The LPG Cracking Myth Debunked

We are deeply ashamed of ourselves….

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By John Richardson

AT the risk of boring you completely senseless let us once again return to the subject of liquefied petroleum gas (LPG) and its likely usefulness as a cracker feedstock over the coming years.

The reason why we keep going on and on about this subject is because an extra bit of raw material flexibility could make all the difference for the marginal producers in Asia, such as those in Japan.

Even assuming you subscribe to the sunny uplands theory, if you are far to the right of the cost curve it cannot do any harm at all to look at ways of improving your returns.

Our other big motive for being a little obsessed with LPG is that as gas feedstock is short in the Middle East.

This is helping support the argument for tight supply in 2012-2013, resulting in Asian cracker operators with no current feedstock advantage searching for ways to justify ramping up their capacities.

We know of one cracker project in China which could be 80% dependent on Middle East LPG imports with the remaining 20% comprising naphtha sourced from local refineries.

And putting two and two together and maybe making five, Qatar Petroleum took a stake in Petrochemical Corp of Singapore (PCS) last November and there are plans to build an LPG receiving terminal on Jurong Island.

Qatar is where most of the LPG surplus is supposed to come from and Singapore wants to eventualy raise its ethylene capacity from 4m tonne/year to 6-8m tonne/year. QED a grassroots cracker based on LPG?

LPG markets have been unexpectedly tight this year for a variety of reasons – but as we blogged about on Monday, oil and gas consultancy FACTS Global Energy thinks this will change from 2011 as the great supply flood finally arrives.

But a South Korean industry source we spoke to earlier this week vehemently rejected any notion that LPG would be so oversupplied that it would be a good feedstock choice for green field crackers

“If you look at history the maximum LPG cracking season in any one year has been eight months and this year it’s made good sense for about 8-10 days because of all the unexpected demand and supply issues,” he said.

“I am convinced that this is not going to change. Supply is going to increase in a big way, sure, but it is going to be easily eaten up by incremental demand from countries such as Indonesia, India and Vietnam.”

This is where a little bit of knowledge might be dangerous. What the blog wasn’t aware of is the drive to use LPG rather than kerosene and wood for domestic fuel in all the above countries for health reasons.

In Indonesia, the motive behind switching from kerosene to LPG is also to end black-market profiteering from the illegal resale of kerosene. In theory, you could do the same with LPG but this would require a lot more investment in storage and distribution.

“A problem with LPG is you get slightly less propylene and fewer C4s and pygas (propylene and C4s are in tight supply) and so this also weakens the case for it as a cracker feed,” our source continued.

Apologies are in order here. We had been told by other contacts that LPG cracking can produce MORE propylene. The blog has donned a dunce’s hat and is sitting in the corner in shame.

“LPG will remain a useful alternative feedstock at certain times of the year, but with all the uncertainties over surpluses, why invest in even more flexibility?” our source added.

“In South Korea, Taiwan and Japan, for example, there is the capability of producing around 500,000 tonne/year of ethylene via LPG which hasn’t made economic sense in 2010. Why spend money to raise this number any higher?”

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