US ethane boom to double polyethylene exports by 2020

There are favorable economics for the export of US ethane and polyethylene in the short and medium term, but producers must optimize shipping strategies and costs in an increasingly competitive polyethylene market, according to Geir Olafsen, managing director at Norway-based consultancy ShipVis.

Speaking at Petrochemical Update’s Petrochemical Supply Chain & Export Logistics conference in Houston on December 4, Olafsen said current ethylene pricing trends and supply and demand trends also offer a healthy premium for US ethylene exports, though there are no new planned ethylene export projects.

Olafsen said the US is recapturing its place as a leading gas, petrochemicals and polymer exporter on the back of low ethane prices and rising production.

He expects US LPG exports to more than triple by 2020 from the current 431,000 barrels per day (bpd), while polyethylene exports will double from 4.5 million tons currently to about 9 million tons when much of the new polyethylene capacity under construction comes on stream by decade’s end.

Ethane and LNG exports are also slated to begin in 2016 and are projected to hike to 15 million tons and 45 million tons, respectively, by 2020, Olafsen said.

Ethane exports still a bargain

US ethane production is currently outpacing expected US demand growth and is projected to reach a surplus of nearly 700,000 bpd by 2020, even after the commissioning of new ethylene production capacity, according to Petrochemical Update’s US Ethane, EthyIene & PoIyethyIene: Exports & Markets Report, released in December 2015.

Most of the new ethane demand will come from ethane steam cracker projects, which could add nearly 10 million metric tons of annual ethylene production capacity by 2020, provided announced projects are built and commissioned by 2020. 

US Ethane supply capacity forecast vs steam cracker growth. Source: US Ethane, Ethylene & Polyethylene: Exports & Markets Report.

The gap between ethane supply and demand will be filled with a combination of ethane export and ethane rejection.

Low ethane prices make US ethane-based exports highly competitive on the global markets, even though low oil prices have depressed US producer margins.

According to Petrochemical Update’s December 2015 report, US seaborne ethane exports in 2016-2020 will be competitive in both a low oil price scenario ($38-45/bbl Brent) and a high scenario ($67-79/bbl Brent), with Asia margins overall higher than US margins.

Planned export volumes from two locations in the US show US ethane exports by sea are feasible, even with the required export and import logistics infrastructure investments, Olafsen said.

The supply of ethane is tight outside the US, particularly in the Middle East, and no ethane export projects have been announced outside the US.

Sunoco Logistics began commissioning the first phase of a new terminal at Marcus Hook, Pennsylvania, at the end of 2015 with a throughput capacity of exporting 800,000 tons of ethane per year.

Sunoco will commission a second train in this facility in Q4 2016, increasing capacity to a total of 1.4 million tons per year.

Meanwhile, Enterprise Products Partners plans to commission a second ethane export terminal at Morgan’s Point, Texas, in Q3 2016 with a capacity of 4.1 million tons per year (mtpa).

Sunoco and Enterprise’s export facilities are estimated to increase demand for US ethane by 221.5 million bpd by the end of 2017.

Beginning in 2016, INEOS and SABIC will commence import of US ethane into Northwest Europe, where they are converting steam crackers from naphtha to ethane feedstock.

Meanwhile, Mumbai-based Reliance Industries has long-term storage and capacity agreements with the Morgan’s Point facility for the liquefaction and export of 1.5 mtpa of ethane as feedstock for its India crackers, starting in Q3 2016.

Potential new US ethane demand is also developing for use of ethane as a power plant fuel, primarily in the Caribbean and in Latin America, according to Petrochemical Update estimates.

Polyethylene market faces supply glut

Growing US ethylene production and the investment in new polyethylene capacity will increase North American polyethylene production to more than 24.5 mtpa by 2020 from about 19.95 mtpa at the end of 2014, assuming 75% of the announced projects are built and commissioned by 2020, according to Petrochemical Update estimates.

Excess North American polyethylene production available for export will be 2.7-4.1 million mtpa through 2020, with Northwest Europe, Brazil, South Korea, and China offering the best export opportunities, based on regional demand-supply imbalances and US total supply cost competitiveness.

China, the world’s biggest polymer importer, could be the major market for US ethylene polymer exports, according to Olafsen. China is currently short of about 10 mtpa of ethylene polymers, and is mainly importing from Saudi Arabia, Iran, Korea, Thailand and Singapore.

“It doesn’t seem that [US polyethylene producers] are accessing the biggest importer to a large extent,” Olafsen said.

US export of ethylene polymers to Europe and Asia. Source: US Ethane, Ethylene & Polyethylene: Exports & Markets Report.

Olafsen said the global polyethylene market is “moving into an overcapacity situation,” which will force producers to optimize logistics and transportation costs if they are to recoup their investment.

“[US producers] should move a step further from selling [Free on Board], [they] should take a stronger interest into controlling shipping,” he said.

“[They] also need to work with [their] suppliers – rail and terminals for container shipping – so that they also give you transparency, competitive freight rates and the ability to benchmark your costs.”

Favorable economics for more ethylene exports

Current prices also offer a healthy premium for US ethylene exports, and producers are yet to fully capitalize on this as no new export facilities have been announced, Olafsen said.

“Ethylene prices in Europe and Asia are much higher and have been much higher over the last 6-9 months,” he said.

“There has been a margin, or a difference, of $560 per ton into Asia, and if you deduct a freight of $300/ton [to Asia], you are still left with $260/ton that you are able to export. And that’s a lot of money that can finance your export terminal.”

US ethylene exports are currently running at close to capacity, at around 150,000 tons in 2015, though they are still limited to only one sea terminal – Targa Resources’ 250,000–300,000 tpa facility in Houston, which is exclusively contracted to Mitsubishi Chemicals.

Quarterly US ethylene export 2010–2015 by destination. Source: US Ethane, Ethylene & Polyethylene: Exports & Markets Report.

“There’s definitely an incentive for more exports,” Olafsen said. “The economics today, if you had more ethylene export terminals, would be fantastic.”

However, ethylene trade volumes are highly volatile, largely due to the short-term availability of surplus ethylene from Middle East producers and to short-term imbalances between planned and unplanned outages at crackers and/or downstream units worldwide.

Many integrated producers currently favor the production and export of ethylene derivatives – primarily polyethylene, but according to Olafsen, if the polyethylene market reaches the expected supply glut, producers that are not competitive on the polyethylene market could switch to ethylene exports instead.