Surfactants are important speciality chemicals for a host of industries of which home and personal care are the most important. The raw materials require to make them can be of petrochemical or oleochemical origin, and long value chains have been built – mainly by small and medium enterprises (SMEs) – to make surfactants. Of the four important classes of surfactants, anionic and non-ionic surfactants are the most dominant (in that order), at least in India. Linear alkyl benzene (LAB) and ethylene oxide (EO) are two key raw materials needed to make them, and this is mostly done through the petrochemical route (though some capacity exists – including in India – to make EO through bio-based routes).
LAB is converted into the sodium salt of its sulphonic acid – called LABSA or LABS – while EO is used to ethoxylate several raw materials of which fatty alcohols are arguably one of the most important. The properties of the fatty alcohol ethoxylates (FAEs), so obtained, can be tailored by changing the types of fatty alcohols used, and serve a broad range of applications.
LAB supply demand scenario
LAB is produced from n-paraffins (NP), which are in turn obtained from the kerosene fraction of crude oil refineries. NP is reacted with benzene to produce LAB. There are two categories of LAB producers globally: ones that produce their own NP (i.e. the crude oil refiners); and those that buy NP from the merchant market. India has four LAB producers: Reliance Industries Ltd. (RIL), Indian Oil Corporation Ltd. (IOC), Tamilnadu Petroproducts Ltd. (TPL) and Nirma Ltd. While the first two run integrated operations by virtue of having their own refineries, the other two outsource their NP (or kerosene) from local producers or import, depending on the price and availability.
Between the four, LAB capacity in India is estimated at about 550-ktpa and production in 2018-19 is estimated at 447-kt, representing a capacity utilisation of about 81%. Annual demand is significantly higher at about 679-kt, with the gap between domestic demand and supply met by imports, estimated at about 220-kt in 2018-19.
LABS – A workhorse surfactant
LAB demand is expected to grow at a CAGR of about 5%, despite some concerns over the effectiveness of the surfactant derived from it for dyeing polyester; its effectiveness in hard waters; and its fate in the environment. Its obituary has been written several times in the past, but LABS still reigns supreme as the workhorse surfactant. This is for several reasons. For one, there is a large and fragmented detergent industry that is well versed with formulating with this surfactant. Most of the simple sulphonation plants that exist in the industry are designed to handle LAB, and require tweaking or modernisation to take up other actives such as alpha-olefins or methyl esters (a by-product of the biodiesel industry). LABS is also particularly well suited for Indian hand-washing habits: the preponderance of powder detergents; and the desire for quick and abundant foam etc.
New capacity options?
What is raising some concern is the reluctance of the incumbents to expand LAB capacity or new players to build anew. No new LAB plant has been built in India since 2004, and all of the incremental demand in the period has been met through imports. Aside some debottlenecking, there is no indication that the domestic LAB output will rise any time in the near future. Imports now average about 20-ktpa each month and predominantly come from Saudi Arabia, Qatar and Thailand.
Globally, as well, there seems to be little interest in new LAB plants. The only projects expected in the near-term are from the Spanish company, CEPSA, and Farabi Petrochemicals in Saudi Arabia. In a tightening market for LAB prices could move up.
High costs of technology
At a recent conference on surfactants in Mumbai, organised by ICIS, a representative from IOC attributed the lack of investments in LAB capacity to the stiff charges for technology from the dominant vendor that makes it available for licensing. According to Mr. Dhananjay Srivatsava, the cost of investment for a world-scale LAB plant with a capacity of 120-ktpa is about $500-mn, of which $320-mn comes from the fabricating costs, while the balance is attributable to licensing fees ($80-mn), proprietary equipment & catalysts ($80-mn) and import duties ($20-mn). As a consequence, in an Indian context, the internal rate of return (IRR) for integrated players (i.e. refiners) drops to below 10%, much below the hurdle rate of 13-14% required to justify the project on economic grounds.
This, he claimed, was the reason IOC was forced to give up on an LAB expansion plan at its Gujarat refinery, despite the strong signals from the market for new capacity.
Need for technology development efforts
The need of the hour is therefore a concerted effort at LAB technology development – something that is wholly in the ability of IOC, which has ample infrastructure at its R&D centre in Faridabad, in the outskirts of New Delhi. The centre has some notable achievements – by itself and in partnerships with publicly funded laboratories operating under the CSIR system – and there is no reason why such a developmental effort cannot be taken up with reasonable chance of success.
Demand for kerosene as a fuel for cooking and lighting in rural India is on the decline and though demand for aviation turbine fuel (ATF) is rising, there will be easier availability of NP amongst Indian refiners going forward. Conversion to LAB could be a value-addition – if the economics work in its favour.
Rise of alternatives
There are some who believe that if LAB supplies are constrained and/or it outprices itself in the market, other molecules will come to fill its place. That may well be true. AOS, for example, is now finding its way into detergent formulations, often as a co-surfactant with LABS, and could play a larger role in the future. But it will be good to bear in mind that markets for alpha-olefins (AO) too can turn tight, given that it is a small oligopoly of producers who have a tight grip on the market. Prior attempts to access AO technology for a domestic investment have failed, as did an effort to make it from vegetable oils. But given the petrochemical focus most refiners now have, AO must be an option worth investigating again.
New EO capacity needed soon
The availability of purified EO (PEO) for making surfactants seem adequate as of now, and could be so for another couple of years. But beyond that period there will be need for new capacity, and it is unclear where it will come from. India has two producers of PEO: RIL, which operates four plants (at Vadodara, Nagothane, Hazira and Dahej); and India Glycols Ltd. (IGL), with one plant at Kashipur (Uttar Pradesh). IGL’s PEO is consumed captively, and there are no supplies to the merchant market.
Indian demand for PEO is now of the order of 220-kt, while capacity available is about 275-ktpa. Demand has not grown as much as one study carried out by this newsmagazine anticipated, but it will rise in the years ahead at a pace of anywhere between 5-7% CAGR. This implies new capacity will be needed in 2-3 years and the best place to do it will be at the new crackers proposed to be set up. At least some of these will look to make monoethylene glycol (MEG) to feed the polyester value chain, and diverting some of the EO to make PEO is only a matter of adding a couple of purifying columns.
But what will be just as important as ramping up PEO capacity is to enable the setting up of a cluster of derivative producers around any new plant. Presently, all of the EO consumed by the 60-odd derivative producers is transported via road and given the hazardous nature of EO this is a risk that should be minimised. There has been some rationalisation of supplies by optimising the routes of supply, so as to minimise the distance the PEO has to travel from producing to consuming centre, but it is time to take this further and move PEO by pipeline. Some efforts are currently ongoing to serve PEO consumers located close to production hubs by pipeline, but a more planned initiative is needed when the next lot of investments do come up.
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