As noted in a recent IHS Chemical energy alert, Daniel Yergin, vice chairman of IHS, and author of “The Quest: Energy, Security, and the Remaking of the Modern World,” the decision reached at the Nov. 27 OPEC meeting in Vienna not to lower its output marked a historic change of roles.
“By leaving oil prices to the market, Saudi Arabia and the emirates also passed the responsibility as de facto swing producer to a country that hardly expected it — the United States,” Yergin said. “This approach is expected to continue with the accession of the new Saudi king, Salman, following the death … of King Abdullah. And it means that changes in U.S. production will now, along with that of Persian Gulf producers, also have a major influence on global oil prices.”
The impact of the resulting crude oil price decline has repercussions across the global economy.
PE prices respond
Global polyethylene prices declined in response to the lower crude prices.
Price declines were more immediate in the spot Asian markets; from November to February prices — using IHS Chemical's net transaction price eEstimate for linear low density PE butene film resins — declined $455 per metric ton or 28 percent.
The initial declines in Asia quickly found their way to the Middle East, by far the world's largest net exporter for polyethylene. Inventory destocking and higher China domestic operating rates from improved non-integrated margins also contributed to the prompt extension of price declines to the Middle East producers. In like fashion, Western European producers looked to increase operating rates as price declines lagged declines in naphtha with a weak euro and higher import tariffs for Middle East imports further supporting domestic production.
Market participants may be surprised by the strength of global petrochemical demand growth spurred by the lower energy prices.
A recent IHS Chemical research note: “Oil Price Decline Impacts Petrochemicals Scenario” provides a scenario analysis of how the recent decline in global oil prices is causing some petrochemical supply chain destocking, but is also sowing the seeds for better economic conditions, lower petrochemical prices and improving global petrochemical demand.
Continued capacity expansions are needed for polyethylene to meet global demand which is growing at some 4.4 percent per year. Prior to the recent crude decline continued capacity growth expectations were centered in China and the Middle East as well as resurgence in capacity growth for North America supported by the new found ethane advantage from shale drilling.
While lower crude prices have perhaps given pause to some of the more speculative projects envisioned for latter years, those projects that are already established in the coming five or so years are expected to proceed.
China is expected to proceed with most of the near term coal-to-olefins projects already underway, although future marginal projects may be canceled or delayed. Capacity growth in the Middle East continues although the pace of expansions was already slowing prior to the recent decline in crude.
In North America, IHS expects projects totaling some 7.4 million metric tons between now and 2019 — an increase of more than 36 percent compared to 2014 capacity — to proceed as planned. Other capacity plans announced for latter years could very well see delays or re-evaluations.
IHS Chemical experts will be providing NPE attendees with insight into Global Petrochemicals during a March 24 event “SPI and IHS Key Market Breakfast Briefing” with presentations covering the economy, energy, feedstocks, olefins and polyolefins.
Highlighting the briefing will be a presentation by Cindi Marsiglio, vice president, U.S. Manufacturing for Wal-Mart Stores Inc. discussing their commitment to purchase over 10 years, $250 billion more in U.S. made products that support American Jobs.
Registration for the breakfast is open to all NPE attendees, but space is limited. Those who cannot attend the briefing are invited to visit IHS at Booth S15034 where they can meet individually with members of the IHS Chemical team.
Robin A. Waters is director, polyolefins North America for IHS Chemical.