With the Chinese producers taking center stage through rapid capacity expansion, olefin producers in Europe and East Asia are likely to face tremendous cost pressure which may force them to implement production cuts in the next six years, warns the International Energy Agency (IEA) in its June report. China, aiming to capture a larger supply share in the world market, has devised a mega expansion plan for its olefin production capacity in the coming years, which worries European and Asian producers as they require to explore alternative markets for their products.
The substantial increase in capacity within a short span of time will exceed the growth in end-user demand, resulting in a shift in feedstock consumption patterns. Ethylene production capacity from steam cracking is projected to grow by an average of 7.8 million tonnes per annum (MTPA) annually until 2028, while ethylene demand is expected to expand by only 4.6 MTPA during the same period.
| Asia’s growth in olefins capacity outpacing demand (million tonnes) |
| By calendar year | Ethylene | Propylene |
| Capacity | Demand | Capacity | Demand |
| 2019 | 68 | 65 | 70 | 60 |
| 2022 | 93 | 78 | 94 | 69 |
| 2025 | 100 | 84 | 110 | 83 |
Source: Industry
Note: Approximate data rounded off. Hence, actual figures might vary with a small gap
According to the report, “Much of this new capacity will substitute for imports of base chemicals and commodity polymers, particularly in China, which means exporters will need to compete for alternative markets. Producers in less cost-advantaged areas, especially Europe and East Asia excluding China, face increasing pressure that may lead to cuts in production rates and potential plant closures.”
Many East Asian producers have historically exported their produce to China or are attractive targets for displaced exports from other regions. European plants, relatively older and smaller compared to other regions, have been weakened by high energy costs, impacting important segments of downstream demand. They may be vulnerable to competition from the United States and the Middle Eastern exporters. A sustained geographical shift in petrochemical feedstock consumption began in 2022, with China gaining the most share while other regions lose out.
Huge Chinese capacity build-upNew petrochemical plants are heavily concentrated in China, which will account for 51 percent of all new olefin capacity and 48 percent of incremental oil-based olefins feedstock consumption in the next six years. Overall, naphtha use is expected to rise by 1 million bpd between the period of 2022 and 2028, equivalent to an increase of 170,000 bpd every year, while liquefied petroleum gas (LPG) is projected to increase by 530,000 bpd (90,000 bpd annually), collectively representing 54 percent of Chinese oil demand growth.
The additions in China between 2019 and 2025 are expected to surpass the total capacity of existing OECD (Organisation for Economic Co-operation and Development) countries, including European and African nations. This significant increase will have a major impact on the distribution of petrochemical activity and oil consumption for feedstock by 2028. China’s share of global olefins feedstock demand is set to rise from 14 percent in 2019 to nearly 26 percent by 2025 and remain close to this level until 2028, according to the report.
Prior to the pandemic hit in 2020, there was minimal growth in global naphtha feedstock requirements, with total use declining by 280,000 bpd from 2017. The majority of the growth in olefin feedstock consumption from 2017 to 2020 was driven by ethane from natural gas liquid (NGL) extraction, amounting to 580,000 bpd over the same period in previous years. However, most of China’s new capacity is being added in the form of naphtha crackers.
Overall, naphtha demand is expected to surge by 1.7 million bpd until 2028, or 190,000 bpd per year, driven by increased demand from chemical plants. Ethane usage in steam crackers will increase and approach 1 million bpd over the next six years, resulting in an increase of 110,000 bpd compared to the previous six years prior to 2022. Similarly, the volume of LPG used in crackers and propane dehydrogenation (PDH) units will rise by 600,000 bpd in the next six years, equivalent to an increase of 70,000 bpd annually.
This indicates that the rapid decline in naphtha’s share of olefin feedstock ended before the start of the pandemic and will experience a modest recovery by the mid-2020s before declining again, remaining close to 45 percent of the total.
Feedstock demand growthThe demand for petrochemical feedstock is also expected to experience strong growth towards the end of this decade, in line with the increased consumption of olefins. The IEA forecasts petrochemical feedstock demand at 70,000 billion per day (bpd), with Eurasia (Europe and Asia combined) accounting for 30,000 bpd. In these regions, the majority of new plants will be based on ethane and liquefied petroleum gas (LPG).
In Russia, significant new units have been planned, linked to advancements in natural gas capacity. However, these new plants are facing delays due to uncertainty surrounding project financing and the withdrawal of international technology providers. The IEA assumes that only a portion of the anticipated units will be completed by 2028, resulting in a modest increase in Russia’s share of global feedstock consumption from 2.4 percent in 2022 to 2.9 percent in 2028.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
