Oil & Gas Journal - September 7, 2015

Polymer exports

The most important end-use markets for ethylene and propylene are production of polyethylene and polypropylene. US production of polyethylene and polypropylene has been surplus to domestic demand for at least 30 years, and export markets have always absorbed the surplus in US supplies. Export sales, however, were generally 20-25% of domestic production for polyethylene and 15-20% for polypropylene. With this article, we expand the scope of the series to include an overview of US exports of the industry’s primary polymers.

As petrochemical companies expand ethylene and PDH plant capacities, the US will triple or quadruple its polyethylene exports to destinations other than Canada and Mexico, as well as double or triple its polypropylene exports.

Braskem Idesa SAPI, a 75-25 joint venture of Braskem SA, Sao Paulo, and Groupo Idesa SA de CV, Mexico City, is nearing completion of its long-planned Etileno XXI petrochemical complex in the Coatzacoalcos-Nanchital region of the Mexican state of Veracruz (OGJ, July 7, 2014, p. 90; July 1, 2013, p. 90; OGJ Online, May 12, 2015).

The ethane-based complex, which is scheduled to be commissioned in September 2016, will expand Mexico’s ethylene and polyethylene production capacity by 2 billion lb/year.

While US exports of polyethylene to Mexico in 2014 averaged 2. 3 billion lb/year, once Etileno XXI reaches full-pro-duction capacity, Mexico’s supply shortfall will shrink by up to 90%.

The Braskem-Idesa venture will be the first in a series of new polyethylene production capacity increases that will radically transform the US petrochemical industry’s market scope.

Polyethylene

According to US International Trade Commission (ITC) statistics, US exports of polyethylene (high-density polyethylene, low-density polyethylene, and linear low-density polyethylene) during 2010-14 were relatively constant within a range of 18-20 million lb/day, with 45-50% of those exports moving to Canada and Mexico. US polyethylene exports during 2013 averaged 19. 4 million lb/day.

grade propylene supply tracks seasonal variations in refinery crude runs and FCCU feed rates. Seasonal variations in refinery crude runs and FCCU feed rates are reasonably predictable, and propylene supply-demand balances are usually tighter in winter than in summer.

Propylene price relationships vs. unleaded regular gasoline vary directly with seasonal variations in the propylene supply-demand balance.

Under normal market conditions, propylene in reportable US Gulf Coast storage facilities varies by ±25% of the midrange of long-term historic inventory levels. Occasionally, however, inventory levels fall outside the historic range. When inventory in reportable storage at the Gulf Coast increases to more than 770 million lb, spot prices for refinery-grade propylene tend to decline and premiums vs. unleaded regular gasoline weaken.

In October 2014, propylene inventory in reportable storage was 455 million lb, which was at the bottom of the historic range. According to EIA statistics, during the next 6 months, inventory of refinery-grade propylene in Gulf Coast storage increased by 415 million lb to stand at 870 million lb on May 1, about 100 million lb above the historic range.

EIA’s weekly statistics indicate propylene inventory in reportable Gulf Coast storage increased to 950-980 million lb during May-June and was 960-975 million lb as of July 1. At this level, propylene inventory was about 180-200 million lb (25%) more than the high end of the historic range. Since refinery grade propylene production was at its seasonal peak and inventory was already near its historic record high of 1 billion lb, bearish pressures on propylene prices increased.

According to PetroChem Wire, spot prices for refinery-grade propylene were 41¢/lb in February 2015 vs. 40¢/lb in December 2014 and 36¢/lb in January 2015. As production of refinery-grade propylene recovered and inventory continued to rise, spot prices fell by about 10¢/lb during March-June and by an additional 4-5¢/lb in July. Refinery-grade propylene prices were 29¢/lb in June and 23-24¢/lb in July.

During first-quarter 2015, refinery-grade propylene prices were 14¢/lb more than unleaded regular gasoline prices before falling 2¢/lb below parity to unleaded regular gasoline prices in May and to a discount of 4. 5¢/lb below gasoline in June. The swing from a premium of 15¢/lb in January to a discount of almost 5¢/lb in June was the result of the seasonal increase in supply and the growing inventory surplus.

In first-quarter 2015, the contract benchmark for polymer-grade propylene was 49. 7¢/lb. Contract settlements fell by 9¢/lb during second-quarter 2015 to 40¢/lb in June and to 36. 5¢/lb in July. Premiums for contract polymer-grade propylene prices vs. refinery-grade propylene were 9-13¢/ lb in first-quarter 2015, with an average premium of 10. 9¢/ lb for the quarter. Contract polymer-grade propylene’s price premium to refinery-grade propylene rose to 13¢/lb in April before weakening to 10. 8¢/lb in June.