Earlier this week we attended the NGL Feedstocks and Derivatives: Global Supply & Demand Dynamics 2016 conference in Houston, hosted by the American Business Conferences. During the presentations, Q&A sessions, round-table discussions, and our conversations with the industry during networking breaks, we debated the questions around exporting NGLs and petrochemicals out of the US.
The best response when asking tough market questions was, “Well, it depends.”
The US NGL market is gaining an increasing share of global demand as the shale boom has made it the world’s largest oil and gas producer and the largest LPG exporter since 2014. In 2015, the US produced 1.395 million b/d of propane and exported about 43% of the total (604,000 b/d), according to the US Energy Information Administration. It also produced 481,000 b/d of butane and exported about 24% (117,000 b/d), as of November 2015.
With the recently completed Enterprise’s terminal expansion, total US LPG export capacity is at 1.045 million b/d. With strong production growth in the US and flat demand in Europe and the Americas, US LPG is increasingly reaching distant markets like Asia. Additionally, US ethane will also fulfill global demand as the first cargo of US ethane is set to leave this March from Sunoco’s Marcus Hook export facility in Pennsylvania. Sunoco’s 70,000 b/d Marcus Hook terminal in Pennsylvania and Enterprise’s 200,000 b/d Morgan’s Point terminal in Texas will serve to satisfy export demand, currently contracted to Europe and India.
Following the startup of Enterprise’s terminal in 3Q 2016, US ethane exports are expected to ramp up to 150,000 b/d in 2016 and 283,000 b/d in 2017 from 69,000 b/d in 2015, according to Platts Bentek Market Call: North American NGLs, 1Q 2016.
During roundtable discussions, conference participants discussed which country — China, Brazil, or India — was the best market for US ethane, propane, butane, and naphtha. And, of course, the answer was, “Well, it depends.”
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For US ethane exports, the consensus was that India is the best market. As of 2016, India has a capacity of 5.7 million mt of ethylene capacity. Most of the ethylene capacity in the country is naphtha based, and therefore all the naphtha crackers are integrated with refineries.
“North India has a population of 800 million with an average of 25 years old; a percentage growth GDP equates to a lot of plastic demand in India,” according to Mathew George, chief manager of petrochemicals exports at IOCL.
India has a lot of potential but is short of ethane at the moment. Currently, Reliance Industries is the only Indian operator with contracts to import US ethane. Platts Bentek estimates that Reliance will import 72,500 b/d of ethane for three crackers on the west coast of India: Dahej, Hazira in Gujarat and Nagothane in Maharashtra. The company is also building a world-scale shipping terminal and storage facility at Dahej.
Additionally, two-other state run oil companies, GAIL and BPCL, have announced plans of importing US ethane. GAIL plans to start a 1.3 million mt/year ethane-based petrochemical plant on the east coast of India but has not announced any contracts yet, according to The Economic Times. This would result in an additional 63,000 b/d of ethane demand. BPCL is also considering importing US ethane for its expanding refinery operations, according to the Business Standard.
While there are opportunities for the US to export ethane to India, there are still challenges. Currently the west coast of India is equipped to import ethane, while the east coast is “decades behind,” according to George. George further explains that the only way it would make sense for producers to import ethane is if they are running an ethane cracker. Comparing to flex crackers, George says, “We don’t have a menu like the US; we open the fridge, and we eat what we have.”
George adds that it makes more sense to crack the feedstock, polymerize the product and send to India.
For US LPG and naphtha export markets, people were divided. Half the room said that it makes more sense to export propane to China, while the other half said that it made more sense to export propane along with naphtha to Brazil.
The latter was based on the slides presented by Hardi Schuck, director of supply chain at Braskem. According to Schuck, Brazil is short in naphtha and NGLs. In order to understand the naphtha shortage, it is important to understand the relationship between ethanol and gasoline in the Brazilian fuel market. After 2003 and with the availability of fuel flex cars, vehicles in Brazil were able to use gasoline and ethanol. If the price of ethanol was 70% less than gasoline, then people shifted to ethanol for fuel. Since then, Brazil has turned from an exporter to a net importer of gasoline. Gasoline production has increased and, in turn, increased demand for naphtha in gasoline blending. Brazil is also an importer of propane, and the US accounts for 70% of all imported LPG.
On the other hand, China is interested in increasing the flexibility of their crackers as well. One producer in the conference mentioned that they have had multiple inquiries from Chinese companies to import US LPG. China accounted for the largest share of US LPG exports at a national level, averaging 110,000 b/d as of November 2015, according to the EIA. The Asian share of US LPG exports grew to 31.3% in 2015 from 12.6% in 2013, with Asia being the biggest market for US LPG in 2015 followed by the Americas. Global LPG demand is being driven by growth in Asia, which is set to grow further, according to the Feb. 10 Bentek Weekly NGL Market Monitor.
One interesting point that was raised during the round-table discussions was if the US will be able to sustain exports of NGLs when the shale plays begin to dry out and decline in production. While this may not be an issue in the near future, it is a legitimate concern long term.
In regards to US petrochemical exports, the answer is pretty apparent. Can the US export more petrochemicals? Well, it depends. There are huge arbitrage opportunities between the US and other regions like Europe and Asia regarding ethylene trade.
However, the issue with exporting ethylene is that it is expensive. There is currently one terminal exporting US ethylene on the US Gulf Coast, with a capacity of 200,000-300,000 mt/year, which presents a major challenge. As a percentage of US capacity, which is expected to be approximately 29 million mt in 2016, the amount that is available is relatively small. So while arbitrage opportunities remain open on paper, exports are limited.
It’s also important to note that when a company constructs a steam cracker, they are doing so with the intention to export the end product, like polyethylene or polypropylene, as plastic resin is easier to transport. And with the startup of many PE units in 2017, the US is expected to export PE resin to areas of the world experiencing tightness or areas that are short. And finally, in regards to polypropylene, because the US will be in a tight to short position, it is likely that we will not see any PP exports within the next several years unless we see new announced PP projects.