Petchems

Huge fees may be coming to ships built in China each time they arrive at a U.S. port. During a hearing in Washington on Monday, the Office of the U.S. Trade Representative (USTR) heard comments on its January 2025 study that laid out China’s strategy to achieve dominance in the global maritime, logistics, and shipbuilding sectors — a strategy that has worked spectacularly. Since 1999, China’s share of the global shipbuilding market has soared from 5% to 50%. The USTR argues that China’s growing control over the maritime sector poses serious economic and national security risks to the U.S., making immediate action necessary. Proposed measures include imposing port fees from $1 million to $1.5 million per port entry. If implemented, the fees would substantially increase costs for exports and imports using Chinese ships. That could have incredibly disruptive impacts on most oceangoing transport, and energy products are no exception — unless they get an exception! In today’s RBN blog, we explore the background of the USTR’s China port-fee proposal and what it could mean for global energy logistics. 

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. 

Could it get any worse? Possibly, but the last time we saw petchem margins this bad was in the depths of the 2008-09 economic meltdown, and back then the atrocious margin levels resulted in drastic plant curtailments and in some cases permanent shutdowns. But this time around the petchem industry is in the process of bringing on even more capacity! Is the current situation a fluke, or a harbinger of things to come? In today’s blog we examine recent trends in steam cracker margins, by far the largest demand sector for natural gas liquids (NGLs) and consider what these developments may mean for NGL markets in general, and ethane in particular.

Lately the ethane market seems out of whack.  Ethane production continues to increase even as it’s become the lowest margin (highest cost) feedstock for Gulf Coast petrochemical crackers – it’s main market.  Ethane production by processing plants has been at an all-time high since June this year even as ethane prices fell to historical lows.  Meanwhile, ethane inventories have fallen from their recent peak in July.  How can all that make sense?  Today we speculate as to what may be going on.