SAN ANTONIO—The petrochemical renaissance involves five areas: the growing U.S. feedstock and fuel supply; advantaged U.S. infrastructure; “recompetitive” U.S. petrochemical capacity; U.S. exports to global petrochemical markets; and the risks to the renaissance, according to Greg Haas, director of integrated oil and gas research for Stratas Advisors. Haas discussed the infrastructure for the petrochemical renaissance at Hart Energy’s Midstream Texas conference in late October.
Stratas Advisors, a global research and consulting advisory firm, covers all sectors of the energy industry. For the midstream sector, it reviews capacities and constraints in midstream as well as farther down the value chain into the downstream, refining, petrochemical and other industries in North America and worldwide. The company also examines imports and exports, which leads to its pricing forecast.
Growing U.S. Feedstock, Fuel Supply
Growth continues in U.S. feedstocks and fuel supply for petrochemical uses. Shale resources, technology and investment have remade the U.S. into the world’s largest incremental supplier of NGL, according to Haas. Most of these supply regions are ideally situated with access to legacy petrochemical and manufacturing sites.
“Many of the regions that are liquids-rich are very well situated for the existing petrochemical infrastructure and NGL infrastructure of North America, specifically on the Gulf Coast,” Haas said. “In addition, there are some other potentially new and expanding areas for petrochemicals and hubs that could develop if final investments decisions are made favorably.”
Those other regions include the Bakken and Marcellus-Utica, which Haas said are large enough to spur new hub development and regional petrochemical investment.
Moreover, production growth at field gas plants has outpaced demand growth for NGL in the U.S., driving down prices and forcing marketers to go further afield to monetize new shale supplies. In addition, U.S. NGL-intensive industries, including petrochemicals and refining, have gained advantage from low-cost feedstock and fuel.
“Through the months, you get a peak in winter demand for NGL use, in other words, propane and heating fuels [and] LPG. Then it falls in the summertime, and it bands between basically 1.7 million barrels of oil per day (MMbbl/d)—depending upon what year—to perhaps as high as 3 MMbbl/d of demand,” Haas said. But the production of NGL gas plants “has been going nothing but up, effectively, and in the longer term trend.”
Growing US NGL supply
Advantaged U.S. Infrastructure
Fractionators make up a part of the advantaged NGL infrastructure. Tight fractionation markets are loosening up for the near term, Haas said.
“In terms of the advantaged U.S. infrastructure, we are very well-situated for fractionation,” he said. “We’ve actually got quite a good stable of fractionators either in place now or coming online over the next couple years. That should take us through our current forecast for climate production. We’ve got about 80% utilization going forward, which should give us enough cushion [and] enough margin for proper operation in the field.”
De-ethanizers are another aspect of the advantaged NGL infrastructure. Stratas Advisors reported that de-ethanizer capacity is ramping up in advance of petrochemical and export expansions.
“We also have a tremendous amount of new de-ethanizer capacity coming online and moving forward and roughly another 500,000 bbl/d, so you have the two together and you get close to 4 MMbbl of capacity to fractionate and purify NGL into their constituents, which can be sold to the markets,” Haas said.
‘Recompetitive’ U.S. Petrochemical Capacity
Haas coined the term “recompetitive” for the U.S. petrochemical industry in North America. “We were competitive, [and] we sort of lost competitiveness to some of the Asian and Middle Eastern regions in the higher energy cost era. But now with new supplies, we’ve become really recompetitive again,” he said.
North America has the greatest capacity for running ethane and light NGL, with the Middle East trailing closely behind.
In addition, the petrochemicals—ethylene, propylene, polypropylene and polyethylene—are the world’s largest traded chemical commodities, and as such consumer societies and producing economies also produce and consume these in great quantities, Haas said.
“There’s capacity to produce ethylene around the globe, and North America has the preeminent capacity today and is distinguished also by the fact that we have the largest ethane capable capacity,” he said.
Other parts of the world rely on the heavier, more expensive feedstocks. Naphtha feeds most capacity in those nations at present, according to Haas.
Additionally, the U.S. and Canada have tremendous supplies of shale gas, which was discounted to crude oil and crude oil-derived products, Haas said. The addition of heat from discounted U.S. shale gas gives an additional advantage to North American ethylene crackers that most of the other regions don’t have. If a plant is fed by heavy feedstock (naphtha), the fuel system likely also consumes heavy fuels (fuel oil). Higher priced oil is thereby a double threat to the viability of overseas crackers.
“In a way, the shale gas and the shale NGL are a double threat for overseas competitors, and they know this. They’re watching our expansions, they’re watching our capacities and they’re watching our costs,” he said.
U.S. Exports To Global Petrochemical Markets
The excess of supply over demand in U.S. NGL markets along with the construction of infrastructure in the midstream space has enabled the U.S. to become a net exporter of NGL, according to Haas. Furthermore, the U.S. is vying with Saudi Arabia as the largest propane exporter.
Additionally, incremental U.S. NGL export infrastructure via pipeline, rail and water is taking place.
“These exports happen of course with our North American neighbors, including north and south of the border. We’ve got plenty of exports traveling up to Canada by pipeline and rail all throughout the value chain of NGL—in other words, condensate, propane, butane and ethane,” he said. “We’ve got a start of an industry going into Mexico now as well.”
Haas mentioned a very large multi-unit train propane facility in central Mexico where Kansas City Southern hopes to bring about 150,000 bbl/d of propane and LPG into Mexico not only for use in the country, but also for potential export from the Pacific Coast of Mexico. “That could be an interesting game changer,” he said.
The U.S. is exporting on the East Coast, West Coast, even potentially Alaska, and most certainly in the Gulf Coast for marine exports of NGL, he continued.
Stratas Advisors predicts North America’s markets will stay close to home, close to the Americas, including the Atlantic Basin and parts of Africa as growth occurs there in the longer term, Haas said, “but certainly in the near term into Europe, especially for some of the ethylene crackers that are sourcing U.S.-based ethane.” Farther east, U.S. exports also are going into India and China.
Risks To The Renaissance
With regard to petrochemicals, operators need to look at the feedstocks that are used for petrochemicals, not just the gas and oil itself, Haas said.
“Ethane is at times undervalued compared to natural gas, and that drives the industry to reject ethane out of their fractionators and out of their processing plants and back into the natural gas chain so that it can get a higher value than even purity ethane would,” he said. “But you can see that ethane and natural gas are tied at the hip right now, and so it’s a very low-cost source.”
But is it enough? “If you look at some of the projects and magnitude of everything that’s been announced, you’ve got basically 28 million tons per year of new ethylene production capacity in North America alone,” he said. Though, he points out, some of these have been delayed already.
However, should the U.S. petrochemical industry be paying attention to the “too much supply, too little demand” refrain? A conservative bearish case run by Stratas Advisors for ethylene demand shows incremental global growth of 27.5 million tonnes per annum (mtpa) by 2025 over 2015 levels, according to Haas. Stratas Advisors’ high-side North American petrochemical expansion case, including completion of all announced ethylene cracker expansion and new-build projects, shows 28.8 mtpa of additional capacity in the U.S. and Canada by 2025.
“We pretty much see [ethylene] demand growing within North America, Middle East, North Africa and Asia, but Russia and the rest of the world kind of just balance each other out,” he said. “And project capacity [for] potential expansion sites are pretty much 28 million tons per year, so that leaves nothing for anyone else for any other expansions around the world, unless you think demand is going to be stronger or unless you think some of the U.S. facilities will not get built.”
As for the supply side of ethane, Stratas Advisors predicts it could become an interesting opportunity for ethane prices to recover some, but they still have quite a bit of ways to get above the natural gas price, Haas said.
Ariana Benavidez can be reached at a email@example.com.
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