Considering that the first commercial oil well in the United States was drilled in 1859 by Edwin Drake in Titusville, Pennsylvania (American Manufacturer and Iron World, 1901), the petrochemical industry is relatively young as it only gained importance in the World War II years around 1940. The demand for synthetic materials increased, mostly to replace costly
“natural” products. The industrial focus was quickly broadened and expanded to goods like kitchen appliances, textiles, nylons, all sorts of plastics, medical devices, fertilisers, packaging and many more (APPE, 2006). Providing an exhaustive list of end products and applications for this industry can be claimed to be impossible and easily exceeds thousands of items.
FIGURE 5: FEEDSTOCK AND MAIN PRODUCTS OF A CRACKER – ADAPTED FROM BEYCHOK (2012)
The industry is highly divergent as only two major import streams (naphtha and gas feeds) from petroleum refineries or natural gas processing build the first step of the production chain. Figure 5 illustrates this first processing step in the petrochemical industry. Naphtha is a liquid product in the oil refinery process; Ethane, propane, butane and methane are gaseous by-products of gas production. Cracker production units are dedicated to a certain type of feedstock
but allow flexibility to some extent. The created products ethylene and propylene are categorised as olefins. C4 derivatives (e.g. butadiene) build a group on their own, benzene and higher by-products are called aromatics1. “Higher” refers to the number of carbon atoms per molecule. Products with more carbon atoms are also referred to as “heavier” products. Figure A-1 shows an extended view of the cracker derivatives. Usually the transport of the cracker feeds marks the end of the oil industry and the beginning of the petrochemical industry. The distinction between petrochemical and chemical industry is, however, less clear and can only be described by a continuum.
Ethylene and propylene comprise the largest volume of the petrochemical material stream and are used as monomer and chemical feedstock. Due to its capital intensity and for historic reasons the petrochemical industry is dominated by large players, some of which belong to the biggest companies in the world. The worldwide chemical industry has been growing steadily for decades and its growth is usually slightly above the growth rate of the GDP. Strongly growing markets for both production and sales are Asia, in particular China, as well as Latin America. The NAFTA region and the EU are still net exporters of chemicals in trade terms with the EU accounting for nearly 40% of global trade value (see Figure 6).
FIGURE 6: WORLDWIDE IMPORT AND EXPORT OF CHEMICALS IN VALUE (CEFIC, 2012)
The worldwide chemical market is estimated to be 2 744 billion euro in 2011. The EU market share for 2011 was 20% (539 bln €) – a major decline from former 36% (295 bln €) in 1991.
1.1.1 SITUATION IN EUROPE
The chemical industry is a European key industry with an average yearly growth in total export of 6.9% among EU member states in the period of 2000 to 2011. The industry is of major concern for the Netherlands’ economy. The Dutch chemical and process industry market is consolidated and mature. A handful of major actors compete for customers and raw material.
Recently, a project was initiated within the industry to investigate benefits of increased horizontal collaboration between formal competitors in order to achieve mutual benefits in terms of cost, efficiency and environmental footprints (DINALOG, 2012).
The financial and the following European economic crisis had and still have strong impact on the industry. The “Lehman Wave” (Peels, et al., 2009) showed that the industry is prone to
1 The name aromatics stems from their “distinctive perfumed smell” (APPE, 2006).
43%
34%
14%
5% 2% 2%
World export of chemicals (2011)
EU Asia NAFTA Rest of Europe Latin America Africa & Oceania
37%
37%
11%
6%
6% 3%
World import of chemicals (2011)
3 Introduction to the Petrochemical Industry destocking effects of the supply chain and unveiled significant overcapacity of production units.
European units have no feedstock price advantage over other production regions and are particularly sensitive to naphtha and other feedstock prices. Rationalising production capacity and closing cracker units has hardly taken place since the shock of the “Lehman Wave”. Cracker units are a large-scale investment and have long amortisation times (see 1.3.1). Often they are connected to a chemical cluster or an integrated complex - workplaces for thousands of employees. Closing or mothballing a unit has strong social and financial effects for a region and thus operations are partly subsidised by local governments. The spread between available capacity2 and actual production has widened since the Lehman Shock. Whereas the capacity of end 2012 is almost identical to that of early 2005, the production has dropped by around 20%. In comparison, the EU-27 GDP as of end 2012 is on an inflation corrected level of 6.8 % above those of early 2005 (Eurostat, 2013).
Although the net production capacity has hardly changed, the European petrochemical industry did undergo structural changes since the Lehman Shock. Certain players divested polymer units or temporary closed cracker facilities: Dow sold its four polypropylene plants to Brazilian Breskem(Dow, 2011) and its polystyrene unit “Styron” to Bain Capital(Reuters, 2010). Shell shut down its Wesseling 2B cracker in Germany (Andy Gibbins, 2010) – to only name a few developments.
1.1.2 RECENT DEVELOPMENTS
The topic which is discussed the most in recent years and often acclaimed to be the “next big thing” (The Economist, 2012) in the industry is the use of shale gas and the related hydraulic fracturing technology, better known as “fracking” (Getches-Wilkinson Center, 2013). The United States have established shale gas exploitation on a large scale and have increased the amount of accessible gas reservoirs considerably. The country is expected to be independent of energy fuel imports by 2030 and become one of the biggest gas and oil producers (CNN Money, 2012).
Natural gas prices have dropped considerably already, giving the US a “feedstock price advantage” – a cheaper access to feedstock than competitors. Ethane and other derivatives of natural gas can be used as cracker input (see Figure 5). Considerable investment in cracking capacity has already taken place in the United States or is expected. Compared to 2012, ethane cracking capacity could rise by 40% in 2018 (Financial Times, 2012). Consequently derivative production capacity is increased in a similar magnitude, lowering the country’s dependency on imports. Gas cracking compared to naphtha cracking has the disadvantage that no butadiene and other heavier by-products are produced. This led to a butadiene rally causing price spikes even in Europe.
The cheap access of the US to feedstock also sets the Middle East region under pressure which in the past had access to the cheapest feedstock worldwide in the magnitude of 50% of that of the European price. This new development could lead to a focus on efficiency and possible investments because cost price is not a unique position anymore.
Next to feedstock availability from a supply side, lightweight and multi-layer technologies are driving factors for the demand side of the plastic industry (ResearchAndMarkets, 2013).
2 The available capacity is the nameplate (or nominal) capacity minus the loss due to maintenance activities or (temporary) plant closures. According to the PMRC report published by the APPE (Association of Petrochemicals Producers in Europe, 2011), the nominal capacity is the “maximum yearly production capacity which is available in the public domain”.