Future of chemicals VIII: Rebalancing global feedstock disruptions with "on-purpose" technologies

November 26, 2012

Executive summary

The global petrochemicals industry has recently experienced significant disruptions in the supply and pricing of key chemical building blocks — ethylene, propylene, butadiene, and benzene — due to the changing mix of feedstocks used in petrochemicals production. Supplies of ethylene have surged as U.S. shale gas production has boomed. Meanwhile, propylene, butadiene, and benzene supplies have declined. As a result, ethylene prices have decoupled from those for propylene, benzene, and especially butadiene, all of which have become more expensive relative to ethylene. Going forward, gas developments in Iraq and China could further distort supply and prices.

“On-purpose” production technologies exist, or are in development, to create propylene, butadiene, and benzene. Until recently these technologies were considered economically marginal, but they are becoming attractive. Indeed, on-purpose technologies for propylene and benzene should correct current supply imbalances, and could reduce prices over the short to medium term. This does not apply to butadiene, whose on-purpose production remains marginal and expensive, likely perpetuating pricing distortions for the foreseeable future.

These developments have implications for all players in the chemicals value chain: global producers, Gulf Cooperation Council (GCC)1 producers, and consumers. Global producers have significant new growth opportunities in regions where feedstock is available for onpurpose production. These producers have mostly invested in process technology, but now must consider product technology, their research and development strategy, and the ways to play in this market. GCC companies will need to recognize that on-purpose production in the region would be less attractive or marginal without the availability of advantageously priced feedstock. GCC companies will need to augment their existing capabilities and seek new geographies where feedstock is available for on-purpose production. Finally, customers will need to make backward integration a top priority to ensure security of supply and price stability.


Future of chemicals VIII: Rebalancing global feedstock disruptions with "on-purpose" technologies

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