North America’s copious natural gas resources have led to a “competitive resurgence” driving low-cost ethylene production, but the growth has created challenges in the Middle East, where operators are facing the “opposite and unfamiliar challenge of ethane supply limitations,” according to IHS Chemical.

All of the recent North American announcements to expand ethylene capacity are positives for North America, according to the IHS Chemical 2014 Ethylene World Analysis. Middle Eastern operators, meanwhile, are shifting to heavier feedstocks. The report covers historical developments and future projections for global ethylene markets for 2008-2023.

The IHS report comes on the heels of two announcements in just the past few days. A unit of Royal Dutch Shell plc has launched a two-month bidding period to solicit more ethane commitments from Appalachian Basin natural gas operators for its proposed Beaver County, PA cracker, which would turn gas liquids into ethylene (see Daily GPI, March 16, 2012). Shell has secured known commitments from Consol Energy Inc., Hilcorp Energy Co., Noble Energy Inc. and Seneca Resources Corp. Before it presses the “go” button, however, it wants to see what other types of commitments it can garner. It twice has extended a land option agreement with Horsehead Corp. for property in Monaca, PA.

“Securing additional ethane supply is one of the key components in determining the next steps as part of the ongoing site evaluation process,” Shell spokeswoman Kimberly Windon said.

Strong U.S. unconventional gas production also spurred Dow Chemical Co. on Tuesday to move forward with big petrochemical facility expansions in Plaquemine, LA, and Freeport, TX, plans that were proposed earlier this year (see Daily GPI, March 13).

“Low regional ethane prices continue to support high ethylene margins for North American producers, while producers in other regions are facing an opposite situation,” said IHS expert and co-author Steve Lewandowski, who directs olefins research. “Once blessed with abundant supplies of cheap ethane, Middle East producers invested heavily in capacity additions, but this market shift, and a lack of readily available ethane supplies, has effectively put a stop to new, low-cost ethane-based ethylene capacity,” with a shift in investments to ethylene based on liquefied petroleum gas and naphtha feedstocks.

Consumption volumes in North America and Europe are forecast to “grow slowly” over the next few years, but after 2016, large-scale investments in almost 14 million metric tons (mmt) of North American ethylene capacity “will require a substantial rise in ethylene derivative investment,” the authors found. “The new derivatives are primarily to feed exports to the rest of the world,” including South America, Asia and Europe.

“The U.S. ethylene industry and the ethylene industry in the Middle East have essentially traded places in terms of supply outlook in the past few years, due to the emergence of low-cost feedstocks,” Lewandowski said. “There is a tremendous amount of U.S. capital investment that is under way, with units starting up beginning in 2017. Middle East players wish to participate in the North America low-cost feedstock boom, and are seeking joint venture partners with North American companies as one entry strategy.”

After contracting considerably in 2008, world ethylene demand now is expected in 2014 to be close to 140 mmt, according to the analysis. Over the next 10 years, IHS analysts see global ethylene demand growing at about 4% a year, reaching about 196 mmt by 2013.

“During the next 10 years, China and the Middle East will continue to be the largest drivers of global ethylene demand growth; however, since its domestic market is small, most of the Middle East demand for ethylene will be for export in the form of primary derivatives, such as polyethylene and ethylene glycol,” the report said. “Ethylene demand growth in the Indian Subcontinent, Southeast Asia, South America and Africa also is projected to remain considerably above the global average, but from smaller absolute base levels.”

Demand in the Asia Pacific, and in particular, China, is growing as the chemical industry “remains unable to meet the country’s rapidly growing consumption requirements. Sharp increases in consumption stemming from China’s rapid industrialization have spurred the development of numerous new domestic ethylene and derivative complexes that are either under construction or planned for the next few years, including several coal-based facilities.”

According to the IHS report, imports of ethylene and ethylene derivatives into China will continue to increase rapidly during the next 10 years, when they are projected to be about 50% higher than the estimated 2013 volumes of nearly 16 mmt.