It’s been over a month since the Deep Freeze swept across Texas, shutting down the power grid, curtailing natural gas supplies, and generally wreaking havoc on the state’s population and infrastructure. The petrochemical industry was hit particularly hard, with every ethylene-producing steam cracker in the state and many in nearby Louisiana forced into hard shutdowns — that is, production coming to a screeching halt with little or no preparation. The result was unit damage well beyond what typically happens with other weather-related events like hurricanes, where there is usually some ability to manage an orderly shutdown. Consequently, at least half of the industry’s capacity to produce ethylene and its by-products remains offline, a development that is ricocheting through supply chains across the economy. Today, we examine the magnitude of the damage, consider what is happening in ethylene markets — the epicenter of the turmoil — and contemplate the longer-term implications of the outages.
We’ve investigated the ethylene market often in the RBN blogosphere, most recently in Ethylene Ethylene, Prettiest Margin I Ever Seen, posted January 4, 2021, where we looked at what were then considered high ethylene prices and margins. More on that in a minute. As we always like to mention up front, ethylene is the cornerstone building block of the petrochemical industry, the precursor for everything from food packaging to construction materials, along with detergents, lubricants, PVC pipes, antifreeze, and all things polyethylene. And that’s not all. Ethylene production comes along with a lot of by-products — critically important petchems like propylene, butadiene, benzene, and other commodities too numerous to mention. The point is that ethylene plants — also referred to as steam crackers — are the primary source for more products we use everyday than you’d ever imagine.
To put the events of the past six weeks into perspective, let’s take a brief tour of ethylene production facilities in the U.S. There are 50 individual ethylene plants, but several petchem complexes include more than one plant at a given location. For example, ExxonMobil has three steam crackers in Baytown, TX, and Dow has two in Plaquemine, LA. As shown in Figure 1, almost 90% of the crackers in the U.S. are located along the Gulf Coast, and 60% of them are in one state: Texas. Only four U.S. ethylene plants are not on the Gulf Coast — one in Longview, TX, and the other three scattered across Illinois, Ohio, and Kentucky. The largest concentration of facilities in Texas are in Houston, Beaumont, and near Freeport. In Louisiana, the plants are clustered in Lake Charles and along the Mississippi River.
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