North American ethane provides big opportunity for Western European producers: report

Europe is one of the world’s highest-cost production regions for chemicals – but U.S. ethane imports might just radically transform the region’s feedstock landscape.

According to a new report from market analyst firm IHS Inc. summarizing information presented by IHS at a seminar held in Vienna, Austria from October 4-8, chemicals from the U.S. offer Europe a way out of its “stagnation phase”.

“Western Europe accounts for 17 per cent of global ethylene production and remains an integral part of the global industry,” the IHS report said. “The U.S. ethane availability presents an interesting alternative for European ethylene producers, especially Western European producers with coastal units, who are today still heavily reliant on higher-stock naphtha feedstock.”

According to IHS Chemical forecasts, U.S. ethane production will be in surplus, exceeding domestic requirements by around 300,000 barrels per day and growing. This surplus is expected to continue at least until 2030, IHS said.

“Energy prices in Europe will remain high, but this is not the end of the world,” said Michael Smith, vice president at IHS Chemical. “Producers already have been taking advantage of increased supplies of liquefied petroleum gas (LPG) from international markets and they are looking for other ways to survive in this new world order. Ethane imports from the U.S. seem to be an attractive alternative. As we do not see the U.S. shale gas boom being repeated in Europe, the availability of U.S. ethane could significantly transform the European feedstock landscape.”

The anticipated surplus of U.S. ethane has already attracted a number of European cracker operators who announced their plans for “a virtual ethane pipeline” between North America and Europe. “Ineos was the first one to sign the contract to supply the U.S. ethane for its crackers at Grangemouth, UK and Norway,” IHS said. “Then two other producers followed with similar announcements: Sabic confirmed its intention to upgrade the plant at Wilton, UK, to enable greater feedstock flexibility; and Borealis signed an agreement to supply ethane for its cracker at Stenungsund, Sweden. [Most recently] Italy-based petrochemical producer Versalis also confirmed its intention to convert its coastal cracker in Dunkirk to consume ethane imported from the U.S.”

The influx of U.S.-made ethane is expected to be balanced by the rationalization of units in Europe in the near-term, IHS said, as producers close old, uneconomical plants, particularly those that are not well integrated into refinery complexes or chemical clusters close to important consumer markets.