The shale gas boom is a story not going away anytime soon, and for good reason. The supply of inexpensive natural gas-based feedstocks in North America is having a direct effect on the production of ethylene, the chemical building block for a number of plastics, including polyethylene (PE), according to IHS, a global source of critical information and insight.
"These new feedstocks are giving North American producers an advantageous, low-cost position compared to most of the global competition," said Nick Vafiadis, senior director, global polyolefins and plastics at IHS Chemical. "Those cost-advantages are providing these producers strong financial incentives to establish new facilities and to operate them at full capacity, but the implications for the market are quite disruptive, and the industry is evolving rapidly."
"Part of the disruptive force goes back to the fact that since the cost of resin is the single largest expense for plastics producers, competing material makers are aggressively repositioning for North America's manufacturing renaissance," Vafiadis said, "while, at the same time, brand owners are re-examining both virgin materials and new composite options as sources for their production."
According to IHS estimates, overall, North America PE demand will rise an estimated 20% from 2013 through 2018. Last year the combined market for the U.S., Canada and Mexico amounted to more than 23 million metric tons (MMT), and forecasts show 2018 levels will reach nearly 28 MMT.
Polypropylene (PP), the second largest volume plastic globally, is also benefiting from the supply of competitive natural gas feedstocks in North America, which is driving the growth of on-purpose production of propylene, the chemical building block for polypropylene. The investments in on-purpose production of propylene, primarily via propane dehydrogenation (PDH), will serve to replace declining supply from traditional sources - namely olefins crackers and refineries - and support not only domestic demand for polypropylene, but support increased exports of this key polyolefin for North America.
Overall, North America PP demand will rise an estimated 18% from 2013 through 2018. Last year the combined market for polypropylene in the U.S., Canada and Mexico, amounted to 8.9 MMT, and forecasts show 2018 levels will reach more than 10 MMT.
"Given the shale-gas phenomenon in North America, virtually every major PE producer has announced an expansion of existing capacity," Vafiadis said. "The low production cost in North America will potentially increase the competitiveness for the U.S. producers who invest in the various projects, providing them with an advantage they did not possess in the past."
Investments in polypropylene are also expected for North America, albeit less than that for polyethylene, Vafiadis said. As new PDH-based propylene capacity grows, North American producers will look to polypropylene as the primary derivative and IHS expects to see additional polypropylene capacity in North America emerge during the next five years.
Vafiadis said these issues of cost-advantaged feedstocks, new production capacity, global and regional demand, as well as sustainability and environmental policy, will drive the discussion at the upcoming GPS 2014: Global Plastics Summit and Industry Workshops, Sept. 30 through Oct. 2 in Chicago. The event is jointly hosted by IHS Chemical and SPI.
