Ethylene Margins

How about some good news to start the year? Over the past few weeks, ethylene margins have blasted into the stratosphere. These are good times for steam crackers, those petrochemical plants that use mostly NGL feedstocks to produce ethylene and other building-block chemicals. As you might expect, this newfound prosperity has a lot to do with ethylene’s price. In December alone, the price of ethylene was up 50%; versus April it’s up a whopping 4X, coming in yesterday at 37.5 cents per pound (c/lb). There are a whole range of factors responsible, including petchem outages due to the hurricanes, new downstream derivative units coming online, robust exports from the Enterprise Morgan’s Point dock, and, oh yes, strong demand for downstream products — everything from food packaging to construction materials. Is the spike in ethylene prices going to last? And what does it mean for NGLs, which account for more than 95% of the feedstock supply for U.S. ethylene. We’ll explore those questions and more in this blog series we begin today.

The margin for producing ethylene by steam-cracking ethane has been less than a dime per pound since mid-March 2018, and less than a nickel for nearly nine of the past 15-and-a-half months. In fact, for two weeks last September, the ethylene-from-ethane margin fell below zero. And yet, a joint venture of two of the world’s savviest companies — energy giant ExxonMobil and petchem behemoth Saudi Basic Industries Corp., or SABIC — recently committed to building what will be the world’s largest ethane steam cracker: a 4-billion-pounds/year facility to be constructed near Corpus Christi by 2022. Is this a case of blind optimism? No, not when you factor in the cracker’s location, the JV’s concurrent plan to construct two polyethylene plants and a monoethylene glycol plant right next door, and the co-developers’ global market reach. Today, we discuss the thinking behind ExxonMobil and SABIC’s big investment in Texas’s San Patricio County.

A drum we have been beating with some regularity here at RBN  is that, thanks to fast-rising production in the Eagle Ford, Permian, Marcellus/Utica and other “wet” natural gas plays, the US is awash in ethane and will become even more so. As it turns out, we now expect that “potential ethane” production will increase even more quickly than we had previously thought, to 2 MMb/d in 2016 and 2.6 MMB/d in 2019. We also believe that while the half dozen world-class steam crackers expected to come online the next few years will use some of the increased output, there will still be a lot of surplus ethane left to export—or, failing that, to reject into natural gas. In today’s blog, we provide updates on ethane production, economics and rejection, and on the potential for new ethane-consuming steam crackers and increasing ethane exports.

We’ve done several blogs over the past months about the impact of the back-to-back crop drying and Polar Vortex anomalies on natural gas liquids (NGL) prices in general and propane prices in particular.  Today we are going to take a walk further downstream and look at how increasing propane exports, the weather related anomalies and subsequent price spikes shifted the petrochemical feedstock slate.    From mid-year 2013 to early 2014, huge volumes of propane were backed out of the petrochemical sector, replaced for the most part by ethane.  These swings have important implications for the future consumption of NGL feedstocks by petchems.  In today’s blog, we assess petrochemical feedstock switching in the 2013-14 timeframe, and beyond.