LyondellBasell CEO sees favourable balance in US petchems

Interview article by Joseph Chang

NEW YORK (ICIS)–The US petrochemical sector is likely to settle into a favourable equilibrium after the wave of capacity expansions in ethylene and polyethylene (PE) in 2017 and 2018, said LyondellBasell CEO Bob Patel.

“PE demand has been growing at a consistent rate of around 4-5% globally and we see that continuing. Even Europe is showing signs of growth now. Our sense is that with capacity delays and steady growth, any dip in PE operating rates would be modest – and the same for ethylene,” said Patel in an interview with ICIS.

“In China, the cancellation of many CTO [coal-to-olefins] projects that were on the books two years ago will drive a much shallower downturn, if any,” he added.

For now, LyondellBasell is focused on its 500,000 tonne/year PE project in LaPorte, Texas, where it is ready to break ground in the next few weeks and start up by mid-2019. It also plans another debottleneck of its Channelview, Texas, cracker to the tune of 250,000 tonnes/year.

That project could come after the PE expansion, starting up in 2020, give or take a year, he noted.

Despite widespread concerns about the wave of US ethylene and PE capacity starting up in 2017 and 2018, the CEO sees a multitude of mitigating factors that would bring the US industry into a new and favourable equilibrium.

“Today, US exports of PE are in the high teens/20% range and a lot goes south rather than to Asia. In the future, exports could rise to 30% or higher,” said Patel.

“This fundamentally changes the way we are thinking about our future global marketing plans. We have to think about the customer in Shanghai as we do our customer in Chicago in terms of supplying them regularly,” he added.

Patel sees the PE market as balanced to tight in 2017, and “a bit more volatile” in 2018, depending on when capacity comes online and ramps up.

Beyond 2019, the CEO notes the lack of projects underway on both the PE and ethylene side.

On the US feedstock side, Patel expects some ethane price volatility when the crackers start up. However, he expects a couple key factors will help mitigate any major and prolonged rise in the price of the key feedstock.

The ability of many US crackers to switch to other natural gas liquids (NGLs) such as propane and butane, as well as naphtha for some, could put a cap on ethane, he said.

LyondellBasell is actually switching some of its furnaces to naphtha feedstock, as the price of co-products butadiene (BD) and propylene surge. Using naphtha as a feedstock produces more of these co-products while ethane cracking produces minimal amounts.

Plus, any major increase in ethane prices should trigger a rapid increase in supply, which would come on much quicker – in about 12-15 months for a new fractionator. Fractionators extract ethane, propane and other NGLs.

All in all, the CEO sees the US sector reaching “a new equilibrium, with PE exports of 30% or more, ethane feedstock above fuel value – not exorbitant but 7-10 cents/gal above fuel value, and the US retaining a feedstock advantage”.

“What distinguishes this cycle from the ones in the past is that the US will have a feedstock advantage in a downturn. Like the Middle East in the past, we’re going to run full out,” said Patel.

“Prior cycle troughs would see effective operating rates in the low 80% range – for this one, I don’t think the global market will fall below 90% and if it does, it will be short lived,” he added.

See the expanded article from the interview in the special AFPM Supplement in ICIS Chemical Business in March 2017