OUTLOOK ’19: New capacity may lengthen US ethylene, keep upstream costs volatile

HOUSTON (ICIS)–Production growth from several new crackers in early 2019 is expected to return some length to the US ethylene market, while feedstock constraints and new downstream capacity will provide some upward pressure.

“2019 will likely be the fuzziest year ever in the ethylene industry to have any feel for price,” a market source said. “There is an onslaught of new capacity coming online against a supposed lack of purity ethane fractionation capacity.”

Ethylene supplies lengthened during 2018 following the start-up of new capacity and the slow ramp-up of new downstream polyethylene (PE) capacity. The length pushed ethylene prices lower and the increased demand on ethane feedstocks pushed costs higher, narrowing cracker margins during much of 2018.

With the majority of 2019 ethylene capacity additions scheduled to come online in the first half of the year, ethylene supply could begin to lengthen early in the year.

“I think it’s going to be long. I think average industry margins will be lower than [2018],” a market source said.

The start-up of new downstream capacity in 2019 could increase consumption and support margins and ethylene prices. In late 2018, increased consumption into PE and some curtailments to production had moved the ethylene market into a more balanced position.

Production from several new PE units are expected in 2019, including a new Sasol unit which started up in late 2018, and new ethylene oxide and other derivative units are scheduled to start up in 2019.

“If they all start up smooth and use lots of ethylene, then ethylene prices may have room to go higher,” another market source said.

However, not all of the new units are planned with new downstream projects. Some or portions of some of the new capacity are being built to feed into existing downstream units, which will reduce consumption from the ethylene merchant market.

Late in 2019, export demand should increase significantly as an Enterprise Products Partners and Navigator Holdings joint venture ethylene terminal is expected to begin commercial operations in the fourth quarter. The terminal will have the capacity to export about 1m tonnes/year of ethylene.

Due to limited terminal capacity, exports have not been a large outlet for US ethylene despite the ethane cost advantage which has kept ethylene prices well below those in Asia and Europe. However, higher US ethane feedstock costs and lower global naphtha feedstock costs narrowed this gap slightly in late 2018.

Global ethylene spot prices

Upstream costs are expected to put some upward pressure on the ethylene market in 2019, as new crackers increase demand for feedstock ethane.

Costs for the feedstock rose during 2018 following the start-up of two 1.5m tonne/year crackers. Ethane prices spiked above 50 cents/gal in September, up from the mid 20s cents/gal at the start of the year.

Although US ethane supplies are considered adequate, the logistical systems to separate ethane from other NGLs (natural gas liquids) and pipeline systems remain limited.

Low cracker margins and high crude oil values further increased demand for ethane during much of 2018, as ethane remained the more economical feedstock much of the year despite higher costs. Late in 2018, falling crude oil costs improved economics for heavier feedstocks which reduced some demand for ethane.

Crude oil values are not expected to rise significantly in 2019, which may keep economics for heavier feedstocks workable. However, logistical systems for ethane in 2019 will remain limited. Several projects are planned to expand ethane fractionation capacity, but few are scheduled to come online in 2019.

Focus article by Jessie Waldheim

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