US ethylene exports down as producers focus on restocking: Navigator CEO

US ethylene exports have declined and shifted from Asia to Europe as US producers focus on restocking inventories in the aftermath of a deep freeze that hit the US Gulf Coast in mid-February and subsequent operational issues that squeezed output, Navigator Gas CEO Henry Deans said Aug. 17.

"Although production rates have increased, they have not risen as quickly as predicted and have therefore taken some time to replenish the ethylene pipeline," he said during the company's Q2 2021 earnings call.

"This, coupled with production hiccups, patchy cracker reliability and strong domestic demand and pricing has favored just domestic supply over exports, which had an all-on impact on our shipping business," Deans said.

Navigator is a 50% partner in Enterprise Products Partners' 1 million mt/year ethylene export terminal on the Houston Ship Channel.

The freeze brought sustained subfreezing temperatures to the US Gulf Coast and much of the US in mid-February, forcing more than 70% of 40 million mt/year of US ethylene capacity offline for several weeks.

Subsequent production headwinds continued into Q3 2021, Deans said, "and currently show no signs of abating."

He said US ethylene inventories remain at five-year lows amid hurricane season, and producers remain focused on building inventory. August and September tend to be the months during the June-November US Atlantic hurricane season when major storms are most likely to develop and hit the US Gulf Coast.

US ethylene pricing shows wide swings on outages post-freeze

US spot ethylene prices reached a 2021 high in mid-April at 64.25 cents/lb FD Mont Belvieu and 68 cents/lb FD Choctaw. By mid-June, FD Mont Belvieu and FD Choctaw prices had fallen to 26.5 cents/lb and 27 cents/lb, respectively, but by mid-July they had rebounded to 55 cents/lb FD Mont Belvieu and 58.25 cents/lb FD Choctaw, S&P Global Platts data showed.

Prices were last assessed Aug. 16 at 40.25 cents/lb FD Mont Belvieu and 49.25 cents/lb FD Choctaw, Platts data showed.

US export ethylene prices fell to 37.853 cents/lb ($834.51/mt) FOB USG in early July after the freeze, but surged nearly 42% to 53.75 cents/lb ($1,185/mt) on July 16, Platts data showed, amid multiple cracker outages. Export ethylene was last assessed Aug. 16 at 51.438 cents/lb ($1,134/mt) FOB USG.

Deans said strong US ethylene demand and pricing has pressured export volumes amid volatile ethylene arbitrage.

"Although we are now well into August, the anticipated bounce-back in export volumes and the reopening of the US-to-Asia ethylene arbitrage has yet to materialize in a substantive way," Deans said, adding that US-to-Europe ethylene flows mean lower ton miles and fewer needed vessels.

CFR Far East Asia and CFR Southeast Asia ethylene prices were last assessed Aug. 16 at $1,243.50/mt, Platts data showed.

Oeyvind Lindeman, Navigator's chief commercial officer, said US ethylene price volatility showed the market was "trying to get back to a normal state" as domestic buyers pay up to build inventory during hurricane season.

"Our expectation is that September, how we look now with the customers and so forth, is higher than August, but not near max capacity as we would like," Lindeman said.

Deans added that the joint-venture terminal has take-or-pay contracts with customers, so they pay whether or not they export ethylene.

Deans also highlighted Navigator's recent acquisition of Ultranev's Ultragas liquefied petroleum gas fleet, which includes 18 LPG vessels. He said the deal will allow Navigator to increase customers and market access via LPG exports from the Houston Ship Channel, Prince Rupert, British Colombia, and the Repauno terminal near Gibbstown, New Jersey.

He said additional incremental LPG volumes will tighten the market when olefin supply balances normalize and when the US-to-Asia arbitrage reopens.