Crack To The Future - The petrochemical feedstock world is changing. Historically most petrochemical feedstock came from the refinery, with refinery naphtha and liquefied petroleum gas (LPG) used as cracker fields. Some gas crackers were in regions where gas was readily available.

The oil boom in the Middle East initially created a problem: What to do with the associated gas? However, the potential for gas was soon recognized, and a huge expansion of petrochemical production occurred in the Middle East, with producers such as SABIC becoming major players, based on ready availability of cheap ethane.

Things are changing now in the Middle East; gas is becoming much tighter because of the competing needs of the power generation sector and petrochemicals production, and there have been signals that the subsidy, while not ending, may certainly become less advantageous in the future.

The Shale Gas Revolution

The shale gas revolution is starting to have a huge influence on petrochemicals. Shale gas has become economically viable because of advances in hydraulic fracturing and horizontal drilling techniques.

Shale gas availability is making U.S. gas competitive compared with crude oil; hence naphtha and U.S. petrochemical producers now have a significant cost advantage over competitors who are reliant on liquid feeds. Only the Middle East remains cheaper. But, as noted, gas availability is fast becoming an issue, and many new projects are using liquid feedstocks, effectively eliminating the competitive advantage.

So it is not surprising that the shale revolution is going global. Huge potential exists in the Middle East, North Africa, Latin America, Asia Pacific and, very significantly, China. The most rapid developments are taking place in the Middle East and North Africa, where the oil field services are all in place and are already highly active. Developments have begun most significantly in Saudi Arabia, Oman, United Arab Emirates and Algeria. There is also significant potential in Libya, Egypt, Tunisia, Jordan and Morocco.

China is, not surprisingly, also active in developing its unconventional resources. The Chinese government has issued a development plan with a road map to turn to shale gas instead of coal; this is both for financial reasons and to reduce emissions. China anticipates a shale gas output of 6.5 billion cubic meters by 2015 - a very ambitious target given that output is close to zero now.

In summary, unconventional gas developments are accelerating and are having a huge influence on petrochemicals feedstocks. The attractiveness of liquid feedstocks will depend entirely on the future oil price; other routes to petrochemicals, including those from coal, are increasingly attractive, provided that some of the technical and environmental challenges can be addressed.

Technologies for a New Era

Coal is in abundant supply around the world. There are two internationally recognized methods for assessing world coal reserves. The first one is produced by the German Federal Institute for Geosciences and Natural Resources (BGR) and is used by the International Energy Agency (IEA) as the main source of information about coal reserves. The second one is produced by the World Energy Council (WEC) and is used by the BP Statistical Review of World Energy.
According to BGR, there are about 1 trillion tons of coal reserves left, equivalent to 130 years of global coal output in 2011. Coal reserves reported by WEC are lower: 861 billion tons, equivalent to 112 years of coal output.

China is the largest producer and consumer of coal. The reason behind the dash for gas is that, environmentally, coal is less attractive currently than alternative feedstocks. Also, investment costs for coal-derived petrochemical facilities tend to be high.
However, as technology develops, these issues will be addressed, making coal an attractive route to petrochemicals. A number of technologies are already in existence and more are being developed.

Coal can be used to produce olefins, chemicals such as VCM and PVC via acetylene, aromatics, ethylene glycol and ethanol. China is leading the way with development and implementation of such technologies.

Conclusions

Against this backdrop, the future of petrochemicals feedstocks will continue to evolve. Shale gas and shale oil was virtually unheard of only five years ago but is now having a major influence on global supply and demand.

• The future of liquid-based petrochemical feedstocks will depend on future oil prices. Analysts expect prices to soften, at least in the short- to medium-term, which will give some relief to those operating liquids crackers. OPEC, of course, will try to maintain oil prices, but the growth of production by non-OPEC countries is a major challenge to the Organization of Petroleum Exporting Countries.
• Usage of gas as feedstock will continue to grow. The shale revolution is truly underway and will have a huge influence on availability of gas around the globe. Those countries that develop shale will have access to cheaper feedstocks. The U.S. is already feeling the positive effects of shale, with significant investment taking place in petrochemicals. China is uniquely placed given its dual status as producer and major consumer.
• China will continue to take advantage of abundant cheap coal and as technology develops, others may well follow China's lead. The environmental issue is the only factor that will inhibit growth in this area.

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Andy Gibbins
Andy Gibbins is Vice President, Middle East with Euro Petroleum Consultants [EPC] based in Dubai. Prior to joining EPC, Andy spent over 20 years with Shell and NOVA Chemicals. EPC is a technical oil & gas consultancy with offices in London, Dubai, Moscow, Sofia and Kuala Lumpur. They are also the organizers of leading oil & gas conferences and training courses. EPC is organizing the MENA Shale 2013 conference in Abu Dhabi in December. Please visit www.mena-shale.biz or www.europetro.com for further details.