Europe styrenics chain becoming uneconomical on high natural gas prices – IEA

Jonathan Lopez

14-Sep-2022

MADRID (ICIS)–Some European petrochemical operations are becoming “uneconomical” on the back of high natural gas costs, especially in high-energy intensive sectors such as styrenics, the International Energy Agency (IEA) said on Wednesday.

The Paris-based agency added that lower crude oil prices, down sharply from their June peak, are giving companies and institutions a reason to run diesel generators to produce power instead of drawing from the electricity grid.

A large part of Europe’s electricity is produced from natural gas; prices for the commodity have risen around eightfold in the past 12 months.

Meanwhile, crude oil prices have retreated sharply. In Wednesday’s European afternoon trading, Brent deliveries for November were trading at $93.52/bbl; in June, Brent peaked at $120/bbl.

PETROCHEMICALS HIT HARD BY GAS
“Reportedly, gas costs are already making operations at a number of glass manufacturers and European petrochemical plants uneconomical, particularly in energy intensive value chains such as styrenics,” said the IEA.

Crude oil demand in Germany, the largest European economy, fell in July by 40,000 bbl/day, year on year, compared to a typical increase for the month of 70,000 bbl/day.

Moreover, Germany’s demand for petrochemical feedstocks fell “more quickly than expected” in July, with naphtha demand down by 70,000 bbl/day, compared with June; this represented a 37% decrease compared with February’s peak, said the IEA.

“Germany, for which we have already received July data, is emblematic of these wider European tensions … [The fall in demand for naphtha could be] indicating that some producers were forced to cut rates amid weak demand, high gas costs and the very low water levels of the river Rhine,” it added.

The River Rhine is a key transport route for petrochemicals in northwest Europe in its course from south to north Germany and into the Netherlands, where it flows into the North Sea.  Up to mid-August, the Rhine suffered a severe drought which forced barges to partially load, increasing logistical costs for petrochemicals producers.

CHINA LOCKDOWNS ALSO HIT PETCHEMS
Globally, strict COVID-19 containment measures in China continue causing a slowdown in demand for petrochemicals feedstocks in Asia.

China’s economy is set to grow at a slower pace in 2022 overall due to lockdowns which started in the second quarter.  Some large Chinese cities continue to be locked down as Beijing aims for a zero-COVID-19 policy.

In China, usage of petrochemicals feedstocks liquefied petroleum gas (LPG) and naphtha fell in July, compared with June, by 200,000 bbl/day and 140,000 bbl/day, respectively.

Overall demand for crude oil in Asia will also be affected by China’s lockdowns, with demand growth in Asia Oceania for 2022 at just 80,000 bbl/day.

“In part, this is an outcome of neighbouring China’s wave of lockdowns with flight restrictions and anaemic petrochemical demand holding back advances in the region,” said the IEA.

Front page picture: Chemical plant in Germany; archive image
Source: Michael Probst/AP/Shutterstock

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