Honeywell is a Fortune 100 heavyweight in technology and manufacturing. Like all big companies, when they make even small announcements they are industry-wide or even global in significance.
Honeywell recently announced a new Chinese manufacturing site to make catalysts for the dehydrogenation of hydrocarbons.
What does that mean?
That means the Honeywell facility will make critical catalysts that will help break hydrocarbons down and reassemble them into the precursors for commodity plastics, specifically polypropylene.
Now polypropylene is a huge volume consumer plastic. The result of the Honeywell operation is going to be an increase in Chinese domestic production of polypropylene using their Oleflex technology, using propane as its base stock.
That’s interesting because systems that produce plastic resins from gaseous hydrocarbon base stocks are not directly connected to the crude oil supply pricing infrastructure.
As shale gas and fracking drive resources come on stream, it’s possible that a significant proportion of Chinese plastic resin output could be supplied with domestic base stocks, using technology like this.
While pricing for natural gas is related to crude oil pricing, the engineering challenge is storing large quantities of LNG that makes it difficult to balance supply and demand compared to crude oil.
It’s just tough to store liquefied natural gas because it’s under pressure.
This means that gas pricing can swing more widely than oil prices, often to the downside. That matters to resin producers and the manufacturers that use them, which is pretty much everyone that uses anything plastic.
There are other knock on effects of the new Chinese capability. Historically, 70 percent of the world’s polypropylene was made from oil as a byproduct of making ethylene, which is itself the precursor for polyethelyne, another huge volume commodity plastic.
The new technology allows ethylene production directly from natural gas with minimal propylene byproducts. This means that the two biggest volume commodity plastics, polyethylene and polypropylene, can be made from independent feedstocks so you can better match supply and demand for both resins.
This also has larger geopolitical implications. Take a look at the following chart.Russian proven gas reserves are astronomical, even larger than those of Iran and Qatar.
It doesn’t take a PhD to see that the energy deal and pipeline network from Russia to China will be highly beneficial to both countries.
Right now the EU dependence on Russian gas is a major political issue and in the future it might be a sideshow compared to Sino and Russian energy trade and plastics may be a big part of that.
Let us know what you think in the comments below.
For more information on Honeywell, please visit www.honeywellnow.com.