FocusSome firms may drop their N America PDH plans

HOUSTON (ICIS)--Plans to build up to seven propane dehydrogenation (PDH) plants in North America could overwhelm world markets, causing some companies to back away from their projects, analysts said this week.

US producers are seeking to increase propylene capacity to make up for lost production.

Earlier this month, Enterprise Products announced that it is considering building a second on-purpose propylene plant.

The company already plans to build a 1.65bn lb/year (750,000 tonne/year) PDH plant in Texas. Operations should start in 2015.

Dow Chemical plans to start up a 750,000 tonne/year PDH plant in 2015, and it may start up a second one in 2018.

Formosa plans to build a 600,000 tonne/year PDH plant that would start operations in 2016.

Meanwhile, Williams is considering a 1bn lb/year PDH plant in Alberta, which would supply propylene to the US Gulf coast.

PetroLogistics may add six combustion units to the current five units that it has at its PDH plant in Houston.

Producers are considering PDH plants because the US has low-cost propane and because it has lost propylene capacity over the years.

Because of the advent of shale gas, US crackers have switched to lighter feedstocks such as ethane. Lighter feedstocks produce less propylene.

As a result, the US has likely lost 5bn-6bn lb of propylene because of cracking lighter feedstock, said Charles Neivert, managing director at Dahlman Rose.

The US lost additional propylene from its other major source of the monomer, fluid catalytic crackers (FCC) at refineries.

FCCs produce blendstock for gasoline, with propylene being a by-product.

"The biggest reason why cat crackers exist is to produce gasoline," said Peter Fasullo, principal at En*Vantage.

Because of declining US demand for gasoline, refineries are running their FCCs at lower rates. If gasoline continues to fall slowly over time, FCC operating rates could drop even further.

Neivert estimates that the US has lost an additional 500m-1bn lb of propylene production from refineries.

The loss of propylene capacity has been partially offset by the 2010 start-up of PetroLogistics’ 544,000 tonne/year PDH plant.

Altogether, the US has lost up to 6bn lb of propylene. That is much less than the propylene that could be produced by the seven new PDH plants. As a result, US supplies of propylene could exceed demand.

"You would have a flood of propylene," Neivert said.

He said out of the seven possible PDH plants, at least three or four could be built.

Dan Lippe, president of Petral Consulting, said five PDH plants could make up the propylene production lost in the US.

Fasullo said one of the seven plants may not be built. In one scenario, two companies may abandon their individual PDH plans and instead opt to build one through a joint venture.

If US producers do overshoot domestic demand, they would then need to rely on foreign markets to sell propylene derivatives.

Lippe said that could pose its own challenge.

In China, six PDH plants with a combined capacity of 3.35m tonnes/year are under construction, with start-up scheduled for 2013-2014. At least six more PDH projects are in the planning stage.

"Something has to give," Lippe said, "unless demand for propylene derivatives is growing like gangbusters."

With that much propylene, the market could revert to its older pricing formula, in which propylene is sold at an 80% discount to ethylene, Lippe said.

On the other hand, US propylene derivatives could enjoy a cost advantage in foreign markets, much like the one enjoyed by the nation's ethylene derivatives.

Because of the advent of shale gas, the US has ample supplies of low-cost propane. In fact, cheap propane is one of the reasons why so many companies are considering PDH plants.

Low-cost propane is already driving another development. Both Enterprise and Targa Resources are expanding their propane export terminals.

"There is going to be an arb to export propane from the US to the world," Fasullo said. In a sense, exporting propylene derivatives is just another way of exporting propane.

"The bottom line is whether we believe our natural-gas story, that natural gas is going to be cheap," he said.

"If you believe that we have a vast natural-gas resource and it is still going to remain cheap," Fasullo said, "then that drives the ethylene story here. It drives the propylene story."

That ethylene story in the US could continue because crackers may continue converting to lighter feeds.

As a result, Neivert said the US could lose another 2bn lb of propylene capacity. In an extreme scenario, the US could lose up to 4bn lb if feedstock slate of US crackers swings to 85% ethane.