14:00 - 14:30
Wednesday, 18 September 2019
T3.5 The feedstock advantage: How shale changed the ethylene cost curve
Over the last decade, US shale oil and gas production has surged with 2019 production expected to exceed 12 million b/d of oil (including condensate), 5 million b/d of natural gas liquids (NGLs), and 90 bcfd of natural gas. This has had a dramatic impact on domestic prices, with current NGLs prices remaining more than 40% below 2011. Ethane in particular has dropped by 60% over the same period of time, and due to high levels of rejection, the prices will likely remain suppressed. Subsequently, the US marginal cost of production of petrochemical feedstocks such as ethylene has declined, and shifted the global supply curve rightwards. In our study, we examine the current global cash cost curve for producing ethylene, highlighting the relatively strong positioning of the US petrochemicals industry. Furthermore, we will analyze the marginal impact of increases and decreases in ethane costs on US competitiveness and profitability, along with the impacts on the global cost of supply.
We have developed a financial model that assesses the cash cost of ethylene production globally by analyzing operating and feedstock costs. We also estimate industry production margins based on those costs and the prevailing regional prices for ethylene. We will perform a sensitivity analysis based on the variance of underlying ethane and naptha costs, along with the potential ranges for output prices including ethylene as well as co-products. Based on the model, we will then demonstrate the relative competitiveness of US production across a range of scenarios to illustrate the financial impact of the shale boom on the domestic ethylene industry.
The global ethylene cost curve has compressed in recent years due to the decline in oil prices, which led to the decline oil derivative prices including naptha. However, US ethylene production costs remain well below those of Europe and Asia, and US petrochemical plants remain broadly competitive with the Middle East due to low domestic ethane prices. Considering the abundant supply of NGLs, and the continued strong outlook for US NGL production, we project that the domestic ethylene industry will be feedstock advantaged for the foreseeable future. This will become increasingly apparent as global oil prices rise, and the underlying feedstock price spread widens to pre-2015 levels.