TPC Port Neches explosion sends ripples through global BD markets

Author: Tom Brown

2019/11/28

LONDON (ICIS)--A series of explosions that ripped through TPC Group’s Port Neches, Texas, petrochemicals facility is likely to impact global butadiene (BD) supply as fires continued to burn at the site in the early hours of the US Thanksgiving morning.

A first explosion occurred at the complex, which is one of the most significant production sites for the olefin in North America, around 01:00 local time (07:00 GMT) on Wednesday, with a second explosion ripping through the site later that day and prompting an evacuation order for the one-mile radius around the site.

Port Neches is one of North America’s largest BD production sites, with two lines totalling 426,000 tonnes/year of production capacity, 16% of total regional output and 2.7% of global supply, according to ICIS supply and demand data.

The company can also produce 400,000 tonnes/year of methyl tert-butyl ether (MTBE), 12% of North American capacity and 1% of global supply.

The extent of the damage is unclear at present, with emergency response teams continuing to fight the fire as of 12:00 GMT on Thursday, with a total power outage caused by the explosion making it impossible to see how much material was flowing through pipelines at the site, according to TPC safety director Troy Monk.

Speaking at a press conference broadcast on local media on Wednesday, Monk said that the explosion occurred in an area of the facility where the company processes BD.

The facility is located near the petrochemicals hubs of Port Arthur and Beaumont, outside of Houston, but wider impact so far has been restricted to Huntsman’s move to shut down its nearby Port Neches facility as a precautionary measure.

Lion Copolymer, which operates a styrene butadiene-ruber (SBR) production unit in the area, has also shut down operations as a precautionary measure, according to the company.

BD price movements are closely correlated between Europe, North America and Asia, which can lead to impacts in one area often resulting in arbitrage or trade shifts in other regions.

The effect of the TPC disaster will depend in part on the duration of the outage at the site, with the company reported to have declared force majeure for deliveries from the site, but with no official confirmation given at the time of publication.

BD markets have trended bearish through much of the year, with pricing drifting continually downward. Demand has been weak and supply long enough that planned and unplanned outages in Europe and North America through the year have had little effect on pricing.

One of the key end markets for BD is synthetic rubber, a sector largely dependent on the automotive sector, which has remained extremely weak from late 2018 through this year, with no significant recovery expected in the near future.

Europe acrylonitrile-butadiene-styrene (ABS) prices slumped to a two-year low in late November, while BD contracts for November settled down €50/tonne down due to the softness of the market.

US spot pricing had been trending downward on the approach to December, with end users sufficiently covered and additional buying interest extremely thin. Market lethargy had seen additional orders of spot material from Asia buyers, which is where the impact of the Port Neches outage may be most immediately apparent.

There have already been increased enquiries to Europe exporters, with some US consumers though to be checking alternatives to cover near-term needs, according to ICIS senior olefins editor Nel Weddle.

The issue may therefore at the very least stall the spot price decline, but other BD units in the US are under-utilised at present, she added.

More than 10,000 tonnes of product was expected to travel from the plant on two vessels to Asia in December, and are understood to have been cancelled. This could lead to thinner spot supply in the region, which could potentially have more pronounced ramifications in early 2020 than in December, which is traditionally a weak demand month.

“BD capacity is long in [the] US, so I expect there should not be significant impact in middle term,” an Asia-based trader told ICIS earlier on Thursday.

“While outages have driven price increases in Asia in 2019 this has not been the case in the US, where prices have largely decreased throughout the year,” said James Wilson, a senior analyst at ICIS Analytics. “Supplies of US BD have recently increased on the back of new cracker start-ups.”

“It is likely that cargoes expected to be delivered to Asia in December will no longer be available but at this point it is hard to estimate if the supply disruption will last for weeks or months,” he added.

TPC operates over a third of US BD capacity out of its Houston and Port Neches sites.

The impact for the global MTBE market is not expected to be significant, as the gasoline additive is not used in the US and the site represents only a small proportion of global capacity.

The air quality around the Port Neches complex remains well below health concern levels, according to the Texas Commission on Environmental Quality (TCEQ) although there are higher than normal concentrations of volatile organic compounds (VOCs), which can cause headaches and nausea.

Despite the absence of current air quality danger, the explosion caused significant property damage in the surrounding area, with home security camera footage showing doors being blown in and windows smashed by the force of the blast.

Local law firm Provost Umphrey said on Wednesday that it had filed a class action suit against the producer and a temporary restraining order against the firm to preserve evidence. TPC has set up its own community support line to handle property damage claims and assist with clean-up in the surrounding area.

The Port Neches site has been consistently flagged as a high priority violator by the US Environmental Protection Agency (EPA), deemed to be in significant violation of regulations in 12 of the last 12 quarters, with five informal and four formal enforcement actions taken by the agency against TPC in the last half-decade. TPC is owned by private equity firms First Reserve and SK Capital.

Focus article by Tom Brown

Additional reporting by Jeremy Pafford, Nel Weddle, Morgan Condon, Helen Yan and Al Greenwood