World Light Olefins Markets Outlook: Impact of Changing Energy and Feedstock Market Dynamics on Regional Olefins Markets

Underlying feedstock prices that derive from either natural gas or crude oil represent a high percentage of the operating expense related to the production of ethylene for a vast majority of the global ethylene market. Historically, while steam crackers in West Europe and Asia are mainly naphtha-based, ethylene production in the Middle East, North America as well as parts of Southeast Asia and South America uses mainly ethane-based feedstocks. Changes in the price of natural gas relative to crude oil, can strongly influence regional competitiveness. Growth in new ethylene capacity has occurred predominantly where feedstock can be obtained in sufficient quantities and in the case of the Middle East, at advantaged prices relative to the rest of the world. Existing operators have also given consideration toward designing or modifying their facilities to provide feedstock flexibility, allowing them to take advantage of changes in feed pricing that may occur.

The recent shift in global crude oil market dynamics and changes in the energy markets in North America have dramatically changed the competitiveness between different regions. The current advantage of ethane-based production in North America is expected to last past the middle of the decade. Natural gas prices in the U.S. are expected to remain low compared to crude oil prices. Crude oil prices are forecast to increase as global consumption increases with demand in developing economies. Natural gas prices are expected to remain lower due to ample supplies from new shale fields located within the U.S. market. This dynamic is expected to keep the spread between ethane and other feedstocks (whose values are more closely tied to crude oil) at a higher level. In addition, ethane supplies in the U.S. market will remain strong, as much of the new shale gas has very high ethane content. This will keep ethane prices closer to BTU values as the domestic ethane supply/demand balance remains well supplied, if not slightly long. The advantaged ethane cracking position (relative to naphtha cracking) in North America will allow ethylene derivatives integrated with ethane steam crackers to compete with other net exporting countries that are heavily dependent upon naphtha cracking for ethylene production.

This paper will give CMAI’s current forecast of the olefins markets, both globally and in North America, with insights into how changes in feed slates will impact these markets.