FocusUS naphtha’s future tied to uses elsewhere: analyst

27 August 2013 17:35  [Source: ICIS news]

By Jeremy Pafford

HOUSTON (ICIS)--The petrochemical wave generated in the US by the advent of shale gas has domestically produced naphtha caught in the undertow.

Ethane, naphtha’s main petrochemical feedstock replacement, is plentiful in light of the shale revolution, and its spot prices were at 24.88 cents/gal on Tuesday morning.

For naphtha to be considered as a feedstock replacement for ethane, the natural gas liquid (NGL) would have to jump more than fivefold to about $1.29/gal, said Peter Fasullo, principal at En*Vantage, an investment and consulting firm.

With so much natural gas production coming on stream, that scenario is not likely in the foreseeable future, he said. Likewise, “there’s no way naphtha can stoop” down to ethane’s cost level, he said.

Naphtha is one of the products created in the distillation of crude oil. The main uses of naphtha are in steam cracking to make olefins, in reforming to make aromatics and as a feedstock for high-octane gasoline. It also can be used as a solvent.

US Gulf spot prices for naphtha N+A fluctuate in tandem with unleaded gasoline prices and were recently assessed by ICIS at $978.75-982.32/tonne (€734.06-736.74/tonne) DEL (delivered).

The need to distill crude oil will continue far into the future in the US, but the days of naphtha as an olefin feedstock have passed, and the product’s future in the realm of gasoline production is waning as gasoline consumption continues to decrease, Fasullo said.

In most regions of the world, naphtha remains the feedstock of choice for ethylene production, but that will decrease as the host of planned ethane crackers planned for the US come on line between 2017 and 2020, Fasullo said. By that time, plants that produce ethylene from naphtha will be at such a cost disadvantage to ethylene produced from shale gas that they will be pushed out of the market entirely, he said.

Naphtha may still have a future in the US – but as an exported product. Latin American refineries increasingly may become a destination for US-produced naphtha, Fasullo said.

“I think what will happen is that we have to become an exporter,” he said. “It may be used by refineries elsewhere. Latin America is one big demand source for it.”

Another is Canada, where naphtha is used as a diluent to allow tar-sands oil to be more easily pumped via pipeline out of fields and into refineries. As more production comes on line, and if pipelines such as the much-debated Keystone XL get extended into the US, domestically produced naphtha will play an increasingly vital role, Fasullo said.

“I think if Keystone is approved and you get that down here [to the Gulf Coast], it will be a big boost for naphtha,” he said.

Until then, naphtha’s role in the petrochemical chain continues to wither.

“It’s not in the equation for the future,” Fasullo said. “It’s going to have to find other outlets.”

($1 = €0.75)

By: Jeremy Pafford
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