Shell optimistic on long-term future of MEG business
Thomas Chhoa, GM, Shell (MEG)
Given current upheavals in the global economy, it looks as though we are facing a worldwide slowdown, but it is difficult to gauge the full potential impact of these developments. Shell remains optimistic about the long-term future of the mono ethylene glycol (MEG) business, and the role China will play as a key driver in the global market, but we accept that the near-term outlook will be difficult," a senior Shell Chemicals manager has told Chemical Week's China Chemicals Industry Conference in Shanghai.
Speaking on October 30, Thomas Chhoa, General Manager, Ethylene Oxide/Glycols, Shell Chemicals, said: "Until recently, industry observers remained bullish about the prospects for global MEG growth, propelled primarily by soaring demand in China. However, in light of the current uncertainty over the global economy, most are now revising - and re-revising - their growth forecasts downwards.
"China already accounts for over a third of global MEG demand, and some analysts have suggested China could consume more than half global production by 2015. In recent years, China's phenomenal MEG demand growth has been driven by a combination of increases in both domestic and export demand for downstream products, primarily polyester fibre and polyethylene terephthalate (PET) resin," Thomas added.
While looking in detail at the development of the MEG market in China, the Shell executive noted factors driving the business, including the strong position of downstream producers who benefit from economies of scale, strong local technology, competitive labour costs, proximity to markets, downstream integration and strengthening infrastructure.
But Thomas also noted challenges, such as rising labour costs, tightening credit controls, strengthening RMB, fluctuating export incentives and global economic slowdown.
Outlining potential "gamechangers" for MEG in China, the Shell manager suggested that per capita domestic consumption of downstream products such as man-made fibre and PET is significantly lower than in other more developed economies. Other factors that could impact MEG demand in China include higher oil prices, which could cut polyester's price advantage over cotton, or stimulate development of green glycols, or glycols from syngas or coal.
Thomas noted that investments in new MEG capacity and the development of OMEGA process technology, all underline the determination of Shell to remain a leading player in the global, Asia Pacific and China MEG markets.
Concluding, he said the industry is also likely to face some turbulence within a few years as a result of the significant volumes of new capacity that is steadily coming on stream. "When announced capacity increases are added to existing global capacity and measured against current and projected demand, an imbalance is looming," he noted.