Price and market trends: LyondellBasell demonstrates feedstock flexibility

11 August 2014 00:00 Source:ICIS Chemical Business

It depends where you sit in the chain but the outlook remains muted with steady growth at best expected over coming quarters. Olefins and polyolefins producer LyondellBasell said as much on 25 July on reporting its second quarter financial results.

It expects industry conditions to be “generally consistent with recent quarters” with typical seasonal affects in Europe and elsewhere outside the US.

The company is in the midst of a significant and extended turnaround at its La Porte Texas, US facility where it is raising ethane cracking capacity. It produced record quarterly results, nevertheless, with all parts of the business contributing to profits strength, and despite extended downtime.

Channelview, Texas, US cracker LyondellBasell

LyondellBasell

LyondellBasell is undergoing an expansion at its Channelview, Texas, US cracker

Results from the US and non-US operations were impressive.

The Olefins & Polyolefins Americas segment, pushed operating profits up by $220m from Q1 of this year to close to $1bn and despite a $50m turnaround impact in the latest quarter. The difference between profits generated in the feedstock advantaged US and the Europe, Asia, International businesses are significant although the European operations are performing much more strongly.

LyondellBasell said 72% of its cracker feedstock in the US in the quarter was ethane while it cracked 85% natural gas liquids (NGLs). The polyethylene (PE) spread was higher and exports accounted for 13% of volumes in the quarter.

Industry conditions have remained relatively strong and have benefited from lower ethane prices, the company said. The 363,000 tonne/year La Porte, Texas, ethylene capacity increase is due on-stream in September. The La Porte ethylene plant has already been re-started. That expansion will raise the company’s total US ethylene capacity to 4.85m tonnes/year.

In the pipeline are projects at the company’s olefins plants in Corpus Christi, Texas, and Channelview, Texas, which will raise ethylene capacity in 2015 by a further 181,000 tonnes/year and 113,000 tonnes/year, respectively.

US EXPANSION POSSIBLE

LyondellBasell CEO Jim Gallogly also talked about a possible further ethylene capacity expansion at Channelview involving some relatively low-cost “back-end” work on the cracker which might add a further 181,000 tonnes/year of capacity to that plant. Preliminary engineering work is being done on that project.

In the Europe, Asia, International Olefins and Polymers business segment Q2 profits were about $15m higher than in the first quarter of this year. Naphtha costs were higher and the ethylene price declined but co-product values were better.

EUROPE FLEXIBILITY

LyondellBasell continues to work on the flexibility of its crackers in Europe, trying to drive costs down. It said that 55% of its cracker output in Q2 was from advantaged feedstocks such as propane, butane and condensates. Its average cracker operating rates were 95%, well above the industry average.

LyondellBasell has cut about 1,000 jobs in Europe to help reduce costs and Gallogly believes that the company can work even more flexibly to take advantage of the most competitive feedstocks. Propane and butane prices were attractively priced in the second quarter and a higher proportion of butane was cracked at the company’s cracker at Berre in France.

The firm’s outlook is driven not so much by what the market can deliver in terms of demand growth than by what it can do in terms of better plant operability, feedstock flexibility and additional capacities.

Ethane prices in the US have fallen recently, which has been very positive for the business. “Things are looking good,” Gallogly said on an investor conference call. The two large furnaces in its La Porte expansion are almost mechanically complete and the other ethylene expansion projects are on track.

Gallogly clearly is not pleased that the La Porte turnaround, which was scheduled to take 80 days but took 150 days, and that a fault with a compressor extended the downtime when the market was very tight.

He also said there is more work to do in Europe where LyondellBasell is “learning as we go” as far as feedstock flexibility is concerned and where second quarter performance “could have been better”.

Europe has strengthened a bit, Gallogly pointed out, but the current oversupply situation puts him in mind of “near bottom of the cycle type economics”.

The LyondellBasell story continues to be one very much of self-help and of grasping feedstock cost advantages while they are available. “While these are very good results we could have done better,” the CEO said.

By Nigel Davis