Market and product

Signs point to 2016 being another strong year for making petrochemicals in the U.S.

After a collapse in oil and natural gas in 2014 and 2015, energy prices are stabilizing. According to the U.S. Energy Information Administration, oil prices averaged about $49 per barrel in 2015, a nearly 50% drop from the year before. EIA forecasts they will inch up to $51 in 2016.

Natural gas prices also have been declining, although not by as much. They averaged $2.67 per million Btu in 2015, a 40% decrease from the year before. EIA expects them to recover to $2.88 this year.

U.S. companies make petrochemicals from natural-gas-derived ethane rather than the petroleum-based naphtha used in much of the rest of the world. Fed by cheap shale gas since the late 2000s, U.S. firms have been making more money than their foreign rivals.

The decline in oil prices has eroded some of that advantage. But as Bhavesh V. (Bob) Patel, chief executive officer of LyondellBasell, pointed out in a presentation to investors last month, oil is still about two-and-a-half times as expensive as natural gas on an energy content basis. This, he said, is “very favorable to ethylene and polyethylene production” in the U.S.

Looking ahead at petrochemical market conditions, Mike Smith, vice president of light olefins for the consulting group Argus Media, says the New Year will begin with a bang. By April, he expects, some 12% of U.S. ethylene capacity will be down for scheduled maintenance. This is “very significant,” he notes, given that the industry has been running its plants at already-high 92% operating rates.

The outages will put upward pressure on prices, Smith says, but the market should ease by the second half of 2016. Braskem is opening an ethylene cracker and polyethylene plant in Mexico, that should displace some of the U.S. polyethylene that has been entering the country. Also, Lyondell, Dow Chemical, and Westlake Chemical are starting up expansions that together amount to about 725,000 metric tons of ethylene capacity, a 2.5% increase for the U.S.

In propylene, Dow and Enterprise Products will open a pair of propane dehydrogenation plants that will boost overall propylene capacity by 11% and bring output of that building block to its highest level since 2007, Smith says.

These expansions are the first few thunderclaps of an approaching U.S. capacity storm. More than a dozen petrochemical makers are planning ethylene crackers over the next half-dozen years.

Don’t worry, Lyondell’s Patel assured: No one is building much capacity anywhere else. “The world needs about five new crackers annually to meet growing demand,” he said.—Alex Tullo