©Kim Christensen
Lee College Economic Alliance event in Pasadena 2017
Lee College Economic Alliance event in Pasadena 2017 (Photos by ©Kim Christensen)
By the year 2050, the earth's population is expected to approach nearly 10 billion. According to BASF Senior Vice President of Petrochemicals Heather Remley, sustainability and innovation are "strategic and significant drivers" of the global petrochemical industry that will meet the challenge of the growing population.
"The planet's resources are finite," Remley said. "More and more people will need access to affordable energy, housing, health care and quality food. This must be achieved while consuming less raw material."
Chemistry, Remley added, will provide the solutions and technologies to decrease the consumption of input materials, increase efficiency and produce better products for the world's population.
"We firmly believe chemistry is the enabler to providing current and future needs of our society," Remley said, speaking at the Economic Alliance Houston Port Region's Gulf Coast Industry Forum held recently in Pasadena, Texas. "And that's exactly where ethylene and other petrochemicals fit in. They are the building blocks to create numerous opportunities and innovative products to meet the demands of today's and tomorrow's world."
The coming crackers
Examining the petrochemicals market in North America from the producer/investor point of view, Andre Wehrmann, BASF's vice president of business management for basic petrochemicals North America, said the current boom in the petrochemical industry is directly due to the ability to extract shale gas at low cost, and tight oil, which includes associated gas in Texas and other places in North America.
"It is impressive what we see in the Eagle Ford area, and also in the Permian Basin, with huge production growth that is clearly benefitting the petrochemical industry," he said. "But natural gas in itself is not feeding petrochemical plants or the steam crackers. It's the liquid components included in the natural gas: the ethane, propane and butane."
Production volumes have doubled over the past 10 years, resulting in huge amounts of additional cracker feedstock, Wehrmann observed.
"And that is enormous," he added. "But don't forget, even though the supply went up, demand is not growing that quickly because we still have the same base of steam crackers in North America. Propane and butanes are products that can be exported, but we need also export terminals for those that need to be built. So what we see is additional supply, not additional demand. The law of economics is going to apply, and the prices go down usually to the benefit of the petrochemical producer."
Wehrmann pointed out the last time a steam cracker was started up in the U.S. was in 2001.
"Sixteen years ago. Actually, it was a BASF steam cracker," he said. "For 16 years, there was no cracker starting up in North America, simply because the industry was not that profitable. That all changed. We have now ethane, propane and butane, and suddenly we're going to get not only one new cracker -- we're going to get 11. That's quite a bit, so we are increasing our steam cracking capacity by 40 percent. That's a lot of capacity being added."
According to the American Chemical Council, the overall impact of shale gas on the chemical industry is "only good news," Wehrmann said.
As many as 310 new chemical industry projects spurred by shale gas will yield $185 billion in new capital investment, 464,000 direct and indirect jobs by 2025, $310 billion in new economic output per year and $26 billion in new tax revenue.
"We talk so much about this big investment wave coming," Wehrmann said. "We're actually already in it. The first cracker has started up already, and 10 more are coming. But now the big question is: Are we really ready to ride it?"
Future challenges
Wehrmann identified multiple uncertainties that are aspects of the petrochemical industry's changing global marketplace.
"Who dares to say crude is going to go back to $100 per barrel?" Wehrmann queried, noting the significant impact crude oil prices traditionally have on the competitiveness of projects. "I really don't know. Right now I'm seeing no sign that crude oil prices are going to move back up to $100 at any time soon."
Wehrmann speculated whether petrochemical demand will continue to grow at current rates in export markets.
"Demand is important," he said. "We need demand growth to absorb the capacity. We will see significant demand growth in Asia. In general terms, the world needs 3-4 world-scale crackers per year on a global basis. What we see is all those crackers are going to be built in North America in the next few years, and some other crackers in the rest of the world will be starting up. So in a couple of years, we will see overcapacity, lower prices and lower margins, but with that strong demand growth, everything should be back in balance in 3-5 years down the road, I would say."
Clearly, there are logistical considerations that challenge the ability to export ethylene derivatives on a large scale to Europe and Asia, Wehrmann admitted.
"In the first years, I wouldn't be surprised if we see congestion in ports and on roads to ship all that material around here in the United States and on the other side of the ocean," he said.
Another important possible logistical challenge, Wehrmann said, is global trade.
"There is a lot of discussion in politics about global trade," he said. "If there is any limitation in the interest of the world economy to support global trade, it will impact the petrochemical industry in North America because we have to be competitive with production in China. If there are import tariffs or something like that, it will impact the profitability of the business."
There must be sufficient low-cost ethane to supply the additional demand of new crackers and for exports, Wehrmann added.
"Ethane is cheap and has always been cheap -- all the time," he said. "We haven't seen additional demand for ethane, but the demand is coming now. From the capacity now, we see ethane being exported to Asia and Europe at a larger scale, so nobody really knows what is going to happen with the ethane price."
Economists have predicted a modest increase in ethane price, but Wehrmann hesitated to make a solid price prediction.
"We'll have to see, because this is new, uncharted terrain we are moving into," he said.
Responding to questions regarding what petrochemical plant operators can do to stay competitive, Wehrmann said there are macroeconomic aspects that "we cannot influence that much, maybe with a little exception on qualified labor."
"But I have always learned: Let's not focus on the things we can't control. Let's focus on the things we can control," he continued. "That's the question that we, as an industry, have to ask ourselves: What can we do to stay competitive and successfully ride this big wave that is certainly coming?"
The human factor
Wehrmann also said the impact of the current investment wave on Capex, schedule and availability of qualified manpower must be considered.
"There is another question that we have to ask ourselves: Do we have all the qualified people to run all the plants?" he said. "For 16 years, we had no new crackers, and people who started in crackers are retiring right now. So who is qualified to educate people to run [incoming new cracker] units?"
Of the 11 new cracker projects scheduled to start-up in the next year, Wehrmann believes most of them are above initial budget and behind schedule, "which is a result of that high demand for construction labor."
Regarding workforce development, Remley would like to see the industry accelerate its efforts to train skilled workers.
"There are wonderful programs and partnerships out there with junior colleges, technical schools and universities," she said. "I think we have an opportunity to accelerate on those fronts and certainly continue to position the workforce for the current wave and coming wave of investment."
Wehrmann added Germany has "a very neat model" of educating the workforce.
"There is a big focus on educating and developing people to work in plants as a career and as a profession, and I think that's done very successfully," he said, adding he concurs with Remley on the need for industry to "speed up" its workforce development efforts.
Challenges = opportunities = success
While admitting there are numerous challenges facing the petrochemical industry not only currently but also in the immediate future, Remley noted these challenges provide an opportunity for industry and government to work together.
"Access to competitive feedstocks, infrastructure, workforce development, sustainable footprint, low carbon footprint, innovation technically and process-wise, digitalization -- all of these areas are areas where we can work together to continue the United States' and particularly the Gulf Coast's position on the global stage," she said. "We look forward to continuing the dialogue.''
Remley said it is clear the North American region has established a competitive position and will continue to enjoy that position as long as the region continues to move forward.
"If we see those big waves coming, we just have to prepare our people to do all the work," Wehrmann concluded, "because in the end, that's driving the success factor."
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