4 GENERIC EMISSIONS
7 ILLUSTRATIVE PROCESS: LOWER OLEFINS
The lower olefins sub-sector is illustrated by the cracking process. The world-wide demand for lower olefins (ethylene, propylene, butenes and butadienes) is higher than any other chemical, but due to their high reactivity they are only found in very low concentrations in crude oil. It is therefore necessary to ‘crack’ saturated hydrocarbons into unsaturated hydrocarbons using the large-scale catalytic cracking or steam cracking processes.
7.1 General information
The Lower Olefins are a very important group of substances for the chemical industry and they are the primary feedstock for most plastics, polymers and man-made fibres. Olefins derivatives are to be found in clothing, household fabrics, carpets, cooking utensils, vehicle Verbindungen, aircraft, computers, paints, solvents, cosmetics and pharmaceuticals.
Ethylene is a very important building block for the organic chemical industry and its range of derivatives is shown in Figure 7.1. More than 50 % of ethylene is used in the production of polyethylene, but it is also particularly important in the production of polystyrene (via ethylbenzene and styrene), glycol (via ethylene oxide), vinyl acetate (via acetaldehyde and acetic acid) and PVC (via 1-2 dichloroethane and vinylchloride).
Figure 7.1: Uses of ethylene [EC DGXI, 1993 #8]
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144 Production of Large Volume Organic Chemicals
More than 50 % of propylene is used to produce polypropylene. Other important products include acrylic esters (via acrylic acid), phenol and acetone (via cumene), acrylonitrile fibres, butanol and ethylhexanol (via butyraldehyde), and glycol (via propylene oxide).
Some 47 % of butadiene is used to produce styrene/butadiene rubbers and latexes. A further 27 % is used for producing polybutadiene rubber, most notably EPDM (ethylene-propylene-diene monomer) rubber that is made via 1,4 hexa(ethylene-propylene-diene. It is also used for the production of adiponitrile – a precursor for nylon production.
7.1.1 Production capacity
The total nameplate production capacity of ethylene in European Union Member States is 20 million tonnes per year and this accounts for some 25 % of world supply. European ethylene production capacity has expanded by 5 million tonnes in the last 10 years, but only four new crackers were built during the period. The capacity increase has been largely achieved through the expansion and optimisation of existing Anlagen, and this is reflected in the capacity utilisation of 93 % [CEFIC APPE, 1998 #15]. Within the European Member States there are 50 crackers and these are located on 39 different sites (see Table 7.1).
Propylene capacity in Western Europe was 14.5 million tonnes in 1997, with an actual production of 12.6 million tonnes. Around 9.6 million tonnes was produced on steam crackers, with the balance being recovered from refinery streams. Generally, the growth of propylene derivatives has exceeded that of ethylene, resulting in a propylene market growth of 4.5 % per year in the last 10 years. The annual production of butadiene is Western Europe is 2 million tonnes and this represents a capacity utilisation of 85 %.
Over the next 5 years, ethylene is forecast to grow at around 2.4 % per year, with propylene demand predicted to increase at 3.9 % per year. This would lead to an imbalance between supply and demand for the two products, resulting in a possible shortfall in propylene supply.
7.1.2 Feedstocks
In Western Europe, liquid naphtha (from crude oil refining) is by far the most important raw material and accounts for 73 % of ethylene production. Other feedstocks are less significant in Western Europe, but ethylene is also produced from gas-oil (10 %), butane (6 %), ethane (5 %), propane (4 %) and other sources (2 %).
Liquid feeds predominate in Europe because they are relatively abundant and easy to transport.
It is not essential to co-locate ethylene plants with a suitable source of feed and it is often an advantage to integrate with derivative plants since the total demand chain plays a critical part in the overall value of the business. Gas oil cracking may be undertaken where plants are located adjacent to and integrated with refineries.
Gas feedstocks are less used in Europe because they are rarely economically available. Ethane is extracted from natural gas by cryogenic liquefaction, and there are few locations in Europe where gas is sufficiently concentrated to allow economic recovery (z. B. with access to pipeline supplies from North Sea production fields). Ethane is also difficult to transport as it requires special refrigerated ships or high Druck pipeline systems. Some European plants have a degree of flexibility to process LPG (Liquefied Petroleum Gas), but this is limited by the different physical configurations of ‘gas’ and ‘liquid’ fed crackers.
In the USA, particularly on the Gulf Coast, most crackers use gas feedstocks rather than naphtha and enjoy both lower capital and operating costs. This advantage may be eroded by low oil prices and the increasing value of co-products, in particular propylene. USA labour and utility costs are also lower than in Europe, and there is a more established pipeline infrastructure allowing virtual ‘freight-free’ movement of olefins to the derivative plants.
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Production of Large Volume Organic Chemicals 145
Country Location Operator Number of crackers Capacity (kt/yr ethylene)
Berre Montell/Elenac 1 420
Carling Elf Atochem 2 480
Dunkerque Copenor 1 350
Feyzin AP Feyzin 1 240
Gonfreville Elf Atochem 1 480
Lacq Elf Atochem 1 75
Lavera Naphtachimie 1 700
France
Köln-Worringen Erdoelchemie 2 780
Ludwigshafen BASF 2 560
Puertollano Repsol 1 280
Tarragona Repsol 1 600
Mossmorran Exxon/Shell 1 720
UK
Wilton Huntsman/ICI 1 865
TOTAL EU 50 19690
Norway 1 410
Switzerland 1 25
TOTAL WESTERN EUROPE 52 20125
Bulgaria 2 450
TOTAL APPE AFFILIATES 61 22305
Note 1: Year 2000 capacity is 410 kpta [Federchimica, 2000 #123]
Note 2: Year 2000 capacity is 610 kpta.
Note 3: Ethylene plant of the Hellenic Petroleum Company was closed in 2000.
Table 7.1: Location of ethylene plants in the European Union and wider Europe [CEFIC APPE, 1998 #15]
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146 Production of Large Volume Organic Chemicals
7.1.3 Economic factors
The European petrochemical industry accounts for 28 % of world turnover and olefin-based products form a significant proportion of this activity. It is one of the most important manufacturing sectors in the EU and has an estimated market capitalisation exceeding 15 billion Euro. The European Petrochemical industry directly employs around 20000 people, and production of the principal derivative products (plastics and polymers) employs a further 70000 people in Europe. The wider industry chain, including machine manufacturers and converters, is estimated to employ 1.1 million people [CEFIC, 1999 #43].
In recent years, the chemical industry in general has been the subject of major restructuring, resulting in increased segmental focus in areas such as specialities, life sciences, inorganics, and base Chemikalien. For lower olefins, despite some realignment of assets, only four new steam crackers have been built in the last decade, and more than 50 % of plants currently in operation are more than 25 years old. This position stems directly from the large investment costs for new plants, and the low margins in olefin production.
Markets. Lower Olefins are sold on chemical specification rather than their performance and so competition is geared heavily towards price. This promotes international trade but makes Europe potentially vulnerable to imports from sources using cheaper feedstocks (particularly gas) or where operating costs are lower. Producers in the USA, the Middle East and Asia are able to access at least one of these advantages and can therefore compete aggressively against European manufacturers. Whilst transportation costs for olefins are relatively high, those for first-derivative polymers are very low, making it attractive to import polymer product into Europe from anywhere in the world. In real terms, the cost of these products continues to fall as new producers compete for market share [CEFIC, 1999 #43]. Constant pressure is therefore exerted on the transfer price of olefins, and in order to remain competitive, producers must look to ways of reducing operating cost margins. In the absence of technological breakthrough, this can only be achieved by continuous operating cost Verbesserungs, often involving investment in new plant and equipment, and by ongoing pruning of the operating fixed costs.
Compared with other chemical sectors, lower olefins is characterised by an unusually high number of separate producers and this partly reflects the strategic desire of each country to have its own ethylene production source. No single company dominates the market in Europe, although there are a number of co-operative alliances and a number of long-distance ethylene pipelines across Europe that link otherwise remote producers and users. There may be sector rationalisation in the future because of the large number of producers and low profit margins.
Investment costs. Steam crackers are very large complex plants that involve significant investment costs. All crackers incorporate proprietary designs that are licensed from a small number of technology contractors in the USA and Europe. At a global level no more than 4 - 6 new crackers are announced in a year and this forces intense competition between contractors.
Investment costs vary from region to region, influenced by the cost of construction labour, and the proximity to a developed infrastructure. In real terms, investment costs have fallen over the last decade because of increased scale, enhanced design and improved project execution. Table 7.2 shows investment costs for a world scale plant (600 kt/yr ethylene) built on a European green-field site.
Feedstock Investment Cost (M Euro) Unit Cost (Euro per tonne ethylene)
Ethane 540 - 600 900 - 1000
Naphtha 660 - 780 1100 - 1300
Gas-oil 720 - 850 1200 - 1400
Table 7.2: Ethylene plant investment costs for different feedstocks [CEFIC, 1999 #43]
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Production of Large Volume Organic Chemicals 147
At average cracker margins, investment in a green-field plant in Europe cannot return the capital costs. Investors therefore seek to capture other sources of value to achieve acceptable returns [CEFIC, 1999 #43] and this might involve:
- access to lower cost gas feedstocks (this is restricted to coastal locations, and is only viable when the gas can be considered to be ‘distressed’)
- co-location with other production units (to reduce overheads by sharing common services) - investment in ‘brown-field’ sites (where infrastructure already exists).
It is not possible to derive generic investment costs for brown-field sites since the scope of work is location specific. The ‘core’ cost of a cracker (usually referred to as ISBL - inside battery limits) might account for 60 - 65 % of the total green-field plant cost. Other costs will be incurred, such as increased provision for utility systems, but will depend on the amount of free space available in existing systems. The investment costs for the expansion of existing plants are even more difficult to define since there is need to consider factors of accessibility, physical plant layout and modifications to existing equipment. Furthermore, the commercial justification for an expansion is determined by unique factors (e.g. increased on-site product demand)
Production costs. The production costs of any process include variable costs (which are largely dependent on throughput), and fixed costs (such as operating labour, maintenance, and site overheads). To the cash cost ‘ex-works’ must be added the costs of freighting to the purchaser and of technical service and sales. The cash costs for lower olefins are shown in Table 7.3 for West European leader plants in 1997. The cost of feedstock accounts for most of the variable cost and therefore causes most of the cost fluctuation.
Butadiene Ethylene
Capacity (Kt/yr) 90 620
Total Capital – replacement cost (£ million) 45 393
Net Variable Costs (including credit for by-products) (£/t) 146 107
Total Fixed Costs (£/t) 27 30
CASH COST (£/t) 173 137
Freight (£/t) 24 12
Table 7.3: Cash costs of production for Lower Olefins - West European leader plants [Environment Agency (E&W), 1998 #1]
Price Sensitivity. The prices of products and feedstocks are highly cyclical (Figure 7.2). The price of naphtha has fluctuated by 93 % over the period 1993 - 98 and this has resulted in product price fluctuations ranging from 63 % (for butadiene) to 104 % (for propylene).
-100 200 300 400 500 600
Jan-93 Apr-93 Jul-93 Oct-93 Jan-94 Apr-94 Jul-94 Oct-94 Jan-95 Apr-95 Jul-95 Oct-95 Jan-96 Apr-96 Jul-96 Oct-96 Jan-97 Apr-97 Jul-97 Oct-97 Jan-98 Apr-98 Jul-98 Oct-98 Jan-99 Apr-99 Jul-99
Naphtha Phys NWE CIF ARA Platt's Mid (Euro/t) Ethylene NWE FD CQ WtdAvg ICIS Mid (Euro/t) Propylene P Grade NWE FD CQ Platt's Mid (Euro/t) Butadiene NWE FD CQ Platt's Mid (Euro/t)
Figure 7.2: Price fluctuations of Lower Olefin feedstock and products [CEFIC, 1999 #43]
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148 Production of Large Volume Organic Chemicals
Profitability. The profit element (margin) of an installation can be determined by its position on the production cost curve for the total industry. The price of product is determined by production costs in the least competitive plants. The cash cost curve for ethylene in Western Europe (Figure 7.3) has a shape that represents not only the different plant efficiencies and scale, but also different feedstock sources.
Figure 7.3: Production costs curve for ethylene [Environment Agency (E&W), 1998 #1]
The steepness of the cash cost curve is an indicator of the potential for a competitive producer to make profit. A simple indicator of the steepness of the cash cost curve is the difference between the cash costs of leader and laggard plants (broadly, the best 20 percent and the worst 20 percent of the regional cost curve). The difference between the best (leader) and worst (laggard) performing plants in Europe is estimated to result in a range of costs from ₤137 / tonne to ₤198 / tonne [Environment Agency (E&W), 1998 #1]. The difference (₤61 / tonne) appears to indicate a healthy industrial sector, but more detailed analysis suggests that when discounts and other factors are taken into account, the return on investment (ROI) in Europe has been below the cost of capital at around 7 % [CEFIC, 1999 #43].
Given that projects are usually only sanctioned when returns exceed a minimum capital charge of around 16.25 % per year (equivalent to 10 % per year for 10 years) it is unsurprising that few new crackers have been built in the last decade. Instead, producers have chosen to maintain their competitive position by extending the life of existing plants with investments in increased capacity and upgraded equipment. Some 75 % of new capacity brought on-stream in the last 10 years has been achieved through expansion projects, rather than in new facilities. This policy has made sound economic sense for a highly cyclical commodity business in which the capital cost of new plant is very large and the returns uncertain.
The histories of cash cost margins for ethylene and butadiene are shown in Figure 7.4 for West European leader plants. The margins fluctuate widely, largely synchronised with the industry business cycle. This indicates that changes in costs cannot be passed on to consumers. Both buyers and sellers are well informed in these markets and will press for the benefits of over-supply or under-over-supply respectively.