Low natural gas prices give support to US petrochemical industry

17 April 2012 06:48  [Source: ICIS news]

NEW ORLEANS, Louisiana (ICIS)--Bearish natural gas prices could open the door to increased profits for the US petrochemical sector because of low-priced natural gas liquids (NGLs) and favourable feedstock economics, an energy analyst said on Monday.

“Production [of natural gas] is not likely to decline before summer,” IHS Chemical’s Carl Barrasa said at the Gas Processors Association (GPA) annual meeting in New Orleans.

He said natural gas inventories are well above the historical average, so if there are no production cutbacks by October, producers will eventually have to shut down facilities.

The US Energy Information Administration reported on 12 April that total inventory was at 2.487 billion cubic feet (bcf) for the week ending 6 April, up by 55.5% from the same period in 2011.

Natural gas prices fell below $2/MMBtu (€1.52/mmBtu) on 11 April, and according to Barrasa, the low gas prices will have a “tremendously positive influence” on the petrochemical sector.

Back in 2003, the US outlook showed it would have been economically beneficial to shut down petrochemical production and import the product instead, until US shale production entered the picture, said Barrasa.

This move from dry gas to wet gas sparked the production of NGLs, said Barrasa.

About two-thirds of NGL demand comes from the petrochemical sector, and the advantage of low ethane prices in the US has been particularly good for the industry.

The low price of ethane, which fell from about $0.80/gal ($0.21/l) to $0.42/gal in less than six months, led to producers to modify ethylene plants in order to introduce lighter feedstocks, said Barrasa. 

It takes 65,000 bbl/day of ethane to produce 1m tonnes/day of ethylene, which means 100,000-110,000 bbl/day of ethane will be needed by 2014 as ethylene plants are expanded and new plants come on stream, said Barrasa.

However, Barrasa did not see all of the current plans for expansion and new plants coming through as some projects will be dropped.

Cracking lighter feedstock will reduce the production of propylene and butadiene, which are by-products of cracking heavier feedstocks at ethylene plants, Barrasa said.

He said this would create an incentive to produce heavier NGLs, rather than to derive them as by-products.

Butane dehydrogenation facilities have been planned for 2020, Barrasa added.

($1 = €0.76)

By: Sheena Martin
+1 713 525 2653

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