US NGLs Production and Steam Cracker Substitution: What will the Spillover Effects be in a Global Petrochemicals Market?
The surge in natural gas liquids (NGLs) supply accompanying US shale production has notably underpinned the domestic petrochemicals industry with cheap plant feedstock, particularly in the form of ethane. This has allowed US plants to forge a competitive global position in ethylene production and ushered in a new era of investments in the US petrochemicals sector. However, the impact of US NGLs production is not confined to the domestic petrochemicals sector. The emergence of the USA as a key global exporter of light-end commodities and purity products split from NGL streams is not just redrawing traditional trade patterns, it is also influencing wider market dynamics and global petrochemical feedstock trends and investment decisions. In this paper, we argue that while North American producers will lead the charge on cost-advantaged ethane-based ethylene production, petrochemicals markets will also adjust to support naphtha-based steam crackers based on growth in condensate exports and splitting capacity, particularly in markets east of Suez. Given these dynamics, the major spillover effect of US NGLs production on global petrochemical markets will be the provision of more optionality and feedstock alternatives between LPG and naphtha to global producers; this will ultimately act as a ‘balancing mechanism’ in global petrochemical markets outside the USA.