Singapore's role in global ethylene production

Singapore is rapidly realising its goal of becoming an integrated world-scale petroleum and petrochemicals hub. Improving energy efficiency in the petrochemical industry is one of the key challenges as companies strive to improve existing production through advanced control and optimisation of processes, reduction of gas flares and improving feedstock yields.

The global petrochemical industry consumes huge amounts of energy in its production of vital petrochemicals such as ethylene. Ethylene is used as a proxy indicator for the petrochemical industry. It is used in the production of polymers such as polyethylene (PE), polyvinyl chloride (PVC), polyethylene terephthalate (PET), polystyrene (PS) and many other products.

Packaging materials make up about 55 percent of ethylene derivative consumption worldwide and it is also present in what we wear, what we clean things with, what we live and work in, what we move about in and in almost every piece of equipment used in any recreational activity.

Ethylene production to double

Ethylene alone consumes 30 percent of the energy used in the petrochemical industry. In 2010, Singapore's ethylene capacity stood at 2.1 million tonnes per year and it is continuing to grow. March 2010 saw the inauguration of Royal Dutch Shell's mega ethylene cracker complex (EEC). This integrated ECC is expected to double the country's ethylene production capacity over the next two years. Much of the output is meant for the Chinese market.

ExxonMobil's new plant, slated to be completed in 2012, will include a 1 million tonne ethylene steam cracker. This company's existing petrochemical plant already produces 800,000 tonnes of ethylene each year. By 2014, Singapore's annual ethylene production is projected to reach 4.04 million tonnes.

For perspective, global production of ethylene has been steadily increasing from 119.6 million tonnes per year in 2007, to 138 million tonnes as of 1 January 2011.

The situation as it stands

Many new plants have been commissioned in the Middle East, mainly in Saudi Arabia and Iran. Inevitably, other players from the Middle East will challenge Singapore's status as a major global petrochemical producer. With its abundant natural gas and oil, the Middle East could become the epicentre of global petrochemicals manufacturing. In addition to the Chinese market, the Gulf Petrochemicals and Chemical Association has its eye on the vast Indian market.

By 2013, China will complete five ethylene plants and five cracker expansion projects. These alone will increase China's annual production of ethylene from 13 million tonnes in 2010 to 19.08 million tonnes in 2013. India's capacity as of 2010 stood at 3 million tonnes per year, with 1.11 million tonnes added in 2010 alone. India aspires to raise its total ethylene capacity to 3.8 million tonnes per year by the end of 2013.

China currently imports 80 percent of the total ethylene production from South Korea, Taiwan and Japan. One consequence of China's expanding its own ethylene capacity is that these countries may have to shut down some or all of their crackers due to unsustainable profit margins if they are not able to find alternative markets to replace China. Japan has in fact already announced plans to reduce its ethylene production by 7 percent over the next few years.

Two major challenges for Singapore

China's rapidly expanding petrochemical industry and the entry of new and bigger players from the Middle East suggest that there will be two major challenges to Singapore's petrochemical industry competitiveness.

First, the industry needs to adopt new strategies to reduce its energy intensity and carbon footprint. This is crucial since the volatility of the price of oil and gas can be expected to increase in the future and there could be greater pressure put on governments to reduce carbon emission following the United Nations Framework Convention on Climate Change, to be held in Durban later this year.

Secondly, to sustain and increase the competitiveness of its petrochemical industry, Singapore must expand its market beyond China and capitalise on its strategic position vis-a-vis ASEAN (Association of Southeast Nations), which has a population of 575 million and a gross domestic product of US$3.4 trillion.

At the current level of economic growth and development, barring any future financial crises or political turbulence, living standards in the ASEAN region will continue to rise over the next decade and the demand for ethylene-based products will soar.

Indonesia, Malaysia and Thailand are building their own ethylene capacity. Their comparative advantages include cheaper workforce and lower production and transportation costs. However, Singapore's integrated petrochemical complexes make for higher efficiency in the production and transportation of ethylene.

To maintain its competitiveness in the long run, Singapore must formulate and contextualise its ethylene production strategies to the intricacies of the ASEAN market. China may soon produce enough ethylene to meet its domestic demand, and unless Singapore finds new markets, its petrochemical industry could suffer from overcapacity.

BY: Nicholas Koh, Energy Analyst, and Nur Azha Putra, Research Associate, Energy Studies Institute