US shale advantage to dissipate in future - study
The US shale advantage makes US petrochemicals made from methane and ethane more competitive, but that advantage, accruing mostly to ethylene, dissipates over the next 20 years, according to a new study from Probe Economics.
This happens as natural gas demand grows, especially for electricity, and the lowest cost shale and tight sands deposits are depleted. The ratio of ethane prices to propane prices rises over time, according to the study.
With so much ethylene being made from ethane worldwide, incremental quantities or propylene and butadiene must come from on-purpose sources, primarily dehydrogenation.
As the concepts of economics dictate, those incremental sources end up setting the prices of propylene and butadiene.
With price of propylene being set by dehydro economics, and therefore by the price of propane, and the price of ethylene gyrating with the capital cycle, the ratio of the price of propylene to the price of ethylene also cycles.
The cyclical nature of the propylene-ethylene price ratio poses challenges for end users, who will have trouble finding the most efficient solution, be it HDPE vs. polypropylene or OXO versus ethylene routes to alcohols.
The problem will diminish over time, however, as the prices of ethylene and propylene come back closer together.
This happens because natural gas and ethane prices converge towards crude oil and propane prices on a Btu basis.
This puts propylene made from propane and ethylene made from ethane on a more equal cost footing, according to the study’s authors.
For more details and graphs on the study, click here.
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