Issue Date: January 9, 2012 | Web Date: January 12, 2012
Petrochemicals: Demand Is Sluggish, But Long-Term Prospects Are Bright
In the face of economic uncertainty, 2011 was neither bad nor good for U.S. petrochemical makers, and observers expect 2012 to be more of the same. However, the long-term outlook is better than it has been in a generation.
Last year started out strong, but sales weakened as worries over the European debt crisis and the U.S. economic recovery came to a head in the third quarter, according to Grant C. Thomson, president of olefins and feedstocks at Nova Chemicals. Given the uncertainty, buyers of ethylene derivatives reduced inventories. “Our customers in general have been very cautious,” Thomson says.
John Stekla Jr., director of ethylene studies for consulting firm IHS Chemical, says U.S. domestic ethylene demand increased 3% during 2011. “With all the bad economic news, it maintained itself better than folks expected,” he says. In 2010, a year of economic rebound, domestic ethylene demand increased by a more robust 9%.
U.S. ethylene demand will increase by less than 1% in 2012, Stekla projects. Plant operating rates, now a healthy 90%, might slip a little as producers complete incremental expansions.
But bigger projects are in the works. It has been a decade since the U.S. has seen a new ethylene cracker. At the time, natural gas liquids, the feedstock that most of the U.S. petrochemical industry depends on, were at a cost disadvantage to the petroleum-derived feedstocks used elsewhere in the world. Observers thought the U.S. might never see another major petrochemical investment.
With the new supply of natural gas derived from shale, everything has changed. Since the end of March 2011, companies have announced plans for four new ethylene cracker complexes and other expansions that together could add 7 million metric tons per year of new capacity by 2017. Stekla says additional projects could emerge: one on the Gulf Coast and one in the Northeast.
But to get off the ground, all the projects will need both feedstock contracts and customers. Stekla thinks the feedstocks will be available, but marketing could prove challenging. “If you take each announcement individually, you can show where it makes perfect sense for that company,” he says. “It is only when you add up the total amount of volume where you can really begin to question whether the market needs all of that additional capacity.”
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