Boosting Competitiveness: What now for the Asian Petrochemical Market?

Last week the annual Asia Petrochemical Industry Conference (APIC) was held in Thailand and throughout the few days of seminars, speeches and working groups one resounding theme emanated from the over air conditioned meeting rooms: “How will Asia raise its competitiveness in the face of US shale gas?”

Not an easy question to answer but it is becoming more of a talking point in the petrochemical corridors of power, not least in Asia, as to how the region can compete and what measures need to be taken to adapt or to use an industry buzzword: to ‘innovate’. Like much of the world trade the focus in Asia is on Chinese imports of Asian petrochemicals. However and as alluded to on page 4 of this publication, the Chinese economy is going through a slowdown and despite predicted petrochemical consumption of 4.5-5% growth in the region this year (according to ICIS) the reality of this being reached hinges on China’s economic performance which may falter in the short term. The Chinese government has already indicated that it would bail out the economy with a stimulus package. Should this happen it may provide some comfort and indeed the Asia petrochemical industry is expected to weather any Chinese economic crisis but it also draws more attention to the competitiveness of the region as a whole due to the transforming petrochemical industry landscape – US shale gas and downstream Middle East investment.

We all know about the US shale gas phenomenon and without retracing well discussed ground it represents a major game change in producing low cost feedstock. Asia’s petrochemical investment model is based on naphtha economics and it is here that we start to see the problem. ICIS says that shale based ethylene has an approximate production cost of $350 per tonne whilst the more traditional naphtha based production costs in the region of $1,500 per tonne, a differential of $1,150 per tonne. The winner here is clear.

This is not to say that the Asia region has been sitting idly by. Much like the European petrochemical industry it is looking to find ways to boost its overall competitiveness. There is heavy investment in coal to olefins (CTO) and methanol to olefins (MTO) technology in China with considerable levels of new capacity scheduled to be built. However, not only is this expensive but the infrastructure required and the environmental concerns are having an impact on investment projects going forward. Indeed, the Chinese government is being a lot more active in environmental policy surrounding this area. Other ideas have been to emulate Ineos who have commissioned six new ethane gas carriers from Evergas to export shale gas to Europe – with the amount of capacity due on stream then this could be a viable option for Asian players. The region is not devoid of its own shale gas reserves either with Sinopec recently announcing an expansion in annual product capacity at its Fuling shale gas field.

There is much to take on board here but whatever the Asian petrochemical industry decides, a clear, structured and environmental approach is necessary. Technology and innovation helped bring about the US shale gas phenomenon so maybe the same could occur here? For Specialised Products participants, it will certainly be a development to watch!

SP blog 6 June

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