HOUSTON (Feb. 6, 2013) – According to a new IHS Chemical (NYSE: IHS) global market study, abundant North American shale energy resources are driving chemical industry job growth, low-cost ethylene production, significant profitability and a competitive resurgence for the continent’s producers of ethylene, one of the most essential chemical building blocks in the petrochemical industry. This development is welcome for ethylene producers, who were, until recently, facing production shut-downs in North America, not a significant upturn in capacity additions.
Produced by IHS, the leading global source of information and analytics, the IHS Chemical 2013 World Ethylene Analysis covers historical developments and future projections for supply, demand, capacity and trade in the global ethylene markets for 2007 to 2022.
Ethylene, considered the workhorse of the petrochemical building blocks, is by far the most sought after chemical base, particularly for the production of polyethylene, which is used primarily in a wide variety of non-durable goods applications such as packaging materials. Ethylene oxide, (used in antifreeze, polyester fibers and detergents), ethylene dichloride (used in PVC films, coatings and pipes), and ethylbenzene/styrene, which is used in polystyrene packaging and ABS resins, are also important ethylene consumers.
“The ethylene cracker is the heart of the petrochemical industry—it is the big building block that is used to make just about everything else,” said Chuck Carr, director of olefins research at IHS, and one of the authors of the report. “The ethylene industry tends to be a very cyclical industry in terms of profitability, but in the U.S., low regional ethane prices are supporting high ethylene margins and are creating a very profitable environment for producers, despite a global oversupply situation. Ample supplies of natural gas liquids from shale development are keeping ethane prices low relative to other steam-cracker feed stocks. As a result, U.S. ethane-based producers experienced excessively strong profits in 2012, which contrasted with naphtha-based producers in other parts of the world.”
Global demand for ethylene reflects a mixed global demand growth environment (rapid expansion in developing regions and slower growth in developed regions). After contracting considerably in 2008, world ethylene demand is forecast to be approximately 135 million metric tons (MMT) in 2013, which is higher than the previous demand peak of nearly 130 MMT in 2012. In the next five years, says the IHS Chemical 2013 World Ethylene Analysis, global ethylene demand is forecast to grow at more than four percent a year, reaching nearly 160 MMT by 2017.
During the next four years, China and the Middle East will continue to be the largest drivers of global ethylene demand growth; however, most of the Middle East demand for ethylene will be for export in the form of primary derivatives, such as polyethylene and ethylene glycol. Ethylene demand growth in the Indian subcontinent, Asia, and Africa also is projected to remain considerably above the global average, but from smaller absolute base levels. In contrast, consumption volumes in North America and Europe are forecast to grow slowly for the next few years, but after 2016, the large-scale investments in North America will result in substantial rise in ethylene demand, primarily to feed ethylene derivative exports, noted the IHS report.
In the U.S., due to the forecasted low-cost feed scenario providing for globally competitive economics, nearly 11 MMT of new ethylene capacity has been announced for North America, which is a “significant amount of new capacity,” said Carr.
“The U.S. ethylene industry is experiencing a complete turn-around,” he said. “Five years ago we were trying to determine who was going to shut down production — now we are running at near-capacity rates and seeking to add significant capacity. As a result of increasing low cost feedstocks, there is a tremendous amount of U.S. capital investment that is underway, with units starting up in beginning in 2016.”
“Not only does this increased capacity mean more low-cost production to both domestic and export markets, but it means that new, long-term, highly skilled and well paying jobs will be added in the U.S., including operators, engineers and maintenance personnel. According to industry research, for every one of these chemical jobs added, three others are created elsewhere,” Carr said, “so the job impact is considerable. States such as Pennsylvania, Ohio and West Virginia, are several of the U.S. states likely to see petrochemical job growth thanks to shale energy resource availability.”
According to Carr, these U.S. capacity additions will bring much more supply than the domestic market demands, so there will be significant quantities of ethylene derivatives exported to Asia, where demand is greatest. “This supply resurgence is causing a substantial shift in ethylene trade patterns, to the benefit of North American producers,” he said.
Demand in Asia, particularly China, continues to grow since China’s chemical industry remains unable to meet the country’s rapidly growing consumption requirements. Sharp increases in consumption stemming from China’s rapid industrialization have spurred the development of numerous new domestic ethylene and derivative complexes that are either under construction or planned for the next five years, including several coal-based facilities. The emergence of coal as a potential olefins feedstock in Northeast Asia warrants close monitoring, noted the IHS report.
Said Carr, “As a result of high oil prices in the past several years, there has been tremendous domestic interest to further develop and utilize the abundant coal resources in China. Although the investment involved is often massive, the operating costs of the coal-to-olefins units will be very low, and the units will be competitive compared to domestic naphtha-based steam cracker complexes as well as most imports of olefin derivatives. With that being said, assuming that China’s strong economic growth can be sustained, China will continue to be a major target for petrochemical exports originating from the Middle East and other parts of Asia.”
According to the IHS report, net equivalent imports of ethylene and ethylene derivatives into Northeast Asia increased significantly in 2012, reaching an estimated 8.8 million metric tons. That trend is expected to continue noted the report, with the net deficit expected to approach 10 MMT by 2017, and to exceed 15 MMT by 2022.
In addition to the IHS Chemical 2013 Ethylene World Analysis, IHS offers world analyses for other key chemicals, plastics and fiber intermediates on a continual basis. The reports provide comprehensive studies of long-term market trends, and most are produced on an annual basis with a five-year historical market review and a 10-year supply/demand and price forecast. Other world analyses include: benzene, butadiene; butylenes; chlor-alkali, cumene, phenol and acetone; propylene; ethylene oxide and ethylene glycol; acetyls; methanol; nylon feedstocks and fibers; petrochemical feedstocks; polycarbonate and ABS (derived from acrylonitrile, butadiene and styrene); polyethylene, polyolefins; polystyrene/expandable polystyrene (EPS); soda ash; styrene; terephthalates and polyester; toluene and mixed xylenes; and vinyls.
Carr and other IHS Chemical experts and executive leaders from across the global petrochemical industry will be speaking at the upcoming World Petrochemical Conference, March 19 - 21, 2013, in Houston. Registration for the conference is $1,800 per registrant. Additional fees apply for workshop participation. To view the current agenda for the 2013 IHS World Petrochemical Conference, and register for the event or the training workshops, please visit
Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.
Rig Count Interactive Map by Baker Hughes, an energy services company.
Shale Sheet Fracking, a Youngstown Vindicator blog.
The Ohio Environmental Council, a statewide eco-group based in Columbus.
Earthjustice, a national eco-group.
People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.
Concerned Citizens of Medina County, a grass-roots group.
No Frack Ohio, a Columbus-based grass-roots group.
Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.
Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.
Allegheny Front, environmental public radio for Western Pennsylvania.