexico oil spoil. Chinese counterpart Sinopec recently announced investment plan to establish world-scale refinery clusters in Maozhan, Zhenhai, Shanghai and Nanjing with a total investment of US$29 billion, allowing development of cost-effective and differentiated downstream products against competition from private sector. The getting control of Shanghai SECCO will help Sinopec accelerate the development of refinery cluster in Shanghai. The shanghai refinery cluster is designed to have a total refining capacity of 26,000KTA and ethylene capacity of 2,590KTA.
Hanwha, TOTAL to expand ethylene capacity in Korea
Hanwha-TOTAL, a 50/50 JV between the partners, has decided to boost ethylene capacity at its existing cracker in Daesan by 30% to 1,400 KTA. The expansion project is scheduled to be finished by 2019.
Comments: Korea’s petrochemical industry is export-oriented and relies on imported crude oil as feedstock. The South Korean Government has initiated a restructuring plan that encourages Korean petrochemical producers to develop toward high value-added products. Many Korean petrochemical producers, including LG Chem, Lotte Chem, KPIC, and Hanwha-TOTAL, all have ethylene expansion projects underway in response to government’s call for upgrading production. The new ethylene capacity will be partially used to support the development of products with high value-addition in Korea, and partially target China as a major export destination.
PTTGC mulls capacity expansion of olefins
PTTGC has announced its plan to build a naphtha-fed cracker in Map Ta Phut, Thailand. The cracker is designed to produce 500KTA of ethylene and 261KTA of propylene, with expected start-up in 2020.
Comments: One of the corporate strategies that PTTGC has deployed in recent years is to reduce external sales and exports of its upstream products, such as naphtha, benzene and para-xylene, while improving value addition out of upstream products. Currently, about 80% of naphtha produced by PTTGC is sold to its domestic competitor, SCG Group. The Map Ta Phut retrofit project is to switch cracker feedstock from natural gas to naphtha, allowing PTTGC to consume more naphtha internally and further develop C2 and C3 value chain. The naphtha cracker will help support its new metallocene linear low-density polyethylene (m-LLDPE) facility expected to come on-stream in early 2018. With China’s economics getting slow, PTTGC is expected to explore new markets where demand for polymers is higher, such as Cambodia, Laos, Myanmar, and Vietnam, for growth in years to come.
Petronas, Saudi Aramco explore expansion opportunities in downstream production
Petronas and Saudi Aramco are evaluating downstream projects for full utilization of raw materials from their JV cracker in Pengerang, Malaysia. The projects under investigation include specialty chemical and synthetic rubber.
Comments: Saudi Aramco and Petronas recently formed an equally owned JV for refinery and cracker assets under RAPID project. The further evaluation of downstream production is aimed to maximize value-addition from olefins produced from their JV assets and secure product destination. RAPID already has associated ethylene oxide (EO), polyethylene (PE)and polypropylene (PP) facility under construction for produced ethylene and propylene. The stream cracker could produce approximately 600KTA of butadiene. The potential downstream projects are expected to consider elastomers, synthetic rubbers, or specialty chemicals that could consume C4 olefins for value-addition.
SHALE GAS DEVELOPMENT
TOTAL to invest US$500 million in Argentina shale gas production TOTAL
SA plans to invest US$500 million over next four years for production of shale gas at Vaca Mueta formation, Argentina. Gas produced from Vaca Mueta project will be treated at Total’s existing Agueda Pichana facility.
Comments: Per US EIA, Argentina holds 802 trillion cubic feet of recoverable shale gas, which is far more than its 12 trillion cubic feet of proved conventional natural gas resources. For past decade, Argentina’s natural gas production has been gradually decreasing, leading to increased reliance on imports, mainly from Bolivia. Vaca Muerta formation located in Neuquén province is one of the most promising shale basins outside of North America. It has drawn significant interests from international oil & gas players including ExxonMobil, Shell, Chevron, TOTAL and Gazprom, all of which have production agreements with Argentina state-owned YPF. Currently, only 15% of natural gas production in Argentina is sourced from shale gas formation. Argentina aims to get 50% of domestic natural gas from shale gas sources via these partnerships, thereby releasing reliance on imports and potentially laying the foundation for development of downstream petrochemical production.
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