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Ethylene supply and markets are shifting

For the last two decades, location of polymers and their feedstock suppliers are moving towards abundant and cheaper supplies of oil - mainly the Middle Eastern region. Due to the proximity of the producers to cheaper feedstock materials, higher profit margins are being realized, giving them a cost advantage over producers anywhere else in the World. This is resulting in the construction of several new capacities in these feedstock endowed regions. North America and Europe are particularly at a great disadvantage on cost aspects, and will face a share reduction in global ethylene supply.

By January 1st 2007, USA had a capacity to produce 28.5 mln tons from the total global capacity of 121 mln tons (almost 24%). By the end of 2011, US capacity will marginally erode to just about 18% at 28.3 mln tons, while the global capacity will rise to 156 mln tons. By that time the capacity in the Middle Eastern region will almost reach the level of North American capacity. Substantial new ethylene capacity has recently come online or is under construction in China, Singapore, India and Taiwan. The production growth in the Middle East is being driven by low feedstock costs while growth in China and other parts of Asia are being fueled by strong demand growth.

The world's largest ethylene producers in descending order are:
Equistar Chemicals, ExxonMobil, ChevronPhillips, Shell and Innovene (formerly BP), Other major producers include BASF, Fina Petrochemicals, Formosa, Lyondell, Sabic, Sinopec, TotalFinaElf, Westlake Petrochemicals.

More than half of the World's ethylene production is converted to PE for use in film applications for packaging, carrier bags and trash liners. Other applications include injection molding, pipe extrusion, wire and cable sheathing and insulation, as well as extrusion coating of paper and cardboard.

In the USA, 60% of total ethylene production capacity comes from liquefied natural gas (mostly ethane) and 38% from naphtha. The relatively high cost of U.S. natural gas is forecast to be a major factor responsible for stagnant U.S. ethylene production in the next several years. It is cheaper to produce ethylene from naphtha than from liquefied natural gas. In the Middle East, most ethylene is produced from liquefied natural gas. Producers in the Middle East are introducing naphtha into their ethylene production strategies in order to build a more diversified downstream chemical industry.

Over-supply could hit the ethylene market by 2010. Another issue is the forecast of an abundance of global LPG supply coupled with increased availability of ethane from US production and liquefied natural gas imports. This could make light feedstock cracking on the U.S. Gulf Coast very competitive as compared to heavy cracking. The global ethylene production will increase substantially but USA, even with flat production will remain an important factor in the global ethylene market.