cracker

Alberta’s petrochemical industry received bad news in late April when Dow, one of the world’s largest petrochemical companies, announced that it was delaying construction on an immense expansion of its ethane cracker in Fort Saskatchewan, AB, only a little more than a year after sanctioning the project. Although the length of the delay remains uncertain, the slowdown has created unwanted ripples across other projects that were tied to the expansion, especially for companies working to provide a substantial increase in ethane and natural gas supplies that will be required by the project. In today’s RBN blog, we take a closer look at the delay and what it might mean for Alberta’s energy industry. 

It’s been nine years since Formosa Petrochemical filed its first permit applications for a proposed $9.4 billion petrochemical complex in Louisiana and, while the greenfield project has faced legal setbacks, it recently posted an important win and may — emphasis on may — eventually make it across the finish line. The Sunshine Project would be massive and consequential, with two steam crackers each capable of consuming 75 Mb/d of ethane, a big propane dehydrogenation (PDH) unit and a number of other petchem production facilities that together would employ more than 1,200. In today’s RBN blog, we’ll look at the project and its long and winding road toward potential construction and startup. 

The demand for ethane by Alberta’s petrochemical industry has experienced a slow expansion in the past 20 or so years. However, that demand is likely to increase sharply by the end of the decade now that Dow Chemical has sanctioned a major expansion at its operations in Fort Saskatchewan, AB, that will more than double the site’s ethane requirements. As we discuss in today’s RBN blog, this will call for an “all-hands-on-deck” approach to increasing Alberta’s access to ethane supplies from numerous sources. 

On September 19, 2014, the operating margin for a representative Gulf Coast steam cracker running ethane hit a record high – an astonishing 70.4 cents per pound.  Steam cracker margins depend not only on the spread between feedstock costs and the market price of ethylene but also on the varying amounts of propylene, butadiene and other byproducts that result from using different feedstocks. Understanding steam cracker profitability in the context of recent market developments is critically important, and it is the subject of RBN’s latest Drill-Down Report. In today’s blog we provide highlights of the report, which examines what is behind the ongoing shift from heavier to lighter NGL feedstocks, unveils RBN’s downloadable Steam Cracker Feedstock Selection Model, and discusses how new U.S. cracker capacity, NGL exports and other factors will impact these markets.

In just over a month, purity ethane prices in Mont Belvieu are off 41%, falling from 50 cnts/gal on 4/30 to 29 cnts/gal on Friday, 6/8.  During the same period, non-TET propane was down 35% from 116 cnts/gal to 75 cnts/gal (see left graph, below).  Last week when we looked at petrochemical feedstock economics, propane was the preferred feedstock for the first time in years.  But a couple of days later that relationship flipped back to ethane.   At first glance, that seems strange.  Both ethane and propane increased during the first half of the week, then came back off (see right graph).  But feedstock economics went from favoring propane by more than a nickel per pound of ethylene to favoring ethane by just over a penny on Friday.  To understand how and why this shift happened we’ll need to break out the spreadsheets again.

Yesterday we started our series on the economics of petrochemical feedstocks.  With NGLs driving the natural gas market, it is critically important to understand the factors that influence NGL prices.  The #1 factor is the petrochemical market that consumes more than half of all NGL production and 100% of the ethane.  In Let’s Get Cracking we did a brief overview of olefin crackers including how they work, what they make and where they are located.  We also introduced the fundamental fact of feedstock acquisition of the ethylene cracker industry:  the best feedstock is the one that will produce the highest margin possible, after deducting byproduct credits.  On the surface this seems simple – just make your product out of the cheapest stuff possible.  But below the surface it can get quite complex.  Of course, deep dives into energy analytics are what we live for here at RBN, so let’s get into the details. 

Two weeks ago we took a deep dive into the great 2012-18 ethane debate. Will we make too much of the stuff?  Or not?  Over the next five years, billions will be spend by the petrochemical industry chasing what promises to be huge margins for conversion of ethane to ethylene.  But it will take time to bring most of that capacity online.  What happens in the meantime?  NGL production from wet shale plays is growing fast.  If the ethane cut exceeds the ethylene industry’s capacity to consume the feedstock, then the excess ethane will be ‘rejected’ back into the natural gas stream. When and if this happens, the price of ethane in Mont Belvieu will drop to something near fuel value at the gas processing plant.  The debate is whether or not this is likely to happen.