Lack of steam cracker feed flexibility pushing US ethane to multi-year highs

Author: Steven Mcginn


HOUSTON (ICIS)--The limited ability for the new slate of US ethylene crackers to shift feedstock feeds from chiefly ethane is adding upward pressure to the ethane market.

On Thursday ethane was heard trading near four-year highs at 40.75 cents/gal FOB Mont Belvieu, Texas. This represents the highest value since 21 February 2014 at 41.50-41.75 cents/gal as demand is exceeding available supply and now forcing consumers to draw feedstock from storage levels.

That pressure combined with the lack of flexibility to shift from primarily cracking ethane has essentially leveraged the ethylene market.

“Ethylene industry made a commitment to ethane, and over past 5-10 years [they have] done a lot to lessen [their] flexibility,” Peter Fasullo, principal consultant at EnVantage.

New ethylene capacity

Company Location Capacity (tonnes/year) Timing
DowDuPont Freeport, Texas 1.5m Started September 2017
Chevron Phillips Chemical Cedar Bayou, Texas 1.5m Started March 2018
ExxonMobil Baytown, Texas 1.5m Started July 2018
Indorama Lake Charles, Louisiana 440,000
Q4 2018
Shintech Plaquemine, Louisiana 500,000 2018
Sasol Lake Charles, Louisiana 1.5m H2 2018
Formosa Plastics Point Comfort, Texas 1.25m Q4 2018
Lotte-Westlake St Charles, Louisiana 1m H1 2019

Over the last decade, rising natural gas liquids (NGL) production on the upstream side led to the depression of ethane prices, which drew attraction from the US chemical industry to exploit the cheap cost of light-end feedstocks for ethlyene production.

Several new crackers were built, most of which are ethane-only fed, and that is now creating a tremendous demand pull, Fasullo said.

But these cheap feedstocks also attracted the attention of international consumers, exacerbating the supply and demand pull as global marketers set up an expansion of exports from US shores. Ethane exports went from zero in 2012 to an average of 181,000 bbl/day in 2017, according to US government figures.

Demand has caught up to supply, and likely exceeded it, Fasullo said, and while the market will get another supply wave more crackers will likely come on as well.

“Right now, things are tight, and the industry’s ability to [primarily] crack ethane elevates ethane demand,” Fasullo added.

Other feedstocks, such as propane and naphthas, are also unattractively high even with better value for co-derivatives. There is little pressure from heavier feeds, an NGL broker said.

“Even if [a cracker] could switch, what would it switch to?” the broker said.

Focus article by Steven McGinn