Infrastructure issues slow first-half 2015 ethylene production

Sept. 7, 2015
In this era of tumult and constant change in the US petroleum sector, the mundane matters of infrastructure served as a reminder that a focus on gritty day-to-day details remains important to US Gulf Coast olefins producers.

Dan Lippe
Petral Consulting Co.
Houston

In this era of tumult and constant change in the US petroleum sector, the mundane matters of infrastructure served as a reminder that a focus on gritty day-to-day details remains important to US Gulf Coast olefins producers.

Ethylene markets in Louisiana are chronically short, with three pipelines transporting needed supplies from storage in Mont Belvieu, Tex., and producers on the Upper Texas Coast. Evangeline pipeline, a Texas-to-Louisiana ethylene pipeline operated by Boardwalk Pipeline Partners LP, was out of service from early January to mid-June 2015. As was the case during the September 2013-May 2014 outage of the line, the pipeline's operator discovered integrity problems that required many segments to be replaced before it could return to service safely.

With Evangeline-the largest of the three ethylene pipelines-out of service, the remaining pipelines operated at near full-capacity, and ethylene prices at Choctaw Dome, the primary pricing point for ethylene in southeast Louisiana, spiked to significant premiums vs. spot prices in Mont Belvieu. Alongside the pipeline's outage, a few Louisiana ethylene plants also experienced operating problems during first-half 2015, which exacerbated Louisiana's chronic supply shortfall during second-quarter 2015.

Despite the Evangeline pipeline's return to full service in June, ethylene production from plants in Louisiana will remain insufficient to meet demand, and Louisiana buyers will remain vulnerable to future supply disruptions due to problems with ethylene pipeline infrastructure.

While all major elements of industry infrastructure functioned as intended on the US Gulf Coast propylene market during first-half 2015, a growing inventory surplus emerged as the primary problem. This propylene inventory surplus prompts an important question: How will US propylene markets absorb the additional production when the first two of five planned propane dehydrogenation (PDH) plants come on stream in fourth-quarter 2015 and second-half 2016.

Ethylene production

Petral Consulting Co. tracks US ethylene production via the results of a monthly survey of operating rates and feed slates. Results of the monthly surveys show ethylene production was 150.7 million lb/day in first-quarter 2015, down by 318 million lb (2.3%) from fourth-quarter 2014. For second-quarter 2015, survey results showed ethylene production at 155.8 million lb/day, which was an increase of 614 million lb (4.5%) from the previous quarter.

Compared with the same quarter during 2014, US ethylene production during first-quarter 2015 was up by 97 million lb (0.7%), while production during second-quarter 2015 was 1.05 billion lb (8.0%) more than during the same period in 2014.

Production losses in first-quarter 2015 due to turnarounds and unplanned maintenance problems stood at 1.2 billion lb, 0.9 billion lb higher than the same quarter in 2014. Production losses during second-quarter 2015, however, were down 0.35 billion lb from the previous quarter and were 0.67 billion lb less compared with second-quarter 2014 (Table 1).

Compared with the final quarter of 2014, ethylene plants in Texas during first-quarter 2015 raised production by 0.8 million lb/day, while first-quarter production from Louisiana plants declined by 0.9 million lb/day. The drop in production during first-quarter 2015 contributed to an increase in Louisiana's fundamental ethylene shortfall and compounded problems resulting from reduced pipeline capacity following Boardwalk Midstream's January 2015 shutdown of Evangeline pipeline for additional repairs.

While Texas ethylene producers increased production by 4.7 million lb/day in second-quarter 2015, producers in Louisiana boosted output by only 0.3 million lb/day and made no measurable impact on the supply shortfall.

Fig. 2 shows trends in ethylene production.

Spot prices for crude oil and feedstocks fell to their recent historic lows in first-quarter 2015, but by second-quarter 2015, crude oil prices had staged a bear-market correction.

Spot prices for West Texas Intermediate (WTI) were $57.84/bbl in second-quarter 2015, which was 19.1% higher compared with the previous quarter. Dated Brent increased by 14.8% from first-quarter 2015 to average $61.92/bbl during the second quarter. The Organization of Petroleum Exporting Countries' Reference Basket for second-quarter 2015 averaged $59.90/bbl, an increase of 19.1% on the quarter.

Spot prices for unleaded regular gasoline and naphtha tracked the rally in crude prices during second-quarter 2015, but NGL prices generally continued to weaken. Propane prices in Mont Belvieu in the second quarter declined by 6¢/gal, or 11.5%, from first-quarter 2015. Spot prices for non-TET normal butane declined by 8.8¢/gal and were 12.8% less than in first-quarter 2015. Spot prices for purity ethane were almost unchanged during second-quarter 2015 vs. the previous quarter. "TET" is short for "Texas Eastern Transmission" and refers to petroleum products in Texas Eastern storage at Mont Belvieu, Tex., now owned and operated by Lone Star NGL LLC, an operating unit of Energy Transfer Partners. "Non-TET" refers to product at Mont Belvieu but in other owners' facilities.

From first-quarter to second-quarter 2015, spot prices for propylene declined by 16% (polymer-grade propylene) and 23% (refinery-grade propylene). Contract settlements for polymer-grade propylene were 41.7¢/lb in second-quarter 2015 vs. 49.7¢/lb during the previous quarter. Spot prices for refinery-grade propylene were 29.9¢/lb in the second quarter vs. 38.8¢/lb in the first quarter.

Contract settlements for purity butadiene were essentially unchanged during first-half 2015, averaging 31.0-31.5¢/lb. As spot prices for motor gasoline increased and octane values strengthened, spot prices for aromatics increased by 20-22% from first-quarter to second-quarter 2015.

Ethylene production costs based on purity-ethane feeds were 10¢/lb in first-half 2015. Production costs based on ethane for first-quarter 2015 were only 0.25¢/lb less than in fourth-quarter 2014 but 5¢/lb less compared with the same quarter a year earlier.

In first-quarter 2015, purity ethane provided a cost savings of 11¢/lb vs. natural gasoline, with those cost savings rising to 20¢/lb during the second quarter. While production costs for ethane and propane were the same from February through April, purity ethane lost its cost advantage vs. propane in May-June due to a crash in propane prices. Ethane's cost disadvantage was 4¢/lb in May and 7.5-8.0¢/lb in June.

Production costs for purity propane averaged 7.6¢/lb in first-quarter 2015 before falling to 6.5¢/lb in the second quarter. Production costs for purity propane in first-quarter 2015 were just 3¢/lb less vs. fourth-quarter 2014 but 26¢/lb less vs. first-quarter 2014.

In first-quarter 2015, production costs for propane provided producers with a cost savings of 13¢/lb less vs. natural gasoline, with propane's cost advantage rising to 23¢/lb during the second quarter.

Production costs for natural gasoline dipped to 14¢/lb in January but rallied in February-March to average 24-25¢/lb for first-quarter 2015. Production costs for natural gasoline during second-quarter 2015 were almost 30¢/lb (Table 3).

Ethylene pricing, profit margins

PetroChem Wire daily reports (www.petrochemwire.com) showed spot prices for ethylene in the Williams Hub averaged 36¢/lb in first-quarter 2015, some 18¢/lb (33%) less than in fourth- quarter 2014. Spot prices stabilized in second-quarter 2015 to average 35-36¢/lb.

Even though the Evangeline pipeline remained out of service during first-quarter 2015, spot prices at Choctaw Dome declined by 16¢/lb (January 2015 vs. October 2014). Consistent with the loss of Evangeline pipeline capacity, however, premiums at Choctaw Dome vs. Williams Hub jumped to 10¢/lb in January 2015 vs. 0.4¢/lb in October 2014 and increased to 16.8¢/lb in March. During second-quarter 2015, spot prices at Choctaw Dome increased to 51¢/lb, while premiums vs. Williams Hub were 14¢/lb in April and May before spiking to almost 20¢/lb in June.

Net transaction prices (NTP) in first-quarter 2015 averaged 34.75¢/lb, 10¢/lb less than in fourth-quarter 2014. Even though production costs for high-cost feedstock increased during this year's second quarter, NTP was almost unchanged, averaging 34.2¢/lb for the quarter. NTP did not dip below 34¢/lb until June, and even then, only to 33.75¢/lb.

Margins based on NTP were 23-25¢/lb for purity ethane during first and second-quarter 2015, but margins vs. propane were 27¢/lb in the first quarter before increasing to almost 28¢/lb in the second quarter. Margins for natural gasoline and light naphtha of similar quality were 14¢/lb in first-quarter 2015 but fell to 5¢/lb in the following quarter.

Fig. 2 shows historic trends in ethylene prices (spot prices and NTP). Fig. 3 shows profit margins based on spot ethylene prices and variable production costs.

Olefin-plant feed slate trends

Petral Consulting's monthly survey of plant operating rates and feed slates showed ethylene industry demand for fresh feed was 1.65 million b/d in first-quarter 2015 and 1.70 million b/d in second-quarter 2015. Demand for fresh feed in first-quarter 2015 was 6,600 b/d (0.4%) more than in fourth-quarter 2014 and 25,700 b/d (1.6%) more than in first-quarter 2014.

Demand for NGL feeds (ethane, propane, and normal butane) was 1.49 million b/d in first-quarter 2015 and 1.54 million b/d in second-quarter 2015.

Demand for NGL feed in first-quarter 2015 was 1,500 b/d (0.1%) less than in fourth-quarter 2014 and 25,400 b/d (1.7%) more than in first-quarter 2014. Demand for NGL feed in second-quarter 2015 was 45,700 b/d (3.1%) more than in first-quarter 2015 and 124,300 b/d (8.8%) more than in second-quarter 2014. NGL feeds accounted for 90-91% of fresh feed in first-half 2015 (Table 2).

Fig. 4 shows historical trends in ethylene feed.

US propylene production

Coproduct propylene supply depends primarily on the use of propane, normal butane, naphtha, and other heavy feeds. The monthly survey shows demand in first-quarter 2015 was 380,700 b/d for propane, 72,900 b/d for normal butane, and 162,000 b/d for heavy feeds. In second-quarter 2015, demand for propane was 357,000 b/d, demand for normal butane was 83,300 b/d, and demand for heavy feeds was 160,800 b/d.

Total demand for feeds with high propylene yield was 615,600 b/d in first-quarter 2015, 34,100 b/d (5.9%) more than in fourth-quarter 2014. Total demand for these feeds in second-quarter 2015 was 601,100 b/d, 14,500 b/d (2.4%) less than in first-quarter 2015. As economic incentives for propane and normal butane compared with ethane improved during second-quarter 2015, ethylene producers maintained demand for heavy feeds and increased their use of propane and butane during May and June. Demand for feedstocks with high propylene yields was 641,400 b/d in June and was 34,700 b/d more than in March.

Petral Consulting estimates coproduct supply was consistently above 22 million lb/day throughout first-half 2015. Coproduct supply was 22.6 million lb/day in first-quarter 2015 and 22.4 million lb/day in second-quarter 2015. Coproduct supply for first-quarter 2015 was 195 million lb (10.6%) more than in first-quarter 2014, while coproduct supply during this year's second quarter was 163 million lb (8.7%) more than in second-quarter 2014.

Coproduct supply from light feeds averaged 16.5 million lb/day in first-quarter 2015 and 16.3 million lb/day in second-quarter 2015. Production from light feeds in first-quarter 2015 was 199 million lb (15.5%) more than in first-quarter 2014, while production from light feeds in second- quarter 2015 was 169 million lb (12.8%) more compared with the same period last year.

The key factor for the increase in coproduct supply in first-quarter 2015 was the increase in demand for propane compared with demand the previous year. Demand for propane in first-quarter 2015 was 74,800 b/d (24.4%) more than in first-quarter 2014. In second-quarter 2015, demand for all light feeds increased by 45,700 b/d, while demand for propane and butane declined by 13,400 b/d. The increase in total light feed demand offset the decline in demand for propane and normal butane (Table 4).

PDH plant, refineries

According to PetroChem Wire, the PDH plant in the Houston Ship Channel operated at full capacity in first-quarter 2015 but had some downtime for maintenance in April and June. Downtime reduced propylene production by 1.2-1.3 million lb/day in April 2015 and by 0.7-0.8 million lb/day in June 2015.

Petral estimates propylene supply from the PDH plant was 3.8-3.9 million lb/day in first- quarter 2015 and 2.9-3.1 million lb/day in second-quarter 2015.

Refinery propylene sales into the merchant market are a function of:

• Fluid catalytic cracking unit (FCCU) feed rates (most important variable).

• FCCU operating severity (important but not directly measurable).

• Economic incentive to sell propylene rather than use it as alkylate feed.

Variations in FCC unit feed rates are the most important parameter. Economic factors affect operating severity and are generally of secondary importance.

Statistics from the US Energy Information Administration (EIA) indicate US refineries operated FCCUs at 4.5 million b/d in first-quarter 2015 and an estimated 4.9-5.1 million b/d in second-quarter 2015. Feed rates for all FCCUs in first-quarter 2015 were 401,000 b/d (8.2%) less than in fourth-quarter 2014 and 93,300 b/d (2.0%) less than in first-quarter 2014. The drop in FCCU feed rates in first-quarter 2015 was consistent with seasonal patterns in refinery crude runs.

Regionally, EIA statistics showed feed rates for FCCUs in the US Gulf Coast and Midcontinent were 3.36 million b/d in first-quarter 2015, 268,300 b/d (7.4%) less than in fourth-quarter 2014. Feed rates for these FCCUs were 3.65-3.75 million b/d in second-quarter 2015, 365,000 b/d (10.9%) more than in first-quarter 2015.

EIA reported propylene production from all US refineries was 46.5 million lb/day in first-quarter 2015 before increasing to 50.3 million lb/day in April. Petral Consulting estimates refinery-grade propylene was 52.0-52.5 million lb/day in May and June and was 51.5-51.7 million lb/day for second-quarter 2015. US production in first-quarter 2015 was 772 million lb (15.6%) less than in fourth-quarter 2014 and 378 million lb (8.3%) less than in first-quarter 2014.

Refineries in the Gulf Coast and Midcontinent are the primary supply sources of refinery-grade propylene for chemical markets in the Gulf Coast. EIA reported production from refineries in the Gulf Coast and Midcontinent was 40.2 million lb/day in first-quarter 2015 and 44.0-45.0 million lb/day in second-quarter 2015. Production from Gulf Coast and Midcontinent refineries in first-quarter 2014 was 667 million lb (15.6%) less than in fourth-quarter 2014 and 362 million lb ( 9.1%) less than in first-quarter 2014 (Table 5).

Propylene economics, pricing

EIA statistics for refinery-grade propylene and Petral Consulting's estimates for coproduct supply indicate total US propylene supply was 73.0 million lb/day in first-quarter 2015 and 76.5-77.5 million lb/day in second-quarter 2015. While the increase in coproduct supply for first-half 2015 vs. first-half 2014 was significant, the decline in refinery supply reduced total supply by 1.6 million lb/day.

Fig. 5 shows trends in coproduct and refinery merchant propylene sales, as reported by EIA.

Two factors greatly influence propylene pricing. Refinery-grade propylene supply tracks seasonal variations in refinery crude runs and FCCU feed rates. Seasonal variations in refinery crude runs and FCCU feed rates are reasonably predictable, and propylene supply-demand balances are usually tighter in winter than in summer.

Propylene price relationships vs. unleaded regular gasoline vary directly with seasonal variations in the propylene supply-demand balance.

Under normal market conditions, propylene in reportable US Gulf Coast storage facilities varies by ±25% of the midrange of long-term historic inventory levels. Occasionally, however, inventory levels fall outside the historic range. When inventory in reportable storage at the Gulf Coast increases to more than 770 million lb, spot prices for refinery-grade propylene tend to decline and premiums vs. unleaded regular gasoline weaken.

In October 2014, propylene inventory in reportable storage was 455 million lb, which was at the bottom of the historic range. According to EIA statistics, during the next 6 months, inventory of refinery-grade propylene in Gulf Coast storage increased by 415 million lb to stand at 870 million lb on May 1, about 100 million lb above the historic range.

EIA's weekly statistics indicate propylene inventory in reportable Gulf Coast storage increased to 950-980 million lb during May-June and was 960-975 million lb as of July 1. At this level, propylene inventory was about 180-200 million lb (25%) more than the high end of the historic range. Since refinery grade propylene production was at its seasonal peak and inventory was already near its historic record high of 1 billion lb, bearish pressures on propylene prices increased.

According to PetroChem Wire, spot prices for refinery-grade propylene were 41¢/lb in February 2015 vs. 40¢/lb in December 2014 and 36¢/lb in January 2015. As production of refinery-grade propylene recovered and inventory continued to rise, spot prices fell by about 10¢/lb during March-June and by an additional 4-5¢/lb in July. Refinery-grade propylene prices were 29¢/lb in June and 23-24¢/lb in July.

During first-quarter 2015, refinery-grade propylene prices were 14¢/lb more than unleaded regular gasoline prices before falling 2¢/lb below parity to unleaded regular gasoline prices in May and to a discount of 4.5¢/lb below gasoline in June. The swing from a premium of 15¢/lb in January to a discount of almost 5¢/lb in June was the result of the seasonal increase in supply and the growing inventory surplus.

In first-quarter 2015, the contract benchmark for polymer-grade propylene was 49.7¢/lb. Contract settlements fell by 9¢/lb during second-quarter 2015 to 40¢/lb in June and to 36.5¢/lb in July. Premiums for contract polymer-grade propylene prices vs. refinery-grade propylene were 9-13¢/lb in first-quarter 2015, with an average premium of 10.9¢/lb for the quarter. Contract polymer-grade propylene's price premium to refinery-grade propylene rose to 13¢/lb in April before weakening to 10.8¢/lb in June.

Polymer exports

The most important end-use markets for ethylene and propylene are production of polyethylene and polypropylene. US production of polyethylene and polypropylene has been surplus to domestic demand for at least 30 years, and export markets have always absorbed the surplus in US supplies. Export sales, however, were generally 20-25% of domestic production for polyethylene and 15-20% for polypropylene. With this article, we expand the scope of the series to include an overview of US exports of the industry's primary polymers.

As petrochemical companies expand ethylene and PDH plant capacities, the US will triple or quadruple its polyethylene exports to destinations other than Canada and Mexico, as well as double or triple its polypropylene exports.

Braskem Idesa SAPI, a 75-25 joint venture of Braskem SA, Sao Paulo, and Groupo Idesa SA de CV, Mexico City, is nearing completion of its long-planned Etileno XXI petrochemical complex in the Coatzacoalcos-Nanchital region of the Mexican state of Veracruz (OGJ, July 7, 2014, p. 90; July 1, 2013, p. 90; OGJ Online, May 12, 2015).

The ethane-based complex, which is scheduled to be commissioned in September 2016, will expand Mexico's ethylene and polyethylene production capacity by 2 billion lb/year.

While US exports of polyethylene to Mexico in 2014 averaged 2.3 billion lb/year, once Etileno XXI reaches full-production capacity, Mexico's supply shortfall will shrink by up to 90%.

The Braskem-Idesa venture will be the first in a series of new polyethylene production capacity increases that will radically transform the US petrochemical industry's market scope.

Polyethylene

According to US International Trade Commission (ITC) statistics, US exports of polyethylene (high-density polyethylene, low-density polyethylene, and linear low-density polyethylene) during 2010-14 were relatively constant within a range of 18-20 million lb/day, with 45-50% of those exports moving to Canada and Mexico. US polyethylene exports during 2013 averaged 19.4 million lb/day.

Due to various US ethylene plant outages in 2014, polyethylene exports last year averaged 18.1 million lb/day, which was down by 1.3 million lb/day (6.5%) compared with 2013. Exports were 20.2 million lb/day in first-quarter 2014 but fell to 15.9 million lb/day in fourth-quarter 2014.

Polyethylene exports in first-quarter 2015 rose by 1.9 million lb/day (12%) from the last quarter of 2014 to 17.8 million lb/day before climbing to 21.4 million lb/day in April and 22.5 million lb/day in May. In April, combined polyethylene exports to Canada and Mexico were 10.2 million lb/day, while exports to those same destinations in May were down slightly at 9.4 million lb/day.

US polyethylene exports to all other rest-of-world (ROW) destinations averaged 7.2 million lb/in both fourth-quarter 2014 and first-quarter 2015 before rising to 11.3 million lb/day in April and 13.9 million lb/day in May.

Propylene, polypropylene

ITC statistics show US exports of propylene monomer were 2.1 million lb/day in 2007 but declined steadily during 2008-14 to only 0.6 million lb/day in 2014.

During 2008-13, shipments to Colombia accounted for 75-95% of monomer exports. In 2007 and 2008, monomer exports to Colombia averaged 1.25 million lb/day and 1.21 million lb/day, respectively, before falling below 1 million lb/day in 2010 and 0.4 million lb/day in 2014. Shipments to Colombia in 2014 accounted for just 65% of total exports.

Total US polypropylene exports were 12.1 million lb/day in 2007 but declined steadily during 2008-14 to just 5.9 million lb/day in 2014, according to ITC data. Similar to the geographic disposition of US polyethylene exports, Mexico and Canada were the primary destinations for US polypropylene exports, which averaged 5.6 million lb/day in 2007 and accounted for 46.6% of total exports.

During the past 10 years, exports to Mexico averaged 2.5-3.5 million lb/day, while exports to Canada were 1.5-2.0 million lb/day. In 2014, exports to Mexico and Canada were 4.5 million lb/day, which accounted for 76% of US polypropylene exports, according to ITC statistics.

Exports to ROW destinations were 4.0-6.0 million lb/day during 2006-2009 but declined steadily during 2010-14 to only 1.4-1.5 million lb/day in 2013-14.

Polypropylene exports to all destinations were 5.5 million lb/day in first-quarter 2015, and Petral Consulting estimates exports averaged 6.4-6.5 million lb/day in second-quarter 2015. US exports to Mexico and Canada were 4.3 million lb/day in first-quarter 2015, with estimated exports of 4.2-4.5 million lb/day during second-quarter 2015.

Second-half 2015

The outlook for ethylene during second-half 2015 depends on trends in production costs and demand for derivatives. The increase in exports of polyethylene during second-quarter 2015 is a positive indicator for ethylene demand in second-half 2015.

Petral Consulting forecasts polyethylene exports for second-half 2015 will mirror second-quarter levels and may increase further. The increase in ethylene demand will require an increase in ethylene production, as well as limit an accumulation of ethylene inventory. This leads to a positive market outlook for ethylene in the near term.

The economic outlook for ethylene is a function of feedstock and coproduct prices, with trends in crude oil prices determining price trends for both feedstock and coproducts.

Crude oil price forecasts are always subject to uncertainty, and forecasts for second-half 2015 are no exception.

The conclusion of negotiations between Iran and the world's major powers on development of nuclear weapons resolved one major source of uncertainty for second-half 2015 and first-half 2016. These negotiations concluded with a formal agreement that, if approved, will result in an end to economic sanctions and oil export embargoes against Iran imposed by the US and European Union.

Even though timetables for the ending of economic sanctions against Iran remained sources of uncertainty in late June, crude oil markets responded bearishly immediately following formal announcement of the agreement. At some point in the next 6-12 months, sanctions will be lifted and Iran will increase both production and exports of crude oil by as much as 1 million b/d.

In the first few weeks following announcement of the agreement, spot prices for WTI, dated Brent, and OPEC Reference Basket declined 10-15%, with crude prices during July testing the low levels of first-quarter 2015. Petral Consulting's forecasts for second-half 2015 are based on prices for dated Brent in the range of $45-55/bbl and prices for WTI in the range of $42-48/bbl. The primary consequence of weaker crude oil prices will be weaker prices for heavy feeds.

Prices for light feeds (propane and butane), however, were unduly depressed during May and June and are likely to rebound in fourth-quarter 2015 as seasonal factors result in tighter supply-demand balances.

During first-half 2015, US Gulf Coast ethylene producers operated in an environment in which production costs for natural gasoline were 10-20¢/lb more than costs for ethane. Differences between production costs for natural gasoline and ethane moved from the lower end of the range in first-quarter 2015 to the higher end of the range in second-quarter 2015.

Based on a crude oil price forecast similar to that of first-quarter 2015, differentials in production costs between ethane and natural gasoline (and light naphtha of similar quality) most likely will be 5-10¢/lb. The same logic will apply to differentials in production costs between propane and natural gasoline. While differentials in production cost will be less than in first-half 2015, light feeds will remain the low-cost feedstocks and ethylene producers will continue to operate with maximum light feeds.

Production costs for heavy feeds will be lower in second-half 2015, but the decline in spot ethylene prices during first-half 2015 squeezed margins for natural gasoline to 5-8¢/lb in second-quarter 2015 vs. 25-30¢/lb in second-half 2014. In the best case scenario, spot ethylene prices will remain steady at 30-35¢/lb during second-half 2015. If ethylene inventory reaches a surplus level, however, spot prices may fall as low as 20-25¢/lb.

The outlook for propylene is bleaker. Refinery crude runs and FCCU feed rates in the US Gulf Coast and Midcontinent will decline in September or October but will rebound in November and December. Refinery-grade propylene production will remain near peak-seasonal levels until first-quarter 2016. At the same time, coproduct supply likely will be 1.0-1.5 million lb/day less in fourth-quarter 2015 compared with the third quarter, but propylene inventory in reportable Gulf Coast storage will remain above the normal range. Based on these considerations, Petral Consulting forecasts spot prices for refinery-grade propylene will average 21-24¢/lb, while polymer-grade propylene spot prices will average 32-35¢/lb.

The author
Daniel L. Lippe ([email protected]) is president of Petral Consulting Co., which he founded in 1988. He has expertise in economic analysis of a broad spectrum of petroleum products including crude oil and refined products, natural gas, natural gas liquids, other ethylene feedstocks, and primary petrochemicals.
Lippe began his professional career in 1974 with Diamond Shamrock Chemical Co., moved into professional consulting in 1979, and has served petroleum, midstream, and petrochemical industry clients since. He holds a BS (1974) in chemical engineering from Texas A&M University and an MBA (1981) from Houston Baptist University. He is an active member of the Gas Processors Suppliers Association and serves on GPA's NGL Market Information Committee.