MTBE WILL BE A BOON TO U.S. GAS PROCESSORS

Ken W. Otto
Purvin & Gertz Inc. Dallas

The advent of methyl tertiary butyl ether (MTBE) as the primary oxygenate blending component for oxygenated and reformulated motor fuels promises significant benefits for the U.S. gas-processing industry.

Increased demand for isobutane as MTBE-plant feedstock will buoy both normal butane and isobutane pricing in U.S. Gulf Coast during the 1990s.

Elimination of the need to crack normal butane in U.S. olefin plants will also strengthen competitive feedstocks somewhat, including ethane and propane.

And increased use of normal butane as isomerization feedstock will result in wider recognition of the premium quality of gas plant normal butane production compared to most refinery C4 production.

REVERSAL OF TRENDS

Most of the changes in the gas-processing industry in the last 10 years have compressed gas-processing margins. Lead phasedown in the late 1970s and early 1980s reduced the value of natural gasoline as a motor gasoline blendstock.

Motor gasoline vapor pressure reductions in the late 1980s and early 1990s have adversely affected butane supply, demand, and pricing. In addition, competitive petrochemical feedstock pressures in the late 1980s tended to depress ethane prices and resulted in unattractive ethane-extraction margins for most gas processors.

But in the 1990s, several positive changes are occurring in the gas processing industry.

One of the key changes is the development of several new butane-based MTBE projects to meet the demand for MTBE for oxygenated and reformulated gasoline.

The rapid development of reformulated gasoline and the minimum oxygen specifications set by the 1990 U.S. Clean Air Act Amendments (CAA) have driven expansion of oxygenated supplies, such as MTBE, as many companies have elected to construct large butane-based MTBE plants. Currently, more than 100 serious MTBE projects are in some stage of construction, design, or planning.

The increased demand for butane feedstock will benefit butane supply, demand, and pricing during the 1990s.

Most of these projects are based on refinery isobutylene produced from fluid catalytic cracking and other conversion units. Most of the new MTBE capacity, however, will be based on the dehydrogenation of isobutane (to isobutylene) because the supplies of isobutylene from refineries and petrochemical plants cannot meet the total market growth for MTBE feedstocks.

Fig. 1 summarizes Purvin & Gertz's outlook for world MTBE supply by region.

The U.S. is the world's largest producer of MTBE and will remain so through the 1990s and the following decade. Overall, world production of MTBE will expand from current production of about 260,000 b/d to about 770,000 b/d by 2000.

The growth rate of MTBE supplies in the 1990s will average about 17% per year.

Several new butane-based MTBE projects are being installed in the Middle East and Africa. While some of the production may be used locally, most will be exported to major world markets, including the U.S.

U.S. MTBE demand will increase from about 100,000 b/d in 1991 to about 390,000 b/d in 1995 and about 470,000 b/d by 2000. Most of the demand will be met with domestic production, but MTBE imports will reach about 120,000-140,000 b/d in the second half of the 1990s.

Not all of this consumption, however, will be required to meet mandated oxygenated and reformulated fuel requirements. A portion of the demand, perhaps 70,000-80,000 b/d, will be used for octane blending to the extent that adequate supplies are available.

BUTANE DEMAND GROWTH

The growth in demand for butane as an MTBE plant feedstock will significantly affect world and U.S. butane supply and demand balances. Fig. 2 summarizes Purvin & Gertz's outlook for world butane supply and demand.

In Fig. 2, world demand for butane is divided into two categories-base demand and price-sensitive demand.

The base-demand category includes all demand for butane that is relatively insensitive to price (that is, residential and commercial, industrial, engine fuel, dedicated petrochemical applications).

Price-sensitive demand includes only the portion of demand in which butane can be easily and quickly substituted with another feedstock or fuel. This type of demand is essentially limited to olefin-plant feedstock in which butane competes with alternative feedstocks such as naphtha and propane.

In recent years, base demand for butane has declined relative to total world supplies. This decline is primarily a result of the U.S. gasoline vapor pressure reduction and has led to an increase in price-sensitive demand.

During the 1990s, base demand for butane will expand rapidly as the demand for MTBE plant feedstocks increases. The quantity of butane available for price-sensitive feedstock markets will decrease, leading to a worldwide strengthening in butane markets.

U.S. demand for normal butane will change significantly during the 1990s, as illustrated in Fig. 3. Refinery demand for normal butane declined significantly in the late 1980s and will remain depressed as only winter blending requirements for external normal-butane supplies exist.

A small quantity of normal butane is used for the manufacture of such chemicals as acetic acid and maleic anhydride. Normal butane has been used as a price-sensitive feedstock in U.S. olefin plants since the late 1980s, but this demand will disappear by 1995 because of the increased need for normal butane feedstocks for isomerization units.

Overall growth in demand for normal butane will occur during the 1990s.

N-C4 SUPPLY

A review of U.S. normal butane supply projections (Fig. 4) shows a significant increase in normal butane supplies from refineries in 1992 followed by another increase in 1995. Gas plant supplies of normal butane will gradually decline during the 1990s because of changes in natural gas supply and composition.

Associated-gas production will steadily decline and result in a general "leaning" of the natural gas available for processing.

The U.S. will move from a butane-long to a butane-short position during the 1990s. Increased imports from Canada and overseas will be required to meet demand.

Demand for isobutane in the U.S. will increase dramatically in the 1990s, as several butane-based MTBE units are brought on-line (Fig. 5), as mentioned previously.

Refinery demand for isobutane will moderate somewhat in the first part of the 1990s. This will occur as increased utilization of isobutylene in refiners' MTBE units, typically upstream of their alkylation units, reduces the quantity of olefins available for alkylation, thereby reducing the demand for isobutane feedstocks for alkylation.

In the second half of the 1990s, however, refinery demand for isobutane will increase, as many refiners' fluid-catalytic cracking units utilize higher olefins-producing catalysts. Use of these catalysts will produce more olefins feedstock for manufacture of more MTBE, tertiary amyl methyl ether (TAME), and alkylate.

Consumption of isobutane in the manufacture of propylene oxide/tertiary butyl alcohol (TBA) will increase as Texaco's new facility at Fort Neches, Tex., is brought on-line in mid-decade. But the significant increase in the demand for isobutane as MTBE plant feedstock is the most dominant feature of the outlook for isobutane demand.

Most of the growth in isobutane supplies will result from increased isomerization of normal butane. Gas plant production of isobutane will slowly decline for the same reasons as discussed for normal butane.

Net refinery supplies of isobutane are small and unlikely to expand significantly. The isobutane contained in imports of mixed butanes will grow with increased imports but insufficiently to meet total demand. Therefore, a significant expansion of butane isomerization will be required.

As a result of these changes in the U.S. supply and demand of normal butane (and isobutane), the pricing of normal butane relative to motor gasoline will increase.

Through most of the 1980s, normal butane was a premium product with pricing following supply/demand pressures and gasoline-blending values. During the late 1980s and the early 1990s, normal butane has generally been long and the price on the U.S. Gulf Coast closely related to petrochemical feedstock values and supply/demand pressures.

With the anticipated shift in butane supply/demand, U.S. Gulf Coast normal butane prices will return to gasoline-related values by the mid-to-late 1990s. Isobutane pricing should rise accordingly, as the isobutane-normal butane differentials will be related to future isomerization costs.