INSIGHT: LyondellBasell profits from lighter feeds in US, Europe

05 August 2013 13:17 Source:ICIS News

By Nigel Davis

LONDON (ICIS)--Cost-advantaged gas cracking in the US continued to have a major influence on petrochemical company profitability in the second quarter.

LyondellBasell again produced strong earnings from its North America Olefins & Polymers segment businesses. Its US crackers operated at above 100% of nameplate capacity and the company took advantage of spot olefins sales although quarter to quarter volume sales in the first half were flat.

Downstream from the crackers, polyethylene (PE) volume sales were flat too, the company said on 26 July. By contrast, polypropylene volumes were up 13% sequentially.

Cracker operating rates in the US were above nameplate capacity for the fourth consecutive quarter and LyondellBasell CEO Jim Gallogly had nothing but praise for the company’s US olefins plant.

“Hats off to our olefins plant managers,” he said on a conference call with financial analysts. “I've never seen this type of performance in my long tenure in this business”.

LyondellBasell has also been able to make the most of cracker feedstock supply from North America’s booming shale gas and oil industry.

In the most recent quarter, 90% of ethylene was made from natural gas liquids (NGLs): 70% from ethane, 14% from propane and the rest from butane which was competitively-priced feedstock. The company is benefiting from the condensates that are available from fracking the Eagle Ford shale deposit in Texas.

The availability of condensates from the field has displaced the need for imports from North Africa to help feed LyondellBasell's US crackers. That availability also had a positive knock on effect on the olefins business in Europe.

The Netherlands-registered polyolefins producer has been working on the competitiveness of its European operations in the face of Europe's challenging market conditions. And it had a surprisingly higher cracker operating rate of 92% in Europe in the second quarter.

Margins were stronger too, it said as it cracked more LPG (liquefied petroleum gas).

Polyolefins volumes in the Europe, Asia, International reporting segment were up strongly in the second quarter compared with the first three months of the year. Polyethylene volumes were up 9% and polypropylene volumes up 10%.

Gallogly said the LyondellBasell had been able to take advantage of the downtime of other cracker operators in Europe in the second quarter and lift its own ethylene output by 9%. About 37% of ethylene production in Europe was from propane and butane in the quarter.

LyondellBasell has shut down its refinery at Berre in France which was a 'prep unit' for the cracker there and it has been cracking only between 20% and 25% naphtha, Gallogly said, and a lot more propane and some butane.

Some producers in Europe can crack propane in the summer months when prices are lower and the feedstock is cost-advantaged against naphtha.

But LyondellBasell is on course to take further advantage of lighter feedstock at its crackers in Europe. It expects increased availability of liquefied petroleum gases (LPGs) from the Middle East and potentially from the US.

The company used to crack vacuum gas oil (VGO) at Berre in France and it can crack hydowax in Wesseling, Germany.

“I expect us to continue to lighten our crack,” Gallogly said. “We are going to keep trying to lighten that up, [to] take advantage of costs advantaged condensates available globally.”

Gallogly said also that communication between its European and US olfins units helps LyondellBasell get the most from its plants. "Overall, it was a strong quarter,” he said.

“We achieved record quarterly earnings and advanced our plans for the future on several fronts.”

Gallogly has always put great store by the "back to basics" strategy that was adopted by the company three years ago while it was under Chapter 11 bankruptcy protection in the US.

Relatively low cost capacity additions at its crackers in the US are planned to significantly increase its North American cracking capacity – and sometime before the first of the new grass roots crackers planned by competitors come on stream later this decade.

The company is also looking at a building a new PE line in the US which, Gallogly said, could employ new proprietary LyondellBasell technology that could subsequently be licensed.

By Nigel Davis