INSIGHT: Massive US petchem capacities knocked out from Harvey

29 August 2017 23:12 Source:ICIS News

By Joseph Chang

NEW YORK (ICIS)--First and foremost, our thoughts, sympathies and best wishes are with the people of Texas who are going through the disaster caused by Hurricane Harvey.

Texas is the heart of the US energy, refining and chemical sectors, and the damage and disruptions from rain and floodwaters from the record storm will last for weeks and likely months.

Harvey and its lingering aftermath will take out an estimated 46% of total US ethylene capacity and 36% of polyethylene (PE) capacity offline for an uncertain period of time, according to Kevin McCarthy, analyst at Vertical Research.

The storm was “wreaking havoc with personnel, chemical production assets, access to electric power as well as with logistics, including rails, ports, barges and ocean freight”, said McCarthy in a 28 August report.

“Procurement of natural gas liquid (NGL) feedstock and other pipeline-related considerations remains of concern as well,” he added.

The Wall Street analyst estimates known US ethylene closures at 26.3bn lb/year (11.9m tonnes/year), or 38% of total US capacity, and polyethylene (PE) closures of 4.8m tonnes/year, or 29% of US capacity.

ICIS has similar but somewhat lower numbers.

Harvey Impacts on US Petrochemicals
Outages as of 29 August

Product % down
Benzene 31.1
Ethylene 36.6
PE 25.5
PP 24.8
Propylene 23.3

Source: ICIS Supply and Demand database, ICIS analysis

Including probable closures of additional plants, the totals amount to 12.6m tonnes/year, or 40% of ethylene capacity and 6.1m tonnes/year, or 36% of PE capacity, according to McCarthy of Vertical Research.

Lastly, the analyst takes into account estimated reduced operating rates of 70% at two Texas crackers – Dow’s Texas-8 in Freeport, and LyondellBasell’s facility in Channelview. That bumps up total US ethylene capacity curtailment to 14.6m tonnes/year, or 46% of the total.

IMPACT ON CYCLE DYNAMICS

While the disruptions to US ethylene and PE capacity and potential delays to new start-ups could push back the widely expected supply-driven downturn in prices caused by a wave of new projects starting up, they may not significantly alter long-term cycle dynamics.

“If the average duration of plant outages were two weeks, then the impact on available US ethylene/PE industry capacity would by -1.5-2.0% of nameplate levels. Thus, the magnitude and duration of outages has not yet risen to a level that is sufficient to alter our ‘big picture’ cycle view of a cyclical downturn that is likely to extend into 2019 based on numerous new plant start-ups in coming years,” said McCarthy.

“However, the unplanned restriction of capacity should lend at least temporary support to prices, possibly through year-end 2017,” he added.

The cumulative loss of US ethylene production from Harvey has amounted to about 90,000-95,000 tonnes as of 29 August, and is running at about 30,000 tonnes/day, according to Kevin Swift, chief economist at the American Chemistry Council (ACC).

The overall US economy is expected to take hit in the third quarter from the impact of the storm, as Houston is the fourth largest city, but activity would snap back in Q4 2017 from construction activity, said Swift. The impact on the US chemical sector and the US economy is likely to be transitory, the economist said.

LOGISTICS ISSUES

US Gulf Coast operations are typically in low port areas prone to flooding, with mud and debris washing in, noted James Ray, senior consultant at ICIS based in Houston.

An average restart period of two weeks for crackers is not unreasonable for those that did not sustain major damage, he noted.

“Those on the ‘dirty side’ of Hurricane Harvey will be impacted the most. This will disrupt US Gulf Coast operations and those that depend on this region for feedstock,” said Ray.

“There is a ‘virtual pipeline’ of product on the road/water, in route, as well as some reserve supply on site for operations outside the US Gulf Coast, that depend on it for feedstock,” he added.

Typical lead time to get product from the US Gulf Coast to the US east coast is about seven days, to eastern Europe about 14 days and to Asia 21-28 days. Waterborne shipments are likely to be delayed by the weather, said the consultant.

“Onsite inventory levels are likely to be 7 to 28 days maximum. So disruption will be delayed for those outside the US Gulf Coast. However, once the logistics pipeline is disrupted for even a few days, there is a gap that is difficult to plug and which will hit them at some point if they are unable to accelerate deliveries or use alternate feedstocks or sources,” said Ray.

FORMOSA MAKING PROGRESS AT POINT COMFORT

Formosa Plastics USA on 29 August said it is making progress with facility assessment at its Point Comfort, Texas, site, with limited in-plant utilities in operation. Regular employee work schedules were set to commence on Tuesday evening “at reduced staffing levels due to the number of employees that have sheltered outside the immediate area”.

“Management teams are assessing production resumption constraints, strategies and timelines. We continue to work with our transportation providers to establish plans for resumption of their services,” the company said in a statement.

Earlier on 28 August, Formosa Plastics USA said its Point Comfort site did not suffer significant damage – “only modest damage has been observed”.

ACCESS TO FACILITIES A FACTOR

A major factor for chemical companies to even begin to approach the point of restarting plants is getting access to the locations, said Scott Jensen, director of issue communications at the ACC.

“Some facilities have limited crews on site, and they are inspecting and assessing. But they need broader access by employees who are also dealing with personal situations. Transportation and infrastructure such as ports and railroads and roads are at a standstill,” said Jensen.

ICIS ASSESSMENT ON OUTAGES

It’s not just ethylene and derivatives, but the whole gamut of commodity chemicals that will be impacted by supply restrictions. Prices are poised to rise, and even spike higher in the coming weeks and months.

As of 29 August, ICIS estimates about 37% of US ethylene capacity is currently offline, and 26% of PE capacity. Figures for other commodities offline include 23% for propylene, 25% for polypropylene (PP) and 31% for benzene.

BOOST TO VINYLS MOMENTUM

Among commodity chemicals, McCarthy of Vertical Research’s sees “the greatest potential for a boost to chlor-alkali and vinyls, where pre-hurricane market conditions have been supportive of ongoing price increases in caustic soda and nascent momentum in chlorine”.

He noted that as demand for chlorine tends to ebb seasonally this time of year, supply of co-product caustic soda can be restricted, even in normal market conditions.

“Now, Hurricane Harvey has forced the temporary shutdown of at least two sites – Occidental Chemical at Ingleside, Texas, and Formosa Plastics at Point Comfort, Texas – the combination of which will remove an estimated 10% from US chlor-alkali supply,” said McCarthy.

The analyst points out that the figure could rise materially, depending on the status of other facilities, including Olin’s at Freeport, Texas, which represents 20% of US chlor-alkali capacity.

Harvey and its aftermath
Operations at US Gulf Coast refineries and petrochemical plants have been disrupted this week by severe weather and flooding from Hurricane/Tropical Storm Harvey, leading to a wave of force majeure declarations.

Harvey’s flooding rains have resulted in logistical issues as Texas ports remain closed and as several railroad companies have issued embargoes or suspended operations.

Visit ICIS Dashboard for a list of all the plants and markets affected by the storm. To view an interactive map of petrochemical plants in Texas, click here. Use the drop-down menu to see plants by products, and zoom in to see more details.

 

By Joseph Chang