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Transformation of European Ethane Landscape

Europe remains among the globe’s highest-cost production regions for chemicals. On the verge of losing its competitiveness, a robust supply of U.S. ethane imports present an opportunity for some Western European producers, with a potential to radically transform region’s feedstock landscape. Meanwhile, European producers must also innovate, further consolidate and rationalize to stay afloat, according to analysis from IHS Inc., provider of global market and economic information.

“With lack of investment in new plants and R&D, the chemical industry in Europe is in a stagnation phase,” said Michael Smith, vice president at IHS Chemical. “The competitive landscape forces Europe to concentrate on mature, domestic markets and leaves it vulnerable to imports. European producers must innovate to stay competitive.”

Globally, the chemical investment varies by region favoring demand growth centers, particularly fast-growing China, and low-cost producers, the U.S. and the Middle East. The U.S., especially, has recently seen a robust influx of foreign investment due to availability of cheap ethane feedstock and energy. In 2012, the last full year for which data are currently available, chemicals were the leading industry for FDI (foreign direct investment) flows into the United States.

Transformation of the European Feedstock Landscape

Until now, the anticipated surplus of the U.S. ethane has 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. 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. This week at EPCA, the Italy-based petrochemical producer Versalis also confirmed its intention to convert its coastal cracker in Dunkirk to consume ethane imported from the United States. Other producers also are believed to be exploring the opportunity, according to IHS Chemical.

Western Europe accounts for 17 percent of global ethylene production and remains an integral part of the global industry, says IHS Chemical. The U.S. ethane availability presents an interesting alternative for European ethylene producers, especially Western European producers with costal units, who are today still heavily reliant on higher-stock naphtha feedstock. “With the U.S. ethane supply, its importance in the Europe’s feedstock landscape will increase, but naphtha is certainly not going away,” Smith said. “According to IHS Chemical forecasts, by 2023, naphtha will still account for 39 percent of the global feedstock market share and 67 percent of the European feedstock slate.”

As the European market undergoes transformation, IHS Chemical expects to see European producers responding to the new market dynamics with innovative feedstock deals, cost reductions and determination to stay competitive.

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