MOSCOW (MRC) -- The impact of the COVID-19 pandemic on olefins markets around the world has seen demand for some feedstocks suffer while others have surged, with the collapse in oil prices also causing normally feedstock-advantaged regions such as the Middle East to stall or potentially cancel new projects, according to Chemweek with reference to IHS Markit experts at the World Petrochemical Conference (WPC) 2021, being held in an online format.
COVID cut into US liquefied petroleum gas (LPG) production and saw US export growth take a short-term pause, according to Walt Hart, vice president/global natural gas liquids at IHS Markit, speaking in a panel discussion on olefins, feedstocks, and derivatives. LPG production should begin to grow again, however, with US exports to remain the largest in the world, he says. LPG demand “remained relatively strong throughout the COVID crisis,” he said.
There’s still “room to grow” in China, but US LPG exports are now reaching into SE Asia and occasionally into India, he noted. With Saudi Arabia having cut oil production in recent years to support oil prices, Middle East LPG exports have gradually declined. “This is changing trade dynamics and the relationship between Japan’s spot prices and Middle East prices, and waterborne freight rates have essentially disintegrated over the last couple of years. The US is going to have more and more influence on the benchmark prices in Asia and Middle East going forward,” Hart said.
Some parts of the industry prospered and did “very well” because of the pandemic, due to constraints in movement and the lack of service activity occurring in the global economy, according to Matthew Thoelke, executive director/olefins and derivatives EAME at IHS Markit. Others suffered, with low-cost producers in North America and the Middle East seeing their cost advantage disappear during the second quarter of 2020, he said. “It was a very challenging year, particularly the second and third quarters, but as we moved into the fourth quarter we saw a real resurgence in demand. We saw the catching up of inventory that was required to refill the supply chain. That was anticipating a much stronger 2021, and so far this year that has continued,” he said. For the Middle East this has meant “not just higher margins for the industry generally, but also significant cost advantages coming back,” he added.
The industry was already “heading into a downturn, but that downturn has probably been a year shorter at the front end as a result of the pandemic,” according to Thoelke. The back end of the downturn is also “probably going to be shortened as we see the impact of delayed projects,” he said. “Specifically, we see several projects in the Middle East that are likely to be delayed. We see projects elsewhere in the world that will probably see the same fate. The reality is that the downturn is maybe going to be a little bit shorter, but maybe it’s also going to be a little bit deeper than we initially expected.”
Thoelke described the availability of capital and a willingness to put capital into assets as “really critical,” with that dynamic “generally very weak in the Middle East when you see low oil prices.” Most of the petchems projects under consideration currently are being pushed back by national oil companies (NOCs) because oil prices are such a key factor in driving the cash flows of the NOCs looking to invest, he said.
“The pandemic really came at a very bad time, in the engineering and pre-engineering stages, heading towards investment decisions. Suddenly you had this huge push towards minimizing capital expenditure, effectively pushing those projects later,” Thoelke said. Several of those projects potentially won’t now happen, he said. “There’s at least six or seven projects in the Gulf Cooperation Council (GCC) area, in the medium term - some ethane-based, some mixed feed, some heavier feed - and several of those may disappear or will definitely be later. We’re now looking at more like the end of the 2020s or 2030 before those projects can be realized,” he said.
Another factor is the challenge of “making liquid cracking work in the Middle East,” Thoelke said. “Fundamentally it’s best to be close to where the demand is because co-product valuations are higher as you’re moving low-cost product, crude oil, liquid feeds, or naphtha, rather than several different chemical products. The industry in the Middle East has really struggled to make it work in terms of taking those liquid feedstocks,” he said. Producers in the Middle East, however, are “shifting a little bit of their focus towards joint venturing and partnering with companies in those big demand centers in China and India,” he noted.
For methanol, the key longer-term takeaway is that demand growth is forecast to be slightly lower than GDP for the first time in many years, according to Mike Nash, vice president/global syngas at IHS Markit. There are only two methanol-to-olefins (MTO) units under construction, one due to start up this year, with another in 2022, he said.
“China’s E10 policy, however uncertain, looks as if it will result in lower methanol demand into direct blending, and methyl tert-butyl ether (MTBE). The relatively low crude oil price is likely to lead to poorer methanol economics, and therefore lower demand, into fuels applications,” he said. The impact of lower methanol demand growth will mean the likely closure of some older, less efficient capacity in China, while there will also like be “postponement or cancellation of methanol projects, particularly those Chinese-funded ones in the US, where cheap shale gas was being monetized into methanol to be shipped to east China to feed MTO production,” Nash said.
The potential future demand route for methanol as a marine fuel is more of a long-term opportunity, he said. “It’s not going to become material in the next five years, or possibly even the next 10 years. It’s going to be 10-15 years plus,” he said.
For butadiene, the impact of the pandemic on the market means a prolonged recovery, according to Bill Hyde, executive director/olefins and elastomers at IHS Markit. “It’s going to take years for butadiene demand globally to recover to the 2019 level, and as it does that, ethylene demand will continue to grow. So crude C4 supply will lengthen,” he said.
IHS Markit sees a longer crude C4 and butadiene market. “As we get out into the later years of the forecast, those that are looking at investing in ethylene crackers really need to think long and hard about where their crude C4 is going to go, and what they’re going to do with it, because there won’t always be a home for it in the butadiene market,” said Hyde.
We remind that, as MRC wrote before, in March, 2021, South Korea's petrochemical maker Hanwha Total shut down its LPG-fed steam cracker in Daesan from March for 45 days to expand its ethylene production capacity by about half to 450,000 mt/year from 300,000 mt/year currently. Once the expansion works are completed, the propylene capacity of LPG-fed steam cracker would be also raised to 130,000 tons/year from the current 80,000 tonnes of propylene.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 241,030 tonnes in January 2021 versus 217,890 tonnes a year earlier. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, PP shipments to the Russian market reached 141,870 tonnes in January 2021 versus 123,520 tonnes a year earlier. Supply of homopolymer PP and PP block copolymers increased.
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