Butadiene Markets: Volatility Here to Stay - Ravi Raghavan

Butadiene is the third most important olefin – after ethylene and propylene – that finds several applications, the most important of which is as co-monomer in making synthetic rubbers and plastics.

The dominant technology for producing butadiene is the cracking of Naphtha to produce ethylene; butadiene is commercially obtained as a co-product by extractive distillation from the crude butylene concentration (C4) stream.

Butadiene markets have their own dynamics – distinct from the other two important olefins – and the ‘lightening’ of cracker feedstock is having significant impact on availability of butadiene. Due this reason and storage limitations, butadiene is amongst the most volatile commodity chemicals – an aspect that poses challenges for both suppliers and consumers.

End-use pattern

The largest end-uses for butadiene are the two high volume synthetic elastomers – polybutadiene rubber (PBR), accounting for 31% of total butadiene demand, and styrene butadiene rubber (SBR), with a 28% share. Other major end-uses include acrylonitrile-butadiene-styrene (ABS) resin (11%), styrene butadiene latex (9%) and hexamethylenediamine (HMDA) (4%), an intermediate for nylon.

Due the above consumption pattern, the automotive (particularly the tyre) industry remains the single biggest driver for butadiene markets, and there is a possibility that growth rates of the past may not be maintained. The trends of electrification, smaller cars and the sharing economy could impact demand for cars in the long-term, and this will tell on demand for synthetic elastomers. In the near term, however, much of the growth for butadiene will be mainly in emerging markets, where vehicle ownership levels are still way below global averages and will trend upwards. Tyre manufacturing too is gravitating to these geographies – both to serve local as well as export demand – and the regional butadiene consumption pattern will change to reflect these dynamics.

Traditional supply sources

Steam cracking of hydrocarbons is the most widely used source for butadiene, accounting for 90-95% of global production. But butadiene is not the main product here – only a co-product with ethylene – and capital investments need to be made to recover and purify it from the mixed C4 streams by extractive distillation to a quality that makes it useful.

The potential to recover butadiene from the C4 stream depends on a number of factors of which the most important is the hydrocarbon feedstock the cracker runs on. Heavier feeds – like naphtha – produce more of C4s than do lighter ones such as gas, Ethane/propane or LPG. The butadiene/ethylene ratio for a typical naphtha cracker is about 13%, while for an ethane cracker just 2%.

The butadiene recovery section of a petrochemical project is a deliberate investment, done after careful evaluation of techno-economics, and is typically alongside new or existing crude C4 supply sources. Global butadiene extraction capacity was about 14.8-mtpa in 2016, according to estimates by Nexant, a consultancy; half of it in the Asia-Pacific. In contrast, demand in 2016 was about 10.9-mt, and forecast to touch about 12.2-mt by 2020 at a global CAGR of about 2.7%. This seems to indicate that there is enough capacity to take care of needs well into the future, but things are not so simple when it comes to this olefin.

At the growth rate expected, additional output of about 1.3-mt is required year-on-year to 2020 to meet the incremental demand, but the growth in supply of butadiene contained in cracker C4 streams will be less than 1-mt annually. This is both due to the ‘lightening’ of cracker feedstocks and the increasing production of ethylene from coal and methanol using coal-to-olefins (CTO) or methanol-to-olefins (MTO) technologies. Thus, despite enough butadiene extraction capacity in place, there could be pressures on supply stemming from lack of adequate C4 streams.

On-purpose production

The shortfall could be bridged to some extent by ‘on-purpose’ production in dehydrogenation plants – akin to that for propylene. But this will require higher and consistent butadiene prices to draw C4 feedstock away from alternate use in refineries. If this price scenario were to develop, however, there is a strong likelihood that some Chinese dehydrogenation plants, which were closed or converted to conventional butadiene extraction from C4 streams over the past few years, could resume dehydrogenation.

A few companies – Versalis, Novamont, Invista, Genomatica, and LanzaTech – are looking at BIO-based routes for making butadiene. Global Bioenergies, in partnership with Synthos, is, for example, pursuing a direct route to butadiene through genetically modified Escherichia coli. LanzaTech has ongoing projects with Invista and SK Innovation to produce butadiene either from LanzaTech’s carbon monoxide based 2,3-butanediol or direct fermentation. Genomatica is working with Versalis and Braskem to develop butadiene from renewable feedstock. Braskem recently opened an R&D centre where one of its projects is on bio-based butadiene. In 2016, Cobalt Technologies announced agreements with two undisclosed Asian companies for development of a biomass-to-butadiene solution, through Cobalt’s n-butanol production technology.

Tyre manufacturers looking to hedge against future feedstock scarcity are also investing in the field. Michelin, for example, is collaborating with Axens and Tereos to convert biomass to butadiene.

But all these technologies are still in development and unlikely to be commercially deployed in the near term.

Trade trends

An analysis of butadiene trade shows some distinct trends. Europe, South America and the Middle East are the major exporting regions, with Western Europe the largest regional exporter. North America, North East Asia (including China) and Japan are net importers.

Production of butadiene in the US has fallen from nearly 2.0-mt in 2006 to about 1.3-mt in 2016, and imports have filled the void. While the commissioning of new crackers in the next few years (based on shale gas) will increase the availability of crude C4s and contained butadiene production may rise a bit, not all new plants will have butadiene extraction facilities, and the region is expected to stay a sizeable net importer.

In Western Europe significant butadiene capacity – about 300-ktpa – has been added in recent times, but the lack of C4s (again due to cracking of lighter feedstock) has constrained operating rates. As a result, net exports out of the region, which reached a peak in 2017, are expected to decline going forward to 2020 and even beyond.

Indian scenario

Total butadiene capacity in India is around 493-ktpa in 2016-17, divided between four producers: Reliance Industries Ltd., Haldia Petrochemicals Ltd., Indian Oil Corporation and ONGC PetroAdditives Ltd. Demand is estimated to be 386-kt in 2016-17, leaving a small surplus, which is exported. Consumption is mainly for making PBR (49%), followed by SBR (32%) and ABS (10%).

Global butadiene demand is recovering as economic growth is returning to normal rates. As this occurs, the issue will be supply shortages. The increase of ethane-based ethylene production in North America and the Middle East will cause butadiene feedstock to grow at a slower rate than demand. While alternate butadiene supply sources, particularly dehydrogenation, will make a small, but important, contribution to overall supply, butadiene will stay the volatile product that it now is!