Natural Gas Liquids Challenge Oil As Petrochemical Feedstock In North America
HOUSTON – The increasing use of cost-advantaged natural gas liquids as a feedstock by North American petrochemical producers means that less propylene is being produced as a co-product by the region’s steam crackers. This trend is driving greater global need for on-purpose production of propylene, which is a key chemical building block second in demand only to ethylene, according to new research from IHS.
“The increasing need for on-purpose production of propylene is primarily being driven by two factors: first, the changing feedslates in North American petrochemical production, which are getting lighter due to more ethane being used versus naphtha; and second, the decline in North American gasoline demand as automobile CAFÉ standards are implemented,” said Chuck Carr, senior director, global olefins at IHS Chemical and principal author of the IHS study.
“Ethane is a cheaper feedstock than naphtha, but it produces minimal amounts of propylene as a co-product,” Carr said. “Since global demand for propylene is increasing, on-purpose production of propylene has become increasingly significant in the last 10 years, and this trend will continue through 2023.”
In 2003, less than 3 percent of global propylene production — just 2 million metric tons (MMT), was considered on-purpose production, but according to the IHS Chemical North American Propylene Supply Study, in 2013, that number had increased to nearly 12 MMT or 12 percent of global production. By 2023, IHS says, nearly 30 percent, or approximately 38 MMT of global propylene supply, will be on-purpose production.
In 2013, North America produced slightly more than 20 MMT of propylene (including fuels). By 2023, IHS expects North American demand for propylene into chemicals to exceed 20 MMT, and the region is expected to produce approximately 15 percent of global supply. Of that production, Carr expects 5 MMT will be on-purpose production from North America. Just 4 percent of the region’s current propylene production, he said, is on-purpose production derived from technologies such as metathesis and propane dehydration.
According to the IHS report, current global propylene demand is approximately 90 MMT, and is expected to increase to 130 MMT by 2023. Propylene is produced from naphtha, natural gas liquids in refinery units, and to a much smaller extent, coal, and is essential for the production of polypropylene plastics such as films and packaging, and a wide variety of other uses. Polypropylene accounts for 67 percent of total demand. Propylene is mainly produced as a co-product in steam crackers and a by-product in refineries. The second largest source of propylene supply has been production of refinery grade material in fluid catalytic cracking units and other refinery units.
“The source of propylene supply varies significantly by region, and North America is unique compared to the rest of the world,” Carr said. “Forty-eight percent of the world’s production comes from steam crackers, but in North America, the majority of propylene, or 70 percent of production, is produced by refineries. Just 26 percent of North American production is derived from steam crackers because of their shale gas-based natural gas liquid feedstocks.”
In terms of North American propylene production, 5 MMT is consumed for fuels, while the remaining nearly 16 MMT are consumed to produce chemical derivatives. More than 60 percent of region’s production is produced and consumed in the Texas Gulf Coast. Other Gulf Coast regions, including East Texas, Louisiana and Mississippi, account for nearly 20 percent of the region’s additional propylene production.
Steam crackers, Carr said, account for 67 percent of propylene supply in Western Europe, 56 percent of supply in Northeast Asia, 49 percent of Middle East production, and 45 percent of propylene production for the rest of the world. While other regions have some on-purpose production of propylene capability, the Middle East is the most significant region for on-purpose production. The leading technologies employed for this on-purpose production in the region are propane dehydrogenation, metathesis and high-severity fluid-catalytic cracking.
Said Carr, “Looking forward, propane dehydration is expected to be the most significant source of increasing global on-purpose propylene production, and will be the process most likely employed in the United States, the Middle East and Asia for this production. Currently there is one propane dehydrogenation unit operating in the region (Flint Hills near Houston), but plans are under way for six more to be built by late 2018. In response to this new dehydrogenation capacity, pipeline service changes and expansions are expected in North America. We are going to see significant investments being made in terms of pipeline capacity and storage.”
The U.S. and Middle East additions will be based on local, low-cost propane, while China will use imported propane, which competes with the fuels market, Carr said. “Coal-to-olefins technologies in China are also expected to be a significant source of on-purpose supply growth. However, this technology faces water and environmental challenges, and has very high capital costs as well.”
Regardless, he said, “China will add significant on-purpose capacity, which will result in global oversupply, leading to the weakening of Asian (and therefore, global) propylene prices, which will increase the cash-costs of ethylene from naphtha crackers around the world.”