US LPG exports will not deprive PDH plant of propane − Dow

23 April 2014 20:52 Source:ICIS News

HOUSTON (ICIS)--Dow Chemical's on-purpose propylene plant should have access to propane at prices low enough to make the project viable despite the wave of new terminals that will export the fuel to foreign markets, the CEO of Dow Chemical said on Wednesday.

Dow is among several companies that are building propane dehydrogenation (PDH) plants, which use the gas as a feedstock to produce propylene.

At the same time, several companies have proposed building liquefied petroleum gas (LPG) export terminals. LPG contains a mixture of propane and butane.

If all of the proposed LPG terminals are built, then US export capacity would reach 16.8bn gal/year (63.6bn litres/year) by 2017, up from 2.85bn gal/year in January 2013, according to a report by ICF International, a consultancy.

The ICF report, meanwhile, expects US propane production to reach 18.1bn gal/year by 2020, up from 13.4bn gal/year in 2012.

Despite more companies competing for propane, Dow CEO Andrew Liveris still expects that the company's PDH plant will have access to competitively priced feedstock.

Liveris made his comments during a Q1 2014 earnings conference call.

For Dow's PDH project to be successful, propane prices must remain relatively low when compared with propylene produced from oil-based feedstock.

Currently, most US propylene is produced either by naphtha crackers or by fluid catalytic crackers (FCC) in refineries. Both rely on oil-based feedstock.

On-purpose propylene uses propane, a feedstock derived mostly from natural gas production.

On the propane side, Liveris listed several variables that could put a cap on prices.

Propane prices have often moved alongside those for Brent crude oil, Liveris said. Rising production of shale oil could disrupt that relationship.

Also, other countries plan to increase exports of natural gas, Liveris said. If these shipments are rich in LPG, then that could increase global supplies of propane.

"There're a lot of moving parts here that suggest that at the end of the day, US propane exports aren't going to be the bonanza that everyone expects they're going to be in terms of return," he said.

Looking ahead, Liveris said that propane prices could actually fall in Europe.

For US LPG exports to be viable, prices have to be $200/tonne below those in Europe, Liveris said. That comes to 30-40 cents/gal.

On the propylene side, Liveris expects supplies from refineries to be constrained.

Meanwhile, propylene supplies from crackers have tightened because of the advent of shale gas, which caused plants to favour lighter feeds over naphtha. Lighter feedstocks produce less propylene.

Overall, the combination of tightened propylene supplies from traditional sources and increased global propane exports should make Dow's PDH project lucrative for the company, Liveris said.

Once it reaches a full run rate of 750,000 tonnes/year in mid-2015, the PDH plant should contribute $450m/year in earnings before interest, tax, depreciation and amortisation (EBITDA), Liveris said.

That forecast assumes a propane-to-propylene spread of 30-35 cents, Liveris said. Recently, the spread has ranged 36-40 cents.

By Al Greenwood