Will Asian and European Naphtha Crackers Survive the Tide?

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By: Beroe Inc. --

26 September, 2012

Will Asian and European Naphtha Crackers Survive the Tide?
WHITEPAPER

Producers with ethane-based crackers in the US, Canada and Middle east are at a competitive advantage versus naphtha-based units in Asia, Europe and Far East because of the large discount between natural gas and crude oil.?? In particular, the advent of shale gas has given US crackers a significant cost advantage. US operators are integrated both upstream and downstream whereas Middle East value chain is integrated upstream. Recently, some of the largest petrochemical companies such as US based Dow Chemicals, Royal Dutch Shell, Chevron and South Africa-based Sasol have become the early birds to take advantage of the shale gas boom and are planning to start-up world class shale gas based crackers by 2017.?? A lot more companies are either in the feasibility or planning stage.?? Resulting improvements are expected to increase the US ethylene capacity by 29% by 2017. Polyethylene producers using naphtha as feedstock will face extreme pressure on margins due to capacity addition of ethane based crackers.?? Higher naphtha costs could idle around 2 million t/y of cracker production in Europe and Asia because of margin pressure.?? Currently, naphtha Margins in Europe are about break even, and they are negative in Asia. Several new naphtha cracking projects that were planned to be constructed in Latin American countries are either put on hold or being reviewed due to increased shale gas production in the US, which has attracted investments in new ethylene projects and increased the competitiveness of the US.?? The price spread between naphtha and rival feedstock propane has widened further still.?? Low-margin crackers in Europe and Asia may ultimately have to shut down if margins for naphtha-based producers remain under pressure.




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