Light Olefins Market In North America Uncertain

26 March 2001 00:00  [Source: ICB Americas]

By Don Richards

The North American light olefins industry cannot compete with cost-advantaged Mideastern producers for international growth over the long haul, according to an industry observer, who adds that too much capacity will be operating this year and next.

This is the opinion of Mark Eramo, business director of light olefins of the Houston-based consultancy CMAI. Mr. Eramo spoke last week on the global ethylene and propylene market outlook before the Purvin & Gertz Inc., 14th annual US-international LPG seminar in The Woodlands.

Looking at strategic issues for North America over the next few years, he projects that demand will rebound "unless the economy craters," and margins will depend on feedstock costs. Further, Western Canadian units will have an advantage over US Gulf operations because of differentials in natural gas pricing.

A tight North American market will be evident by 2004 because currently announced capacity additions will not cover demand, he says. More plant investment will be needed with an eye to the Mideast.

As for long-term strategic propylene issues, Mr. Eramo notes that polypropylene demand is the key propylene demand driver. Further, propylene demand growth exceeds that for ethylene and gasoline.

Right now the "hyper North American natural gas market has severely impacted chemicals and plastics profitability," he says. Also, "weak demand has prevented most of the cost recovery that is generated from price increases through the chain," due to sliding consumer confidence.

Mitigating the situation is a higher degree of consolidation in the industry that allows producers to severely cut back production and reduce excess inventory.

He sees refinery economics as playing a key role as propylene supply from fluid catalytic cracking (FCC) units is becoming critical since "on-purpose" propylene production is "not enough and usually not economical."

He points to several key issues. First, "refiners make 'gasoline' not propylene," and "propylene alternatives are more valuable as [clean air] regulations change." Also, "capital constraints and low margins inhibit investment," and "some isolated refineries will not participate" in adding to the propylene supply.

On the international scene, global ethylene demand will grow from 91 million metric tons last year to more than 120 million tons in 2006 and over 160 million tons in 2012. World propylene supply-demand, 53.5 million metric tons in 2000, should surpass 70 million tons in 2005.

Mr. Eramo says that of the 90.7 million metric tons of steam cracker ethylene produced worldwide in 2000, a feedstock breakout shows naphtha/condensate accounting for 54 percent of production; ethane, 29 percent; propane and gas oil, 6 percent each; butane, 4 percent and other feeds, 1 percent.

World steam cracker propylene production of 35.5 million metric tons by feedstock in 2000 shows naphtha/condensate leading the way with 75 percent; gas oil, 11 percent; propane, 7 percent; butane, 4 percent, and ethane, 3 percent.

He expects global ethylene consumption to reach 100 million metric tons in 2002, with demand growth the strongest in high-population areas. A significant portion of the new demand will be in Asia, where by 2020, the region will need almost 50 million tons a year more capacity, representing 44 percent of global additions.

CMAI's 2001 world light olefins analysis shows a tight balance between supply and demand. Total US production is expected to reach 15.1 million tons, with steam crackers accounting for 49 percent; FCC and splitters, 40 percent, and refinery grade material, 11 percent.

This will supply an estimated domestic demand of 15.12 million metric tons, with polypropylene taking 47 percent; acrylonitrile and propylene oxide each taking 11 percent; cumene 9 percent; oxo chemicals 7 percent, and other end uses, 15 percent.

Houston Roundup

CLEAN AIR AGREEMENTS: Department of Justice, Environmental Protection Agency, the states of Louisiana and Delaware and Northwest Air Pollution Authority have reached agreements with three petroleum refiners aimed at cutting air emissions from nine refineries by over 60,000 tons per year.

The agreements with Motiva Enterprises, Equilon Enterprises and Deer Park Refining LP will affect petroleum refineries and petrochemical units in Texas, Louisiana, Delaware, California, and Washington.

Consent decrees filed in federal court in Houston call for the companies to spend some $400 million on up-to-date pollution-control equipment to significantly reduce emissions from process units, wastewater vents, leaking valves, and flares.

The agreements also resolve alleged violations of federal and state hazardous waste and toxics laws at Motiva's Convent, La., and Port Arthur, Tex., refineries and the Deer Park Refining LP Deer Park refinery.

The companies also will collectively pay a $9.5-million civil penalty under the Clean Air Act and spend about $5.5 million on environmental projects in communities affected by the refineries' pollution.

The states of Delaware, Louisiana and the Northwest Air Pollution Authority, a regional air agency in Washington State, are joining the US in these settlements and will share the penalties and environmental projects with the federal government.

Refineries affected by the settlements include those of Motiva at Delaware City, Del., Norco and Convent, La. and Port Arthur, Tex. Equilon refineries involved are at Los Angeles, Martinez and Bakersfield, Cal., and Anacortes, Wash. Also included is Deer Park Refining Ltd. Partnership's plant, a Shell-Pemex joint venture operated by Shell Oil.KOCH CHARGES REDUCED: Two more charges have been dropped in the federal case against Koch Industries. It is the third time since the beginning of January that charges have been dropped from the case that accuses Koch's Corpus Christi, Tex., west plant of violating environmental regulations.

The latest counts that were dropped dealt with federal statutes requiring reporting air emissions of benzene and had named Koch Industries Inc. and Koch Petroleum Group LP. The case stems from the release in the early 1990s of excessive levels of benzene.

Koch and executives Vincent A. Mietlicki, John C. Wadsworth, employee James W. Weathers, Jr. and former employee David L. Lamp were named in the case, which is set to go to trial April 9.

Federal authorities originally charged Koch last year in a 97-count indictment. US District Judge Janis Jack of Corpus Christi ordered prosecutors to trim the charges, saying the company appeared to be charged two ways for the same allegations.

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