Asian Petrochemical Producers Prepare for the Middle East Wave

Petrochemical producers across Asia are preparing themselves for competition with a new wave of material from the Middle East that is expected to hit the Asian shore soon. As new Middle East production is targeted towards Asian buyers, Asian producers are investigating a range of feedstock and technology options to help them compete in terms of cost and to maintain a strong foothold in the already crowded global market.

Petrochemical producers across Asia (and in China and India, specifically) are exploring a number of options for future production. In China, this includes investing in propane dehydrogenation projects and coal to olefins/methanol.  In India, there are investments in ethane imports and even naphtha.

The major reason for the Asian producers’ concern is Abu Dhabi-based Borouge and its large-scale ethane crackers and polyolefin complex that have been built with Asia targeted as the key export market. The project kicked off in 2014 and is expected to begin commercial production and exporting this year. Nearly 1.5 MMT of PE (all grades) and almost 1 MMT of PP is expected to be exported to Asia by the end of 2016. This is just one of the many projects that are expected to come online in the Middle East in the years to come.

To combat the cheap material influx from the Middle East, many Chinese producers have started employing unconventional methods to produce polymers. Coal/methanol to olefins along with propane dehydrogenation are among the major on-purpose technologies that have proven to be successful in China, and new projects are being initiated by producers to stay strong on margins and low on cost. With its abundance of coal reserves, China is making full use by employing unconventional methods of producing ethylene and propylene. Since 2013, more than 4 PDH units have started operations and this has been extremely cost competitive against traditional routes.

Indian producers aren’t too far behind in innovating with available options. India’s Reliance Industries is expected to begin importing U.S. ethane to feed its crackers across Western India by early 2017. Also, RIL might be looking at importing propane from the U.S. or using propane from Reliance’s refinery complex in Jamnagar to set up its first PDH unit. Another major company that will use ethane imports will be GAIL for its new $5 billion petrochemical plant in Andhra Pradesh, India. With U.S. ethane and propane exports increasing exponentially, India is expected to take full advantage of the situation. It is estimated that Reliance can save up INR 1,000 crore a year if it sources 1.5 MMT of ethane from the U.S.  Domestic U.S. ethane is priced at around $4 to $6 per mmBtu and the landed cost of imports comes to around $12 to $14 per mmBtu; still far less than the domestic price of propane, which is estimated around $16 to $18/mmbtu.

This is very good news for consumers, as buying power will increase significantly. Not only does the domestic market serve well in terms of supply and pricing, buyers can always look at attractive arbitrage opportunities from the Middle East. The cheap feedstock and an estimated oversupply situation in the petrochemicals market will definitely take a toll on prices. It will be interesting to see which company stands tall amidst all of this market turmoil.