Tight Gasoline Market Threatens Aromatics Supplies

23 April 2001 00:00  [Source: ICB Americas]

By John Hoffman

The threat of a tight gasoline market is already pressuring petrochemicals used in the gasoline pool or derived from it. Last Monday's explosion at Conoco's refinery in Humberside, UK, adds further fears throughout Europe and the US. Pricing for toluene and xylenes continues to firm as analysts warn that during the summer driving season, the epicenter of the US energy crisis may shift to gasoline.

Analysts caution that US refining capacity is critically tight. The country has not built a new refinery in more than two decades, and dozens of refineries have been forced to close because of poor economics. As a result, the nation's remaining refineries are running at close to full capacity.

Early last week, toluene reached $1.27 per gallon, and xylenes were $1.235 to $1.24. Teresa A. Acosta, managing director of DeWitt & Co., cites gasoline as the main factor driving the toluene and xylenes markets in the US. "The market is nervous," she said following the Conoco explosion. "Toluene and xylenes have been coming up over the past few weeks. There are concerns about gasoline."

"The gasoline picture is impacting the aromatics market," another analyst concurs. "The Conoco outage is a large event, but the strong gasoline market is the real issue."

Analysts are uncertain how badly last Monday's explosion damaged Conoco's refinery. The site has crude refining capacity of 12.4 million metric tons per year. It produces nearly 5 million metric tons of distillates, 3.5 million metric tons of gasoline, 700,000 metric tons of petroleum coke, more than 600,000 metric tons of marine and industrial fuel oil, and 380,000 tons of liquefied petroleum gas. The complex exports roughly half of its gasoline to the US East Coast.

During a press conference last Monday, Jim Nokes, Conoco's executive vice-president for global downstream operations, said the accident occurred just before a scheduled maintenance turnaround that was to last five or six weeks.

"What that means is that 2,500 contractors have already been scheduled to begin overall maintenance work later this month. It also means we were in the process of planning for supplying our customers during this downtime. We are in the process of satisfying our contractual customers' needs."

He added, "In the context of the US gasoline supply, during the first quarter, only 20,000 barrels per day of gasoline (or 24 percent of Humber's gasoline production) were exported from the Humber refinery to the US. This represents 0.2 percent of current US demand....The US sales are in the spot market and don't necessarily represent what sales might have occurred in any other quarter."

Conoco's initial estimate is that the site will be down for two or three weeks, but analysts in the UK consider that extremely optimistic. They note that the explosion and fire melted parts of the refinery and the entire complex has been closed down pending a review by the UK's accident investigation board.

Early last week, European pricing for benzene, toluene and xylenes climbed, partially in response to the fire. At the end of the previous week, benzene was $340 per metric ton, c.i.f. Amsterdam, Rotterdam and Antwerp. It climbed to $350 to $355, although on Wednesday there was an unconfirmed sale at $344 for April.

Toluene also moved up sharply. Standard nitration grade rose $10, reaching $410 per metric ton, and high-purity TDI grade was at a $10 premium. Xylenes have been moving up $5 per week for the past month. Analyst James F. Stone of DeWitt cites $385 per metric ton as the perceived European price for xylenes, although prices are being talked as high as $390. They were $380 before the Conoco outage.

BENZENE/STYRENE--The spot price for benzene has risen to $1.16 per gallon for April material and $1.18 for May, but producers remain concerned about poor demand for benzene's main derivatives. Styrene is 23c. to 24c. per pound and is also suffering from high supplies and lackluster demand.

"The benzene price kicked up because of energy values and hype," a producer says. "We're crying the blues on demand. Styrene, cumene, phenol and polycarbonate are all weak." An analyst adds that Dow Chemical's dealkylation unit in Plaquemine, La., is down.

ETHYLENE--March ethylene contracts have settled down a penny with further erosion likely in April, according to Stephen J. Zinger, director of propylene at Chemical Market Associates Inc. (CMAI). Costs have eased since natural gas and gas liquids came down, and derivatives are weak, undermining prices. Spot ethylene is 26c. to 28c. per pound for early April deliveries.

FEEDSTOCKS--Natural gas pricing remains around $5.25 to $5.50 per million BTUs, according to Dan Lippe, president of the Petral Companies, Houston. Unless gas prices shift, Mr. Lippe expects petrochemical feedstocks to remain around their current pricing levels. Ethane is 41.5c. to 42c. per gallon, and propane is 55c. Normal butane is 61c. to 62c., and natural gasoline is 67c. to 68c.

METHANOL/MTBE--Methyl tertiary-butyl ether (MTBE) demand is very strong because of a tight gasoline market, but other methanol derivatives are waiting for demand to pick up, notes Dave C. McCaskill, director of methanol and derivatives at CMAI.

The US is on the brink of its summer driving season, yet gasoline and MTBE inventories are extremely low. MTBE is above $1.50 per gallon, gasoline prices are poised to rise, and analysts warn of summer gasoline shortages similar to those that occurred last year.

"The near-term outlook for MTBE is quite strong," Mr. McCaskill says. "Prices are high, and margins are outstanding."

Formaldehyde, however, is "feeling the pain of the winter season," as housing and construction have declined. Most large-volume formaldehyde contracts are tied to methanol and natural gas pricing, so major customers are generally paying twice what they did a year ago. List pricing for 37 percent material is around 20c. per pound, according to Mr. McCaskill, but he cautions that "list doesn't mean much."

Acetic acid demand is strong in the US, but Mr. McCaskill considers that misleading because operating problems in Asia are forcing US producers to run their plants hard. Celanese had "significant operating problems" during the start-up of its Singapore plant, and BP's unit in Malaysia was also late in getting up to nameplate.

"Celanese will run at reduced rates until a planned May turnaround to remedy their problems," Mr. McCaskill says. "BP's problems were nuisance gremlins."

Contract pricing for methanol is 77c. to 78c. per gallon in the US Gulf, and the spot price is 70c. With natural gas at $5.50 per million BTUs, the floor price for methanol is around 65c. per gallon.

"While methanol demand is not stellar, the market is in balance," Mr. McCaskill says. "Producers are seeing a small premium above cash costs." On April 7, Celanese took down its Clear Lake, Tex., plant for three months. The company is sourcing its methanol requirements from the marketplace, and Mr. McCaskill says this is helping to keep the market in balance.

PROPYLENE--March propylene contracts settled down half a penny as part of a two-month settlement for February and March. Contract prices are 22c. per pound for polymer-grade propylene and 20.5c. for chemical-grade material.

Stephen J. Zinger, director--propylene at CMAI, cautions that a further erosion in propylene contracts is likely for April as continued weak demand for polypropylene and acrylonitrile is putting downward pressure on the market. Spot prices are around 17.75c. per pound for polymer-grade propylene and 15c. for chemical grade.

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