The US shale gas phenomenon is finally causing waves in the European petrochemical market. In early August, Borealis and Sabic followed Ineos’ lead in importing US ethane for their European crackers. But do these imports offer an empty promise to an otherwise depressed industry?
The shale revolution in the US not only provided low-cost ethane to revive the US industry, it has also given hope of economic survival to European producers that can crack gas instead of liquid naphtha. By 2016, three of the world’s biggest petrochemical companies will have started to import US gas into European ethylene crackers in a move that would have been unthinkable just a few years ago.
Ethane, a hydrocarbon, is one of five feedstocks for steam crackers, the others being liquid naphtha and gasoil and gases propane and butane.
A shale gas boom in the US has hammered ethane prices so low that it has triggered an investment bonanza in the US that threatens to pump out millions of tons of commodity grade polyethylene, depress PE prices globally and crush European margins.
That has led companies to look west for feedstock. And despite the exorbitant cost of transporting ethane, which includes construction of tanks, building special vessels, and upgrading crackers among others [costs, investments etc], it is still cheaper than European naphtha for many of these firms.
Other majors, like Versalis, are now set to follow Ineos, with cracker operators desperate to improve naphtha cracker margins that have collapsed from $1,164/mt in the first half of 2011 to $726/mt in the first half of 2014.
A look at the economics shows the stark contrast between producing ethylene on either side of the Atlantic. In the US, variable costs are less than $100/mt for ethane crackers to produce a ton of C2 ethylene — the main building block of all plastics. However, in European naphtha crackers that figure soars to more than $650/mt.
Oeyvind Lindeman, chief commercial officer of Navigator shipping company, hinted there were more companies seeking to exploit cheap US shale. […]
The question remains however: will the shift to ethane feedstocks pay off?