Price and market trends: Eastman mulls options for excess US ethylene

09 August 2013 09:30  [Source: ICB]

US-based 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 30 July.

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

Eastman Texas cracker

Eastman's cracker in Longview, Texas, has 800m lb/year of capacity

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 agree to 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 the possibility that Eastman may sell the larger Longview cracker, which has a capacity of 800m lb/year (363,000 tonnes/year).

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

RETAINING PROPYLENE

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 "multi-ple 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."

DISPUTE WITH WESTLAKE

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

Espeland said that Eastman had 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 30 July.

"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 ethy-lene 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 lb/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.


By: Stefan Baumgarten
+1 713 525 2653



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