08 February 2013 10:02 [Source: ICB]
How effectively petrochemical companies capitalise on the shale advantage in North America will colour financial performance for years to come.
Feedstock trends may affect new projects
As with all these things, firms have to weigh the advantages of being among the first to add capacities and to strike new feedstock supply and product off-take agreements, against taking time to consider their options. The early work of converting existing plants to crack more natural gas liquids (NGLs), principally ethane, has mostly been done. The next steps will either involve major investments or more "capacity creep".
The results of the early steps have been highlighted in the fourth-quarter and full-year financial results of the major US petrochemical producers.
The levering of the low-cost ethane advantage directly into polymers was clear from the Dow Chemical results. ExxonMobil said that $330m (€241m) of the $415m increase in its fourth-quarter chemicals earnings were the result of higher margins, mainly in commodities. Ethane-fed cracker margins in the US were much higher in the fourth quarter than a year before. The ready availability of natural gas NGLs from shale had helped keep the ethane price low. And with a higher ethylene price in the fourth quarter most companies were doing well.
LyondellBasell's Americas olefins business, for instance, continued to benefit from the revolution in natural gas and NGLs, the company said on 1 February. It has lightened its US Gulf Coast cracker feed significantly, with NGLs accounting for 85% of the total in 2012 versus 75% in 2011.
CEO Jim Gallogly believes that "a reasonable number" of the new cracker and cracker expansion projects in the US will go ahead but he is not so sure of some of those announced more recently.
Energy giant Shell has its own plans for a world scale cracker in Pennsylvania which would be integrated directly into shale operations in the Marcellus field.
Shell CEO Peter Voser spoke last week of the implications of potential overcapacity in LNG and olefins in North America.
"If too many LNG projects and too many crackers are coming into the construction phase in the US you will see costs go up very fast," he warned.
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