PDH

Starting on April 10, China will enact an 84% reciprocal tariff on imports of U.S. goods. This increase was in response to the 104% tariff that the U.S. placed on imports of Chinese goods, which was subsequently raised to 125% by President Trump on April 9. China is likely to retaliate further. Unlike China’s February retaliatory tariffs of 10%-15% on U.S. oil and LNG, this time NGLs and all energy products are included. These higher tariffs have the potential to destroy propane and ethane exports from the U.S. In today’s RBN blog, we look at the potential impact of China’s reciprocal tariffs on the propane and ethane markets.

Since 2011, U.S. natural gas liquids (NGL) production has more than tripled, while domestic demand has grown only modestly. Consequently, the only way NGL markets could balance was a dramatic increase in exports. Today, over 70% of U.S. propane production is exported, with the majority going to overseas markets, while other NGLs see varying export levels: 40% for butanes, 25% for natural gasoline, and 18% for ethane. Although U.S. NGL production growth is slowing, we still project an increase of 1.5 MMb/d over the next decade and a half, with 85% of that growth coming from the Permian Basin. As U.S. ethane and LPG production continues to rise, nearly all the export growth is expected to head to the Asia/Pacific region, with a significant portion going to one country: China. But is this outlook for U.S. NGLs realistic? And do we have adequate infrastructure — ranging from gathering systems to processing plants and fractionators, and from export terminals to the right kind of ships — to handle all of these volumes? In one of his hit tunes, Toby Keith clearly identified the problem for us: “Where You Gonna Go? And What Ya Gonna Do When You Get There?” These are key NGL market themes that we'll be exploring at our upcoming NACON conference on October 24 at the Royal Sonesta Hotel in Houston and that we’ll introduce in today’s RBN blog.

Fast-rising NGL supplies during the early years of the Shale Era fueled excitement about the potential for new petrochemical plants in the U.S., especially ethane-only crackers to make ethylene and other byproducts, along with propane dehydrogenation (PDH) plants to make propylene. While 11 new ethane-fed crackers have come online in the U.S. since the mid-2010s and the world’s largest — Chevron Phillips Chemical and QatarEnergy’s 4.8-billion-lb/year facility — is under construction in Texas, only three of the many PDH projects proposed over the same period were actually built. In today’s RBN blog, we’ll look at why the initial rush of new PDH project announcements resulted in so few new U.S. plants. 

Petrochemicals form the backbone of modern consumer society. They provide the plastics and other materials needed to make most of the products we depend on, everything from computers and cellphones to car tires and fertilizer — not to mention N95 masks and other personal protective equipment. Petrochemicals come from crude oil, natural gas, and/or NGLs like ethane and propane, of course, and a good way for an energy-producing area to add value to its raw hydrocarbons is to develop petchem plants nearby. Alberta, Canada’s leading energy-producing province, is making a new push to encourage such projects. Today, we discuss the latest provincial program and what it hopes to accomplish.

In the past three years, two major commitments were made to construct propane dehydrogenation and polypropylene plants in Alberta to take advantage of the rising bounty and generally low cost of propane supplies in Western Canada. Two Calgary-based midstream companies, Inter Pipeline Ltd. and Pembina Pipeline, each started developing PDH-PP plants in Alberta’s Industrial Heartland area northeast of Edmonton. But then came COVID-19, which set back the timeline for one of the projects and put the other on ice. All this comes as Western Canada’s propane market is in greater flux than usual, and facing a tightening supply/demand balance as exports to Asia ramp up. Today, we provide a status check on the development of these two plants, and what the increase in demand might portend for propane balances in the next few years.

The ready availability of low-cost propane, the expectation of renewed growth in global propylene demand and other factors are spurring development of another round of propane dehydrogenation plants in North America. Three PDH plants — two in Alberta and one in Texas — already are under construction and scheduled to come online in the 2021-23 period. Now, Enterprise Products Partners has committed to building a second PDH plant at its NGL/petchem complex in Mont Belvieu, TX, and PetroLogistics — which completed the U.S.’s first PDH plant in 2010 — has selected the technology it will use for a new facility it now plans to build along the Gulf Coast. Today, we discuss planned PDH capacity additions in the U.S. and Canada and what’s driving their development.

Global demand for propylene is rising, but lighter crude slates at U.S. refineries and the use of more ethane at U.S. (and overseas) steam crackers has reduced propylene production from these plants. That has led to the development of more “on-purpose” propylene production facilities — especially propane dehydrogenation (PDH) plants — in both the U.S. and Canada. More than 2 million metric tons/year of new PDH capacity has come online in North America since 2010, another 1.6 MMtpa is under development, and propane/propylene economics may well support still more capacity being built by the mid-2020s, maintaining the U.S. and Canada’s position as propylene and propylene-derivative exporters. Today, we begin a series looking at “on-purpose” production of propylene by PDH plants and what the development of these facilities will mean for U.S., Canadian and overseas markets.

Well, it finally happened. After several years of assessing the possible development of a large, integrated propane dehydrogenation (PDH) plant and polypropylene (PP) upgrader unit, a joint venture of Canada’s Pembina Pipeline and Kuwait’s Petrochemical Industries Co. (PIC) earlier this week announced a final investment decision (FID) for the multibillion-dollar project in Alberta’s Industrial Heartland. The new PDH/PP complex won’t come online until 2023, but when it does, it will provide yet another new outlet for Western Canadian propane, which has been selling at a significant discount in recent years. Today, we discuss Pembina and PIC’s long-awaited PDH/PP project, Inter Pipeline’s development of a similar project nearby, Western Canadian propane export plans — and what they all mean for propane prices.

Even in tough times like these, companies need to look ahead, to consider what steps they would take--or investments they would make--if, for example, oil prices were to rise to X dollars per barrel, or the cost of drilling and completing a well were to fall by Y%. For methanol producers, these “what-ifs” might include what if methanol prices (holding steady the past few months at $249/metric ton, or MT) were to rebound to where they stood a year ago ($442/MW in May 2015)? Or what if we could add new capacity at a fraction of the cost of new-build? Today, we consider how building more methanol capacity might make sense in the right circumstances.

Several new propane dehydrogenation (PDH) plants are coming online along the U.S. Gulf Coast. Now developers in Alberta are making plans for the province to become the next hot spot for PDH plant development. Final Investment Decisions (FIDs) are due over the next year or so on two projects aimed at taking advantage of the increasing volumes of propane being produced in western Canada—propane so plentiful, in fact, that they are paying to have it hauled off.  But what if propane prices rise due to increasing U.S. demand, more exports and lower U.S. production?  What might such developments do to PDH economics?   What could make Alberta different? Today, we consider the drivers behind two (maybe three) prospective PDH projects in Alberta, and look at how they may affect the propane market on both sides of the 49th parallel.