Linear Alpha Olefins: Renewed Investment in Full Range Facilities

Apr 21, 2019

A New Wave of Full Range LAO Production

Globally, the last time a new full range linear alpha olefin (LAO) plant started up was almost a decade ago in 2010, when Q-Chem II began operations in Qatar. Since then, new LAO capacity additions worldwide have been limited to developments in on-purpose production units, although INEOS and Chevron Phillips also completed modest capacity expansions at their existing full range facilities in North America.
 
This trend is now changing, with Shell in 2019 announcing the start-up of its new full range facility in Geismar, LA, and INEOS expected to commence production in 2019 at a new full range plant in Alvin, TX.  Furthermore, ExxonMobil is considering a potential investment in a full range unit in Baytown, TX. Investments in on-purpose LAO production are also continuing, as Arcanum is expected to start up an ethylene-based butene-1 facility at Baytown, TX in 2019, and Chevron Phillips recently announced it is studying the addition of a hexene-1 unit based on ethylene trimerization.

A Breadth of End Markets with Different Drivers and Growth Rates

Full range LAO technologies process ethylene to produce varying distributions of LAO fractions. The C4, C6 and C8 fractions are mainly consumed in the manufacture of polyethylene, which primarily serves packaging applications. Major uses of other LAO fractions include the production of polyalphaolefins (PAOs) and synthetic alcohols. PAOs, classified as Group IV base oils, have applications in synthetic lubricants for automotive and industrial end uses, while synthetic alcohols are mainly used to produce surfactants for household detergents and personal care products.
 

 
 

Demand for LAO fractions grow at different rates, while full range LAO technologies do not allow for wide flexibility in their product distributions. This results in an overall imbalance between the product distributions of full range LAO plants and the demand distributions across LAO fractions in the global market. Globally, demand volumes are significantly higher for the lower LAO fractions (i.e. C4, C6 and C8) than the higher cuts (i.e. C10+), while demand growth rates have also generally remained higher for the lower fractions. This has supported continued developments in on-purpose production of the lower cuts.

Different Product Distributions and Business Models

As full range LAO product distributions vary by technology, each producer has its own unique challenge in optimizing plant operations to maximize revenue across the entire range of LAO fractions. In addition, full range LAO producers are also forward integrated into derivatives in different ways and to varying extents, and hence face different levels of exposure and servicing requirements to merchant LAO markets, given the diverse customer requirements in terms of shipment volume, mode of logistics, and technical support.
 
A key factor supporting new investments in full range LAO units is access to low-cost ethylene, as evidenced by the two U.S. facilities currently starting up as well as the previous two plants that were added in the Middle East about a decade ago. Restricted technology access and high entry barriers for full range LAO production have also limited opportunities for new entrants. Meanwhile, global demand growth in LAOs and evolving trends in end markets, combined with the availability of captive, low-cost ethylene, have presented significant opportunities for existing full range LAO producers to add new world-scale units, following a period of stagnant investment activity.

Various Opportunities and Risks Going Forward

A new wave of full range LAO production is expected to initially have a significant impact on the LAO market, especially considering the scale of this new capacity relative to the overall market. Going forward, a range of market factors will shape the opportunities and risks for full range LAO producers.

Nexant Energy & Chemicals Advisory has extensive experience providing commercial, technical and economic advice to clients in LAO and related sectors. It has completed many assignments for major LAO producers across different regions, as well as potential new entrants to the LAO market.

In addition, Nexant’s Subscriptions and Reports provide comprehensive analysis, forecasts and insights on the LAO sector. The Markets and Profitability program offers detailed analysis of LAO supply, demand and trade, while the Technology and Costs program provides extensive coverage of the chemistry, process technologies, and production economics for LAOs.