UpdateEastman evaluating options for excess Texas ethylene

30 July 2013 17:50  [Source: ICIS news]

(adds remarks by Westlake CFO Steven Bender in paragraph 16)

HOUSTON (ICIS)--Eastman Chemical continues to evaluate options for its excess ethylene position at Longview, Texas, but its efforts may be delayed because of a recent tariff change on the site's common carrier ethylene pipeline, the company’s chief financial officer (CFO) said on Tuesday.

Eastman, which has three operating and one idled olefin cracker at Longviewproduces about 1.4bn lbs/year of ethylene at the site but uses only about 50% of it for its own operations.

CFO Curt Espeland told analysts during Eastman’s Q2 results conference call that Eastman’s options include divesting the two smaller units and the idled cracker at Longview, or it could a agree a “capacity reservation” arrangement with another firm.

In addition, the excess ethylene could be used to feed a new downstream derivatives facility another firm may want to build.

Espeland ruled out that Eastman may sell the larger Longview cracker, which has a capacity of 800m lbs/year.

“We believe that ownership of our larger [Longview] cracker is essential for our integrated site integrity,” he said.

At the same time, Eastman intends to retain the cost advantage of its fully-integrated propylene position at Longview, “since losing this advantage would be trading volatility in propane for even greater volatility in propylene,” he said.

Espeland said that Eastman was making “good progress” in pursuing options with “multiple parties”.

“The data room has been set up for some time, and there have been a number of management presentations, as well as a number of visits to the Longview site,” he said.

“Multiple parties have expressed interest," he added.

However, Espeland said that Westlake Chemical, which owns the common carrier ethylene pipeline between Longview and Mont Belvieu in Texas, earlier this month changed the tariff on the pipeline “and effectively eliminated the ability of a third party to move ethylene off site".

Espeland said that Eastman filed a complaint with Texas regulators against the tariff measure.

“If resolution to this [tariff] issue is prolonged, it will continue to delay our efforts" to find a solution for the Longview excess ethylene, he said.

Eastman CEO Jim Rogers referred analysts, who repeatedly raised the issue during the call, to Westlake's Q2 earnings call on Tuesday.

“You might want to ask [Westlake] what they were doing when they changed the tariff,” Rogers said.

However, Westlake CFO Steven Bender - when asked about the
dispute during Westlake’s earnings call - said that the company had received no information about a complaint from Eastman with the Texas Railroad Commission, the regulator of pipelines within the state, and therefore could not comment.

Espeland added that investors seemed to be spending too much time on the Longview ethylene issue.

“We are a large company with a great portfolio of businesses, and it doesn’t necessarily make sense to me to decide whether or not to buy Eastman stock based on what we do with our excess ethylene position alone,” he said.

Earnings from selling the 700m lbs/year of excess ethylene into the merchant market accounted for about 3-5% of Eastman’s overall annual earnings in the last few years, he said.

Additional reporting by Ken Fountain

By: Stefan Baumgarten
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