FocusUS petchems face profit hit from Enterprise NGL fire

09 February 2011 19:27  [Source: ICIS news]

NEW YORK (ICIS)--US petrochemical producers will be “significantly impacted” in the first quarter by the fire at the Enterprise Products's complex in Mont Belvieu, Texas, a Wall Street analyst said on Wednesday.

“Many US producers on the Gulf Coast rely on ethane and propane supply from Enterprise and the surrounding infrastructure (the facility likely processes around 10% of total US ethane),” said Morgan Stanley analyst Paul Mann in a research note.

“We expect ethylene prices to rise in the near term, although margins are less clear, given the uncertainty over feedstock supply/demand,” he added.

Mann noted that companies such as LyondellBasell and Dow Chemical, which have feedstock flexibility and the ability to run at high utilisation rates, will likely suffer the least.

Wall Street analysts had yet to adjust earnings-per-share estimates for chemical companies based on the impact.

While most of Enterprise’s natural gas liquids (NGL) processing facility remains operational, “there was likely damage to the pipeline system used to deliver ethane/propane feedstocks to nearby ethylene crackers,” Mann said.

“According to industry experts, the NGL fractionation facility was not damaged, so system repairs will likely take four to 10 weeks, rather than six to nine months, as had been feared,” the analyst added.

Because of a loss of pipeline feed pressure, LyondellBasell may shut down a unit at its La Porte complex in Texas, the company said on Tuesday in a filing with the Texas Commission on Environmental Quality (TCEQ).

Earlier on Tuesday, LyondellBasell said it reduced rates at its cracker in La Porte following the fire at the Enterprise complex.

“Industry sources reported LyondellBasell's ethylene crackers at Channelview and La Porte (58% of the company's US production) are operating at lower rates,” Mann said.

“We would expect Channelview to move to a heavier feedstock slate and run at higher rates, while La Porte may need to run at low rates due to lack of feedstock,” he added.

Jefferies & Co analyst Laurence Alexander estimates that 14% of US NGL capacity is at risk.

The Mont Belvieu facility has a capacity of 305,000 bbl/day of NGLs, compared with current US production of about 2m bbl/day, he said.

“A 90% utilisation rate would imply the facility represents 14% of US NGL capacity. Assuming an NGL composition of 35–40% ethane implies about 107,000–122,000 bbl/day of capacity compared [with] current ethane production of roughly 875,000 bbl/day,” Alexander said.

The analyst said any prolonged outage will likely result in higher ethane prices near-term and lower near-term margins for US ethane consumers such as LyondellBasell until higher ethylene prices can be negotiated.

“However, as the main facilities were not damaged and the fractionators remain operational, we expect this fire to be more of a hiccup than a hiatus,” he said.

In early afternoon trading on the New York Stock Exchange, shares of LyondellBasell were down just 4 cents, or 0.1%, to $35.44, while Dow Chemical was down 63 cents, or 1.7%, to $37.31, and Westlake Chemical was down $1.08, or 2.5%, to $42.27.

(Additional reporting by Al Greenwood)

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